Exam 1-5

Nigiri Inc. began operations on October 1, 2017.
During October, Nigiri sold ordinary shares for

¥660,000,000, earned net income of ¥96,000,000, and paid dividends of ¥2,967,000. Equity at the
end of October is
¥756,000,000.
¥93,033,000.
¥753,033,000.
¥96,000,000.
______________________
The accounting process involves all of the following except
communicating financial information to users by preparing financial reports.
recording non-quantifiable economic

events.
identifying economic events that are relevant to the business.
analyzing and interpreting financial reports.
Most assets should be valued at cost because fair values
are not relevant.
may be higher or lower than historical cost.
may not be representationally faithful.
are not useful for decision-making.
Which of the following techniques is not used by accountants to interpret and report financial
information?
Special memos for each class of external users.
Ratios.
Charts.
Graphs.
__________________________
Which of the following would not be considered internal users of accounting data for a company?
Salesmen of a company.
Creditors of a company.
The president of a company.
The controller of a company
O' Hara Company began operations on December 1, 2017. Presented below is selected information
related to O' Hara Company at December 31, 2017.
Equipment ₤160,000 Utilities Expense ₤ 24,000

Cash 56,000 Accounts Receivable 108,000
Service Revenue 432,000 Salaries and Wages Expense 188,000
Rent Expense 52,000 Notes Payable 40,000
Accounts Payable 64,000 Dividends 60,000
Share Capital-ordinary 112,000
Retained earnings at December 31, 2017 is

(Exclude Accounts Payable and deduct all other expenses and dividents)
£60,000.
£108,000.
£88,000.
£220,000.
During July, its first period of operations, Aju Inc. sold ordinary shares for W1,060,000,000, earned
net income of W130,000,000, and paid dividends of W27,000,000. Equity at the end of July is
W1,033,000,000.
W103,000,000.
W1,163,000,000.
W1,190,000,000.
The first step in solving an ethical dilemma is to

weigh the impact of each alternative on various stakeholders.
identify and analyze the principal elements in the situation.
identify the alternatives.
recognize an ethical situation and the ethical issues involved
The Sarbanes-Oxley Act determines
U.S tax regulations.
internal control standards of U.S. publicly traded companies.
internal control standards as enforced by the IASB.
international tax regulations.
Harrod's Inc. purchased land for ₤50,000 in 2007. At December 31, 2017, an appraisal determined the
fair value of the land is ₤65,000. If Harrod's follows the historical cost principle, in the 2017 financial
statements, the land will be reported at
₤50,000 on the statement of financial position.
₤50,000 on the income statement.
External users of accounting information include all of following except
all of these answer choices are correct.
the shareholders of Air Italy.
a potential customers of Olivetti.
the management of Pirelli.
IFRS is considered to be more

rules-based and less principles-based than GAAP.
principles-based and less rules-based than GAAP.
none of these answer choices are correct.
detailed than GAAP.
Your answer is correct.
The controller of a company.
Which of the following is true?
Transaction analysis is basically the same under GAAP and IFRS.
IFRS companies have agreed to adopt the Sarbanes-Oxley Act related to internal control in 2015.
Financial frauds have not occurred in U.S. companies because GAAP has detailed accounting and
disclosure requirements.
Equity is defined under GAAP as the residual interest in the liabilities of the company.
The body that has the power to prescribe the accounting practices and standards used by most US
companies is the
GAAP.
IASB.
IFRS.
FASB.
Internal users of accounting information include
the International Accounting Standards Board.
the Chief Financial officer of Credit Suisse.
the shareholders of Royal Dutch Shell.
the State Administration of Taxation of China.
Which of the following techniques is not used by accountants to interpret and report financial
information?
Special memos for each class of external users.
Charts.
Ratios.
Graphs.
Internal users of accounting information include all of following except the
Shareholders of Airbus.
CEO of Sony.
Human Resources department at Hyundai.
Marketing department at Braun.
Which of the following is an external user of accounting information?
Finance directors.
Managers.
Labor unions.
Company officers.
Sing Tao Inc. began operations on June 2, 2017. During June, Sing Tao sold ordinary shares for
HK$22,900,000, earned revenue of HK$4,040,000, incurred expenses of HK$2,060,000, and paid
dividends of HK$60,000. Retained earnings at June 30, 2017
HK$26,941,000.
HK$1,920,000.
HK$1,980,000.
HK$24,820,000.
Which one of the following is not an external user of accounting information?
Customers.
All of these answer choices are correct.
Investors.
Regulatory agencies.
Which of the following events cannot be quantified into dollars and cents and recorded as an
accounting transaction?
Payment of income taxes.
The sale of store equipment.
The appointment of a new accounting firm to perform an audit.
The purchase of a new computer.
Which of the following would not be considered an internal user of accounting data for GHI Company?
President of the employees' labor union.
Merchandise inventory clerk.
President of the company.

Production manager.
Bookkeeping primarily involves which of the following parts of the accounting process?
Recording.
Identification.
Communication.
Analysis.
Saira’s Service Shop started the year with total assets of $300,000 and total liabilities of $240,000.
During the year, the business recorded $630,000 in revenues, $330,000 in expenses, and paid
dividends of $60,000.
Equity at the end of the year was
$360,000.
$240,000.
$300,000.
$270,000.
Nigiri Inc. began operations on October 1, 2017. During October, Nigiri sold ordinary shares for
¥660,000,000, earned net income of ¥96,000,000, and paid dividends of ¥2,967,000. Retained
earnings at the end of October is
¥756,000,000.
¥753,033,000.
¥96,000,000.
¥93,033,000.
Most assets should be valued at cost because fair values
may not be representationally faithful.

may be higher or lower than historical cost.
are not relevant.
are not useful for decision-making.
EI Greco Corporation began operations on January 1, 2017. Presented below is selected information
related to EI Greco at December 31, 2017.
Equipment €435,000 Utilities Expense € 54,000

Share Capital-Ordinary 252,000 Salaries and Wages Payable 24,000
Supplies 45,000 Advertising Expense 60,000
Net income (loss) reported on the income statement for the month of December is
(Net income in income statement is revenue – expenses. Don’t subtract supplies and
salaries payable)
€378,000.
€270,000.
€243,000.
€144,000.
The Duce Company has five plants nationwide that cost $300 million. The current fair value of the
plants is $500 million. The plants will be recorded and reported as assets at
$300 million.
$800 million.
$200 million.
$500 million.
₤65,000 on the statement of financial position
Sing Tao inc. began operations on June 2, 2017. During June, Sing Tao sold ordinary shares for
dividends of HK$60,000. Equity at the end of June is
HK$26,941,000.
HK$1,980,000.
HK$24,820,000.
HK$1,920,000
O' Hara Company began operations on December 1, 2017. Presented below is selected information
related to O' Hara Company at December 31, 2017.
Equipment ₤160,000 Utilities Expense ₤ 24,000

At December 31, 2017, assets total
£324,000.
£388,000.
£216,000.
£280,000.
___________
The accounting process includes each of the following except
recording.
communication.
convergence.
identification.
The controller of a company.
Convergence refers to
the process of reducing the differences between IFRS and GAAP.
using the same accounting principles from one period to the next.
use of the same accounting principles by all companies.

the elimination of all accounting standard-setting bodies except the International Accounting
Standards Board.
______________________________________
Benito Company began the year with equity of €630,000. During the year, the company recorded
revenues of €900,000, expenses of €684,000, and paid dividends of €60,000. What was Benito’s
equity at the end of the year?
€846,000.
€918,000.
€774,000.
€1,458,000.
net income of W130,000,000, and paid dividends of W27,000,000. Equity at the end of July is
W1,163,000,000.
W1,190,000,000.
W1,033,000,000.
W103,000,000.
Sing Tao Inc. began operations on June 2, 2017. During June, Sing Tao sold ordinary shares for
dividends of HK$60,000. Retained earnings at June 30, 2017
HK$24,820,000.
HK$26,941,000.
HK$1,920,000.
HK$1,980,000
Bruni Corporation began operations on January 1, 2017. During January, Bruni earned revenue of
€135,000, incurred expenses of €66,000, and paid dividends of €9,000. Retained earnings at the end
the month is
€135,000.
€69,000.
€60,000.
€78,000.
Which of the following is an external user of accounting information?
Labor unions.
Finance directors.
Company officers.
Managers.
net income of W195,000,000, and paid dividends of W40,500,000. Retained earnings at the end of
July is
W154,500,000.
W1,635,000,000.
W1,399,500,000.
W1,594,500,000.
When journalizing, the reference column is
used to reference the source document.

used to reference the journal page.
used to reference the financial statements.
left blank.
Omega Company pays its employees twice a month, on the 7th and the 21st. On June 21, Omega
Company paid employee salaries of $4,000. This transaction would
be recorded by a $4,000 debit to Salaries and Wages Payable and a $4,000 credit to Salaries and
Wages Expense.
decrease the balance in Salaries and Wages Expense by $4,000.
decrease net income for the month by $4,000.
increase equity by $4,000.
One difference between GAAP and IFRS is that
GAAP uses a different posting process than IFRS.

IFRS uses more fair value measurement than GAAP.
IFRS uses accruals accounting concepts and GAAP uses primarily the cash basis of accounting.
the limitations of a trial balance are different between GAAP and IFRS.
Posting
accumulates the effects of ledger entries and transfers them to the general journal.
is done only for income statement activity; activity related to the statement of financial position
does not require posting.
is done only once per year.
is done by posting all the debits and credits of one entry before moving on to the next
entry.
The double-entry system requires that each transaction must be recorded

in two sets of books.
in a journal and in a ledger.
first as a revenue and then as an expense.
in at least two different accounts.
Robitaille Company received a cash advance of $500 from a customer. As a result of this event,
assets increased by $500.
equity increased by $500.
liabilities decreased by $500.
revenues increased by $500.
On August 13, 2017, Merrill Enterprises purchased equipment for $2,000 and supplies of $400 on
account. Which of the following journal entries is recorded correctly and in the standard format?
Equipment 2,000
Account Payable 2,400
Supplies 400
Equipment. 2,000
Supplies 400
Accounts Payable 2,400

Equipment 2,000
Supplies 400
Equipment 2,000
Supplies 400
Accounts Payable. 2,400
Which of the following journal entries is recorded correctly and in the standard format?
Salaries and Wages Expense 1,000

Rent Expense 1,500
Cash 2,500

Rent Expense 1,500
Cash 2,500

Cash 2,500
Rent Expense 1,500
Cash 2,500
Rent Expense 1,500
A debit to an asset account indicates
a decrease in the asset.

an increase in the asset.
a credit was made to a liability account.
an error.
During 2017, its first year of operations, Yaspo’s Bakery had revenues of $200,000 and expenses of
$110,000. The business paid dividends of $60,000. What is the amount of equity at December 31,
2017?
$60,000 debit
$0
$90,000 credit
$30,000 credit
Which of the following accounts is reported in the equity section of the statement of financial position?
Dividends
Share capital-ordinary
Revenues
All of these answer choices are correct
he usual sequence of steps in the recording process is to analyze each transaction, enter the
transaction in the
book of original entry, and transfer the information to the journal.
journal, and transfer the information to the ledger accounts.
ledger, and transfer the information to the journal.
book of accounts, and transfer the information to the journal
Sternberg Company purchases equipment for $1,200 and supplies for $400 from Tran Co. for $1,600
cash. The entry for this transaction will include a
debit to Equipment $1,200 and a debit to Supplies Expense $400 for Tran.
credit to Accounts Payable for Sternberg.
debit to Equipment $1,200 and a debit to Supplies $400 for Sternberg.
credit to Cash for Tran.
Which one of the following represents the expanded basic accounting equation?
Assets + Dividends + Expenses = Liabilities + Share Capital–Ordinary + Retained

Earnings + Revenues.
Assets = Revenues + Expenses – Liabilities.
Assets = Liabilities + Share Capital–Ordinary account + Retained Earnings + Dividends – Revenue
– Expenses.
Assets – Liabilities – Dividends = Share Capital–Ordinary + Retained Earnings + Revenues –
Expenses.
When a company pays dividends

the dividend doesn't have to be cash, it could be another asset.
the dividends account will be decreased with a debit.
the dividends account will be increased with a credit.
the retained earnings account will be directly increased with a debit.
Posting
entry.
The double-entry system requires that each transaction must be recorded

in a journal and in a ledger.
first as a revenue and then as an expense.
in at least two different accounts.
in two sets of books.
A trial balance
will not balance if a correct journal entry is posted twice.
proves that transactions are recorded correctly.
is the same under GAAP and IFRS.
proves that all transactions have been recorded.
Which of the following statements is false concerning use of currency signs?
Currency signs are not typically used in the trial balance.

Currency signs do not appear in journals or ledgers.
Currency signs are generally only shown for the first item in a column and for the column total.
A journal provides
the balances for each account.

information about a transaction in several different places.
a chronological record of transactions.
a list of all accounts used in the business.
The standard format of a journal would not include
a date column.
an account title column.
a T-account.
a reference column
Which of the following is the correct sequence of steps in the recording process?
Analyzing, posting, journalizing

Posting, journalizing, analyzing
Journalizing, analyzing, posting
Analyzing, journalizing, posting
The usual sequence of steps in the recording process is to analyze each transaction, enter the
transaction in the
ledger, and transfer the information to the journal.
journal, and transfer the information to the ledger accounts.
book of accounts, and transfer the information to the journal.
book of original entry, and transfer the information to the journal.
The usual sequence of steps in the transaction recording process is:

journal → analyze → ledger.
analyze → journal → ledger.
journal → ledger → analyze.
ledger → journal → analyze.
Evidence that would not help with determining the effects of a transaction on the accounts would be
a(n)
check.
bill.
advertising brochure.
cash register sales tape.
Revenues are
impacted by debits and credits in the same way that expenses are impacted by debits and credits.
a subdivision of equity, providing information about why equity increased.
reported on the statement of financial position as a current item.
The right side of an account

reflects all transactions for the accounting period.
is the correct side.
is the credit side.
shows all the balances of the accounts in the system.
The best interpretation of the word credit is the
right side of an account.

decrease side of an account.
increase side of an account.
offset side of an account.
One difference between GAAP and IFRS is that

IFRS uses more fair value measurement than GAAP.
GAAP uses a different posting process than IFRS.
IFRS uses accruals accounting concepts and GAAP uses primarily the cash basis of accounting.
the limitations of a trial balance are different between GAAP and IFRS.
For the basic accounting equation to stay in balance, each transaction recorded must
affect two or less accounts.
affect two or more accounts.
always affect exactly two accounts.
affect the same number of asset and liability accounts.
Which one of the following is not a part of an account?

Title
Trial balance
Credit side
Debit sid
At December 1, 2017, Gibson Company’s accounts receivable balance was €7,200. During December,
Gibson had credit revenues of €30,000 and collected accounts receivable of €24,000. At December 31,
2017, the accounts receivable balance is
€37,200 debit.
€13,200 credit.
€7,200 debit.
€13,200 debit.
The explanation column of the general ledger

is used infrequently.
shows account titles.
is completed without exception.
is nonexistent.
A trial balance may balance even when each of the following occurs except when
a journal entry is posted twice.
incorrect accounts are used in journalizing.
a transaction is not journalized.
a transposition error is made.
Which of the following statements is true regarding simple and compound entries?
Simple entries involve one account, whereas compound entries involved 2 or more accounts.
An example of a compound entry would be the purchase of a machine for $400 cash and
a $2,000 note payable.
Simple entries can be prepared by anyone whereas compound entries need to be prepared by a
skilled accountant.
Simple entries are recorded on the income statement whereas compound entries are recorded on
the statement of financial position.
After a business transaction has been analyzed and entered in the book of original entry, the next step
in the recording process is to transfer the information to
equity.
financial statements.
ledger accounts.
the company's bank
Accounts maintained within the ledger that appear on the statement of financial position include all of
the following except
Share Capital-Ordinary.
Salaries and Wages Expense.
Interest Payable.
Supplies.
Posting
entry.
Taylor Industries purchased supplies for £1,000. They paid £500 in cash and agreed to pay the
balance in 30 days. The journal entry to record this transaction would include a debit to an asset
account for ₤1,000, a credit to a liability account for ₤500. Which of the following would be the correct
way to complete the recording of the transaction?
Credit the retained earnings account for ₤500.

Debit the retained earnings account for ₤500.
Credit an asset account for ₤500.
Credit another liability account for ₤500.
Ayala Company showed the following balances at the end of its first year:
Cash $11,000
Prepaid insurance 500
Accounts receivable 2,500
Accounts payable 2,000
Notes payable 6,000
Share capital-ordinary 4,000
Dividends 500
Revenues 15,000
Expenses 12,500
What did Ayala Company show as total credits on its trial balance?
$28,000
$27,500
$27,000
$26,500
The expanded accounting equation under GAAP is as follows

Assets + Liabilities = Common Stock + Retained Earnings - Dividends + Revenues - Expenses.
Assets = Liabilities + Common Stock - Retained Earnings - Dividends + Revenues - Expenses.
Assets = Liabilities + Common Stock + Retained Earnings - Dividends - Revenues - Expenses.
Assets = Liabilities + Common Stock + Retained
Earnings - Dividends + Revenues - Expenses.
Posting of journal entries should be done in

account number order.
dollar amount order.
alphabetical order.
chronological order.
When only two accounts are required in one journal entry, the entry is referred to as a
nominal entry.
balanced entry.
simple entry.
posting.
Under U.S. GAAP

share Capital-Ordinary is referred to as Retained Earnings.
currency signs are generally used in the journal, ledger, trial balance, and financial statements.
the rules of debits and credits, and the steps in the recording process are the same as
under IFRS.
the statement of financial position is often called the statement of changes in financial position.
Which of the following statements is true regarding debits and credits?

The basic equation on the statement of financial position is Assets + Liabilities = Equity.
On the income statement, debits are used to increase account balances, whereas on the statement
of financial position, credits are used to increase account balances.
On the income statement, revenues are increased by debits whereas on the statement of financial
position retained earnings is increased by a credit.
The rules for debit and credit and the normal balance of Share Capital-Ordinary are the
same as for liabilities.
An asset—expense relationship exists with
revenue accounts.
prepaid expense adjusting entries.
liability accounts.
accrued expense adjusting entries.
Hercules Company purchased a computer for $4,500 on December 1. It is estimated that annual
depreciation on the computer will be $900. If financial statements are to be prepared on December
31, the company should make the following adjusting entry:
Debit Depreciation Expense, $900; Credit Accumulated Depreciation, $900.

Debit Depreciation Expense, $75; Credit Accumulated Depreciation, $75.
Debit Depreciation Expense, $3,600; Credit Accumulated Depreciation, $3,600.
Debit Office Equipment, $4,500; Credit Accumulated Depreciation, $4,500.
________--
Becki Jean Corporation issued a one-year, 6%, £500,000 note on April 30, 2017. Interest expense for
the year ended December 31, 2017 was
£22,500.
£20,000.
£17,500.
£30,000.
When companies record transactions in the period in which the events occur, ______ is being applied.
the time period assumption
the matching of the income statement with the statement of financial position
the expense recognition principle
accrual-basis accounting
Which statement is correct?

The use of the cash basis of accounting violates both the revenue recognition and
expense recognition principles.
The cash basis of accounting is objective because no one can be certain of the amount of revenue
until the cash is received.
As long as management is ethical, there are no problems with using the cash basis of accounting.
As long as a company consistently uses the cash basis of accounting, IFRS allow its use.
A candy factory's employees work overtime to finish an order that is sold and shipped on February 28.
The office sends a statement to the customer in early March and payment is received by mid-March.
The overtime wages should be expensed in
either in February or March depending on when the pay period ends.
February.
the period when the workers receive their checks.
March.
Y-B-2 Inc. pays its rent of €90,000 annually on January 1. If the February 28 monthly adjusting entry
for prepaid rent is omitted, which of the following will be true?
Assets will be overstated by €15,000 and net income and equity will be understated by €15,000.
Assets will be overstated by €7,500 and net income and equity will be overstated by
€7,500.
Expenses will be overstated by €7,500 and net income and equity will be understated by €7,500.
Failure to make the adjustment does not affect the February financial statements.
CHS Company purchased a truck from JLS Corp. by issuing a 6-month, 8% note payable for $45,000
on November 1. On December 31, the accrued expense adjusting entry is:
Interest 600
Expense................................
Interest Payable........................... 600
No entry is required.
Interest 3,600
Expense................................
Interest Payable........................... 3,600
Interest 7,200
Expense................................
Interest Payable........................... 7,200
Which of the following is in accordance with IFRS?

Neither accrual basis nor cash basis accounting
Cash basis accounting
Both accrual basis and cash basis accounting
Accrual basis accounting
Which of the following reflect the balances of prepayment accounts prior to adjustment?
Statement of financial position accounts are overstated and income statement accounts
are understated.
Statement of financial position accounts are overstated and income statement accounts are
overstated.
Statement of financial position accounts are understated and income statement accounts are
understated.
Statement of financial position accounts are understated and income statement accounts are
overstated.
Sele, Inc. purchased a building on January 1, 2017 for ₤ 1,200,000. The useful life of the building is
10 years. The asset is reported on the December 31, 2017 statement of financial position at ₤
1,080,000. What was the impact of the adjusting entry recorded by Sele, Inc.?
Decreased Equity ₤ 120,000.

Increased Liabilities ₤ 120,000.
Increased Assets ₤ 120,000.
Iron Inn is a resort located in Canada. During December 2016 Wave Inn collects €200,000 cash
related to a conference booked by the Spin Jammers. The conference is scheduled for February 12 and
13, 2017. Which of the following is true regarding how this transaction is reported on the December
31, 2016 statement of financial position?
Spin Jammers reports unearned revenue of €200,000.

Iron Inn reports a prepaid asset of €200,000.
Iron Inn reports unearned revenue of €200,000.
Sherman Air Charter signed a four-month note payable in the amount of $12,000 on September 1.
The note requires interest at an annual rate of 6%. The amount of interest to be accrued at the end of
September is
$180.
$60.
$720.
$240.
Iron Inn is a resort located in Canada. During December 2017 Spin Jammers held its annual
conference at the resort. The charges related to the conference total € 400,000, of which 25% has
been paid by Spin Jammers. When Iron Inn makes the appropriate adjusting entry, which of the
following is a part of the adjustment made to its December 31, 2017 statement of financial position?
Debit Cash and credit revenue € 300,000.
Credit revenues € 300,000.
Credit Cash € 300,000.
Debit Cash € 300,000.
If an adjusting entry is not made for an accrued revenue,
revenues will be overstated.
assets will be overstated.
expenses will be understated.
equity will be understated.
Adjusting entries are required

when the company's profits are below the budget.
when revenues are recorded in the period in which they are earned.
when expenses are recorded in the period in which they are incurred.
because some costs expire with the passage of time and have not yet been journalized.
Depreciation expense for a period is computed by taking the

market value of the asset ÷ useful life.
original cost of an asset – accumulated depreciation.
depreciable cost ÷ depreciation rate.
cost of the asset ÷ useful
life.
Monthly and quarterly time periods are called
fiscal periods.
interim periods.
quarterly periods.
calendar periods.
Accounting information should be verifiable in order to enhance

comparability.
faithful representation.
relevance.
consistency.
Unearned revenue is classified as

an asset account.
a contra-revenue account.
a revenue account.
a liability account.
The preparation of adjusting entries is
straight forward because the accounts that need adjustment will be out of balance.
often an involved process requiring the skills of a
professional.
optional when financial statements are prepared.
only required for accounts that do not have a normal balance.
An item is considered material if

the cost of reporting the item is greater than its benefits.
it is of a tangible good.
its size is likely to influence the decision of an investor or creditor.
it doesn't cost a lot of money.
Bee-In-The-Bonnet Company purchased office supplies costing $8,000 and debited Supplies for the
full amount. At the end of the accounting period, a physical count of supplies revealed $2,200 still on
hand. The appropriate adjusting journal entry to be made at the end of the period would be:
Debit Supplies Expense, $5,800; Credit Supplies, $5,800.

Debit Supplies, $5,800; Credit Supplies Expense, $5,800.
Debit Supplies, $2,200; Credit Supplies Expense, $2,200.
Debit Supplies Expense, $2,200; Credit Supplies, $2,200.
Hardwood Supplies Inc. purchased a 12-month insurance policy on March 1, 2017 for ₤ 3,000. At
March 31, 2017, the adjusting journal entry to record expiration of this asset will include a
debit to Prepaid Insurance and a credit to Insurance Expense for ₤ 300.

debit to Insurance Expense and a credit to Prepaid Insurance for ₤ 250.
debit to Insurance Expense and a credit to Cash for ₤ 250.
debit to Prepaid Insurance and a credit to Cash for ₤ 3,000.
The time period assumption states that

a transaction can only affect one period of time.
the economic life of a business can be divided into artificial time periods.
estimates should not be made if a transaction affects more than one time period.
adjustments to the enterprise's accounts can only be made in the time period when the business
terminates its operations.
If prepaid expenses are initially recorded in expense accounts and have not all been used at the end
of the accounting period, then failure to make an adjusting entry will cause
expenses to be understated.
contra-expenses to be overstated.
assets to be understated.
assets to be overstated.
A company must make adjusting entries

to account for accruals or deferrals.
to ensure that the revenue recognition and expense recognition principles are followed.
each time it prepares an income statement and a statement of financial position.
A company using the same accounting principles from year to year is an application of
consistency.
full disclosure.
materiality.
timelines.
Alternative adjusting entries do not apply to

prepaid expenses.
accrued revenues and accrued expenses.
unearned revenues.
prepaid expenses and unearned revenues.
If unearned revenues are initially recorded in revenue accounts and have not all been earned at the
end of the accounting period, then failure to make an adjusting entry will cause
revenues to be overstated.
accounts receivable to be overstated.
liabilities to be overstated.
revenues to be understated.
Wing Company had the following transactions during 2016:
• Sales of ¥72,000 on account

• Collected ¥32,000 for services to be performed in 2017
• Paid ¥10,000 cash in salaries
• Purchased airline tickets for ¥4,000 in December for a trip to take place in 2017
What is Wing's 2016 net income using cash basis accounting?

¥18,000.
¥22,000.
¥90,000.
¥94,000.
If a company fails to make an adjusting entry to record supplies expense, then

expense will be understated.
assets will be understated.
net income will be understated.
equity will be understated.
Iron Inn is a resort located in Canada. Wave Inn collects cash when guests make a reservation. During
December 2016, Iron Inn collected €150,000 of cash and recorded the receipt by recognizing
unearned revenue. By the end of the month Iron Inn had earned one third of this amount, the other
two thirds will be earned during January 2017. The adjusting entry required at December 31, 2016
would impact the statement of financial position by
Increased Assets €150,000.

Decreased Liabilities €50,000.
Increased Equity €100,000.
Decreased Equity €50,000.
Sele, Inc. purchased supplies costing ₤7,000 on January 1, 2017 and recorded the transaction by
increasing assets. At the end of the year ₤2,600 of the supplies are still on hand. If Sele, Inc. does not
make the appropriate adjusting entry, what is the impact on its statement of financial position at
December 31, 2017?
Assets overstated by ₤ 2,600.
Equity understated by ₤ 4,400.
Assets overstated by ₤ 4,400.
Equity overstated by ₤ 2,600.
Which of the following statements is not true?

Faithful representation is the quality of information that gives assurance that it is free
from error.
Relevant accounting information must be capable of making a difference in the decision.
The primary objective of financial reporting is to provide financial information that is useful to
investors and creditors for making decision.
Comparability means using the same accounting principles from year to year within a company.
Which one of the following is not an enhancing quality of useful information?
Monetary Unit
Understand ability
Timelines
Comparability
Adjusting entries
include both accruals and deferrals.
are necessary to enable the financial statements to conform to international Financial Reporting
Standards (IFRS).
ensure that the revenue recognition and expense recognition principles are followed.
If a business has several types of Non-current assets such as equipment, buildings, and trucks,
all the long-term asset accounts will be recorded in one general ledger account.
there should be only one accumulated depreciation account.
there should be a separate accumulated depreciation account for each type of asset.
there won't be a need for an accumulated depreciation account.
A flower shop makes a large sale and provides flowers to a customer for $1,000 on November 30. The
customer is sent a statement on December 5 and a check is received on December 10. The flower
shop follows IFRS and applies the revenue recognition principle. When is the $1,000 considered to be
earned?
December 5.
November 30.
December 1.
December 10.
The fiscal year of a business is usually determined by

the business.
shareholders.
the IASB.
a government agency.
Action Real Estate received a check for $24,000 on July 1 which represents a 6 month advance
payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full
$24,000. Financial statements will be prepared on July 31. Action Real Estate should make the
following adjusting entry on July 31:
Debit Unearned Rent Revenue, $24,000; Credit Rent Revenue, $24,000.
Debit Unearned Rent Revenue, $4,000; Credit Rent Revenue, $4,000.
Debit Rent Revenue, $4,000; Credit Unearned Rent Revenue, $4,000.
Debit Cash, $24,000; Credit Rent Revenue, $24,000.
Which of the following would not result in unearned revenue?
Sale of two-year magazine subscriptions

Rent collected in advance from tenants
Services performed on account
Sale of season tickets to football games
Adjusting entries are required

yearly.
monthly.
quarterly.
every time financial statements are prepared.
Bread Basket provides baking supplies to restaurants and grocery stores. During December 2017,
Bread Basket’s employees worked 2,400 hours at an average rate of €15 per hour. At December 31,
2017, Bread Basket has paid €21,000 of salary expense. If Bread Basket fails to make the appropriate
adjusting entry, which of the following is true regarding its December 31, 2017 statement of financial
position?
Equity is understated by € 15,000.

Liabilities are overstated by € 21,000.
Equity is overstated by € 21,000.
Liabilities are understated by € 15,000
Expenses sometimes make their contribution to revenue in a different period than when they are paid.
When wages are incurred in one period and paid in the next period, this often leads to which account
appearing on the statement of financial position at the end of the time period?
Salaries and Wages Expense.
Due to Employer.
Due from Employees.
Salaries and Wages Payable.
Joyce’s Gifts signs a three-month note payable to help finance increases in inventory for the Christmas
shopping season. The note is signed on November 1 in the amount of $50,000 with annual interest of
6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that
date, if no entries have been made previously for the interest?
Interest 7,500
Expense...........................
Interest 7,500
Payable.......................
Interest 500
Expense...........................
Interest 500
Payable.......................
Interest 500
Expense...........................
Cash....................................... 500
Interest 500
Expense...........................
Note 500
Payable...........................
Under International Financial Reporting Standards (IFRS)

the cash-basis method of accounting is accepted.
a fiscal year is an accounting time period encompassing less than 12 months.
events are recorded in the period in which the event occurs.
interim period financial statements are either a calendar year or a fiscal year.
What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance
account balance before adjustment, € 41,000, and unexpired amounts per analysis of policies of €
8,000?
Debit Insurance Expense, € 8,000; Credit Prepaid Insurance, € 8,000.
Debit Prepaid Insurance, € 33,000; Credit Insurance Expense, € 33,000.
41000 – 8000
On July 1, Runner’s Sports Store paid $12,000 to Acme Realty for 4 months rent beginning July 1.
Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the
adjusting entry to be made by Runner’s Sports Store is:
Debit Rent Expense, $3,000; Credit Prepaid Rent, $3,000.
Debit Prepaid Rent, $3,000; Credit Rent Expense, $3,000.
Under accrual-basis accounting

events that change a company's financial statements are recognized in the period they
occur rather than in the period in which cash is paid or received.
the ledger accounts must be adjusted to reflect a cash basis of accounting before financial
statements are prepared under IFRS.
cash must be received before revenue is recognized.
net income is calculated by matching cash outflows against cash inflows.
The income statement for the year 2017 of Poole Co. contains the following information:
Revenues $150,000
Expenses:
Salaries and Wages Expense $90,000
Rent Expense 32,000
Advertising Expense 12,000
Supplies Expense 12,000
Utilities Expense 5,000
Insurance Expense 4,000
Total expenses 145,000
Net income (loss) $(5,000)
The entry to close the expense accounts includes
debit to Income Summary for $145,000.

debit to Salaries and Wages Expense for $90,000.
credit to Income Summary for $5,000.
The following data (in thousands) is available for Chang Company.
Debit Credit
Mortgage payable ¥ 2,829
Prepaid expenses ¥ 2,640
Equipment 34,500
Patents 792
Short-term investments 11,070
Notes payable in 2017 1,443
Cash 8,004
Accumulated depreciation 16,965
Notes payable after 2017 7,104
Retained earnings 9,189
Inventories 3,768
Total ¥ ¥ 65,862
65,862
The subtotal of the last asset classification on the 2017 Statement of Financial Position is
¥34,500.
¥17,535.
¥30,570.
¥27,930.
On March 8, Fernetti Company bought office supplies on account from the Flint Company for $550.
Fernetti Company incorrectly debited Equipment for $500 and credited Accounts Payable for $500. The
entries have been posted to the ledger. the correcting entry should be:
Supplies 550
Accounts Payable 500
Equipment 50
Supplies 550
Equipment 550
Supplies 550
Equipment 500
Accounts Payable 50
Supplies 550
Accounts Payable 550
The following items (in thousands) are taken from the financial statements of Huang Company for the
year ending December 31, 2017:
Accounts payable ¥ 72,000

Accumulated depreciation–equipment 112,000
Advertising expense 84,000
Cash 60,000
Dividends 56,000
Depreciation expense 48,000
Equipment 840,000
Insurance expense 12,000
Note payable, due 6/30/18 280,000
Prepaid insurance (12-month policy) 24,000
Rent expense 68,000
Retained earnings (1/1/17) 240,000
Salaries and wages expense 128,000
Service revenue 532,000
Supplies 16,000
Supplies expense 24,000
The sub-classifications for assets on the company's classified statement of financial position would
include all of the following except:
Current Assets.
Long-term Assets.
Property, Plant, and Equipment.
Intangible Assets.
Which account listed below would be double ruled in the ledger as part of the closing process?
Accumulated Depreciation
Cash
Retained Earnings
Dividends
The income statement and statement of financial position columns of Reed Company's worksheet
reflect the following totals:
Income Statement Statement of financial

position
Dr. Cr. Dr. Cr.
Totals $58,000 $45,000 $34,000 $47,000
To enter the net income (or loss) for the period into the above worksheet requires an entry to the
income statement debit column and the income statement credit column.
statement of financial position debit column and the statement of financial position credit column.
income statement debit column and the statement of financial position credit column.
income statement credit column and the statement of financial position debit column
When using a worksheet, adjusting entries are journalized

before the adjusted trial balance is extended to the proper financial statement columns.
after the worksheet is completed and after financial statements are prepared.
before the adjustments are entered on to the worksheet.
after the worksheet is completed and before financial statements are prepared.
Which of the following is a true statement about closing the books of a corporation?
Revenues and expenses are closed to the Income Summary account.

Expenses are closed to the Expense Summary account.
Only revenues are closed to the Income Summary account.
Revenues, expenses, and the dividends account are closed to the Income Summary account.
In order to close the Dividends account, the
retained earnings account should be credited.

retained earnings account should be debited.
income summary account should be debited.
income summary account should be credited.
An intangible asset
is worthless because it has no physical substance.

is converted into a tangible asset during the operating cycle.
cannot be classified on the statement of financial position because it lacks physical substance.
does not have physical substance, yet often is very valuable.
The information for preparing a trial balance on a worksheet is obtained from
general journal entries.
business documents.
general ledger accounts.
Revenues $150,000
Expenses:
Rent Expense 32,000
The entry to close the expense accounts includes a

Assuming that there is a net loss for the period, debits equal credits in all but which section of the
worksheet?
Adjusted trial balance columns

Income statement columns
Adjustments columns
Trial balance columns
Revenues $150,000
Expenses:
Rent Expense 32,000
The entry to close the revenue account includes a

debit to Revenues for $150,000.
credit to Revenues for $150,000
On September 23, Riley Company received a $350 check from Jack Colaw for services to be performed
in the future. The bookkeeper for Riley Company incorrectly debited Cash for $350 and credited
Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the
bookkeeper should
debit Cash $350 and credit Unearned Service Revenue $350.

debit Accounts Receivable $350 and credit Cash $350.
debit Accounts Receivable $350 and credit Unearned Service Revenue $350.
debit Accounts Receivable $350 and credit Service Revenue $350.
If the total debit column exceeds the total credit column of the income statement columns on a
worksheet, then the company has
suffered a net loss for the period.

to make an adjusting entry.
earned net income for the period.
an error because debits do not equal credits.
The following information (in thousands) is for Zháng Office Supplies:
Zháng Office Supplies

Statement of Financial Position
December 31, 2017
Trademark ¥280,000 Share Capital ¥480,000
Land ¥360,000 Retained Earnings
1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Land Held for Accounts Payable
Investment 300,000 240,000
Salaries Wages
Payable
Prepaid Insurance 120,000 40,000
Mortgage Payable
Inventory 280,000 360,000
Accounts
Receivable 200,000
Cash 260,000 640,000
Total Equity and
Total Assets ¥2,120,000 Liabilities ¥ 2,120,000
The total amount of liabilities to be classified as current liabilities is

¥240,000.
¥640,000.
¥280,000.
¥600,000.
Equipment is classified in the statement of financial position as
a current asset.
a long-term investment.
property, plant, and equipment.
an intangible asset.
Closing entries
summarize the activity in every account.

reduce the number of permanent accounts.
are prepared before the financial statements.
cause the revenue and expense accounts to have zero balances.
Which of the following steps in the accounting cycle would not generally be performed daily?
Analyze business transactions

Prepare adjusting entries
Journalize transactions
Post to ledger accounts
Which account will appear last under the current assets classification on the Statement of Financial
Position?
Prepaid Expenses.
cash.
Accounts Receivable.
Short-term investments.
What amount will be reflected for Retained Earnings in the Statement of Financial Position columns of
the worksheet?
Debit Credit
Cash €5,712
Accounts Receivable 3,904
Supplies 480
Accounts Payable €2,792
Unearned Service Revenue 160
Retained Earnings 1,760
Dividends 300
Service Revenue 4,064
Salaries and Wages 1,344
Expense
Miscellaneous Expense 256
Salaries and Wages Payable 448
Total €14,224 €14,224
€2,060
€1,760
€1,996
€1,696
Revenues $150,000
Expenses:
Rent Expense 32,000
After the revenue and expense accounts have been closed, the balance in Income Summary will be
a credit balance of $5,000.

a credit balance of $150,000.
$0.
a debit balance of $5,000.
The income statement for the month of June, 2017 of Taylor Enterprises contains the following
information:
Revenues £16,000
Expenses:
Salaries and Wages Expense £4,000
Rent Expense 3,000
Supplies Expense 600
Advertising Expense 400
Insurance Expense 200
Net income £7,800
credit to Rent Expense for ₤3,000.

debit to Income Summary for ₤7,800.
credit to Income Summary for ₤8,200.
debit to Salaries and Wages Expense for ₤2,000.
A worksheet is a multiple column form that facilitates the
measurement process.
preparation of financial statements.
analysis process.
identification of events.
The information for preparing a trial balance on a worksheet is obtained from
business documents.
general ledger accounts.
general journal entries
The temporary account balances ultimately wind up in what account?
Share Capital-ordinary.
Comprehensive Income.
Income Summary.
Retained Earnings.
Revenues $150,000
Expenses:
Rent Expense 32,000
The entry to close Income Summary to Retained Earnings includes
a debit to Revenue for $150,000.

a credit to Income Summary for $5,000.
a credit to Retained Earnings for $5,000.
credits to Expenses totalling $145,000.
Revenues $150,000
Expenses:
Rent Expense 32,000
At January 1, 2017, Poole reported Retained Earnings of $50,000. Dividends for the year totalled
$10,000. At December 31, 2014, the company will report Retained Earnings of
$80,000.
$35,000.
$75,000.
$85,000.
Which of the following permanent account is changed during the closing process?
Share Capital-ordinary.
Retained Earnings.
Unearned Service Revenue.
None of these answer choices are correct.
Which one of the following statements concerning the accounting cycle is incorrect?
The steps in the accounting cycle are performed in sequence.

The accounting cycle includes only one optional step.
The steps in the accounting cycle are repeated in each accounting period.
The accounting cycle includes journalizing transactions and posting to ledger accounts.
The adjustments entered in the adjustments columns of a worksheet are
not journalized.
posted to the ledger but not journalized.
not journalized until after the financial statements are prepared.
journalized before the worksheet is completed.
A worksheet can be thought of as a(n)
part of the general ledger.

part of the journal.
permanent accounting record.
optional device used by accountants.
Debit Credit
Equipment 34,500
Patents 792
Cash 8,004
Inventories 3,768
Total ¥ ¥ 65,862
65,862
The subtotal of the last asset classification on the 2017 Statement of Financial Position is:
¥34,500.
¥17,535.
¥27,930.
¥30,570.

December 31, 2017
1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Investment 300,000 240,000
Salaries Wages
Payable
Mortgage Payable
Inventory 280,000 360,000
Accounts
Receivable 200,000
Cash 260,000 640,000
Total Equity and
The total amount of assets to be classified as investments is
¥600,000.
¥0.
¥720,000.
¥300,000.

Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
The sub-classifications for assets on the company's classified statement of financial position would
include all of the following except:
Long-term Assets.
Current Assets.
Intangible Assets.
Property, Plant, and Equipment.
Revenues $150,000
Expenses:
Rent Expense 32,000
The entry to close Income Summary to Retained Earnings includes
credits to Expenses totalling $145,000.

a credit to Income Summary for $5,000.
a debit to Revenue for $150,000.
a credit to Retained Earnings for $5,000.
When constructing a worksheet, accounts are often needed that are not listed in the trial balance
already entered on the worksheet from the ledger. Where should these additional accounts be shown
on the worksheet?
They should be inserted in chart of account order into the trial balance already given.
They should be inserted on the lines immediately below the trial balance totals.
They should be inserted in alphabetical order into the trial balance accounts already given.
They should not be inserted on the trial balance until the next accounting period.
On May 25, Carlin Company received a $550 check from Andy Jeter for services to be performed in
the future. The bookkeeper for Carlin Company incorrectly debited Cash for $550 and credited
Accounts Receivable for $550. The amounts have been posted to the ledger. To correct this entry, the
bookkeeper should:
debit Accounts Receivable $550 and credit Unearned Service Revenue $550.
debit Accounts Receivable $550 and credit Service Revenue $550.
debit Cash $550 and credit Unearned Service Revenue $550.
debit Accounts Receivable $550 and credit Cash $550.

Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
What is the book value of the equipment at December 31, 2017?
¥680,000
¥840,000
¥728,000
¥952,000
The use of reversing entries

changes the amounts reported in the financial statements.
simplifies the recording of subsequent transactions.
is required for all adjusting entries.
is a required step in the accounting cycle.
Assuming that there is a net loss for the period, debits equal credits in all but which section of the
worksheet?
Adjustments columns
Adjusted trial balance columns
Trial balance columns
Income statement columns

December 31, 2017
1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Investment 300,000 240,000
Salaries Wages
Payable
Mortgage Payable
Inventory 280,000 360,000
Accounts
Receivable 200,000
Cash 260,000 640,000
Total Equity and
The total amount of assets to be classified as property, plant, and equipment is
¥680,000.
¥980,000.
¥760,000.
¥1,280,000.
The steps in the preparation of a worksheet do not include
analyzing documentary evidence.

preparing a trial balance on the worksheet.
entering the adjustments in the adjustment columns.
entering adjusted balances in the adjusted trial balance columns.
Which classification of assets will appear last in the Statement of Financial Position?
Current Assets.
Intangible Assets.
Long-term investments.
Property, Plant and Equipment.
Debit Credit
Equipment 34,500
Patents 792
Cash 8,004
Inventories 3,768
Total ¥ ¥ 65,862
65,862
Total assets on the Statement of Financial Position for 2017 are:
¥46,257.
¥82,827.
¥65,862.
¥48,897.
The income statement and statement of financial position columns of Reed Company's worksheet
reflect the following totals:
Income Statement Statement of financial

position
Dr. Cr. Dr. Cr.
Totals $58,000 $45,000 $34,000 $47,000
The net income (or loss) for the period is
$13,000 income.
$13,000 loss.
not determinable.
$45,000 income.

December 31, 2017
1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Investment 300,000 240,000
Salaries Wages
Payable
Mortgage Payable
Inventory 280,000 360,000
Accounts
Receivable 200,000
Cash 260,000 640,000
Total Equity and
¥720,000.
¥0.
¥600,000.
¥300,000.
Computing net income on the worksheet occurs in step
three.
five.
two.
four.
Revenues $150,000
Expenses:
Rent Expense 32,000


December 31, 2017
1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Investment 300,000 240,000
Salaries Wages
Payable
Mortgage Payable
Inventory 280,000 360,000
Accounts
Receivable 200,000
Cash 260,000 640,000
Total Equity and
¥720,000.
¥0.
¥600,000.
¥300,000.
Farr Company paid the weekly payroll on January 2 by debiting Salaries and Wages Expense for
$75,000. The accountant preparing the payroll entry overlooked the fact that Salaries and Wages
Expense of $45,000 had been accrued at year end on December 31. The correcting entry is
Cash 45,000
Expense
Salaries and Wages Payable 45,000
Cash 45,000
Cash 30,000
Expense
Payable
Expense
Which of the following liabilities are not related to the operating cycle?
Salaries and wages payable
Accounts payable
Utilities payable
Bonds payable

December 31, 2017
1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Investment 300,000 240,000
Salaries Wages
Payable
Mortgage Payable
Inventory 280,000 360,000
Accounts
Receivable 200,000
Cash 260,000 640,000
Total Equity and
The total amount of assets to be classified as current assets is
¥1,160,000.
¥580,000.
¥860,000.
¥720,000.
Debit Credit
Equipment 34,500
Patents 792
Cash 8,004
Inventories 3,768
Total ¥ ¥ 65,862
65,862
The subtotal of the first asset classification on the 2017 Statement of Financial Position is:
¥11,070.
¥30,570.
¥27,930.
¥792.
Which account listed below would be double ruled in the ledger as part of the closing process?
Accumulated Depreciation
Cash
Retained Earnings
Dividends
Revenues $150,000
Expenses:
Rent Expense 32,000
After all closing entries have been posted, the Income Summary account will have a balance of
$75,000 credit.
$5,000 debit.
$0.
$5,000 credit.
Ball Company sells merchandise on account for ₤5,000 to Edds Company with credit terms of 2/10,
n/30. Edds Company returns ₤1,000 of merchandise that was damaged, along with a check to settle
the account within the discount period. What is the amount of the check?
₤4,000
₤4,920
₤3,920
₤4,900
Reese Company purchased merchandise with an invoice price of $3,000 and credit terms of 1/10,
n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
18%
36%
10%
12%
Touch Tronix, Inc. sells component parts to Advanced Communications, Inc. a cell phone
manufacturer. During December 10, 2017, Touch Tronix, Inc. sold €1,700,000 of goods to Advanced
Communications, Inc. on account for €2,200,000. Advanced Communications, Inc. was dissatisfied
with 25% of the merchandise it receives due to inferior quality. On December 21, 2017, Advanced
Communications, Inc. returns the goods to Touch Tronix, Inc. for credit. Which of the following is true
regarding the statement of financial position and the income statement for Touch Tronix, Inc. at
December 31, 2017?
Assets will increase by €550,000 and income will decrease by €550,000.

Assets will decrease by €425,000 and income will decrease by €425,000.
Assets will decrease by €125,000 and income will decrease by €125,000.
Assets will increase by €425,000 and income will decrease by €425,000.
Cole Company has sales revenue of ₤24,000, cost of goods sold of ₤16,000 and operating expenses of
₤6,000 for the year ended December 31. Cole's gross profit is
₤0.
₤2,000.
₤8,000.
₤18,000.
A company shows the following balances:
Sales Revenue ¥1,500,000

Sales Returns and Allowances 270,000
Sales Discounts 30,000
Cost of Goods Sold 900,000
What is the gross profit rate?
25%
60%
40%
75%
Rasner Co. returned defective goods costing $9,000 to Markum Company on April 19, for credit. The
goods were purchased April 10, on credit, terms 3/10, n/30. The entry by Rasner Co. on April 19, in
receiving full credit is:

Inventory 270
Cash 9,270

Inventory 9,000

Purchase Discounts 270
Cash 8,730

Inventory 270
Cash 8,730
A sales invoice is a source document that
provides evidence of incurred operating expenses.

provides support for credit sales.
provides support for goods purchased for resale.
serves only as a customer receipt.
In preparing closing entries for a merchandising company, the Income Summary account will be
credited for the balance of
inventory.
sales discounts.
freight-out.
sales revenue
Cartier Company purchased inventory from Pissaro Company. The shipping costs were $400 and the
terms of the shipment were FOB shipping point. Cartier would have the following entry regarding the
shipping charges:
There is no entry on Cartier's books for this transaction.
Freight Expense 400

Cash 400
Inventory 400
Cash 400
Freight-Out 400
Cash 400
The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales
Discounts are
credit, debit, debit.

credit, debit, credit.
credit, credit, credit.
debit, credit, debit.
A buyer would record a payment within the discount period under a perpetual inventory system by
crediting
Inventory.
Purchase Discounts.
Accounts Payable.
Sales Discounts
Moses Company sells merchandise on account for $8,000 to Lane Company with credit terms of 2/10,
n/30. Lane Company returns $1,200 of merchandise that was damaged, along with a check to settle
the account within the discount period. What entry does Moses Company make upon receipt of the
check?
Cash 6,664
Cash 7,840
Sales Discounts 160
Cash 6,800
Cash 6,664
Sales Discounts 136
Company A sells ¥9,000 of merchandise on account to Company B with credit terms of 2/10, n/30. If
Company B remits a check taking advantage of the discount offered, what is the amount of Company
B's check?
¥8,100
¥8,820
¥7,200
¥6,300
During 2017, Yoder Enterprises generated revenues of $180,000. The company’s expenses were as
follows: cost of goods sold of $90,000, operating expenses of $36,000 and a loss on the sale of
equipment of $6,000.
Yoder’s income from operations is
$54,000.
$90,000.
$36,000.
$180,000
Sales revenues are usually considered earned when
goods have been transferred from the seller to the buyer.

an order is received.
adjusting entries are made.
cash is received from credit sales.
If a company is given credit terms of 2/10, n/30, it should
pay within the discount period and recognize a savings.

hold off paying the bill until the end of the credit period, while investing the money at 10% annual
interest during this time.
recognize that the supplier is desperate for cash and withhold payment until the end of the credit
period while negotiating a lower sales price.
pay within the credit period but don't take the trouble to invest the cash while waiting to pay the
bill.
Yoder’s gross profit is
$180,000.
$90,000.
$54,000.
$48,000.
Which of the following statements is true regarding International Financial Reporting Standards (IFRS)
and U.S. GAAP?
U.S. GAAP allows operating expenses to be reported by either function or nature, IFRS requires
reporting by function.
IFRS requires 2 years of income statements, U.S. GAAP requires 3 years of income
statements.
IFRS requires a single-step income statement, but U.S. GAAP allows either the single-step or the
multiple-step income statement.
IFRS allows both the perpetual and periodic systems, but U.S GAAP permits only the perpetual
system.
The journal entry to record a return of merchandise purchased on account under a perpetual inventory
system would credit
Accounts Payable.
Inventory.
Purchase Returns and Allowances.
Sales.
The Freight-in account
has a normal credit balance.

increases the cost of merchandise purchased.
is contra to the Purchases account.
is a permanent account.
During August, 2017, Joe’s Supply Store generated revenues of $150,000. The company’s expenses
were as follows: cost of goods sold of $60,000 and operating expenses of $10,000. The company also
had rent revenue of $2,500 and a gain on the sale of a delivery truck of $5,000.
Joe’s net income for August, 2017 is
$87,500.
$80,000.
$82,500.
$90,000.
manufacturer. On December 10, 2017, Touch Tronix, Inc. sold €1,700,000 of goods to Advanced
Communications, Inc. on account for €2,200,000. Terms of the sale were 2/10, net 30. On December
18, 2017, Advanced Communications, Inc. paid the account in full. Advanced Communications, Inc.
uses a perpetual inventory system. Which of the following is true regarding the impact on the
statement of financial position for Advanced Communications, Inc. when the payment is made on
December 18, 2017?
Cash decreased by €1,666,000.

Accounts payable decreases by €1,700,000.
Inventory decreased by €44,000.
Which of the following statements is true regarding International Financial Reporting Standards (IFRS)
and U.S. GAAP?
IFRS allows both the perpetual and periodic systems, but U.S GAAP permits only the perpetual
system.
IFRS requires a single-step income statement, but U.S. GAAP allows either the single-step or the
multiple-step income statement.
U.S. GAAP allows operating expenses to be reported by either function or nature, IFRS requires
reporting by function.
IFRS requires 2 years of income statements, U.S. GAAP requires 3 years of income
statements.
If a company is given credit terms of 2/10, n/30, it should
recognize that the supplier is desperate for cash and withhold payment until the end of the credit
period while negotiating a lower sales price.
pay within the credit period but don't take the trouble to invest the cash while waiting to pay the
bill.
hold off paying the bill until the end of the credit period, while investing the money at 10% annual
interest during this time.
pay within the discount period and recognize a savings.
manufacturer. During December 2017, Touch Tronix, Inc. sold €1,700,000 of goods to Advanced
Communications, Inc. on account for €2,200,000. Advanced Communications, Inc. was dissatisfied
with 25% of the merchandise it received due to inferior quality. On December 21, 2017, Advanced
Communications, Inc. returns the goods to Touch Tronix, Inc. for credit. Which of the following is true
regarding the statement of financial position for Advanced Communications, Inc. at December 31,
2017?
Assets will decrease by €425,000 and liabilities will decrease by €425,000.

Assets will decrease by €550,000 and liabilities will decrease by €550,000.
Assets will increase by €550,000 and liabilities will increase by €550,000.
Assets will increase by €425,000 and liabilities will increase by €425,000.
Sampson Company's accounting records show the following for the year ending on December 31,
2017:
Purchase Discounts ₤ 28,000

Freight-in 39,000
Purchases 1,000,050
Beginning Inventory 117,500
Ending Inventory 144,000
Purchase Returns 32,000
Using the periodic system, the cost of goods sold is
₤1,005,550.
₤994,550.
₤952,550.
₤1,047,550.
Maxwell Company's financial information is presented below.
Sales Revenue € ???? Cost of Goods Sold €450,000

Sales Returns and Allowances 50,000 Gross Profit ????
Net Sales 780,000
The missing amounts above are:
Sales Revenue Gross Profit
€730,000 €380,000
€830,000 €380,000
€830,000 €330,000
€730,000 €330,000
Powers Company has the following account balances:
Purchases $99,000
Purchase Discounts 8,000
Freight-in 6,000
Delivery Expense 8,000
The cost of goods purchased for the period is
$107,000.
$97,000.
$105,000.
$92,200.
Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods are
recorded in
Freight Expense.
Freight-Out.
Inventory.
Freight-In.
If a company has net sales of $800,000 and cost of goods sold of $520,000, the gross profit rate is
65%.
35%.
46%.
54%.
December 18, 2017?
Accounts payable decreases by €1,700,000.
Cash decreased by €1,666,000.
Which of the following accounts has a normal credit balance?
Freight-out
Sales Returns and Allowances
Sales Discounts
Sales
December 18, 2017?
Assets decreased by €2,200,000.

Assets increased by €44,400.
Liabilities decreased by €1,700,000.
Liabilities decreased by €2,156,000.
The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales
Discounts are
credit, credit, credit.

credit, debit, debit.
credit, debit, credit.
debit, credit, debit.
Mather Company made a purchase of merchandise on credit from Underwood Company on August 8,
for $8,000, terms 3/10, n/30. On August 17, Mather makes the appropriate payment to Underwood.
The entry on August 17 for Mather Company is:

Inventory 240
Cash 7,760

Purchase Returns and Allowances 240
Cash 7,760

Cash 7,760

Cash 8,000
Net income from operations is gross profit less
financing expenses.
operating expenses.
other income and expense.
other expenses.
On November 2, 2017, Griffey Company has cash sales of €7,000 from merchandise having a cost of
€5,000. The entries to record the day's cash sales will include:
a €5,000 credit to Cost of Goods Sold.

a €5,000 credit to Inventory.
a €7,000 debit to Accounts Receivable.
a €7,000 credit to Cash.
A credit sale of ₤6,400 is made on April 25, terms 2/10, n/30, on which a return of ₤400 is granted on
April 28. What amount is received as payment in full on May 4?
₤6,272
₤6,400
₤6,000
₤5,880
In terms of liquidity, inventory is
less liquid than store equipment.

more liquid than cash.
more liquid than accounts receivable.
more liquid than prepaid expenses.
Rowland Company reported the following balances at June 30, 2017:
Sales Revenue $32,000

Sales Discounts 500
Net sales for the month is
$31,000.
$32,000.
$16,500.
$30,500.
Yoder’s gross profit is
$48,000.
$90,000.
$54,000.
$180,000.
The primary source of revenue for merchandising companies is
the sale of merchandise.
service fees.
the sale of fixed assets the company owns.
investment income.
Mineral Makers (MM) Company keeps its inventory records using a perpetual system. At December 31,
2017 the unadjusted balance in the Inventory account is $64,000. Through a physical count on
December 31, 2017, MM determines that its actual inventory at year-end is $62,500. Which of the
following is true regarding the statement of financial position and the income statement of MM at
December 31, 2017?
Inventory is decreased and cost of goods sold is increased by $1,500.
Inventory is increased and cost of goods sold is increased by $1,500.
Inventory is increased and cost of goods sold is decreased by $1,500.
Inventory is decreased and cost of goods sold is decreased by $1,500.
Computers For You is a retailer specializing in selling computers and related equipment. During 2017,
Computers For You sells $200,000 of merchandise to Sandcastles, Inc. Computers For You incurs
$24,000 of freight costs associated with these sales. Which of the following is true regarding how this
$24,000 is treated on the financial statements?
Sandcastles, Inc. will report the $24,000 as part of inventory on the statement of financial
position.
Computers For You will report the $24,000 as part of inventory on the statement of financial
position.
Computers For You will report the $24,000 as part of operating expenses on the
income statement.
Sandcastles, Inc. will report the $24,000 as an accounts receivable on the statement of financial
position.
Which of the following is a true statement about inventory systems?
Perpetual inventory systems require more detailed inventory records.
A periodic system requires cost of goods sold be determined after each sale.
A perpetual system determines cost of goods sold only at the end of the accounting period.
Periodic inventory systems require more detailed inventory records.
Operating expenditures include salaries, utilities, advertising, and depreciation. Presentation of

operating expenses by nature
provides very detailed information, with numerous line items.

requires disclosures of additional details regarding the nature of certain expenses.
aggregates costs into groupings based on the primary functional activities in which the company
engages.
At the beginning of the year, Meng Company had an inventory of ¥500,000. During the year, the
company purchased goods costing ¥2,000,000. If Meng Company reported ending inventory of
¥600,000 and sales of ¥2,500,000, the company’s cost of goods sold and gross profit rate must be
¥1,900,000 and 76%.
¥1,900,000 and 24%.
¥1,250,000 and 50%.
¥1,250,000 and 24%.
Computers For You is a retailer specializing in selling computers and related equipment. Which of the
following would not be reported in the merchandise inventory account reported on the statement of
the financial position for Computers For You at December 31, 2017?
Computers purchased for resale during November 2017.
Shelving materials purchased during December 2017.
Freight costs related to the computers purchased in November.
Net sales is sales revenue less

sales returns and allowances.
sales returns.
sales discounts and sales returns and allowances.
sales discounts.
In a worksheet for a merchandising company, Inventory would appear in the

trial balance, adjusted trial balance, and statement of financial position columns.
trial balance and statement of financial position columns only.
trial balance, adjusted trial balance, and income statement columns.
trial balance and adjusted trial balance columns only.
Financial information is presented below:
Operating Expenses € 270,000

Sales Discounts 36,000
Sales Revenue 960,000
Gross profit would be

Gross Profit = Revenue - COGS – sales Returns –Sales Discounts
€462,000.
€420,000.
€384,000.
€498,000.
Cost of goods available for sale is computed by adding
beginning inventory to the cost of goods purchased.
beginning inventory to net purchases.
net purchases and freight-in.
purchases to beginning inventory.
Asset Classification
Assets Equity and Liabilities
Intangible assets Equity
Property, plant, and equipment Non-current liabilities
Long-term investments Current liabilities
Current assets

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Nigiri Inc. began operations on October 1, 2017.

During October, Nigiri sold ordinary shares for

The accounting process involves all of the following except

communicating financial information to users by preparing financial reports.

recording non-quantifiable economic

identifying economic events that are relevant to the business.

analyzing and interpreting financial reports.

Most assets should be valued at cost because fair values

are not relevant.

may be higher or lower than historical cost.

may not be representationally faithful.

are not useful for decision-making.

Special memos for each class of external users.

The president of a company.

The controller of a company

Equipment ₤160,000 Utilities Expense ₤ 24,000

Retained earnings at December 31, 2017 is

The first step in solving an ethical dilemma is to

identify and analyze the principal elements in the situation.

identify the alternatives.

recognize an ethical situation and the ethical issues involved

The Sarbanes-Oxley Act determines

U.S tax regulations.

internal control standards of U.S. publicly traded companies.

internal control standards as enforced by the IASB.

international tax regulations.

₤50,000 on the statement of financial position.

₤50,000 on the income statement.

₤65,000 on the income statement.

₤65,000 on the statement of financial position.

External users of accounting information include all of following except

all of these answer choices are correct.

the shareholders of Air Italy.

a potential customers of Olivetti.

the management of Pirelli.

IFRS is considered to be more

principles-based and less rules-based than GAAP.

none of these answer choices are correct.

detailed than GAAP.

Your answer is correct.

The president of a company.

The controller of a company.

Which of the following is true?

Transaction analysis is basically the same under GAAP and IFRS.

the International Accounting Standards Board.

the Chief Financial officer of Credit Suisse.

the shareholders of Royal Dutch Shell.

the State Administration of Taxation of China.

Special memos for each class of external users.

Internal users of accounting information include all of following except the

Human Resources department at Hyundai.

Marketing department at Braun.

Which of the following is an external user of accounting information?

Which one of the following is not an external user of accounting information?

All of these answer choices are correct.

Payment of income taxes.

The sale of store equipment.

The appointment of a new accounting firm to perform an audit.

The purchase of a new computer.

President of the employees' labor union.

Merchandise inventory clerk.

President of the company.

Equity at the end of the year was