intermediate accounting 18e earl stice james stice solutions manual and test bank

intermediate accounting 18e earl stice james stice  solutions manual and test bank
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Chapter 2—A Review of the Accounting Cycle

MULTIPLE CHOICE

     1.   In an accrual accounting system,
a.
all accounts have normal debit balances.
b.
a debit entry is recorded on the left-hand side of an account.
c.
liabilities, owner's capital, and dividends all have normal credit balances.
d.
revenues are recorded only when cash is received.


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

     2.   A common business transaction that would not affect the amount of owners' equity is
a.
signing a note payable to purchase equipment.
b.
payment of property taxes.
c.
billing of customers for services rendered.
d.
payment of dividends.


ANS:  A                   PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

     3.   Failure to record the expired amount of prepaid rent expense would not
a.
understate expense.
b.
overstate net income.
c.
overstate owners' equity.
d.
understate liabilities.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

     4.   On June 30, a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31:
a.
overstates owners' equity.
b.
overstates assets.
c.
understates net income.
d.
overstates both owners’ equity and assets.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

     5.   A chart of accounts is a
a.
subsidiary ledger.
b.
listing of all account titles.
c.
general ledger.
d.
general journal.


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

     6.   Which of the following criteria must be met before an event should be recorded for accounting purposes?
a.
The event must be an arm's-length transaction.
b.
The event must be repeatable in a future period.
c.
The event must be measurable in financial terms.
d.
The event must be disclosed in the reported footnotes.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

     7.   Adjusting entries normally involve
a.
real accounts only.
b.
nominal accounts only.
c.
real and nominal accounts.
d.
liability accounts only.


ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

     8.   Which of the following is an item that is reportable in the financial records of an enterprise?
a.
The value of goodwill earned through business operations
b.
The value of human resources
c.
Changes in personnel
d.
Changes in inventory costing methods


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 1
TOP:   AICPA FN-Reporting                                 MSC:              AACSB Reflective Thinking

     9.   The balance in a deferred revenue account represents an amount that is

     Earned                  Collected
a.
Yes                     Yes
b.
   Yes                     No
c.
   No                       Yes
d.
   No                       No


ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   10.   The debit and credit analysis of a transaction normally takes place when the
a.
entry is posted to a subsidiary ledger.
b.
entry is recorded in a journal.
c.
trial balance is prepared.
d.
financial statements are prepared.


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   11.   A trial balance is useful because it indicates that
a.
owners' equity is correct.
b.
net income is correct.
c.
all entries were made correctly.
d.
total debits equal total credits.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   12.   Which of the following would typically be considered a source document?
a.
Chart of accounts
b.
General ledger
c.
General journal
d.
Invoice received from seller


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   13.   Which of the following is not among the first five steps in the accounting cycle?
a.
Record transactions in journals.
b.
Record closing entries.
c.
Adjust the general ledger accounts.
d.
Post entries to general ledger accounts.


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 1
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   14.   A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue. The journal entry to correct this error would be
a.
a debit to Sales Revenue and a credit to Accounts Receivable.
b.
a debit to Sales Revenue and a credit to Unearned Revenue.
c.
a debit to Cash and a credit to Accounts Receivable.
d.
a debit to Accounts Receivable and a credit to Sales Revenue.


ANS:  A                   PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   15.   An accrued expense can be described as an amount
a.
paid and matched with earnings for the current period.
b.
paid and not matched with earnings for the current period.
c.
not paid and not matched with earnings for the current period.
d.
not paid and matched with earnings for the current period.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   16.   Which of the following errors will be detected when a trial balance is properly prepared?
a.
An amount that was entered in the wrong account
b.
A transaction that was entered twice
c.
A transaction that had been omitted
d.
None of these


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   17.   The premium on a two-year insurance policy expiring on June 30, 2015, was paid in total on July 1, 2013. The original payment was debited to the insurance expense account. The appropriate journal entry has been recorded on December 31, 2013. The balance in the prepaid asset account on December 31, 2013, should be
a.
the same as the original payment.
b.
higher than if the original payment had been initially debited to an asset account.
c.
lower than if the original payment had been initially debited to an asset account.
d.
the same as it would have been if the original payment had been initially debited to an asset account.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   18.   If an inventory account is understated at year end, the effect will be to overstate the
a.
net purchases.
b.
gross margin.
c.
cost of goods available for sale.
d.
cost of goods sold.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   19.   An adjusting entry will not take the format of which one of the following entries?
a.
A debit to an expense account and a credit to an asset account
b.
A debit to an expense account and a credit to a revenue account
c.
A debit to an asset account and a credit to a revenue account
d.
A debit to a liability account and a credit to a revenue account


ANS:  B                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   20.   The last step in the accounting cycle is to
a.
prepare a post-closing trial balance.
b.
journalize and post closing entries.
c.
prepare financial statements.
d.
journalize and post adjusting entries.


ANS:  A                   PTS:   1                    DIF:    Easy               OBJ:   LO 1
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   21.   Which of the following is not presented in an income statement?
a.
Revenues
b.
Expenses
c.
Net income
d.
Dividends


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Reporting                                 MSC:              AACSB Reflective Thinking

   22.   On March 1, 2012, Forest Co. borrowed cash and signed a 36-month, interest-bearing note on which both the principal and interest are payable on February 28, 2015. At December 31, 2014, the liability for accrued interest should be
a.
10 months' interest.
b.
22 months' interest.
c.
34 months' interest.
d.
36 months' interest.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   23.   An example of an adjusting entry involving a deferred revenue is
a.
Cash ...............................       xxx
  Unearned Rental Revenue ..........               xxx
b.
Rental Revenue .....................       xxx
  Cash .............................               xxx
c.
Unearned Rental Revenue ............       xxx
  Rental Revenue ...................               xxx
d.
Accounts Receivable ................       xxx
  Sales ............................               xxx


ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   24.   The allowance for doubtful accounts is an example of a(n)
a.
expense account.
b.
contra account.
c.
adjunct account.
d.
control account.


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   25.   Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at a cost of $27,000 on credit. The entry to record the receipt of the cattle would be
a.
Purchases ...........................   27,000
  Accounts Payable ..................               27,000
b.
Inventory ...........................   27,000
  Accounts Payable ..................               27,000
c.
Purchases ...........................   27,000
  Cash ..............................               27,000
d.
Inventory ...........................   27,000
  Cash ..............................               27,000


ANS:  A                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   26.   Which of the following is presented in a balance sheet?
a.
Prepaid expenses
b.
Revenues
c.
Net income
d.
Gains


ANS:  A                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Reporting                                 MSC:              AACSB Reflective Thinking

   27.   If an expense has been incurred but not yet recorded, then the end-of-period adjusting entry would involve
a.
a liability account and an asset account.
b.
a liability account and a revenue account.
c.
a liability and an expense account.
d.
a receivable account and a revenue account.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   28.   Failure to record depreciation expense at the end of an accounting period results in
a.
understated income.
b.
understated assets.
c.
overstated expenses.
d.
overstated assets.


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   29.   Iowa Cattle Company uses a perpetual inventory system. Iowa purchased cattle from Big D Ranch at a cost of $19,500, payable at time of delivery. The entry to record the delivery would be
a.
Purchases ...........................    19,500
  Accounts Payable ..................                 19,500
b.
Inventory ...........................    19,500
  Accounts Payable ..................                 19,500
c.
Purchases ...........................    19,500
  Cash ..............................                 19,500
d.
Inventory ...........................    19,500
  Cash ..............................                 19,500


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   30.   Beginning and ending Accounts Receivable balances were $28,000 and $24,000, respectively. If collections from clients during the period were $80,000, then total services rendered on account were apparently
a.
$76,000.
b.
$84,000.
c.
$104,000.
d.
$108,000.


ANS:  A                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   31.   For a given year, beginning and ending total liabilities were $8,400 and $10,000, respectively. At year-end, owners' equity was $26,000 and total assets were $2,000 larger than at the beginning of the year. If new capital stock issued exceeded dividends by $2,400, net income (loss) for the year was apparently
a.
($2,800).
b.
($2,000).
c.
$400.
d.
$2,800.


ANS:  B                    PTS:   1                    DIF:    Challenging    OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   32.   The Supplies on Hand account balance at the beginning of the period was $6,600. Supplies totaling $12,825 were purchased during the period and debited to Supplies on Hand. A physical count shows $3,825 of Supplies on Hand at the end of the period. The proper journal entry at the end of the period
a.
debits Supplies on Hand and credits Supplies Expense for $9,000.
b.
debits Supplies Expense and credits Supplies on Hand for $12,825.
c.
debits Supplies on Hand and credits Supplies Expense for $15,600.
d.
debits Supplies Expense and credits Supplies on Hand for $15,600.


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   33.   Arid Company paid $1,704 on June 1, 2013, for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2013, adjusting entry is
a.
debit Prepaid Insurance and credit Insurance Expense, $497.
b.
debit Insurance Expense and credit Prepaid Insurance, $497.
c.
debit Insurance Expense and credit Prepaid Insurance, $1,207.
d.
debit Prepaid Insurance and credit Insurance Expense, $1,207.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   34.   Moon Company purchased equipment on November 1, 2013, by giving its supplier a 12-month, 9 percent note with a face value of $48,000. The December 31, 2013, adjusting entry is
a.
debit Interest Expense and credit Cash, $720.
b.
debit Interest Expense and credit Interest Payable, $720.
c.
debit Interest Expense and credit Interest Payable, $1,080.
d.
debit Interest Expense and credit Interest Payable, $4,320.


ANS:  B                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   35.   In November and December 2013, Bee Company, a newly organized newspaper publisher, received $72,000 for 1,000 three-year subscriptions at $24 per year, starting with the January 2, 2014, issue of the newspaper. How much should Bee report in its 2013 income statement for subscription revenue?
a.
$0
b.
$12,000
c.
$24,000
d.
$72,000


ANS:  A                   PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   36.   On December 31 of the current year, Holmgren Company's bookkeeper made an entry debiting Supplies Expense and crediting Supplies on Hand for $12,600. The Supplies on Hand account had a $15,300 debit balance on January 1. The December 31 balance sheet showed Supplies on Hand of $11,400. Only one purchase of supplies was made during the month, on account. The entry for that purchase was
a.
debit Supplies on Hand, $8,700 and credit Cash, $8,700.
b.
debit Supplies Expense, $8,700 and credit Accounts Payable, $8,700.
c.
debit Supplies on Hand, $8,700 and credit Accounts Payable, $8,700.
d.
debit Supplies on Hand, $16,500 and credit Accounts Payable, $16,500.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   37.   The following errors were made in preparing a trial balance: the $1,350 balance of Inventory was omitted; the $450 balance of Prepaid Insurance was listed as a credit; and the $300 balance of Salaries Expense was listed as Utilities Expense. The debit and credit totals of the trial balance would differ by
a.
$1,350.
b.
$1,800.
c.
$2,100.
d.
$2,250.


ANS:  D                   PTS:   1                    DIF:    Challenging    OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   38.   Crescent Corporation's interest revenue for 2013 was $13,100. Accrued interest receivable on December 31, 2013, was $2,275 and $1,875 on December 31, 2012. The cash received for interest during 2013 was
a.
$1,350.
b.
$10,825.
c.
$12,700.
d.
$13,100.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   39.   Sky Corporation's salaries expense for 2012 was $136,000. Accrued salaries payable on December 31, 2013, was $17,800 and $8,400 on December 31, 2012. The cash paid for salaries during 2013 was
a.
$126,600.
b.
$127,600.
c.
$145,400.
d.
$153,800.


ANS:  A                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   40.   Winston Company sells magazine subscriptions for one- to three-year subscription periods. Cash receipts from subscribers are credited to Magazine Subscriptions Collected in Advance, and this account had a balance of $9,600,000 at December 31, 2013, before year-end adjustment. Outstanding subscriptions at December 31, 2013, expire as follows:

During 2014 .........................................
$2,600,000
During 2015 .........................................
3,200,000
During 2016 .........................................
1,800,000

In its December 31, 2013, balance sheet, what amount should Winston report as the balance for magazine subscriptions collected in advance?
a.
$2,000,000
b.
$3,800,000
c.
$7,600,000
d.
$9,600,000


ANS:  C                    PTS:   1                    DIF:    Challenging    OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   41.   L. Lane received $12,000 from a tenant on December 1 for four months' rent of an office. This rent was for December, January, February, and March. If Lane debited Cash and credited Unearned Rental Income for $12,000 on December 1, what necessary adjustment would be made on December 31?
a.
Unearned Rental Income .............        3,000
  Rental Income ....................                    3,000
b.
Rental Income ......................        3,000
  Unearned Rental Income ...........                    3,000
c.
Unearned Rental Income .............        9,000
  Rental Income ....................                    9,000
d.
Rental Income ......................        9,000
  Unearned Rental Income ...........                    9,000


ANS:  A                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   42.   Ingle Company paid $12,960 for a four-year insurance policy on September 1 and recorded the $12,960 as a debit to Prepaid Insurance and a credit to Cash. What adjusting entry should Ingle make on December 31, the end of the accounting period?
a.
Prepaid Insurance ..................          810
  Insurance Expense ................                      810
b.
Insurance Expense ..................        1,080
  Prepaid Insurance ................                    1,080
c.
Insurance Expense ..................        3,240
  Prepaid Insurance ................                    3,240
d.
Prepaid Insurance ..................       11,880
  Insurance Expense ................                   11,880


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   43.   Bannister Inc.'s fiscal year ended on November 30, 2013. The accounts had not been adjusted for the fiscal year ending November 30, 2013. The balance in the prepaid insurance account as of November 30, 2013, was $35,200 (before adjustment at Nov. 30, 2013) and consisted of the following policies:

Policy
Date of
Date of
Balance in
Number
Purchase
Expiration
Account
279248
 7/1/2013
 6/30/2014
$14,400
694421
12/1/2011
11/30/2013
  9,600
800616
 4/1/2012
 3/31/2014
 11,200



$35,200

The adjusting entry required on November 30, 2013, would be
a.
Insurance Expense ...................      24,000
  Prepaid Insurance .................                  24,000
b.
Insurance Expense ...................       9,600
  Prepaid Insurance .................                   9,600
c.
Insurance Expense ...................      11,200
  Prepaid Insurance .................                  11,200
d.
Insurance Expense ...................      16,400
  Prepaid Insurance .................                  16,400


ANS:  A
#279248:
$14,400 balance represents twelve months of coverage left since no adjustment has been made at Nov. 30, 2013. $14,400/12 = $1,200/ month. Policy was purchased on 7/1/13, so five months have expired, or $1,200 ´ 5 mos. = $6,000 that should be expensed for year ending 11/30/2013.

#694421:
The entire balance of $9,600 should be expensed for the year ending 11/30/2013 since the policy expired on Nov. 30, 2013, and the $9,600 balance represents the final year of prepaid insurance remaining to be expensed, assuming again that no adjustments have been made at Nov. 30, 2013, for the year then ended.

#800616:
The balance of $11,200 represents 16 months of coverage left at the beginning of fiscal year 2013. $11,200/16 = $700. 12 months of prepaid insurance should be expensed for the fiscal year ending 11/30/2013. 12 months x $700 = $8,400 to be expensed for the year ending 11/30/2013.

Total amount to be expensed at 11/30/2013:

#279248
$  6,000
#694421
$  9,600
#800616
$  8,400
Total
$24,000


PTS:   1                    DIF:    Challenging    OBJ:   LO 3               TOP:   AICPA FN-Measurement
MSC:  AACSB Analytic      

   44.   Kite Company paid $24,900 in insurance premiums during 2013. Kite showed $3,600 in prepaid insurance on its December 31, 2013, balance sheet and $4,500 on December 31, 2012. The insurance expense on the income statement for 2013 was
a.
$16,800.
b.
$24,000.
c.
$25,800.
d.
$33,000.


ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   45.   Thompson Company sublet a portion of its office space for ten years at an annual rental of $36,000, beginning on May 1. The tenant is required to pay one year's rent in advance, which Thompson recorded as a credit to Rental Income. Thompson reports on a calendar-year basis. The adjustment on December 31 of the first year should be
a.
 Rental Income .......................      12,000
   Unearned Rental Income ............                  12,000
b.
 Rental Income .......................      24,000
   Unearned Rental Income ............                  24,000
c.
 Unearned Rental Income ..............      12,000
    Rental Income ....................                  12,000
d.
 Unearned Rental Income ..............      24,000
    Rental Income ....................                  24,000


ANS:  A                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   46.   Sky Company collected $12,350 in interest during 2013. Sky showed $1,850 in interest receivable on its December 31, 2013, balance sheet and $5,300 on December 31, 2012. The interest revenue on the income statement for 2013 was
a.
$3,450.
b.
$8,900.
c.
$12,350.
d.
$14,200.


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   47.   On September 1, 2012, Star Corp. issued a note payable to Federal Bank in the amount of $450,000. The note had an interest rate of 12 percent and called for three equal annual principal payments of $150,000. The first payment for interest and principal was made on September 1, 2013. At December 31, 2013, Star should record accrued interest payable of
a.
$11,000.
b.
$12,000.
c.
$16,500.
d.
$18,000.


ANS:  B                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   48.   The following balances have been excerpted from Edwards' balance sheets:



December 31, 2013
December 31, 2012
Prepaid Insurance
$ 6,000
$ 7,500

Interest Receivable
  3,700
 14,500

Salaries Payable
 61,500
 53,000


Edwards Company paid or collected during 2013 the following items:

Insurance premiums paid
$ 41,500
Interest collected
 123,500
Salaries paid
 481,000

The insurance expense on the income statement for 2013 was
a.
$28,000.
b.
$40,000.
c.
$43,000.
d.
$55,000.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   49.   The work sheet of PSI Company shows Income Tax Expense of $9,000 and Income Tax Payable of $9,000 in the Adjustments columns. What will be the ultimate disposition of these items on the work sheet?
a.
Income Tax Expense will appear as a debit of $9,000 and Income Tax Payable as credit in the Balance Sheet columns.
b.
Income Tax Expense will appear as a debit of $9,000 and Income Tax Payable as credit in the Income Statement columns.
c.
Income Tax Expense will appear as a debit of $9,000 in the Balance Sheet columns and Income Tax Payable as credit in the Income Statement columns.
d.
Income Tax Expense will appear as a debit of $9,000 in the Income Statement columns and Income Tax Payable as credit in the Balance Sheet columns.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   50.   The following balances have been excerpted from Edwards' balance sheets:



December 31, 2013
December 31, 2012
Prepaid Insurance ............
$ 6,000
$ 7,500

Interest Receivable ..........
  3,700
 14,500

Salaries Payable .............
 61,500
 53,000


Edwards Company paid or collected during 2013 the following items:

Insurance premiums paid ......
$ 41,500
Interest collected ...........
 123,500
Salaries paid ................
 481,000

The interest revenue on the income statement for 2013 was
a.
$90,500.
b.
$112,700.
c.
$117,500.
d.
$156,500.


ANS:  B                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   51.   Chips-n-Bits Company sells service contracts for personal computers. The service contracts are for a one-year, two-year, or three-year period. All sales are for cash and all receipts are credited to Unearned Service Contract Revenues. This account had a balance of $144,000 at December 31, 2012, before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $36,000 at December 31, 2012. Service contracts still outstanding at December 31, 2012, expire as follows:

During 2013 .............................................
$30,000
During 2014 .............................................
45,000
During 2015 .............................................
20,000

What amount should be reported as unearned service contract revenues in Chips-n-Bits December 31, 2012, balance sheet?
a.
$49,000
b.
$59,000
c.
$95,000
d.
$108,000


ANS:  C                    PTS:   1                    DIF:    Challenging    OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   52.   Teller Inc. reported an allowance for doubtful accounts of $30,000 (credit) at December 31, 2013, before performing an aging of accounts receivable. As a result of the aging, Teller Inc. determined that an estimated $52,000 of the December 31, 2013, accounts receivable would prove uncollectible. The adjusting entry required at December 31, 2013, would be
a.
 Doubtful Accounts Expense ...........      22,000
   Allowance for Doubtful Accounts ...                  22,000
b.
 Allowance for Doubtful Accounts .....      22,000
   Accounts Receivable ...............                  22,000
c.
 Doubtful Accounts Expense ...........      52,000
   Allowance for Doubtful Accounts ...                  52,000
d.
 Allowance for Doubtful Accounts .....      52,000
   Doubtful Accounts Expense .........                  52,000


ANS:  A                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   53.   Comet Corporation's liability account balances at June 30, 2013, included a 10 percent note payable. The note is dated October 1, 2011, and carried an original principal amount of $600,000. The note is payable in three equal annual payments of $200,000 plus interest. The first interest and principal payment was made on October 1, 2012. In Comet's June 30, 2013, balance sheet, what amount should be reported as Interest Payable for this note?
a.
$10,000
b.
$15,000
c.
$30,000
d.
$45,000


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   54.   Scott Co. reported an allowance for doubtful accounts of $28,000 (credit) at December 31, 2013, before performing an aging of accounts receivable. As a result of the aging, Scott determined that an estimated $27,000 of the December 31, 2013, accounts receivable would prove uncollectible. The adjusting entry required at December 31, 2013, would be
a.
 Doubtful Accounts Expense ...........      27,000
   Allowance for Doubtful Accounts ...                  27,000
b.
 Doubtful Accounts Expense ...........      27,000
   Accounts Receivable ...............                  27,000
c.
 Allowance for Doubtful Accounts .....       1,000
   Doubtful Accounts Expense .........                   1,000
d.
 Doubtful Accounts Expense ...........       1,000
   Allowance for Doubtful Accounts ...                   1,000


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   55.   The following balances have been excerpted from Edwards' balance sheets:


December 31, 2013
December 31, 2012
Prepaid Insurance ...................................
$ 6,000
$ 7,500
Interest Receivable .................................
  3,700
 14,500
Salaries Payable .....................................
 61,500
 53,000

Edwards Company paid or collected during 2013 the following items:

Insurance premiums paid .........................
$ 41,500
Interest collected ....................................
 123,500
Salaries paid ...........................................
 481,000

The salary expense on the income statement for 2013 was
a.
$366,500.
b.
$472,500.
c.
$489,500.
d.
$595,500.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   56.   The use of computers in processing accounting data
a.
eliminates the need for accountants.
b.
eliminates the double entry system as a basis for analyzing transactions.
c.
eliminates the need for financial reporting standards such as those promulgated by the FASB.
d.
may result in the elimination of document trails used to verify accounting records.


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 5
TOP:   AICPA BB-Leveraging Technology                                  MSC:  AACSB Technology

   57.   The basic financial statements are listed below:

(1)
Balance sheet
(2)
Statement of retained earnings
(3)
Income statement
(4)
Statement of cash flows

In which of the following sequences does the accountant ordinarily prepare the statements?
a.
1, 4, 3, 2
b.
2, 1, 3, 4
c.
3, 2, 1, 4
d.
3, 2, 4, 1


ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 1
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   58.   Which of the following regarding accrual versus cash-basis accounting is true?
a.
The FASB believes that the cash basis is appropriate for some smaller companies, especially those in the service industry.
b.
The cash basis is less useful in predicting the timing and amounts of future cash flows of an enterprise.
c.
Application of the cash basis results in an income statement reporting only revenues.
d.
The cash basis requires a complete set of double-entry records.


ANS:  B                    PTS:   1                    DIF:    Medium          OBJ:   LO 4
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   59.   Under the cash basis of accounting,
a.
revenues are recorded when they are earned.
b.
accounts receivable would appear on the balance sheet.
c.
depreciation of assets having an economic life of more than one year is recognized.
d.
the matching principle is ignored.


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 4
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   60.   Total net income over the life of an enterprise is
a.
higher under the cash basis than under the accrual basis.
b.
lower under the cash basis than under the accrual basis.
c.
the same under the cash basis as under the accrual basis.
d.
not susceptible to measurement.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 4
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   61.   What is the correct order of the following events in the accounting process?

          I.  Financial statements are prepared.
         II. Adjusting entries are recorded.
        III. Nominal accounts are closed.

a.
I, II, III
b.
II, I, III
c.
III, II, I
d.
II, III, I


ANS:  B                    PTS:   1                    DIF:    Easy               OBJ:   LO 1
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   62.   Which of the following is true regarding the accounting process?
a.
Preparation of the trial balance ensures that all amounts have been posted to the correct accounts.
b.
Preparation of the trial balance is a step in the recording process.
c.
Preparation of the trial balance determines that total debits equal total credits.
d.
Preparation of the trial balance determines both that total debits equal total credits and that all amounts have been posted to the correct accounts.


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 1
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   63.   An example of a nominal account would be
a.
Allowance for Doubtful Accounts.
b.
Notes Payable.
c.
Prepaid Expense.
d.
Cost of Goods Sold.


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 1
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   64.   Which of the following accounts most likely would not appear in a post-closing trial balance?
a.
Retained Earnings
b.
Inventory
c.
Sales Revenue
d.
Common Stock


ANS:  C                    PTS:   1                    DIF:    Easy               OBJ:   LO 1
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   65.   Which of the following is true?
a.
Prepaid expenses are increased by a credit.
b.
Gains are increased by a debit.
c.
Losses are increased by a credit.
d.
Accumulated depreciation is increased by a credit.


ANS:  D                   PTS:   1                    DIF:    Easy               OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   66.   The following summary balance sheet account categories of Sun Company increased during 2013 by the amounts shown:

          Assets .....................$178,000          Liabilities ...........................$54,000    
         Capital Stock ............$120,000          Additional Paid-in Capital ....$12,000

The only change to retained earnings during 2013 was for $26,000 of dividends.  What was Sun Company’s net income for 2011?

a.
$34,000
b.
$26,000
c.
$18,000
d.
$8,000


ANS:  C                    PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   67.   How would proceeds received in advance from the sale of nonrefundable tickets for the Super Bowl be reported in the seller’s financial statements published before the Super Bowl?
a.
Revenue for the entire proceeds.
b.
Revenue less related costs.
c.
Unearned revenue less related costs.
d.
Unearned revenue for the entire proceeds.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Analytic      

   68.   Melville Company manufactures electronic components.  The company is a calendar-year company.  The records of the company show the following information:





Dec.31
Dec. 31




2014
2013

Inventory


 $     65,000
 $     72,500

Accounts Payable

        18,750
        12,500







Melville paid suppliers $122,500 during 2013.  What is Melville’s cost of goods sold?

a.
$136,250
b.
$123,750
c.
$121,250
d.
$108,750


ANS:  A                   PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   69.   Richards Company, a calendar-year company, sells magazine subscriptions to subscribers.  The magazine is published semiannually and is shipped to subscribers on April 15 and October 15.  Only one-year subscriptions for two issues are accepted.  Subscriptions received after the March 31 and September 30 cutoff dates are held for the following publication.  Cash is received evenly during the year and is credited to deferred subscription revenue.  During 2013, $3,600,000 of cash was received from customers.  The beginning balance for 2013 of the deferred subscription revenue account was $750,000.  What is Richards’ December 31, 2013, deferred subscription revenue balance?
a.
$2,700,000.
b.
$1,800,000.
c.
$1,650,000.
d.
$900,000.


ANS:  D                   PTS:   1                    DIF:    Medium          OBJ:   LO 2
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   70.   A bond issued June 1, 2013, by a calendar-year company pays interest on April 1 and
October 1.  A bond is a financial security issued by a corporation in return for cash borrowed from investors.  Bonds typically pay interest twice per year.  The investor makes the investment on the date the bond is issued.  Interest expense for 2013 is recognized on these bonds by the issuer for a period of
a.
Seven months.
b.
Six months.
c.
Four months.
d.
Three months.


ANS:  A                   PTS:   1                    DIF:    Medium          OBJ:   LO 3
TOP:   AICPA FN-Measurement                 MSC:  AACSB Reflective Thinking

   71.   Five percent bonds with a total face value of $12,000 were purchased at par during the year.  The last interest payment for the year was received on July 31.  The bonds pay interest semiannually.  The adjusting entry at December 31 would include a

a.
debit to interest revenue of $600.
b.
debit to interest revenue of $250.
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