Stevens Co. bought a machine on January 1, 2006 for $875,000.

It had a $75,000 estimated

residual value and a ten-year life. An expense account was debited on the purchase date.
Stevens uses straight-line depreciation. This was discovered in 2008. Prepare the entry or entries
related to the machine for 2008.
Show how the following independent errors will affect net income on the Income Statement and
the stockholders' equity section of the Balance Sheet using the symbol + (plus) for overstated,
(minus) for understated, and 0 (zero) for no effect.
2008
2009
Income
Balance
Income
Balance
Statement
Sheet
Statement
Sheet
1. Ending inventory in 2008 overstated.
2. Failed to accrue 2008 interest revenue.
3. A capital expenditure for factory
equipment (useful life, 5 years) was
erroneously charged to maintenance
expense in 2008.
4. Failed to count office supplies on hand
at 12/31/08. Cash expenditures have
been charged to an office supplies
expense account during the year 2008.
5. Failed to accrue 2008 wages.
6. Ending inventory in 2008 understated.
7. Overstated 2008 depreciation
pense; 2009 expense correct.

ex-

Redman Co. began operations on January 1, 2007. Financial statements for 2007 and 2008
contained the following errors:
Dec. 31, 2007
Dec. 31, 2008
Ending inventory
$90,000 too high
$114,000 too high
Depreciation expense
48,000 too low

Accumulated depreciation
48,000 too low
48,000 too low
Insurance expense
42,000 too high
42,000 too low
Prepaid insurance
36,000 too low
In addition, on December 26, 2008 fully depreciated equipment was sold for $58,000, but the sale
was not recorded until 2009. No corrections have been made for any of the errors. Ignoring
income taxes, show your calculation of the total effect of the errors on 2008 net income.
Pack Company's net incomes for the past three years are presented below:
2009
2008
2007
$480,000
$450,000
$360,000
During the 2009 year-end audit, the following items come to your attention:

1. Pack bought a truck on January 1, 2006 for $196,000 with a $16,000 estimated salvage value
and a six-year life. The company debited an expense account and credited cash on the
purchase date for the entire cost of the asset. (Straight-line method)
2. During 2009, Pack changed from the straight-line method of depreciating its cement plant to
the double-declining balance method. The following computations present depreciation on
both bases:
2009
2008
2007
Straight-line
36,000
36,000
36,000
Double-declining
46,080
57,600
72,000
The net income for 2009 was computed using the double-declining balance method, on the
January 1, 2009 book value, over the useful life remaining at that time. The depreciation
recorded in 2009 was $72,000.
3. Pack, in reviewing its provision for uncollectibles during 2009, has determined that 1% is the
appropriate amount of bad debt expense to be charged to operations. The company had used
1/2 of 1% as its rate in 2008 and 2009 when the expense had been $18,000 and $12,000,
respectively. The company recorded bad debt expense under the new rate for 2009. The
company would have recorded $6,000 less of bad debt expense on December 31, 2009
under the old rate.
Instructions
(a) Prepare in general journal form the entry necessary to correct the books for the transaction
in part 1 of this problem, assuming that the books have not been closed for the current year.
(b)

Compute the net income to be reported each year 2007 through 2009.

(c)

Assume that the beginning retained earnings balance (unadjusted) for 2007 was
$1,260,000. At what adjusted amount should this beginning retained earnings balance for
2007 be stated, assuming that comparative financial statements were prepared?

(d)

Assume that the beginning retained earnings balance (unadjusted) for 2009 is $1,800,000
and that non-comparative financial statements are prepared. At what adjusted amount
should this beginning retained earnings balance be stated?

Unruh Company reported net incomes for a three-year period as follows:

2006, $186,000;
2007, $189,000;
2008, $180,000.
In reviewing the accounts in 2009 after the books for the prior year have been closed, you find
that the following errors have been made in summarizing activities:
2006
2007
2008
Overstatement of ending inventory
$42,000 $51,000 $24,000
Understatement of accrued advertising expense
6,600
12,000
7,200
Instructions
(a) Determine corrected net incomes for 2006, 2007, and 2008.
(b)

Give the entry to bring the books of the company up to date in 2009, assuming that the
books have been closed for 2008.

The controller for Grant Corporation is concerned about certain business transactions that the
company experienced during 2008. The controller, after discussing these matters with various
individuals, has come to you for advice. The transactions at issue are presented below.
1. The company has decided to switch from the direct write-off method in accounting for bad
debt expense to the percentage-of-sales approach. Assume that Grant Corporation has
recognized bad debt expense as the receivables have actually become uncollectible in the
following way:
2007
2008
From 2007 sales
31,800
12,000
From 2008 sales
45,000
The controller estimates that an additional $65,400 will be charged off in 2009: $11,400
applicable to 2007 sales and $54,000 to 2008 sales.
2. Inventory has been shipped on consignment. These transactions have been recorded as
ordinary sales and billed as such on account. At December 31, 2008, inventory billed and in
the hands of consignees amounted to $400,000. The percentage markup on selling price is
20%. Assume that consigned inventory is sold the following year. The company uses the
perpetual inventory system.
3. During the current year, the company sold $600,000 of goods on the installment basis. The
cost of sales associated with these goods sold is $420,000. The company inadvertently
handled these sales and related costs as part of the regular sales transactions. Cash of
$172,000, including a down payment of $60,000, was collected on these installment sales
during the current year. Due to questionable collectibility, the installment method was
considered appropriate.
Instructions
(a) Assume that Grant Corporation reported net income of $1,000,000 for 2008. Present a
schedule showing the corrected net income after reviewing the above transactions.
(b)

Prepare the journal entries necessary at December 31, 2008, assuming that the books have
been closed.

Present, in journal form, the adjustments that would be made on July 31, 2007, the end of the
fiscal year, for each of the following.
1. The supplies inventory on August 1, 2006 was $7,350. Supplies costing $20,150 were
acquired during the year and charged to the supplies inventory. A count on July 31, 2007
indicated supplies on hand of $8,810.
2. On April 30, a ten-month, 9% note for $20,000 was received from a customer.
*3. On March 1, $12,000 was collected as rent for one year and a nominal account was credited.
Reed Co. wishes to enter receipts and payments in such a manner that adjustments at the end of
the period will not require reversing entries at the beginning of the next period. Record the
following transactions in the desired manner and give the adjusting entry on December 31, 2007.
(Two entries for each part.)
1. An insurance policy for two years was acquired on April 1, 2007 for $8,000.
2. Rent of $12,000 for six months for a portion of the building was received on November 1,
2007.

The adjusted trial balance of Ryan Financial Planners appears below. Using the information from
the adjusted trial balance, you are to prepare for the month ending December 31:
1.
2.
3.

an income statement.
a statement of retained earnings.
a balance sheet.
RYAN FINANCIAL PLANNERS
Adjusted Trial Balance
December 31, 2007

Cash ...............................................................................................
Accounts Receivable.......................................................................
Office Supplies................................................................................
Office Equipment.............................................................................
Accumulated DepreciationOffice Equipment................................
Accounts Payable............................................................................
Unearned Revenue.........................................................................
Common Stock................................................................................
Retained Earnings...........................................................................
Dividends .......................................................................................
Service Revenue.............................................................................
Office Supplies Expense.................................................................
Depreciation Expense.....................................................................
Rent Expense..................................................................................

Debit
$ 4,400
2,200
1,800
15,000

Credit

$ 4,000
3,800
5,000
10,000
4,400
2,500
3,700
600
2,500
1,900
$30,900

______
$30,900

Sales salaries paid during 2007 were $60,000. Advances to salesmen were $1,100 on January
1, 2007, and $800 on December 31, 2007. Sales salaries accrued were $1,360 on January 1,
2007, and $1,380 on December 31, 2007. Show the computation of sales salaries on an accrual
basis for 2007.
The records for Todd Inc. showed the following for 2007:
Accrued expenses
Prepaid expenses
Cash paid during the year for expenses, $42,500

Jan. 1
$1,800
720

Dec. 31
$2,150
870

Show the computation of the amount of expense that should be reported on the income
statement.
The records for Kiley Company showed the following for 2007:
Jan. 1
Unearned revenue
$1,600
Accrued revenue
1,260
Cash collected during the year for revenue, $70,000

Dec. 31
$2,160
920

Show the computation of the amount of revenue that should be reported on the income
statement.
Revenue on the income statement was $125,800. Accounts receivable were $4,500 on January
1 and $3,540 on December 31. Unearned revenue was $1,050 on January 1 and $1,670 on
December 31.

Show the computation of revenue for the year on a cash basis.

Selected amounts from Trent Company's trial balance of 12/31/07 appear below:
1. Accounts Payable
$ 160,000
2. Accounts Receivable
150,000
3. Accumulated DepreciationEquipment
200,000
4. Allowance for Doubtful Accounts
20,000
5. Bonds Payable
500,000
6. Cash
150,000
7. Common Stock
60,000
8. Equipment
840,000
9. Insurance Expense
30,000
10. Interest Expense
10,000
11. Merchandise Inventory
300,000
12. Notes Payable (due 6/1/08)
200,000
13. Prepaid Rent
150,000
14. Retained Earnings
818,000
15. Salaries and Wages Expense
328,000
(All of the above accounts have their standard or normal debit or credit balance.)
Part A.

Prepare adjusting journal entries at year end, December 31, 2007, based on the
following supplemental information.

a. The equipment has a useful life of 15 years with no salvage value. (Straight-line method being
used.)
b. Interest accrued on the bonds payable is $15,000 as of 12/31/07.
c. Expired insurance at 12/31/07 is $20,000.
d. The rent payment of $150,000 covered the six months from November 30, 2007 through May
31, 2008.
e. Salaries and wages earned but unpaid at 12/31/07, $22,000.
Part B.

a.
b.
c.
d.
e.

Indicate the proper balance sheet classification of each of the 15 numbered accounts
in the 12/31/07 trial balance before adjustments by placing appropriate numbers after
each of the following classifications. If the account title would appear on the income
statement, do not put the number in any of the classifications.

Current assets
Property, plant, and equipment
Current liabilities
Long-term liabilities
Stockholders' equity

Data relating to the balances of various accounts affected by adjusting or closing entries appear
below. (The entries which caused the changes in the balances are not given.) You are asked to
supply the missing journal entries which would logically account for the changes in the account
balances.
1. Interest receivable at 1/1/07 was $1,000. During 2007 cash received from debtors for interest
on outstanding notes receivable amounted to $5,000. The 2007 income statement showed
interest revenue in the amount of $5,400. You are to provide the missing adjusting entry that
must have been made, assuming reversing entries are not made.

2. Unearned rent at 1/1/07 was $5,300 and at 12/31/07 was $8,000. The records indicate cash
receipts from rental sources during 2007 amounted to $40,000, all of which was credited to
the Unearned Rent Account. You are to prepare the missing adjusting entry.
3. Accumulated depreciationequipment at 1/1/07 was $230,000. At 12/31/07 the balance of
the account was $270,000. During 2007, one piece of equipment was sold. The equipment
had an original cost of $40,000 and was 3/4 depreciated when sold. You are to prepare the
missing adjusting entry.
4. Allowance for doubtful accounts on 1/1/07 was $50,000. The balance in the allowance
account on 12/31/07 after making the annual adjusting entry was $65,000 and during 2007
bad debts written off amounted to $30,000. You are to provide the missing adjusting entry.
5. Prepaid rent at 1/1/07 was $9,000. During 2007 rent payments of $120,000 were made and
charged to "rent expense." The 2007 income statement shows as a general expense the item
"rent expense" in the amount of $125,000. You are to prepare the missing adjusting entry that
must have been made, assuming reversing entries are not made.
6. Retained earnings at 1/1/07 was $150,000 and at 12/31/07 it was $210,000. During 2007,
cash dividends of $50,000 were paid and a stock dividend of $40,000 was issued. Both
dividends were properly charged to retained earnings. You are to provide the missing closing
entry.
The following trial balance was taken from the books of Fisk Corporation on December 31, 2007.
Account
Debit
Credit
Cash
$ 12,000
Accounts Receivable
40,000
Note Receivable
7,000
Allowance for Doubtful Accounts
$ 1,800
Merchandise Inventory
44,000
Prepaid Insurance
4,800
Furniture and Equipment
125,000
Accumulated Depreciation--F. & E.
15,000
Accounts Payable
10,800
Common Stock
44,000
Retained Earnings
55,000
Sales
280,000
Cost of Goods Sold
111,000
Salaries Expense
50,000
Rent Expense
12,800
Totals
$406,600
$406,600
At year end, the following items have not yet been recorded.
a. Insurance expired during the year, $2,000.
b. Estimated bad debts, 1% of gross sales.
c. Depreciation on furniture and equipment, 10% per year.
d. Interest at 6% is receivable on the note for one full year.
*e. Rent paid in advance at December 31, $5,400 (originally charged to expense).
f. Accrued salaries at December 31, $5,800.
Instructions
(a) Prepare the necessary adjusting entries.
(b) Prepare the necessary closing entries.

The following information is available for Renn Corporation's first year of operations:
Payment for merchandise purchases
$250,000
Ending merchandise inventory
110,000
Accounts payable (balance at end of year)
60,000
Collections from customers
210,000
The balance in accounts payable relates only to merchandise purchases. All merchandise items
were marked to sell at 40% above cost. What should be the ending balance in accounts
receivable, assuming all accounts are deemed collectible?

Yates Company's records provide the following information concerning certain account balances
and changes in these account balances during the current year. Transaction information is
missing from each item below.
Instructions
Prepare the entry to record the missing information for each account. (Consider each independently.)
1. Accounts Receivable: Jan. 1, balance $41,000, Dec. 31, balance $55,000, uncollectible
accounts written off during the year, $6,000; accounts receivable collected during the year,
$134,000. Prepare the entry to record sales.
2. Allowance for Doubtful Accounts: Jan. 1, balance $4,000, Dec. 31, balance $7,500,
uncollectible accounts written off during the year, $25,000. Prepare the entry to record bad
debt expense.
3. Accounts Payable: Jan. 1, balance $25,000, Dec. 31, balance $44,000, purchases on account
for the year, $110,000. Prepare the entry to record payments on account.
4. Interest Receivable: Jan. 1 accrued, $3,000, Dec. 31 accrued, $2,100, earned for the year,
$30,000. Prepare the entry to record cash interest received.
Grier & Associates maintains its records on the cash basis. You have been engaged to convert its
cash basis income statement to the accrual basis. The cash basis income statement, along with
additional information, follows:
Grier & Associates
Income Statement (Cash Basis)
For the Year Ended December 31, 2007
Cash receipts from customers
Cash payments:
Wages
Taxes
Insurance
Interest
Net income

$450,000
$150,000
65,000
40,000
25,000

280,000
$170,000

Additional information:
Accounts receivable
Wages payable

Balances at 12/31
2007
2006
$50,000
$30,000
10,000
20,000

Taxes payable
Prepaid insurance
Accumulated depreciation
Interest payable

14,000
8,000
90,000
3,000

19,000
4,000
75,000
9,000

No plant assets were sold during 2007.

The trial balance of Winsor Corporation is reproduced on the following page. The information
below is relevant to the preparation of adjusting entries needed to both properly match revenues
and expenses for the period and reflect the proper balances in the real and nominal accounts.
Instructions
As the accountant for Winsor Corporation, you are to prepare adjusting entries based on the
following data, entering the adjustments on the work sheet and completing the additional columns
with respect to the income statement and balance sheet. Carefully key your adjustments and
label all items. (Due to time constraints, an adjusted trial balance is not required.) Round all
computations to the nearest dollar.
(a) Winsor determined that one percent of sales will become uncollectible.
(b) Depreciation is computed using the straight-line method, with an eight year life and $1,000
salvage value.
(c) Salesmen are paid commissions of 10% of sales. Commissions on sales for the last week of
December have not been paid.
(d) The note was issued on October 1, bearing interest at 8%, due Feb. 1, 2008.
(e) A physical inventory of supplies indicated $440 of supplies currently in stock.
(f)

Provisions of a lease contract specify payments must be made one month in advance, with
monthly payments at $800/mo. This provision has been complied with as of Dec. 31, 2007.
Winsor Corporation
Work Sheet
For the Year Ended December 31, 2007

Accounts
Cash
Trading Sec.
Accounts Rec.
Allow. for D. A.
Mdse. Inventory
Supplies
Equipment
Accum. Depr.-Eq.
Accounts Payable
Notes Payable
Common Stock
Ret. Earnings
Cost of Goods Sold
Office Salaries Exp.
Sales Comm. Exp.
Rent Expense

Trial Balance
Dr.
Cr.
12,400
4,050
50,000
420
16,800
1,040
45,000
9,500
4,400
5,000
40,000
34,690
225,520
20,800
29,000
7,200

Adjustments
Dr.
Cr.

Income Statement
Dr.
Cr.

Balance Sheet
Dr.
Cr.

Misc. Expense
Sales
Totals

2,200
414,010

320,000
414,010

MULTIPLE CHOICECPA Adapted

68.

Which of the following should be reported as a prior period adjustment?

Change in
Change from
Estimated Lives
Unaccepted Principle
of Depreciable Assets
to Accepted Principle
a.
Yes
Yes
b.
No
Yes
c.
Yes
No
d.
No
No

69.

On December 31, 2008, Ellworth, Inc. appropriately changed its inventory valuation
method to FIFO cost from weighted-average cost for financial statement and income tax
purposes. The change will result in a $1,500,000 increase in the beginning inventory at
January 1, 2008. Assume a 30% income tax rate. The cumulative effect of this accounting
change on beginning retained earnings is
a. $0.
b. $450,000.
c. $1,050,000.
d. $1,500,000.

70.

On January 1, 2008, Bosco Corp. changed its inventory method to FIFO from LIFO for
both financial and income tax reporting purposes. The change resulted in an $800,000
increase in the January 1, 2008 inventory. Assume that the income tax rate for all years is
30%. The cumulative effect of the accounting change should be reported by Bosco in its
2008
a. retained earnings statement as a $560,000 addition to the beginning balance.
b. income statement as a $560,000 cumulative effect of accounting change.
c. retained earnings statement as an $800,000 addition to the beginning balance.
d. income statement as an $800,000 cumulative effect of accounting change.

71.

On January 1, 2005, Dent Co. purchased a machine for $792,000 and depreciated it by
the straight-line method using an estimated useful life of eight years with no salvage
value. On January 1, 2008, Dent determined that the machine had a useful life of six
years from the date of acquisition and will have a salvage value of $72,000. An accounting
change was made in 2008 to reflect these additional data. The accumulated depreciation
for this machine should have a balance at December 31, 2008 of
a. $438,000.
b. $462,000.
c. $480,000.
d. $528,000.

72.

On January 1, 2005, Neer Co. purchased a patent for $595,000. The patent is being
amortized over its remaining legal life of 15 years expiring on January 1, 2020. During
2008, Neer determined that the economic benefits of the patent would not last longer than
ten years from the date of acquisition. What amount should be reported in the balance
sheet for the patent, net of accumulated amortization, at December 31, 2008?

a.
b.
c.
d.
73.

$357,000
$408,000
$420,000
$436,375

During 2007, a textbook written by Givens Co. personnel was sold to Grand Publishing,
Inc., for royalties of 10% on sales. Royalties are receivable semiannually on March 31, for
sales in July through December of the prior year, and on September 30, for sales in
January through June of the same year.

Royalty income of $108,000 was accrued at 12/31/07 for the period July-December
2007.
Royalty income of $120,000 was received on 3/31/08, and $156,000 on 9/30/08.
Givens learned from Grand that sales subject to royalty were estimated at $1,620,000
for the last half of 2008.
In its income statement for 2008, Givens should report royalty income at
a. $276,000.
b. $288,000.
c. $318,000.
d. $330,000.
74.

On January 1, 2007, Gregg Corp. acquired a machine at a cost of $500,000. It is to be

depreciated on the straight-line method over a five-year period with no residual value.
Because of a bookkeeping error, no depreciation was recognized in Gregg's 2007
financial statements. The oversight was discovered during the preparation of Gregg's
2008 financial statements. Depreciation expense on this machine for 2008 should be
a. $0.
b. $100,000.
c. $125,000.
d. $200,000.

75.

On December 31, 2008, special insurance costs, incurred but unpaid, were not recorded.
If these insurance costs were related to work in process, what is the effect of the omission
on accrued liabilities and retained earnings in the December 31, 2008 balance sheet?
a.
b.
c.
d.

76.

Accrued Liabilities
No effect
No effect
Understated
Understated

Retained Earnings
No effect
Overstated
No effect
Overstated

Early, Inc. is a calendar-year corporation whose financial statements for 2007 and 2008
included errors as follows:
Year
2007
2008

Ending Inventory
$162,000 overstated
54,000 understated

Depreciation Expense
$135,000 overstated
45,000 understated

Assume that purchases were recorded correctly and that no correcting entries were made
at December 31, 2007, or at December 31, 2008. Ignoring income taxes, by how much
should Early's retained earnings be retroactively adjusted at January 1, 2009?
a. $144,000 increase
b. $36,000 increase
c. $18,000 decrease

d. $9,000 increase

MULTIPLE CHOICECPA Adapted

85.

On September 1, 2006, Lowe Co. issued a note payable to National Bank in the amount
of $600,000, bearing interest at 12%, and payable in three equal annual principal
payments of $200,000. On this date, the bank's prime rate was 11%. The first payment for
interest and principal was made on September 1, 2007. At December 31, 2007, Lowe
should record accrued interest payable of
a. $24,000.
b. $22,000.
c. $16,000.
d. $14,667.

86.

Eaton Co. sells major household appliance service contracts for cash. The service
contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts
are credited to Unearned Service Revenues. This account had a balance of $1,800,000 at
December 31, 2007 before year-end adjustment. Service contract costs are charged as
incurred to the Service Contract Expense account, which had a balance of $450,000 at
December 31, 2007.
Service contracts still outstanding at December 31, 2007 expire as follows:
During 2008
$380,000
During 2009
570,000
During 2010
350,000
What amount should be reported as Unearned Service Revenues in Eaton's December
31, 2007 balance sheet?
a. $1,350,000.
b. $1,300,000.
c. $850,000.
d. $500,000.

87.

In November and December 2007, Lane Co., a newly organized magazine publisher,
received $90,000 for 1,000 three-year subscriptions at $30 per year, starting with the
January 2008 issue. Lane included the entire $90,000 in its 2007 income tax return. What
amount should Lane report in its 2007 income statement for subscriptions revenue?
a. $0.
b. $5,000.
c. $30,000.
d. $90,000.

88.

On June 1, 2007, Nott Corp. loaned Horn $400,000 on a 12% note, payable in five annual
installments of $80,000 beginning January 2, 2008. In connection with this loan, Horn was
required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in
escrow is to be returned to Horn after all principal and interest payments have been made.
Interest on the note is payable on the first day of each month beginning July 1, 2007. Horn
made timely payments through November 1, 2007. On January 2, 2008, Nott received
payment of the first principal installment plus all interest due. At December 31, 2007,
Nott's interest receivable on the loan to Horn should be

a.
b.
c.
d.

$0.
$4,000.
$8,000.
$12,000.

89.

Allen Corp.'s liability account balances at June 30, 2007 included a 10% note payable in
the amount of $2,400,000. The note is dated October 1, 2005 and is payable in three
equal annual payments of $800,000 plus interest. The first interest and principal payment
was made on October 1, 2006. In Allen's June 30, 2007 balance sheet, what amount
should be reported as accrued interest payable for this note?
a. $180,000.
b. $120,000.
c. $60,000.
d. $40,000.

90.

Colaw Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is
paid in the next biweekly period. Colaw accrues salaries expense only at its December 31
year end. Data relating to salaries earned in December 2007 are as follows:
Last payroll was paid on 12/26/07, for the 2-week period ended 12/26/07.
Overtime pay earned in the 2-week period ended 12/26/07 was $10,000.
Remaining work days in 2007 were December 29, 30, 31, on which days there was no overtime.
The recurring biweekly salaries total $180,000.
Assuming a five-day work week, Colaw should record a liability at December 31, 2007 for
accrued salaries of
a. $54,000.
b. $64,000.
c. $108,000.
d. $118,000.

91.

Tolan Corp.'s trademark was licensed to Eddy Co. for royalties of 15% of sales of the
trademarked items. Royalties are payable semiannually on March 15 for sales in July
through December of the prior year, and on September 15 for sales in January through
June of the same year. Tolan received the following royalties from Eddy:
March 15
September 15
2006
$5,000
$7,500
2007
6,000
8,500
Eddy estimated that sales of the trademarked items would total $40,000 for July through
December 2007. In Tolan's 2007 income statement, the royalty revenue should be
a. $14,500.
b. $16,000.
c. $20,500.
d. $22,000.

92.

At December 31, 2007, Sues Boutique had 1,000 gift certificates outstanding, which had
been sold to customers during 2007 for $50 each. Sues operates on a gross margin of
60% of its sales. What amount of revenue pertaining to the 1,000 outstanding gift
certificates should be deferred at December 31, 2007?
a. $0.
b. $20,000.
c. $30,000.
d. $50,000.

*93.

Compared to the accrual basis of accounting, the cash basis of accounting overstates
income by the net increase during the accounting period of the
a.
b.
c.
d.

Accounts Receivable
No
No
Yes
Yes

Accrued Expenses Payable

No
Yes
No
Yes

*94.

Gregg Corp. reported revenue of $1,100,000 in its accrual basis income statement for the
year ended June 30, 2007. Additional information was as follows:
Accounts receivable June 30, 2006
$350,000
Accounts receivable June 30, 2007
530,000
Uncollectible accounts written off during the fiscal year
13,000
Under the cash basis, Gregg should report revenue of
a. $687,000.
b. $700,000.
c. $907,000.
d. $933,000.

*95.

Jim Yount, M.D., keeps his accounting records on the cash basis. During 2007, Dr. Yount
collected $360,000 from his patients. At December 31, 2006, Dr. Yount had accounts
receivable of $50,000. At December 31, 2007, Dr. Yount had accounts receivable of
$70,000 and unearned revenue of $10,000. On the accrual basis, how much was Dr.
Yount's patient service revenue for 2007?
a. $310,000.
b. $370,000.
c. $380,000.
d. $390,000.

*96.

The following information is available for Ace Company for 2007:

Disbursements for purchases
Increase in trade accounts payable
Decrease in merchandise inventory
Costs of goods sold for 2007 was
a. $1,155,000.
b. $1,095,000.
c. $1,005,000.
d. $945,000.

$1,050,000
75,000
30,000