PART A: TRUE/FALSE (1 point each):

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1 CHABOT COLLEGE General Accounting (BUS-7) Dmitriy Kalyagin EXAM #2 (Chapters 4-6) PART A: TRUE/FALSE (1 point each): 1. The book value of an asset is equal to its true market value. 2. The worksheet is an accounting tool to record necessary adjustments and to provide up-to-date account balances needed to prepare the financial statements. 3. Depreciation is a loss of value of a long-term asset. 4. Each adjusting entry involves a Debit to an Expense account. 5. Assets and owner's equity accounts are closed at the end of the fiscal period. 6. Preparing a post-closing trial balance and interpreting financial statements are the last two steps in the accounting cycle. 7. The post-closing trial balance contains only assets, liability, and capital accounts. 8. During closing entries, the entry to transfer net income to the owner's capital account would include a debit to the owner's capital account. 9. If adjustments are entered on the worksheet, it is NOT necessary to record them in the journal or the ledger. 10. If a journal entry that contains an error has already been posted, a correcting entry should be journalized and posted. 1

2 MULTIPLE CHOICE (1.5 points each): 11. Fiscal period: a. Always coincides with the fiscal year. b. Must contain at least six months. c. Is any period of time that covers a complete accounting cycle. d. None of the above. 12. Which of the following statements is NOT true about a worksheet: a. Worksheet is one of the financial statements. b. Worksheet consists of 10 columns. c. Worksheet might be used to prepare financial statements. d. Worksheet is used to record adjustments at the end of the fiscal period. 13. Accumulated Depreciation, Equipment, is shown as: a. An expense on the income statement. b. A liability on the balance sheet. c. A deduction from net income on the statement of owner's equity. d. A contra asset on the balance sheet. 14. The type of account and normal balance of Accumulated Depreciation is: a. Contra asset, debit b. Contra asset, credit c. Liability, debit d. Expense, credit 15. The difference between the balance of the Equipment account and its related Accumulated Depreciation account is called: a. A contra asset. b. An accrued asset c. Book value d. Market value 16. The Income Statement Debit column of the worksheet contains: a. Expense account balances b. Asset account balances c. Revenue account balances d. Liability account balances 17. Adjusting entries might include the following type(s) of entries: a. Supplies b. Prepaid Advertising c. Depreciation d. All of the above 2

3 18. If the amount of supplies unused by the end of the fiscal period is $95 and the balance of the Supplies account is $270, what amount should be adjusted to the Supplies account? a. $225. b. $95. c. $175. d. $ The amount of net income will appear on the debit side of the Income Statement columns on a worksheet a. If total revenue exceeds total expenses for the period. b. If withdrawals have been made during the period. c. If total assets exceeded total liabilities for the period. d. If total expenses exceeded total revenues for the period. 20. If equipment cost is $20,000 and accumulated depreciation amounts to $6,000, the book value of the equipment is: a. $26,000 b. $6,000 c. $14,000 d. $20, Which of the following accounts would not be involved in closing entries: a. Advertising Expense b. B. Ryan, Drawing c. Accounts Payable d. Income from Services 22. The following statement is NOT true about the accounting cycle: a. The accounting cycle is completed during the fiscal period. b. The accounting cycle ends with preparation of financial statements. c. The accounting cycle starts with analyzing source documents and recording business transactions in a journal. d. The accounting cycle ends with interpreting of financial statements. 23. In order to complete the closing entries, balances of the Revenue and Expense accounts are offset to which of the following accounts? a. Capital b. Drawing c. Cash d. Income Summary 3

4 24. If W. Song's total revenue for the year was $38,000 and total expenses were $30,000, the third closing entry would be: a. Debit Income Summary; credit W. Song, Capital. b. Debit W. Song, Capital; credit Income Summary. c. Debit Income Summary; credit Income from Services. d. Debit Income from Services; credit Income Summary. 25. Which of the following accounts should be closed to J. Don, Capital, in the fourth (last) closing entry? a. Professional Fees b. Wages Expense c. Income Summary d. J. Don, Drawing 26. Which of the following accounts should be closed to Income Summary at the end of the fiscal year? a. Rent Expense b. Professional Fees c. Income from Services d. All of the above 27. The last step in the closing procedure is to: a. Close the income accounts b. Close the expense accounts c. Close Drawing d. Close Income Summary 28. The purpose of closing entries is: a. To "zero out" the revenue, expense, and Drawing accounts. b. To prepare a work sheet. c. To close out asset and liability accounts. d. All of the above. 29. Accounts that belong to only one fiscal period and are closed out at the end of each fiscal period are known as: a. Income Summary b. Real or permanent accounts c. Temporary or nominal accounts d. Post-closing trial balance 30. Amount that one might expect to be the value of an asset when its estimated life is over is known as: a. Salvage value b. Book value c. Market value d. Depreciation 4

5 31. Depreciation: a. Is an expense that is incurred during an accounting period. b. Might help to reduce taxes through decreasing the amount of net profit. c. Is the amount of loss of value of a long-term asset. d. All of the above. 32. The type of account and normal balance of Depreciation Expense is: a. Contra asset, debit b. Expense, debit c. Liability, debit d. Expense, credit 33. The Posting Reference column of a journal is used to: a. Record the date on which the amount is posted to a ledger account. b. Record the number of the ledger account to which the information is posted. c. Record the number of amounts posted to that ledger's account since the beginning of the fiscal period. d. Record the page number of the ledger account. 34. When an entry is made in the general journal, a. Assets should be listed first. b. Accounts may be listed in any order. c. Accounts to be debited should be listed first. d. Accounts to be increased should be listed first. 35. The Cash account in the general ledger has a $15,000 debit balance. A $5,000 credit entry and a $7,000 debit entry are posted to the account. The final balance of the Cash account is: a. $3,000 debit balance. b. $27,000 debit balance. c. $13,000 debit balance. d. $17,000 debit balance. 36. Equipment costs is $36,000 and is expected to be useful for 5 years. Its salvage value is $600. Under the straight-value method of depreciation, what would be its monthly depreciation? a. $590. b. $600. c. $7,080. d. $400. 5

6 37. If long-term assets are not adjusted for depreciation, expenses on the income statement: a. Will be overstated. b. Will be understated. c. Will not be affected. d. May be overstated or understated. 38. On a worksheet, net loss is: a. Recorded in the Income Statement section, Debit column. b. Recorded in the Balance Sheet section, Credit column. c. Recorded in the Balance Sheet section, Debit column. d. Not recorded. 39. The asset, liability, and owner's equity accounts will appear on all of the following EXCEPT: a. The income statement. b. The balance sheet. c. The post-closing trial balance. d. The worksheet. 40. After the worksheet has been completed, the next step in the accounting cycle is to: a. Journalize and post the closing entries. b. Journalize and post the adjusting entries. c. Prepare the postclosing trial balance. d. Prepare financial statements. 6

7 PART B: PROBLEMS (45 pts total): 1. Use the following page (page 4) to journalize these transactions for May of Then post these transactions to the General Ledger that follows (the account names and numbers are preprinted): 2 pts per journal entry (total of 14 pts) + 11 pts for the general ledger. a. May 2 - Collected $325 from credit customers. b. May 4 - Purchased supplies for $180 on credit, invoice #DS01 c. May 5 - Performed services for $4,500 cash. d. May 9 - Purchased new equipment for $1,700. Issued check # 1135 for $1,000 as downpayment. The balance is due in 30 days, invoice #885. e. May 13 - Issued check #1136 for $700 to pay a creditor on account. f. May 26 - Purchased office furniture for $200 cash, check #1137. g. May 30 - Returned damaged supplies and received $50 cash back. 7

8 GENERAL JOURNAL Page. REF

9 GENERAL LEDGER ACCOUNT Cash ACCOUNT NO. 101 ACCOUNT AR ACCOUNT NO April 30 Balance V 1, ACCOUNT Office Supplies ACCOUNT NO. 121 ACCOUNT Office Furniture ACCOUNT NO. 138 ACCOUNT Equipment ACCOUNT NO

10 ACCOUNT AP ACCOUNT NO. 202 ACCOUNT Fees Income ACCOUNT NO

11 2. Use the journal form below (page 5) to journalize the following adjustments (2.5 pts for each transaction). a. Purchased supplies for $1,000 on May 1, Inventory of supplies as of May 31, 2008, $300. b. Signed a 4-month contract for $1,200 prepaid advertising on May 1, Record the adjustment for the amount of the contract that expired during the month of May. c. Rent expired during the month of May 2008, $700. d. Depreciation is computed using the straight-line method. Equipment purchased on May 1, 2008, for $16,800 has an estimated useful life of 5 years with no salvage value. Record the adjustment on May 31, GENERAL JOURNAL Page. DEBI CREDIT REF. T

12 3. On December 31, 2008, the ledger accounts of Barsky Repair have the following balances after all adjusting entries have been posted (10 pts): Cash $ 1,700 Income Summary $ 0 Supplies 1,800 Income from Services 24,900 Equipment 5,300 Wages Expense 1,600 Accumulated Depreciation, Rent Expense 3,600 Equipment 1,200 Utilities Expense 1,100 Accounts Payable 400 Depreciation Expense, R. Barsky, Capital 6,700 Equipment 600 R. Barsky, Drawing 16,300 Supplies Expense 800 Miscellaneous Expense 400 Journalize the four closing entries (using page 6 of the general journal below) in the proper order: GENERAL JOURNAL Page. DEBI CREDIT REF. T

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