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Accounting 321

Practice Quiz 1
Solutions
1.

2.

3.

4.

5.

To compute interest expense for an adjusting entry, the formula is principal X rate
X a fraction. The numerator and denominator of the fraction are:
Numerator
Denomintor
a. Length of time note has been outstanding
12 months
b. Length of note
12 months
c. Length of time until note matures
Length of note
d. Length of time note has been outstanding
Length of note
Adjusting entries are necessary to
1. obtain a proper matching of revenue and expense.
2. achieve an accurate statement of assets and equities.
3. adjust assets and liabilities to their fair market value.
a. 1
b. 2
c. 3
d. 1 and 2
Why are certain costs of doing business capitalized when incurred and then
depreciated or amortized over subsequent accounting cycles?
a. To reduce the federal income tax liability
b. To aid management in cash-flow analysis
c. To match the costs of production with revenues as earned
d. To adhere to the accounting constraint of conservatism
When an item of revenue or expense has been earned or incurred but not yet
collected or paid, it is normally called a(n) ____________ revenue or expense.
a. prepaid
b. adjusted
c. estimated
d. none of these
An adjusted trial balance
a. is prepared after the financial statements are completed.
b. proves the equality of the total debit balances and total credit balances of
ledger accounts after all adjustments have been made.
c. is a required financial statement under generally accepted accounting
principles.
d. cannot be used to prepare financial statements.

Selected amounts from Blues Clues 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.)
Prepare adjusting journal entries at year end, December 31, 2007, based on
the following supplemental information.
a. The annual depreciation rate on the equipment is 8%. Salvage value is estimated to
be 5% of cost. (Straight-line method being used.)
Dep Exp: Equ 63,840
A/D: Equ 63,840
b. Interest accrued on the bonds payable is $15,000 as of 12/31/07. Interest accrued
on the notes payable is $9,000 as of 12/31/07.
Int Exp: Bonds 15,000
Int Pbl: Bonds 15,000
Int Exp: N/P 9,000
Int Pbl: N/P 9,000
c. The rent payment of $150,000 covers the six months from November 30, 2007
through May 31, 2008.
Rent Exp: 25,000
Ppd Rent: 25,000
d. Salaries and wages of $22,000 were unpaid at 12/31/07,
Sal Exp: 22,000
Sal Pbl: 22,000

The adjusted trial balance of Jumpstart 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.
JUMPSTART 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 .......................................................................................
Sales Revenue................................................................................
Sales Discounts
Cost of Goods Sold.........................................................................
Salary Expense.
Depreciation Expense.....................................................................
Rent Expense..................................................................................
I/S fye 12/31
Rev: Sales Rev
Sales D/C
Net Sales
Exp: COGS
Salary Exp
Dep Exp
Rent Exp
Total Exp
Net Income

5,700
100
5,600
2,500
1,000
500
900
4,900
700

Stmt R/E fye 12/31


Begin Bal
4,400
NI
700
Div
2,500
End Bal
2,600

$ 4,400
2,200
1,800
15,000
$ 4,000
2,800
4,000
10,000
4,400
2,500
5,700
100
2,500
1,000
500
900
$30,900

______
$30,900

B/S 12/31
Assets:
Cash
4,400
A/R
2,200
Office Sup
1,800
Office Equ
15,000
A/D
4,000
Book Value
11,000
Total Assets 19,400
Liab and S/H:
Liabilities:
A/P
2,800
Unearned Rev 4,000
Total Liab
6,800
S/H:
C/S
10,000
R/E
2,600
Total S/H
12,600
Total L + S/H 19,400

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