CHAPTER 3 THE ACCOUNTING INFORMATION SYSTEM
CHAPTER LEARNING OBJECTIVES 1.
Unde Unders rsta tand nd basi basic c acco accoun unti ting ng term termin inol olog ogy. y.
2.
Expl Explai ain n dou doubl blee-en entr try y rule rules. s.
3.
Iden Identi tify fy step steps s in in the the acc accou ount ntin ing g cyc cycle le..
4.
Record Record transact transactions ions in ournals ournals!! post to ledger ledger accoun accounts! ts! and prepare prepare a trial trial balance. balance.
".
Explai Explain n the the reaso reasons ns for for prepar preparing ing adust adusting ing entrie entries. s.
#.
$repar $repare e financ financial ial stat stateme ements nts from from the the adus adusted ted tria triall balanc balance. e.
%.
$rep $repar are e cl closi osing ent entri ries es..
&'.
(ifferenti (ifferentiate ate the the cash cash basis of accounting accounting from the accrua accruall basis basis of accoun accounting. ting.
&).
Identi Identify fy adust adusting ing entrie entries s that that may be re*ers re*ersed. ed.
&1+. &1+.
$rep $repar are e a 1+-c 1+-col olum umn n ,or ,ors she heet et..
3()
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
TRUE'FALSE 1.
ledger ledger is ,here ,here the the compan company y initia initially lly reco records rds trans transact action ions s and selec selected ted othe otherr e*ents e*ents..
2.
/omi /omina nall 0tem 0tempo pora rary ry acco accoun unts ts are re*en re*enue ue!! expe expens nse! e! and di*id di*iden end d acco accoun unts ts and are periodically closed.
3.
Real Real 0per 0perma mane nent nt acco accoun unts ts are are re*e re*enu nue! e! expe expens nse! e! and and di*i di*ide dend nd acco accoun unts ts and and are are periodically closed.
4.
Unde Underr Inte Intern rnat atio iona nall ina inanc ncia iall Repo Report rtin ing g tan tanda dard rds s 0IR 0IR the di*i di*ide dend nds s acco accoun untt is considered a real account.
".
Under Under Intern Internati ationa onall inanc inancial ial Repor Reportin ting g tandar tandards ds 0IR 0IR the the boo boo of origin original al entry entry is also no,n as the ournal.
#.
5n the incom income e stat statem emen ent! t! debit debits s are used used to increa increase se accou account nt balan balance ces! s! ,here ,hereas as on the statement of financial position! credits are used to increase account balances.
%.
6he rule rules s for debi debitt and cred credit it and and the norm normal al balan balance ce of har hare e 7apita 7apital85 l85rdi rdinar nary y are the the same as for liabilities.
'.
5n the the income income stat stateme ement! nt! re*e re*enue nues s are incr increas eased ed by a debi debitt ,herea ,hereas s on the the statem statement ent of financial position retained earnings is increased by a credit.
).
9oth 9oth a corpor corporati ation on and and a propri proprieto etorsh rship ip commo commonly nly use use the the share share capit capital al accou account. nt.
1+.
ll liabi liabilit lity y and e:uit e:uity y accoun accounts ts are are increa increased sed on on the cred credit it side side and decr decreas eased ed on the the debit side.
11.
In genera general! l! debits debits refer refer to incre increase ases s in accoun accountt balance balances! s! and credi credits ts refer refer to decre decrease ases. s.
12. 12.
6he 6he first first step in the acco accoun unti ting ng cycle cycle is the ourn ournal ali; i;in ing g of trans transac acti tion ons s and and select selected ed other e*ents.
13.
9asic 9asic steps steps in in the record recording ing proce process ss inclu include de transf transferr erring ing the the ournal ournal info informa rmatio tion n to the appropriate account in the statement of financial position.
14.
6he tria triall balanc balance e unco*e unco*ers rs any any errors errors in in ourna ournali; li;ing ing and and postin posting g prior prior to prep prepara aratio tion n of the statement of financial position.
1".
6he tr trial ba balance ,i ,ill not balance ,hen a company debits t,o statement of financial position accounts and no income statement accounts.
1#.
$ostin $osting g is done for for income income statem statement ent acti* acti*ity ity<< acti*i acti*ity ty relate related d to statem statement ent of fina financi ncial al position does not re:uire posting.
1%. 1%.
6he 6he tria triall bala balanc nce e is a list listin ing g of all all the the acco accoun unts ts and thie thierr bala balanc nces es in the order order the the accounts appear on the statement of financial position.
.
3()
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
TRUE'FALSE 1.
ledger ledger is ,here ,here the the compan company y initia initially lly reco records rds trans transact action ions s and selec selected ted othe otherr e*ents e*ents..
2.
/omi /omina nall 0tem 0tempo pora rary ry acco accoun unts ts are re*en re*enue ue!! expe expens nse! e! and di*id di*iden end d acco accoun unts ts and are periodically closed.
3.
Real Real 0per 0perma mane nent nt acco accoun unts ts are are re*e re*enu nue! e! expe expens nse! e! and and di*i di*ide dend nd acco accoun unts ts and and are are periodically closed.
4.
Unde Underr Inte Intern rnat atio iona nall ina inanc ncia iall Repo Report rtin ing g tan tanda dard rds s 0IR 0IR the di*i di*ide dend nds s acco accoun untt is considered a real account.
".
Under Under Intern Internati ationa onall inanc inancial ial Repor Reportin ting g tandar tandards ds 0IR 0IR the the boo boo of origin original al entry entry is also no,n as the ournal.
#.
5n the incom income e stat statem emen ent! t! debit debits s are used used to increa increase se accou account nt balan balance ces! s! ,here ,hereas as on the statement of financial position! credits are used to increase account balances.
%.
6he rule rules s for debi debitt and cred credit it and and the norm normal al balan balance ce of har hare e 7apita 7apital85 l85rdi rdinar nary y are the the same as for liabilities.
'.
5n the the income income stat stateme ement! nt! re*e re*enue nues s are incr increas eased ed by a debi debitt ,herea ,hereas s on the the statem statement ent of financial position retained earnings is increased by a credit.
).
9oth 9oth a corpor corporati ation on and and a propri proprieto etorsh rship ip commo commonly nly use use the the share share capit capital al accou account. nt.
1+.
ll liabi liabilit lity y and e:uit e:uity y accoun accounts ts are are increa increased sed on on the cred credit it side side and decr decreas eased ed on the the debit side.
11.
In genera general! l! debits debits refer refer to incre increase ases s in accoun accountt balance balances! s! and credi credits ts refer refer to decre decrease ases. s.
12. 12.
6he 6he first first step in the acco accoun unti ting ng cycle cycle is the ourn ournal ali; i;in ing g of trans transac acti tion ons s and and select selected ed other e*ents.
13.
9asic 9asic steps steps in in the record recording ing proce process ss inclu include de transf transferr erring ing the the ournal ournal info informa rmatio tion n to the appropriate account in the statement of financial position.
14.
6he tria triall balanc balance e unco*e unco*ers rs any any errors errors in in ourna ournali; li;ing ing and and postin posting g prior prior to prep prepara aratio tion n of the statement of financial position.
1".
6he tr trial ba balance ,i ,ill not balance ,hen a company debits t,o statement of financial position accounts and no income statement accounts.
1#.
$ostin $osting g is done for for income income statem statement ent acti* acti*ity ity<< acti*i acti*ity ty relate related d to statem statement ent of fina financi ncial al position does not re:uire posting.
1%. 1%.
6he 6he tria triall bala balanc nce e is a list listin ing g of all all the the acco accoun unts ts and thie thierr bala balanc nces es in the order order the the accounts appear on the statement of financial position.
.
6he ccounting Information ystem
3(3
1'. 1'.
6he 6he trail trail balanc balance e is used used to prepa prepare re state stateme ment nt of finan financi cial al posit positio ion n ,hil ,hile e the the general general ledger is used to prepare the income statement.
1).
5ne purp purpose ose of of a trial trial bala balance nce is is to pro* pro*e e that that debits debits and cred credits its of of an e:ual e:ual amou amount nt are are in the general ledger.
2+.
general general ourna ournall chronol chronologi ogical cally ly lists lists trans transact action ions s and other other e*ents e*ents!! express expressed ed in terms terms of debits and credits to accounts.
21.
If a compan company y fails fails to post post one one of its our ournal nal entri entries es to its its genera generall ledger! ledger! the the trial trial balan balance ce ,ill not sho, an e:ual amount of debit and credit balance accounts.
22.
dust dusting ing entri entries es for for prepaym prepayment ents s record record the the portion portion of the the prepay prepaymen mentt that repr represe esents nts the expense incurred or the re*enue earned in the current accounting period.
23. 23.
n adu adust stme ment nt for for ,age ,age expen expense se!! earne earned d but unpa unpaid id at year year end! end! is an exam exampl ple e of an accrued expense.
24. 24.
6he 6he boo boo *alu *alue e of any depre depreci ciab able le asset asset is the the diff differ eren ence ce bet,e bet,een en its cost cost and and its its sal*age *alue.
2".
compan company y must must mae mae adust adusting ing entri entries es each each time time it prep prepare ares s an incom income e statem statement ent and and a statement of financial position.
2#.
dust dusting ing entri entries es are ofte often n prepare prepared d after after the state statemen mentt of financ financial ial posit position ion date! date! but but dated as of the statement of financial position date.
2%. 2%.
du dust stin ing g entr entrie ies s are are nece necess ssar ary y to enab enable le the the fina financ ncia iall stat statem emen ents ts to conf confor orm m to International inancial Reporting tanadard 0IR.
2'.
Each Each adusti adusting ng entry entry affec affects ts one one statem statement ent of fina financi ncial al positi position on accoun accountt and one one income income statement account.
2). 2).
docu docume ment nt prepa prepare red d to pro* pro*e e the e:uali e:uality ty of debits debits and cred credit its s after after all adust adustme ment nts s ha*e been prepared is the adusted statement of financial position.
3+. 3+.
7omp 7ompan anie ies s can can prep prepar are e the the income income state stateme ment nt and the stat statem emen entt of fina financ ncia iall posi positi tion on directly from the adusted trial balance.
31. 31.
(ebr (ebra! a! Inc. Inc. is prep prepar arin ing g its its annu annual al fina financ ncia iall stat statem emen ents ts based based on its its adu adust sted ed tria triall balance and ,ill prepare its statement of financial position first follo,ed by its income statement.
32. 32.
6he 6he endi ending ng reta retain ined ed earn earnin ings gs bala balanc nce e is repo report rted ed on both both the the reta retain ined ed earn earnin ings gs statement and the statement of financial position.
33.
6he postpost-clo closin sing g trial trial balance balance consi consists sts of of asset! asset! liab liabili ility! ty! e:uit e:uity! y! re*enu re*enue e and expen expense se accounts.
34. 34.
ll ll re*e re*enu nues es!! expens expenses es!! and the di*id di*iden ends ds accou account nt are clos closed ed throu through gh the Incom Income e ummary account.
3(/
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
3".
It is not necessary to post the closing entries to the ledger accounts because ne, re*enue and expense accounts ,ill be opened in the subse:uent accounting period.
3#.
6he closi closing ng proces process s transfe transfers rs all inco income me state statemen mentt items items to their their relate related d statem statement ent of financial position accounts 0for example! salaries expense transfers to salaries payable.
3%. 3%.
Unde Underr Inte Intern rnat atio iona nall ina inanc ncial ial Repor Reporti ting ng tanda tandard rds s 0IR 0IR the cash cash-b -bas asis is metho method d of accounting is accepted.
&3'. &3'.
6he accr accrual ual basis basis recogn recogni;e i;es s re*enu re*enue e ,hen ,hen earned earned and and expens expenses es in the the period period ,hen ,hen cash is paid.
&3). &3).
Re*e Re*ers rsin ing g entr entrie ies s are made made at the end of the the accou account ntin ing g cycle cycle to corre correct ct erro errors rs in the original recording of transactions.
&4+. &4+.
n adust adusted ed trial trial bala balance nce that that sho, sho,s s e:ual e:ual debit debit and and credit credit colu columna mnarr totals totals pro* pro*es es the the accuracy of the adusting entries.
Tr$e ' Fa*se Ans+ers , Con#e-t$a* Ite
Ans.
Ite
Ans.
Ite
Ans.
Ite
Ans.
Ite
Ans.
1. 2. 3. 4. ". #. %. '.
6 6 6
). 1+. 11. 12. 13. 14. 1". 1#.
6
1%. 1'. 1). 2+. 21. 22. 23. 24.
6 6 6 6
2". 2#. 2%. 2'. 2). 3+. 31. 32.
6 6 6 6 6 6
33. 34. 3". 3#. &3%. &3'. &3). &4+.
MULTIPLE CHOICE,Con#e-t$a* 41.
actor actors s that that shape shape an an accoun accountin ting g inform informati ation on syste system m inclu include de the the a. natu nature re of of the the bus busin ines ess. s. b. si;e si;e of the the fir firm. m. c. *olu *olume me of of data data to to be hand handle led. d. d. all all of thes these. e.
42.
n accoun accountin ting g record record ,here ,here a compan company y initial initially ly records records transa transacti ctions ons and selec selected ted other other e*ents is called the a. ledger. b. account. c. trial rial bal balance ance.. d. ournal.
6he ccounting Information ystem
3(1
43.
=hich of the follo,ing is a real 0permanent account> a. ?ood,ill b. ales c. ccounts Recei*able d. 9oth ?ood,ill and ccounts Recei*able
44.
=hich of the follo,ing is a nominal 0temporary account> a. Unearned Re*enue b. alary Expense c. In*entory d. Retained Earnings
4".
/ominal accounts are also called a. temporary accounts. b. permanent accounts. c. real accounts. d. none of these.
4#.
Under International inancial Reporting tandards 0IR real accounts include all of the follo,ing e0#e-t a. (i*idends b. ssets c. @iabilities d. E:uity
4%.
Under International inancial Reporting tandards 0IR the boo of original entry is also no,n as the a. ubsidiary ledger b. 6rial balance c. ?eneral ledger d. Aournal
4'.
=hich of the follo,ing statement is true regarding debits and credits> a. 5n the income statement! debits are used to increase account balances! ,hereas on the statement of financial position! credits are used to increase account balances. b. 9efore adustments! debits ,ill not e:ual credits in the trial balance. c. 6he rules for debit and credit and the normal balance of hare 7apital85rdinary are the same as for liabilities. d. 5n the income statement! re*enues are increased by debit ,hereas on the statement of financial position retained earnings is increased by a credit.
4).
=hich of the follo,ing accounts is reported in the E:uity section statement of financial postion> a. (i*idends. b. hare capital8ordinary. c. Re*enues. d. ll of the choices are reported in the E:uity section of the statement of financial position.
3(2
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
"+.
Re*enues are a. Impacted by debits and credits in the same ,ay that expenses are impacted by debits and credits. b. subdi*ision of e:uity! pro*iding information about ,hy e:uity increased. c. Reported on the statement of financial position as a current item. d. ll of the choices are correct regarding re*enues.
"1.
(ebit al,ays means a. right side of an account. b. increase. c. decrease. d. none of these.
"2.
6he double-entry accounting system means a. Each transaction is recorded ,ith t,o ournal entries. b. Each item is recorded in a ournal entry! then in a general ledger account. c. 6he dual effect of each transaction is recorded ,ith a debit and a credit. d. Bore than one of the abo*e.
"3.
=hen a corporation pays a note payable and interest! a. the account /otes $ayable ,ill be increased. b. the account Interest Expense ,ill be decreased. c. they ,ill debit /otes $ayable and interest expense. d. they ,ill debit 7ash.
"4.
E:uity is not affected by all a. cash receipts. b. di*idends. c. re*enues. d. expenses.
"".
6he debit and credit analysis of a transaction normally taes place a. before an entry is recorded in a ournal. b. ,hen the entry is posted to the ledger. c. ,hen the trial balance is prepared. d. at some other point in the accounting cycle.
"#.
6he accounting e:uation must remain in balance a. throughout each step in the accounting cycle. b. only ,hen ournal entries are recorded. c. only at the time the trial balance is prepared. d. only ,hen formal financial statements are prepared.
"%.
n optional step in the accounting cycle is the preparation of a. adusting entries. b. closing entries. c. a statement of cash flo,s. d. a post-closing trial balance.
6he ccounting Information ystem
3(
"'.
9asic steps in the recording process include all of the follo,ing e0#e-t a. 6ransfer the ournal information to the appropriate account in the statement of financial postion. b. naly;e each transaction for its effect on the accounts. c. Enter the transaction information in a ournal. d. ll of the choices are corrrect regarding the basic steps in the recording process.
").
6he trial balance a. $ro*es that debits are greater than credits ,hen the company has net income. b. Unco*ers any errors in ournali;ing and posting prior to preparation of the statement of financial position. c. Is useful in preparing the statement of financial position. d. ll of the choices are correct.
#+.
6he trial balance ,ill not balance ,hen a company a. ails to ournali;e a transaction. b. 5mits posting a correct ournal entry. c. $osts a ournal entry t,ice. d. (ebits t,o statement of financial position accounts and no income statement accounts.
#1.
ccounts maintained ,ithin the ledger that appear on the statement of financial position include all of the follo,ing e0#e-t a. alaries expense. b. Interest payable. c. upplies. d. hare capital8ordinary.
#2.
$osting a. ccumulates the effects of ledger entries and transfers them to the general ournal. b. Is done only for income statement acti*ity< acti*ity related to the statement of financial position does not re:uire posting. c. Is done once per year. d. 6ransfers ournal entries to the ledger accounts.
#3.
6he trial balance a. Is a listing of all the accounts and their balances in the order the accounts appear on the statement of financial position. b. Cas as its primary purpose to pro*e 0chec that all ournal entries ,ere made for the period. c. 7an be used to unco*er errors in ournali;ing and posting. d. Is used to prepare the statement of financial position ,hile the general ledger is used to prepare the income statement.
#4.
/umerous errors may exist e*en though the trial balance columns agree. =hich of the follo,ing is not one of these types of errors> a. transaction is not ournali;ed. b. 6ransposition error related to the statement of financial position. c. ournal entry is posted t,ice. d. ournal entry to purchase D1++ ,orth of e:uipment is posted as a D1!+++ purchase.
3(5
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
#".
trial balance may pro*e that debits and credits are e:ual! but a. an amount could be entered in the ,rong account. b. a transaction could ha*e been entered t,ice. c. a transaction could ha*e been omitted. d. all of these.
##.
general ournal a. chronologically lists transactions and other e*ents! expressed in terms of debits and credits. b. contains one record for each of the asset! liability! e:uity! re*enue! and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only adusting entries.
#%.
ournal entry to record the sale of in*entory on account ,ill include a a. debit to inventory. b. debit to accounts receivable. c. debit to sales. d. credit to cost of goods sold.
#'.
ournal entry to record a payment on account ,ill include a a. debit to accounts receivable . b. credit to accounts receivable. c. debit to accounts payable. d. credit to accounts payable.
#).
ournal entry to record a receipt of rent re*enue in ad*ance ,ill include a a. debit to rent revenue. b. credit to rent revenue. c. credit to cash. d. credit to unearned rent .
%+.
=hich of the follo,ing errors ,ill cause an imbalance in the trial balance> a. 5mission of a transaction in the ournal. b. $osting an entire ournal entry t,ice to the ledger. c. $osting a credit of D%2+ to ccounts $ayable as a credit of D%2+ to ccounts Recei*able. d. @isting the balance of an account ,ith a debit balance in the credit column of the trial balance.
%1.
=hich of the follo,ing is not a principal purpose of an unadusted trial balance> a. It pro*es that debits and credits of e:ual amounts are in the ledger. b. It is the basis for any adustments to the account balances. c. It supplies a listing of open accounts and their balances. d. It pro*es that debits and credits ,ere properly entered in the ledger accounts.
%2.
n adusting entry should ne4er include a. a debit to an expense account and a credit to a liability account. b. a debit to an expense account and a credit to a re*enue account. c. a debit to a liability account and a credit to re*enue account. d. a debit to a re*enue account and a credit to a liability account.
6he ccounting Information ystem %3.
%4.
3(6
=hich of the follo,ing is an example of an accrued expense> a. 5ffice supplies purchased at the beginning of the year and debited to an expense account. b. $roperty taxes incurred during the year! to be paid in the first :uarter of the subse:uent year. c. (epreciation expense. d. Rent earned during the period! to be recei*ed at the end of the year. n adusting entry to record an accrued expense in*ol*es a debit to a0an a. expense account and a credit to a prepaid account. b. expense account and a credit to 7ash. c. expense account and a credit to a liability account. d. liability account and a credit to an expense account.
%".
6he failure to properly record an adusting entry to accrue an expense ,ill result in an a. understatement of expenses and an understatement of liabilities. b. understatement of expenses and an o*erstatement of liabilities. c. understatement of expenses and an o*erstatement of assets. d. o*erstatement of expenses and an understatement of assets.
%#.
=hich of the follo,ing properly describes a deferral> a. 7ash is recei*ed after re*enue is earned. b. 7ash is recei*ed before re*enue is earned. c. 7ash is paid after expense is incurred. d. 7ash is paid in the same time period that an expense is incurred.
%%.
6he failure to properly record an adusting entry to accrue a re*enue item ,ill result in an a. understatement of re*enues and an understatement of liabilities. b. o*erstatement of re*enues and an o*erstatement of liabilities. c. o*erstatement of re*enues and an o*erstatement of assets. d. understatement of re*enues and an understatement of assets.
%'.
6he omission of the adusting entry to record depreciation expense ,ill result in an a. o*erstatement of assets and an o*erstatement of e:uity. b. understatement of assets and an understatement of e:uity. c. o*erstatement of assets and an o*erstatement of liabilities. d. o*erstatement of liabilities and an understatement of e:uity.
%).
dustments are often prepared a. after the statement of financial position date! but dated as of that date. b. after the statement of financial position date! and dated after that date. c. before the statement of financial position date! but dated as of that date. d. before the statement of financial position date! and dated after that date.
'+.
t the time a company prepays a cost a. it debits an asset account to sho, the ser*ice or benefit it ,ill recei*e in the future. b. it debits an expense account to match the expense against re*enues earned. c. its credits a liability account to sho, the obligation to pay for the ser*ice in the future. d. more than one of the abo*e.
3 ( 78
'1.
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
Co, do these prepaid expenses expire> Rent
a. b. c. d.
=ith the passage of time =ith the passage of time 6hrough use and consumption 6hrough use and consumption
Supplies
6hrough use and consumption =ith the passage of time 6hrough use and consumption =ith the passage of time
'2.
Recording the adusting entry for depreciation has the same effect as recording the adusting entry for a. an unearned re*enue. b. a prepaid expense. c. an accrued re*enue. d. an accrued expense.
'3.
Unearned re*enue on the boos of one company is liely to be a. a prepaid expense on the boos of the company that made the ad*ance payment. b. an unearned re*enue on the boos of the company that made the ad*ance payment. c. an accrued expense on the boos of the company that made the ad*ance payment. d. an accrued re*enue on the boos of the company that made the ad*ance payment.
'4.
6o compute interest expense for an adusting entry! the formula is 0principal F annual rate F a fraction. 6he numerator and denominator of the fraction are a. b. c. d.
Numerator
Denominator
@ength of time note has been outstanding @ength of note @ength of time until note matures @ength of time note has been outstanding
12 months 12 months @ength of note @ength of note
'".
dusting entries are necessary to 1. obtain a proper matching of expense to re*enue. 2. achie*e an accurate statement of assets and e:uities. 3. adust assets and liabilities to their fair *alue. a. 1 b. 2 c. 3 d. 1 and 2
'#.
=hen an item of expense is paid and recorded in ad*ance! it is normally called a0n a. prepaid expense. b. accrued expense. c. estimated expense. d. cash expense.
6he ccounting Information ystem
3 ( 77
'%.
=hen an item of re*enue or expense has been earned or incurred but not yet collected or paid! it is normally called a0n GGGGGGGGGGGG re*enue or expense. a. prepaid b. adusted c. estimated d. none of these
''.
=hen an item of re*enue is collected and recorded in ad*ance! it is normally called a0n GGGGGGGGGGG re*enue. a. accrued b. prepaid c. unearned d. cash
').
n a. b. c. d.
)+.
If! during an accounting period! an expense item has been incurred and consumed but not yet paid for or recorded! then the end-of-period adusting entry ,ould in*ol*e a. a liability account and an asset account. b. an asset or contra asset account and an expense account. c. a liability account and an expense account. d. a recei*able account and a re*enue account.
)1.
=hich of the follo,ing must be considered in estimating depreciation on an asset for an accounting period> a. 6he original cost of the asset b. Its useful life c. 6he decline of its fair *alue d. 9oth the original cost of the asset and its useful life.
)2.
=hich of the follo,ing ,ould not be a correct form for an adusting entry> a. debit to a re*enue and a credit to a liability b. debit to an expense and a credit to a liability c. debit to a liability and a credit to a re*enue d. debit to an asset and a credit to a liability
)3.
Hear-end net assets ,ould be o*erstated and current expenses ,ould be understated as a result of failure to record ,hich of the follo,ing adusting entries> a. Expiration of prepaid insurance b. (epreciation of fixed assets c. ccrued ,ages payable d. ll of these
)4.
prepaid expense can best be described as an amount a. paid and currently matched ,ith re*enues. b. paid and not currently matched ,ith re*enues. c. not paid and currently matched ,ith re*enues. d. not paid and not currently matched ,ith re*enues.
accrued expense can best be described as an amount paid and currently matched ,ith earnings. paid and not currently matched ,ith earnings. not paid and not currently matched ,ith earnings. not paid and currently matched ,ith earnings.
3 ( 7)
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
)".
n a. b. c. d.
accrued re*enue can best be described as an amount collected and reported on the income statement. collected and not reported on the income statement. not collected and reported on the income statement. not collected and not reported on the income statement.
)#.
n a. b. c. d.
unearned re*enue can best be described as an amount collected and reported on the income statement. collected and not reported on the income statement. not collected and reported on the income statement. not collected and not reported on the income statement.
)%.
company must mae adusting entries a. 6o ensure that the re*enue recognition and expense recognition principles are follo,ed. b. Each time it prepares an income statement and a statement of financial position. c. 6o account for accurals or deferrals. d. ll of the choices are correct regarding adusting entries.
)'.
=hich of the follo,ing adustments ,ould re:uire decreasing the liabilities reported on the statement of financial position> a. company uses D4++ ,orth of supplies during the year. b. company records D4++ ,orth of depreciation on e:uipment. c. company has earned D4++ of re*enue collected at the beginning of the year. d. company records D4++ of ,ages earned by employees that ,ill be paid next year.
)).
dusting entries a. re often prepared after the statement of financial position date! but dated as of the statement of financial position date. b. re necessary to enable the financial statements to conform to International inancial Reporting tandard 0IR. c. Include both accruals and deferrals. d. ll of the choices are correct regarding adusting entries.
1++.
=hich of the follo,ing statements is fa*se regarding adusting enries> a. 7ash is neither debited nor credited as a result of adusting entries. b. Each adusting entry affects one statement of financial position account and one income statement account. c. Each adusting entry affects one re*enue account and one expense account. d. dusting entries in*ol*e accruals or deferrals.
1+1.
document prepared to pro*e the e:uality of debits and credits after all adustments ha*e been prepared is the a. dusted statement of fianancial position. b. dusted trial balance. c. dusted financial statements. d. $ost-closing trial balance.
6he ccounting Information ystem
3 ( 73
1+2.
=hich of the follo,ing statements is fa*se> a. 7ompanies can prepare the income statement and the statement of financial position directly from the adusted trial balance. b. 7ompanies can prepare the statement of cash flo,s directly from the adusted trial balance. c. 6he adusted trial balance pro*es the e:uality of total debits and total credits after all adustments. d. Each adusting entry affects one statement of financial position account and one income statement account.
1+3.
(ebra! Inc. is preparing its annual financial statements based on its adusted trial balance. =hich financial statement ,ill (ebra! Inc. prepare first> a. tatement of financial position. b. Income statement. c. Retained earnings statement. d. 6here is no particular order! any financial statement may be prepared first once the adusted trial balance is prepared.
1+4.
n adusted trial balance a. is prepared after the financial statements are completed. b. pro*es the e:uality of the total debit balances and total credit balances of ledger accounts after all adustments ha*e been made. c. is a re:uired financial statement under international financial reporting standards. d. cannot be used to prepare financial statements.
1+".
=hich type of account is al,ays debited during the closing process> a. (i*idends. b. Expense. c. Re*enue. d. Retained earnings.
1+#.
=hich of the follo,ing statements best describes the purpose of closing entries> a. 6o faciliate posting and taing a trial balance. b. 6o determine the amount of net income or net loss for the period. c. 6o reduce the balances of temporary accounts to ;ero so that they may be used to accumulate the re*enues! expenses and di*idends of the next period. d. 6o complete the record of *arious transactions that ,ere started in a prior period.
1+%.
6he closing process a. Is done each time a transaction taes place and is ournali;ed. b. 6ransfers all income statement items to their related statement of financial position account 0for example! salaries expense transfers to salaries payable. c. $osts all closing entries to the appropriate general ledger account. d. ll of the choices are correct regarding the closing process.
1+'.
6he closing entries a. Bust debit or credit one income statement account and one statement of financial position account. b. Include closing the di*idends account to income summary. c. re posted to the appropriate general ledger accounts. d. ll of the choices are correct regarding closing entries.
3 ( 7/
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
1+).
6he post-closing trial balance a. 7onsists of statement of financial position accounts only. b. =ill balance if a transaction is not ournali;ed and posted! or if a transaction is ournali;ed and posted t,ice. c. ho,s that the accounting e:uation is in balance at the end of the accounting period. d. ll of the choices are correct regarding the post-closing trial balance.
11+.
Under International inancial Reporting tandards 0IR a. 6he cash-basis method of accounting is accepted. b. E*ents are recorded in the period in ,hich the e*ent occurs. c. /et income ,ill be lo,er under the cash-basis than accural-basis accounting. d. ll of the choices are correct.
111.
If ending accounts recei*able exceeds the beginning accounts recei*able a. cash collections during the period exceed the amount of re*enue earned. b. net income for the period is less than the amount of cash basis income. c. no cash ,as collected during the period. d. cash collections during the year are less than the amount of re*enue earned.
&112. Under the cash basis of accounting! re*enues are recorded a. ,hen they are earned and reali;ed. b. ,hen they are earned and reali;able. c. ,hen they are earned. d. ,hen they are reali;ed. &113. =hen con*erting from cash basis to accrual basis accounting! ,hich of the follo,ing adustments should be made to cash receipts from customers to determine accrual basis ser*ice re*enue> a. ubtract ending accounts recei*able. b. ubtract beginning unearned ser*ice re*enue. c. dd ending accounts recei*able. d. dd cash sales. &114. =hen con*erting from cash basis to accrual basis accounting! ,hich of the follo,ing adustments should be made to cash paid for operating expenses to determine accrual basis operating expenses> a. dd beginning accrued liabilities. b. ubtract beginning prepaid expense. c. ubtract ending prepaid expense. d. ubtract interest expense. &11". Re*ersing entries are 1. normally prepared for prepaid! accrued! and estimated items. 2. necessary to achie*e a proper matching of re*enue and expense. 3. desirable to exercise consistency and establish standardi;ed procedures. a. 1 b. 2 c. 3 d. 1 and 2
6he ccounting Information ystem
3 ( 71
&11#. Re*ersing entries do not apply to ,hich of the follo,ing items> a. Unearned re*enue. b. ccrued ,ages. c. $repaid insurance. d. (epreciation. &11%. dusting entries that should be re*ersed include a. all accrued re*enues. b. all accrued expenses. c. those that debit an asset or credit a liability. d. all of these. &11'. re*ersing entry should ne4er be made for an adusting entry that a. accrues unrecorded re*enue. b. adusts expired costs from an asset account to an expense account. c. accrues unrecorded expenses. d. adusts unexpired costs from an expense account to an asset account. 11).
Re*ersing entries a. Impact the income statement only. b. Impact the statement of financial position and the income statement. c. re not allo,ed under International inancial Reporting tandards0IR. d. 7hange amounts reported in the financial statements of the preceding peroid.
12+.
=hich of the follo,ing statements regarding re*ersing entries is "n#orre#t > a. (eferrals are generally entered in statement of financial position accounts! thus maing re*ersing entries unnecessary. b. ll accruals should be re*ersed. c. dusting entries for depreciation and bad debts are ne*er re*ersed. d. Re*ersing entries change amounts reported in the statement of financial position for the pre*ious period.
&121. 6he ,orsheet for haro 7o. consisted of fi*e pairs of debit and credit columns. 6he dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. 6hat item is a. net income for the period. b. beginning in*entory. c. cost of goods sold. d. /et loss for the period.
3 ( 72
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
M$*t"-*e C9o"#e Ans+ers, Con#e-t$a* Ite
41. 42. 43. 44. 4". 4#. 4%. 4'. 4). "+. "1. "2. "3. "4.
Ans.
d d d b a a d c b b d c c a
Ite
"". "#. "%. "'. "). #+. #1. #2. #3. #4. #". ##. #%. #'.
Ans.
a a d a c d a d c b d a b c
Ite
#). %+. %1. %2. %3. %4. %". %#. %%. %'. %). '+. '1. '2.
Ans.
d d d b b c a b d a a a a b
Ite
'3. '4. '". '#. '%. ''. '). )+. )1. )2. )3. )4. )". )#.
Ans.
Ite
Ans.
Ite
Ans
a a d a d c d c d d d b c b
)%. )'. )). 1++. 1+1. 1+2. 1+3. 1+4. 1+". 1+#. 1+%. 1+'. 1+). 11+.
d c d c b b b b c c c c d b
111. &112. &113. &114. &11". &11#. &11%. &11'. &11). &12+. &121.
d d c c c d d b b d d
olutions to those Bultiple 7hoice :uestions for ,hich the ans,er is none of these.J "1. left or left-side. '%. accrued.
MULTIPLE CHOICE,Co-$tat"ona* 122.
Baso 7ompany recorded ournal entries for the issuance of ordinary shares for D4+!+++! the payment of D13!+++ on accounts payable! and the payment of salaries expense of D21!+++. =hat net effect do these entries ha*e on e:uity> a. Increase of D4+!+++. b. Increase of D2%!+++. c. Increase of D1)!+++. d. Increase of D#!+++.
123.
Bune 7ompany recorded ournal entries for the declaration of RD"+!+++ of di*idends! the RD32!+++ increase in accounts recei*able for ser*ices rendered! and the purchase of e:uipment for RD21!+++. =hat net effect do these entries ha*e on e:uity> a. (ecrease of RD%1!+++. b. (ecrease of RD3)!+++. c. (ecrease of RD1'!+++. d. Increase of RD11!+++.
124.
$appy 7orporation recei*ed cash of CKD13!"++ on eptember 1! 2+1+ for one yearLs rent in ad*ance and recorded the transaction ,ith a credit to Unearned Rent. 6he (ecember 31! 2+1+ adusting entry is a. debit Rent Re*enue and credit Unearned Rent! CKD4!"++. b. debit Rent Re*enue and credit Unearned Rent! CKD)!+++. c. debit Unearned Rent and credit Rent Re*enue! CKD4!"++. d. debit 7ash and credit Unearned Rent! CKD)!+++.
6he ccounting Information ystem
3 ( 7
12".
$anda 7orporation paid cash of Rp1'!+++ on Aune 1! 2+1+ for one yearLs rent in ad*ance and recorded the transaction ,ith a debit to $repaid Rent. 6he (ecember 31! 2+1+ adusting entry is a. debit $repaid Rent and credit Rent Expense! Rp%!"++. b. debit $repaid Rent and credit Rent Expense! Rp1+!"++. c. debit Rent Expense and credit $repaid Rent! Rp1+!"++. d. debit $repaid Rent and credit 7ash! Rp%!"++.
12#.
6ate 7ompany purchased e:uipment on /o*ember 1! 2+1+ and ga*e a 3-month! )M note ,ith a face *alue of D2+!+++. 6he (ecember 31! 2+1+ adusting entry is a. debit Interest Expense and credit Interest $ayable! D1!'++. b. debit Interest Expense and credit Interest $ayable! D4"+. c. debit Interest Expense and credit 7ash! D3++. d. debit Interest Expense and credit Interest $ayable! D3++.
12%.
7hen 7ompanyNs account balances at (ecember 31! 2+1+ for ccounts Recei*able and the llo,ance for (oubtful ccounts are O32+!+++ debit and D#++ credit. ales during 2+1+ ,ere O)++!+++. It is estimated that 1M of sales ,ill be uncollectible. 6he adusting entry ,ould include a credit to the allo,ance account for a. O)!#++. b. O)!+++. c. O'!4++. d. O3!2++.
12'.
tarr 7orporation loaned =)+!+++ to another corporation on (ecember 1! 2+1+ and recei*ed a 3-month! 'M interest-bearing note ,ith a face *alue of =)+!+++. =hat adusting entry should tarr mae on (ecember 31! 2+1+> a. (ebit Interest Recei*able and credit Interest Re*enue! =1!'++. b. (ebit 7ash and credit Interest Re*enue! =#++. c. (ebit Interest Recei*able and credit Interest Re*enue! =#++. d. (ebit 7ash and credit Interest Recei*able! =1!'++.
Use the follo,ing information for :uestions 12) and 13+ company recei*es interest on a O3+!+++!+++! 'M! "-year note recei*able each pril 1. t (ecember 31! 2+1+! the follo,ing adusting entry ,as made to accrue interest recei*able Interest Recei*able ............................................................. 1!'++!+++ Interest Re*enue ..................................................... 1!'++!+++ 12).
ssuming that the company does not use re*ersing entries! ,hat entry should be made on pril 1! 2+11 ,hen the annual interest payment is recei*ed> a. 7ash ................................................................................... #++!+++ Interest Re*enue ..................................................... #++!+++ b. 7ash ................................................................................... 1!'++!+++ Interest Recei*able ................................................. 1!'++!+++ c. 7ash ................................................................................... 2!4++!+++ Interest Recei*able ................................................. 1!'++!+++ Interest Re*enue ..................................................... #++!+++ d. 7ash ................................................................................... 2!4++!+++ Interest Re*enue ..................................................... 2!4++!+++
3 ( 75
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
&13+. ssuming that the company uses re*ersing entries! ,hat entry should be made on pril 1! 2+11 ,hen the annual interest payment is recei*ed> a. 7ash ................................................................................... #++!+++ Interest Re*enue ..................................................... #++!+++ b. 7ash ................................................................................... 1!'++!+++ Interest Recei*able ................................................. 1!'++!+++ c. 7ash .................................................................................. 2!4++!+++ Interest Recei*able ................................................. 1!'++!+++ Interest Re*enue ..................................................... #++!+++ d. 7ash ................................................................................... 2!4++!+++ Interest Re*enue...................................................... 2!4++!+++ 131.
Burphy 7ompany sublet a portion of its ,arehouse for fi*e years at an annual rental of D24!+++! beginning on Bay 1! 2+1+. 6he tenant! heri 7harter! paid one yearNs rent in ad*ance! ,hich Burphy recorded as a credit to Unearned Rental Re*enue. Burphy reports on a calendar-year basis. 6he adustment on (ecember 31! 2+1+ for Burphy should be a. /o entry b. Unearned Rent Re*enue .................................................... '!+++ Rent Re*enue ......................................................... '!+++ c. Rent Re*enue ..................................................................... '!+++ Unearned Rent Re*enue ......................................... '!+++ d. Unearned Rent Re*enue .................................................... 1#!+++ Re*enue Re*enue................................................... 1#!+++
132.
(uring the first year of =ilinson 7o.Ns operations! all purchases ,ere recorded as assets. tore supplies in the amount of D1)!3"+ ,ere purchased. ctual year-end store supplies amounted to D#!4"+. 6he adusting entry for store supplies ,ill a. increase net income by D12!)++. b. increase expenses by D12!)++. c. decrease store supplies by D#!4"+. d. debit ccounts $ayable for D#!4"+.
133.
7ara! Inc. purchased supplies costing 6@2!"++ on Aanuary 1! 2+11 and recorded the transaction by increasing assets. t the end of the year 6@1!3++ of the supplies are still on hand. Co, ,ill the adusting entry impact 7ara! Inc.Ls statement of financial position at (ecember 31! 2+11> a. (ecrease ssets 6@1!3++. b. Increase E:uity 6@1!3++. c. Increase @iabilities 6@1!2++. d. (ecrease ssets 6@1!2++.
134.
7ara! Inc. purchased supplies costing 6@2!"++ on Aanuary 1! 2+11 and recorded the transaction by increasing assets. t the end of the year 6@1!3++ of the supplies are still on hand. If 7ara! Inc. does not mae the appropriate adusting entry! ,hat is the impact on its statement of financial position at (ecember 31! 2+11> a. ssets o*erstated by 6@1!2++. b. E:uity understated by 6@1!2++. c. E:uity o*erstated by 6@1!3++. d. ssets o*erstated by 6@1!3++.
6he ccounting Information ystem
3 ( 76
13".
7ara! Inc. purchased a building on Aanuary 1! 2+11 for 7C"++!+++. 6he useful life of the building is 1+ years. =hat impact ,ill the approriate adusting entry at (ecember 31! 2+11 ha*e on its statement of financial position at (ecember 31! 2+11> a. Increase E:uity 7C"+!+++. b. Increase @iabilities 7C"+!+++. c. (ecrease ssets 7C"+!+++. d. ince the adusting entry has offsetting debits and credits! there is no impact on the statement of financial position.
13#.
7ara! Inc. purchased a building on Aanuary 1! 2+11 for 7C"++!+++. 6he useful life of the building is 1+ years. 6he asset is reported on the (ecember 31! 2+11 statement of financial position at 7C4"+!+++. =hat ,as the impact of the adusting entry recorded by 7ara! Inc.> a. (ecrease E:uity 7C"+!+++. b. Increase @iabilities 7C"+!+++. c. Increase ssets 7C"+!+++. d. ll of the choices are correct regarding the impact of 7ara! Inc.Ls adusting entry at (ecember 31! 2+11.
13%.
=a*e Inn is a resort located in 7anada. =a*e Inn collects cash ,hen guest mae a reser*ation. (uring (ecember 2+11! =a*e Inn collected D#+!+++ of cash and recorded the receipt by recogni;ing unearned re*enue. 9y the end of the month =a*e Inn had earned one third of this amount! the other t,o thirds ,ill be earned during Aanuary 2+12. 6he adusting entry re:uired at (ecember 31! 2+11 ,ould impact the statement of financial position by a. Increasing E:uity D4+!+++. b. (ecreasing @iabilities D2+!+++. c. Increasing ssets D#+!+++. d. (ecreasing E:uity D2+!+++.
13'.
=a*e Inn is a resort located in 7anada. (uring (ecember 2+11!pin Aammers held its annual conference at the resort. 6he charges related to the conference total D34+!+++! of ,hich 2"M has been paid by pin Aammers. ssuming =a*e Inn fails to mae the appropriate adusting entry! ,hich of the follo,ing is true regarding =a*e InnLs (ecember 31! 2+11 ,ould impact the statement of financial position> a. E:uity is o*erstated by D2""!+++. b. E:uity is understated by D'"!+++. c. ssets are understated by D2""!+++. d. ssets are o*erstated by D'"!+++.
13)
=a*e Inn is a resort located in 7anada. (uring (ecember 2+11! pin Aammers held its annual conference at the resort. 6he charges related to the conference total D34+!+++! of ,hich 2"M has been paid by pin Aammers. ssuming pin Aammers fails to mae the appropriate adusting entry! ,hich of the follo,ing is true regarding its (ecember 31! 2+11 statement of financial position> a. E:uity is o*erstated by D2""!+++. b. E:uity is understated by D'"!+++. c. @iabilities are o*erstated by D2""!+++. d. @iabilities are o*erstated by D'"!+++.
3 ( )8
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
14+
9read 9aset pro*ides baing supplies to restaurants and grocery stores. (uring (ecember 2+11! 9read 9asetLs employees ,ored 1!2++ hours at an a*erage rate of R2+ per hour. t (ecember 31! 2+11! 9read 9aset has paid R11!+++ of salary expense. If 9read 9aset fails to mae the appropriate adusting entry! ,hich of the follo,ing is true regarding its (ecember 31! 2+11 statement of financial position> a. E:uity is o*erstated by R11!+++. b. E:uity is o*erstated by R13!+++. c. @iabilities are o*erstated by R13!+++. d. @iabilities are o*erstated by R11!+++.
141
9read 9aset pro*ides baing supplies to restuarants and grocery stores. 5n /o*ember 1! 2+11! 9read 9aset signed a R"++!+++! #-month note payable. 6he note re:uires 9read 9aset to pay interest at an annual rate of 12M. ssuming 9read 9aset maes the appropriate adusting entry! ,hat is the impact on its (ecember 31! 2+11 statement of financial position> a. n expense of R3+!+++. b. n expense of R1+!+++. c. @iability of R1+!+++. d. 6,o of the choices are correct.
142.
=a*e Inn is a resort located in 7anada. (uring (ecember 2+11! pin Aammers held its annual conference at the resort. 6he charges related to the conference total D34+!+++! of ,hich 2"M has been paid by pin Aammers. =hen =a*e Inn maes the appropriate adusting entry! ,hich of the follo,ing is part of adustment made to its (ecember 31! 2+11 statement of financial position> a. (ebit cash D2""!+++. b. 7redit re*enue D2""!+++. c. 7redit cash D2""!+++. d. 6,o of the choices are correct.
143.
9ig-Bouth rog 7orporation had re*enues of D2++!+++! expenses of D12+!+++! and di*idends of D3+!+++. =hen Income ummary is closed to Retained Earnings! the amount of the debit or credit to Retained Earnings is a a. debit of D"+!+++. b. debit of D'+!+++. c. credit of D"+!+++. d. credit of D'+!+++.
6he ccounting Information ystem
3 ( )7
Use the follo,ing information for :uestions 144 through 14# 6he income statement of (olan 7orporation for 2+11 included the follo,ing items Interest re*enue P#"!"++ alaries expense '"!+++ Insurance expense %!#++ 6he follo,ing balances ha*e been excerpted from (olan 7orporationNs statement of financial position (ecember 31! 2+11 (ecember 31! 2+1+ ccrued interest recei*able P)!1++ P%!"++ ccrued salaries payable '!)++ 4!2++ $repaid insurance 1!1++ 1!"++ &144. 6he cash recei*ed for interest during 2+11 ,as a. P"#!4++. b. P#3!)++. c. P#"!"++. d. P#%!1++. &14". 6he cash paid for salaries during 2+11 ,as a. P')!%++. b. P'+!3++. c. P'+!'++. d. P)3!)++. &14#. 6he cash paid for insurance premiums during 2+11 ,as a. P#!"++. b. P#!1++. c. P'!+++. d. P%!2++. Use the follo,ing information for :uestions 14% through 14) 5lsen 7ompany paid or collected during 2+11 the follo,ing items Insurance premiums paid Interest collected alaries paid
D 1+!4++ 33!)++ 12+!2++
6he follo,ing balances ha*e been excerpted from 5lsenNs statement of financial position (ecember 31! 2+11 (ecember 31! 2+1+ $repaid insurance D 1!2++ D 1!"++ Interest recei*able 3!%++ 2!)++ alaries payable 12!3++ 1+!#++ &14%. 6he insurance expense on the income statement for 2+11 ,as a. D%!%++. b. D1+!1++. c. D1+!%++. d. D13!1++.
3 ( ))
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
&14'. 6he interest re*enue on the income statement for 2+11 ,as a. D2%!3++. b. D33!1++. c. D34!%++. d. D4+!"++. &14). 6he salary expense on the income statement for 2+11 ,as a. D)%!3++. b. D11'!"++. c. D121!)++. d. D143!1++. &1"+. 6he 5ffice upplies account had a balance at the beginning of year 3 of Q4!+++ 0before the re*ersing entry. $ayments for purchases of office supplies during year 3 amounted to Q2"!+++ and ,ere recorded as expense. physical count at the end of year 3 re*ealed supplies costing Q4!%"+ ,ere on hand. Re*ersing entries are used by this company. 6he re:uired adusting entry at the end of year 3 ,ill include a debit to a. 5ffice upplies Expense for Q%"+. b. 5ffice upplies for Q%"+. c. 5ffice upplies Expense for Q24!2"+. d. 5ffice upplies for Q4!%"+. &1"1. t the end of 2+11! (iego 7ompany made four adusting entries for the follo,ing items 1. (epreciation expense! RD2"!+++. 2. Expired insurance! RD2!2++ 0originally recorded as prepaid insurance. 3. Interest payable! RD#!+++. 4. Rental re*enue recei*able! RD1+!+++. In the normal situation! to facilitate subse:uent entries! the adusting entry or entries that may be re*ersed is 0are a. Entry /o. 3. b. Entry /o. 4. c. Entry /o. 3 and /o. 4. d. Entry /o. 2! /o. 3 and /o. 4. &1"2. ?arcia 7orporation recei*ed cash of RD1'!+++ on ugust 1! 2+11 for one yearNs rent in ad*ance and recorded the transaction ,ith a credit to Rent Re*enue. 6he (ecember 31! 2+11 adusting entry is a. debit Rent Re*enue and credit Unearned Rent! RD%!"++. b. debit Rent Re*enue and credit Unearned Rent! RD1+!"++. c. debit Unearned Rent and credit Rent Re*enue! RD%!"++. d. debit 7ash and credit Unearned Rent! RD1+!"++. &1"3. @o, 7ompany recei*ed CKD#!4++ on pril 1! 2+11 for one yearNs rent in ad*ance and recorded the transaction ,ith a credit to a nominal account. 6he (ecember 31! 2+11 adusting entry is a. debit Rent Re*enue and credit Unearned Rent! CKD1!#++. b. debit Rent Re*enue and credit Unearned Rent! CKD4!'++. c. debit Unearned Rent and credit Rent Re*enue! CKD1!#++. d. debit Unearned Rent and credit Rent Re*enue! CKD4!'++.
6he ccounting Information ystem
3 ( )3
&1"4. ?hiou 7ompany paid P3!#++ on Aune 1! 2+11 for a t,o-year insurance policy and recorded the entire amount as Insurance Expense. 6he (ecember 31! 2+11 adusting entry is a. debit Insurance Expense and credit $repaid Insurance! P1!+"+. b. debit Insurance Expense and credit $repaid Insurance! P2!""+. c. debit $repaid Insurance and credit Insurance Expense! P1!+"+ d. debit $repaid Insurance and credit Insurance Expense! P2!""+. 1"".
5n eptember 1! 2+1+! @oo 7o. issued a note payable to /ational 9an in the amount of CKD#++!+++! bearing interest at 12M! and payable in three e:ual annual principal payments of CKD2++!+++. 5n this date! the banNs prime rate ,as 11M. 6he first payment for interest and principal ,as made on eptember 1! 2+11. t (ecember 31! 2+11! @o,e should record accrued interest payable of a. CKD24!+++. b. CKD22!+++. c. CKD1#!+++. d. CKD14!##%.
1"#.
Eaton 7o. sells maor household appliance ser*ice contracts for cash. 6he ser*ice contracts are for a one-year! t,o-year! or three-year period. 7ash receipts from contracts are credited to Unearned er*ice Re*enues. 6his account had a balance of P1!'++!+++ at (ecember 31! 2+1+ before year-end adustment. er*ice contract costs are charged as incurred to the er*ice 7ontract Expense account! ,hich had a balance of P4"+!+++ at (ecember 31! 2+1+. er*ice contracts still outstanding at (ecember 31! 2+1+ expire as follo,s (uring 2+11 P3'+!+++ (uring 2+12 "%+!+++ (uring 2+13 3"+!+++ =hat amount should be reported as Unearned er*ice Re*enues in EatonNs (ecember 31! 2+1+ statement of financial position> a. P1!3"+!+++. b. P1!3++!+++. c. P'"+!+++. d. P"++!+++.
3 ( )/
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
1"%.
In /o*ember and (ecember 2+1+! @ane 7o.! a ne,ly organi;ed maga;ine publisher! recei*ed P)+!+++ for 1!+++ three-year subscriptions at P3+ per year! starting ,ith the Aanuary 2+11 issue. @ane included the entire P)+!+++ in its 2+1+ income tax return. =hat amount should @ane report in its 2+1+ income statement for subscriptions re*enue> a. P+. b. P"!+++. c. P3+!+++. d. P)+!+++.
1"'.
5n Aune 1! 2+1+! /ott 7orp. loaned Corn Q4++!+++ on a 12M note! payable in fi*e annual installments of Q'+!+++ beginning Aanuary 2! 2+11. In connection ,ith this loan! Corn ,as re:uired to deposit Q"!+++ in a noninterest-bearing escro, account. 6he amount held in escro, is to be returned to Corn after all principal and interest payments ha*e been made. Interest on the note is payable on the first day of each month beginning Auly 1! 2+1+. Corn made timely payments through /o*ember 1! 2+1+. 5n Aanuary 2! 2+11! /ott recei*ed payment of the first principal installment plus all interest due. t (ecember 31! 2+1+! /ottNs interest recei*able on the loan to Corn should be a. Q+. b. Q4!+++. c. Q'!+++. d. Q12!+++.
1").
llen 7orp.Ns liability account balances at Aune 3+! 2+11 included a 1+M note payable. 6he Q2!4++!+++ note ,as dated 5ctober 1! 2++) and is payable in three e:ual annual payments of Q'++!+++ plus interest. 6he first interest and principal payment ,as made on 5ctober 1! 2+1+. In llenNs Aune 3+! 2+11 statement of financial position! ,hat amount should be reported as accrued interest payable for this note> a. Q1'+!+++. b. Q12+!+++. c. Q#+!+++. d. Q4+!+++.
1#+.
7ola, 7o. pays all salaried employees on a bi,eely basis. 5*ertime pay! ho,e*er! is paid in the next bi,eely period. 7ola, accrues salaries expense only at its (ecember 31 year end. (ata relating to salaries earned in (ecember 2+1+ are as follo,s @ast payroll ,as paid on 122#1+! for the 2-,ee period ended 122#1+. 5*ertime pay earned in the 2-,ee period ended 122#1+ ,as RD1+!+++. Remaining ,or days in 2+1+ ,ere (ecember 2)! 3+! 31! on ,hich days there ,as no o*ertime. 6he recurring bi,eely salaries total R D1'+!+++. ssuming a fi*e-day ,or ,ee! 7ola, should record a liability at (ecember 31! 2+1+ for accrued salaries of a. RD"4!+++. b. RD#4!+++. c. RD1+'!+++. d. RD11'!+++.
6he ccounting Information ystem
3 ( )1
1#1.
6olan 7orp.Ns trademar ,as licensed to Eddy 7o. for royalties of 1"M of sales of the trademared items. Royalties are payable semiannually on Barch 1" for sales in Auly through (ecember of the prior year! and on eptember 1" for sales in Aanuary through Aune of the same year. 6olan recei*ed the follo,ing royalties from Eddy Barch 1" eptember 1" 2+1+ RD"!+++ RD%!"++ 2+11 #!+++ '!"++ Eddy estimated that sales of the trademared items ,ould total R D4+!+++ for Auly through (ecember 2+11. In 6olanNs 2+11 income statement! the royalty re*enue should be a. RD14!"++. b. RD1#!+++. c. RD2+!"++. d. RD22!+++.
1#2.
t (ecember 31! 2+1+! uoLs 9outi:ue had 1!+++ gift certificates outstanding! ,hich had been sold to customers during 2+1+ for P"+ each. ueLs operates on a gross margin of #+M of its sales. =hat amount of re*enue pertaining to the 1!+++ outstanding gift certificates should be deferred at (ecember 31! 2+1+> a. P+. b. P2+!+++. c. P3+!+++. d. P"+!+++.
&1#3. 7ompared to the accrual basis of accounting! the cash basis of accounting o*erstates income by the net increase during the accounting period of the a. b. c. d.
ccounts Recei*able /o /o Hes Hes
ccrued Expenses $ayable /o Hes /o Hes
&1#4. ?regg 7orp. reported re*enue of Rp1!1++!+++ in its accrual basis income statement for the year ended Aune 3+! 2+11. dditional information ,as as follo,s ccounts recei*able Aune 3+! 2+1+ Rp 3"+!+++ ccounts recei*able Aune 3+! 2+11 "3+!+++ Uncollectible accounts ,ritten off during the fiscal year 13!+++ Under the cash basis! ?regg should report re*enue of a. Rp #'%!+++. b. Rp %++!+++. c. Rp )+%!+++. d. Rp )33!+++. &1#". Aim Hount! B.(.! eeps his accounting records on the cash basis. (uring 2+11! (r. Hount collected Rp 3#+!+++ from his patients. t (ecember 31! 2+1+! (r. Hount had accounts recei*able of Rp "+!+++. t (ecember 31! 2+11! (r. Hount had accounts recei*able of Rp %+!+++ and unearned re*enue of Rp 1+!+++. 5n the accrual basis! ho, much ,as (r. HountNs patient ser*ice re*enue for 2+11> a. Rp 31+!+++. b. Rp 3%+!+++. c. Rp 3'+!+++. d. Rp 3)+!+++.
3 ( )2
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
&1##. 6he follo,ing information is a*ailable for ce 7ompany for 2+1+ (isbursements for purchases Increase in trade accounts payable (ecrease in merchandise in*entory
D1!+"+!+++ %"!+++ 3+!+++
7osts of goods sold for 2+1+ ,as a. D1!1""!+++. b. D1!+)"!+++. c. D1!++"!+++. d. D)4"!+++.
M$*t"-*e C9o"#e Ans+ers, Co-$tat"ona* Ite
Ans.
Ite
Ans.
Ite
Ans
Ite
Ans
Ite
Ans
Ite
Ans.
122. 123. 124. 12". 12#. 12%. 12'. 12).
c c c c d b c c
13+. 131. 132. 133. 134. 13". 13#. 13%.
d d b d a c a b
13'. 13). 14+. 141. 142. 143. &144. &14".
c a b c b d b b
&14#. &14%. &14'. &14). &1"+. &1"1. &1"2.
d c c c d c b
&1"3. &1"4. 1"". 1"#. 1"%. 1"'. 1").
a d c b a c b
1#+. 1#1. 1#2. &1#3. &1#4. &1#". &1##.
b a d b c b a
6he ccounting Information ystem
3 ( )
E:ERCISES E0. 3(72S(efinitions.
$ro*ide clear! concise ans,ers for the follo,ing. 1. =hat is the accrual basis of accounting> 2. =hat is an accrued expense> 3. =hat is accrued re*enue> 4. =hat is a prepaid expense> ". =hat is unearned re*enue> &#. tate the rule that indicates ,hich adusting entries for prepaid and unearned items should be re*ersed. So*$t"on 3(72
1. 6he accrual basis of accounting recogni;es re*enue ,hen earned and recogni;es expenses in the period incurred. 2. n accrued expense is incurred! but ,ill be paid in the future. 3. ccrued re*enue is earned! but ,ill be collected in the future. 4. prepaid expense is paid! but ,ill be incurred in the future. ". Unearned re*enue is collected! but ,ill be earned in the future. &#. dusting entries that create an asset or a liability account should be re*ersed. 6his ,ould include prepaid and unearned items originally recorded in a re*enue or expense account.
E0. 3(725S6erminology.
In the space pro*ided at the right! ,rite the ,ord or phrase that is defined or indicated. 1. Re*enue!expense and di*idend accounts.
1. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
2. n optional step in the accounting cycle.
2. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
3. re*enue collected! but not earned.
3. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
4. re*enue earned! but not collected.
4. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
". sset! liability! and e:uity accounts.
". GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
#. n expense paid! but not incurred.
#. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
%. n expense incurred! but not paid.
%. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
3 ( )5
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
So*$t"on 3(725
1. 2. 3. 4.
/ominal 0temporary accounts. Re*ersing entries. Unearned re*enue. ccrued re*enue.
". Real 0permanent accounts. #. $repaid expense. %. ccrued expense.
E0. 3(726Sccrued items and deferred 0unearned or prepaid items.
International financial reporting standards re:uire the use of accruals and deferrals in the determination of income. Co, is income determined under the accrual basis of accounting> Include in your ans,er ,hat constitutes an accrued item and a deferred 0prepaid item! and gi*e appropriate examples of each.
So*$t"on 3(726
ccrual accounting recogni;es and reports the effects of transactions and other e*ents in the time periods to ,hich they relate rather than only ,hen cash is recei*ed or paid. ccrual accounting attempts to match re*enues and the expenses associated ,ith those re*enues in order to determine net income for an accounting period. n accrued item is an item of re*enue or expense that has been earned or incurred during the period! but has not yet been collected or paid in cash. n example of an accrued re*enue is rent for the last month of an accounting period that has been earned by a landlord but not yet paid by the tenant. n example of an accrued expense is salaries incurred for the last ,ee of an accounting period that are not payable until the subse:uent accounting period. deferred 0unearned or prepaid item is an item of re*enue or expense that has been recei*ed or paid in cash! but has not yet been earned or consumed. n example of a deferred re*enue is unearned subscription re*enue collected in ad*ance of being earned. n example of a deferred expense is an insurance premium paid at the end of an accounting period ,hich ,ill pro*ide insurance co*erage for the first six months of the subse:uent period.
E0. 3(78Sdusting entries.
$resent! in ournal form! the adustments that ,ould be made on Auly 31! 2+11! the end of the fiscal year! for each of the follo,ing. 1. 6he supplies in*entory on ugust 1! 2+1+ ,as P%!3"+. upplies costing P2+!1"+ ,ere ac:uired during the year and charged to the supplies in*entory. count on Auly 31! 2+11 indicated supplies on hand of P'!'1+. 2. 5n pril 3+! a ten-month! )M note for P2+!+++ ,as recei*ed from a customer. &3. 5n Barch 1! P12!+++ ,as collected as rent for one year and a nominal account ,as credited.
6he ccounting Information ystem
3 ( )6
So*$t"on 3(78
1. upplies Expense .................................................................... upplies ........................................................................
1'!#)+
2. Interest Recei*able .................................................................. Interest Re*enue ...........................................................
4"+
&3. Rent Re*enue .......................................................................... Unearned Re*enue ..................................................................
%!+++
1'!#)+ 4"+ %!+++
E0. 3(77Sdusting entries.
Reed 7o. ,ishes to enter receipts and payments in such a manner that adustments at the end of the period ,ill not re:uire re*ersing entries at the beginning of the next period. Record the follo,ing transactions in the desired manner and gi*e the adusting entry on (ecember 31! 2+1+. 06,o entries for each part. 1. n insurance policy for t,o years ,as ac:uired on pril 1! 2+1+ for D'!+++. 2. Rent of D12!+++ for six months for a portion of the building ,as recei*ed on /o*ember 1! 2+1+.
So*$t"on 3(77
1. $repaid Insurance .................................................................... 7ash ............................................................................. Insurance Expense ................................................................... $repaid Insurance ......................................................... 2. 7ash ....................................................................................... Unearned Rent .............................................................. Unearned Rent ......................................................................... Rent Re*enue ...............................................................
E0. 3(7)
'!+++ '!+++ 3!+++ 3!+++ 12!+++ 12!+++ 4!+++ 4!+++
3 ( 38
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
6he adusted trial balance of Ryan inancial $lanners appears belo,. Using the information from the adusted trial balance! you are to prepare for the month ending (ecember 31 1. 2. 3.
an income statement. a retained earnings statement. a statement of financial position. RH/ I//7I@ $@//ER dusted 6rial 9alance (ecember 31! 2+12
7ash ............................................................................................... ccounts Recei*able....................................................................... 5ffice upplies................................................................................ 5ffice E:uipment............................................................................. ccumulated (epreciationS5ffice E:uipment................................ ccounts $ayable............................................................................ Unearned Re*enue......................................................................... hare 7apital85rdinary................................................................... Retained Earnings........................................................................... (i*idends ....................................................................................... er*ice Re*enue............................................................................. 5ffice upplies Expense................................................................. (epreciation Expense..................................................................... Rent Expense..................................................................................
(ebit P 4!4++ 2!2++ 1!'++ 1"!+++
7redit
P 4!+++ 3!'++ "!+++ 1+!+++ 4!4++ 2!"++ 3!%++ #++ 2!"++ 1!)++ P3+!)++
GGGGGG P3+!)++
6he ccounting Information ystem So*$t"on 3(7)
1.
02+ min RH/ I//7I@ $@//ER Income tatement or the Bonth Ended (ecember 31! 2+12
Re*enues er*ice re*enue......................................................................... Expenses (epreciation expense................................................................ Rent expense............................................................................ 5ffice supplies expense............................................................. 6otal expenses....................................................................... /et loss...........................................................................................
2.
P 3!%++ P2!"++ 1!)++ #++ "!+++ P 01!3++
RH/ I//7I@ $@//ER Retained Earnings tatement or the Bonth Ended (ecember 31! 2+12
Retained earnings! (ecember 1...................................................... @ess /et loss.................................................................................. (i*idends............................................................................... Retained earnings! (ecember 31....................................................
3.
3 ( 37
P 4!4++ P1!3++ 2!"++
3!'++ D#++
RH/ I//7I@ $@//ER tatement of inancial $osition (ecember 31! 2+12 ssets
5ffice e:uipment............................................................................. P 1"!+++ @ess ccumulated depreciationSoffice e:uipment........................ 4!+++ 5ffice supplies................................................................................. ccounts recei*able........................................................................ 7ash................................................................................................ 6otal assets..............................................................................
11!+++ 1!'++ 2!2++ P 4!4++ P1)!4++
E:uity and @iabilities E:uity hare capital8ordinary............................................................... P 1+!+++ Retained earnings..................................................................... #++ @iabilities ccounts payable...................................................................... 3!'++ Unearned re*enue..................................................................... "!+++ 6otal liabilities................................................................ 6otal e:uity and liabilities...............................................
P 1+!#++
'!'++ P1)!4++
3 ( 3)
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
;E0. 3(73S7ash basis *s. accrual basis of accounting.
7ontrast the cash basis of accounting ,ith the accrual basis of accounting. ;So*$t"on 3(73
6he essential difference bet,een the cash basis and the accrual basis of accounting relates to the timing of the recognition of re*enues and expenses. Under the cash basis of accounting! the effects of transactions and other e*ents are recogni;ed and reported only ,hen cash is recei*ed or paid. Under the accrual basis of accounting! these effects are recogni;ed and reported in the time periods to ,hich they relate! regardless of the time of the receipt or payment of cash. 9ecause no attempt is made under the cash basis of accounting to match re*enues and the expenses associated ,ith those re*enues! cash basis financial statements are not in accordance ,ith international financial reporting standards. ;E0. 3(7/Sccrual basis.
ales salaries paid during 2+1+ ,ere P#+!+++. d*ances to salesmen ,ere P1!1++ on Aanuary 1! 2+1+! and P'++ on (ecember 31! 2+1+. ales salaries accrued ,ere P1!3#+ on Aanuary 1! 2+1+! and P1!3'+ on (ecember 31! 2+1+. ho, the computation of sales salaries on an accrual basis for 2+1+. ;So*$t"on 3(7/
P#+!+++ T P1!1++ 8 P'++ 8 P1!3#+ T P1!3'+ P#+!32+.
;E0. 3(71Sccrual basis.
6he records for 6odd Inc. sho,ed the follo,ing for 2+1+ ccrued expenses $repaid expenses 7ash paid during the year for expenses! RD42!"++
Aan. 1 RD1!'++ %2+
(ec. 31 RD2!1"+ '%+
ho, the computation of the amount of expense that should be reported on the income statement. ;So*$t"on 3(71
RD42!"++ 8 RD1!'++ T RD2!1"+ T RD%2+ 8 RD'%+ RD42!%++.
6he ccounting Information ystem
3 ( 33
;E0. 3(72Sccrual basis.
6he records for Kiley 7ompany sho,ed the follo,ing for 2+1+ Aan. 1 Unearned re*enue CKD1!#++ ccrued re*enue 1!2#+ 7ash collected during the year for re*enue! CKD%+!+++
(ec. 31 CKD2!1#+ )2+
ho, the computation of the amount of re*enue that should be reported on the income statement. ;So*$t"on 3(72
CKD%+!+++ T CKD1!#++ 8 CKD2!1#+ 8 CKD1!2#+ T CKD)2+ CKD#)!1++. ;E0. 3(7S7ash basis.
Re*enue on the income statement ,as D12"!'++. ccounts recei*able ,ere D4!"++ on Aanuary 1 and D3!"4+ on (ecember 31. Unearned re*enue ,as D1!+"+ on Aanuary 1 and D1!#%+ on (ecember 31. ho, the computation of re*enue for the year on a cash basis. ;So*$t"on 3(7
D12"!'++ T D4!"++ 8 D3!"4+ 8 D1!+"+ T D1!#%+ D12%!3'+.
PROBLEMS Pr. 3(75 Sdusting entries and account classification.
elected amounts from 6rent 7ompanyNs trial balance of 12311+ appear belo, 1. ccounts $ayable P 1#+!+++ 2. ccounts Recei*able 1"+!+++ 3. ccumulated (epreciationSE:uipment 2++!+++ 4. llo,ance for (oubtful ccounts 2+!+++ ". 9onds $ayable "++!+++ #. 7ash 1"+!+++ %. E:uipment '4+!+++ '. Insurance Expense 3+!+++ ). Interest Expense 1+!+++ 1+. Berchandise In*entory 3++!+++ 11. /otes $ayable 0due #111 2++!+++ 12. $repaid Rent 1"+!+++ 13. Retained Earnings '1'!+++ 14. alaries and =ages Expense 32'!+++ 1". hare 7apital85rdinary #+!+++ 0ll of the abo*e accounts ha*e their standard or normal debit or credit balance.
3 ( 3/
$art .
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
$repare adusting ournal entries at year end! (ecember 31! 2+1+! based on the follo,ing supplemental information.
a. 6he e:uipment has a useful life of 1" years ,ith no sal*age *alue. 0traight-line method being used. b. Interest accrued on the bonds payable is P1"!+++ as of 12311+. c. Expired insurance at 12311+ is P2+!+++. d. 6he rent payment of P1"+!+++ co*ered the six months from /o*ember 3+! 2+1+ through Bay 31! 2+11. e. alaries and ,ages earned but unpaid at 12311+! P22!+++.
$art 9.
a. b. c. d. e.
Indicate the proper statement of financial position classification of each of the 1" numbered accounts in the 12311+ trial balance before adjustments by placing appropriate numbers after each of the follo,ing classifications. If the account title ,ould appear on the income statement! do not put the number in any of the classifications.
$roperty! plant! and e:uipment 7urrent assets E:uity /on-current liabilities 7urrent liabilities
So*$t"on 3(75
$art . a. (epreciation ExpenseSE:uipment 0P'4+!+++ 8 + ÷ 1" ................ ccumulated (epreciationSE:uipment ...................... .......
"#!+++ "#!+++
b. Interest Expense ............................................................................ Interest $ayable ..................................................................
1"!+++
c. $repaid Insurance .......................................................................... Insurance Expense 0P3+!+++ - P2+!+++ .............................
1+!+++
d. Rent Expense 0P1"+!+++ ÷ #.......................................................... $repaid Rent .......................................................................
2"!+++
e. alaries and =ages Expense ........................................................ alaries and =ages $ayable ..............................................
22!+++
$art 9. a. $roperty! plant! and e:uipmentS3! % b. 7urrent assetsS2! 4! #! 1+! 12 c. E:uityS13! 1" d. /on-current liabilitiesS" e. 7urrent liabilitiesS1! 11
1"!+++ 1+!+++
2"!+++ 22!+++
6he ccounting Information ystem
3 ( 31
Pr. 3(76 Sdusting entries.
(ata relating to the balances of *arious accounts affected by adusting or closing entries appear belo,. 06he entries ,hich caused the changes in the balances are not gi*en. Hou are ased to supply the missing ournal entries ,hich ,ould logically account for the changes in the account balances. 1. Interest recei*able at 111+ ,as Q1!+++. (uring 2+1+ cash recei*ed from debtors for interest on outstanding notes recei*able amounted to Q"!+++. 6he 2+1+ income statement sho,ed interest re*enue in the amount of Q"!4++. Hou are to pro*ide the missing adusting entry that must ha*e been made! assuming re*ersing entries are not made. 2. Unearned rent at 111+ ,as Q"!3++ and at 12311+ ,as Q'!+++. 6he records indicate cash receipts from rental sources during 2+1+ amounted to Q4+!+++! all of ,hich ,as credited to the Unearned Rent ccount. Hou are to prepare the missing adusting entry. 3. ccumulated depreciationSe:uipment at 111+ ,as Q23+!+++. t 12311+ the balance of the account ,as Q2%+!+++. (uring 2+1+! one piece of e:uipment ,as sold. 6he e:uipment had an original cost of Q4+!+++ and ,as 34 depreciated ,hen sold. Hou are to prepare the missing adusting entry. 4. llo,ance for doubtful accounts on 111+ ,as Q"+!+++. 6he balance in the allo,ance account on 12311+ after maing the annual adusting entry ,as Q#"!+++ and during 2+1+ bad debts ,ritten off amounted to Q3+!+++. Hou are to pro*ide the missing adusting entry. ". $repaid rent at 111+ ,as Q)!+++. (uring 2+1+ rent payments of Q12+!+++ ,ere made and charged to rent expense. 6he 2+1+ income statement sho,s as a general expense the item rent expense in the amount of Q12"!+++. Hou are to prepare the missing adusting entry that must ha*e been made! assuming re*ersing entries are not made. #. Retained earnings at 111+ ,as Q1"+!+++ and at 12311+ it ,as Q21+!+++. (uring 2+1+! cash di*idends of Q"+!+++ ,ere paid and a share di*idend of Q4+!+++ ,as issued. 9oth di*idends ,ere properly charged to retained earnings. Hou are to pro*ide the missing closing entry. So*$t"on 3(76
1. Interest Recei*able ................................................................... Interest Re*enue ........................................................... Interest re*enue per boos Q"!4++ Interest re*enue recei*ed related to 2+1+ 0Q"!+++ 8 Q1!+++ 4!+++ Interest accrued Q1!4++
1!4++
2. Unearned Rent Re*enue .......................................................... Rent Re*enue ............................................................... 7ash receipts Q4+!+++ 9eginning balance "!3++ Ending balance 0'!+++ Rent re*enue Q3%!3++
3%!3++
1!4++
3%!3++
3 ( 32
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
So*$t"on 3(76 0cont.
3.
(epreciation Expense .............................................................. ccumulated (epreciationSE:uipment ........................ Ending balance Q2%+!+++ 9eginning balance 23+!+++ (ifference 4+!+++ =rite-off at time of sale 34 V D4+!+++ 3+!+++ Q %+!+++
%+!+++
4. 9ad (ebt Expense .................................................................... llo,ance for (oubtful ccounts ................................... Ending balance Q#"!+++ 9eginning balance "+!+++ (ifference 1"!+++ =ritten off 3+!+++ Q4"!+++
4"!+++
". Rent Expense ........................................................................... $repaid Rent ................................................................. Rent expense Q12"!+++ @ess cash paid 12+!+++ Reduction in prepaid rent account Q "!+++
"!+++
%+!+++
4"!+++
"!+++
#. Income ummary ..................................................................... 1"+!+++ Retained Earnings ........................................................ Ending balance Q21+!+++ 9eginning balance 1"+!+++ (ifference #+!+++ 7ash di*idends Q"+!+++ hare di*idends 4+!+++ )+!+++ Q1"+!+++
1"+!+++
Pr. 3(758 Sdusting and closing entries.
6he follo,ing trial balance ,as taen from the boos of is 7orporation on (ecember 31! 2+1+. ccount 7ash ccounts Recei*able /ote Recei*able llo,ance for (oubtful ccounts Berchandise In*entory $repaid Insurance urniture and E:uipment ccumulated (epreciation--. W E. ccounts $ayable hare 7apital85rdinary Retained Earnings ales 7ost of ?oods old alaries Expense Rent Expense 6otals
(ebit D 12!+++ 4+!+++ %!+++
7redit
D 1!'++ 44!+++ 4!'++ 12"!+++ 1"!+++ 1+!'++ 44!+++ ""!+++ 2'+!+++ 111!+++ "+!+++ 12!'++ D4+#!#++
D4+#!#++
6he ccounting Information ystem
3 ( 3
Pr. 3(758 0cont.
t year end! the follo,ing items ha*e not yet been recorded. a. Insurance expired during the year! D2!+++. b. Estimated bad debts! 1M of gross sales. c. (epreciation on furniture and e:uipment! 1+M per year. d. Interest at #M is recei*able on the note for one full year. &e. Rent paid in ad*ance at (ecember 31! D"!4++ 0originally charged to expense. f. ccrued salaries at (ecember 31! D"!'++. Instr$#t"ons
0a $repare the necessary adusting entries. 0b $repare the necessary closing entries. So*$t"on 3(758
0a dusting Entries a. Insurance Expense ................................................................ $repaid Insurance ......................................................... b. 9ad (ebt Expense ................................................................. llo,ance for (oubtful ccounts ................................... c. (epreciation Expense ............................................................ ccumulated (epreciation--. W E. ............................... d. Interest Recei*able ................................................................ Interest Re*enue ........................................................... &e. $repaid Rent .......................................................................... Rent Expense ............................................................... f. alaries Expense ................................................................... alaries $ayable ........................................................... 0b 7losing Entries ales ............................................................................................ Interest Re*enue ........................................................................... Income ummary ................................................................
2!+++ 2!+++ 2!'++ 2!'++ 12!"++ 12!"++ 42+ 42+ "!4++ "!4++ "!'++ "!'++
2'+!+++ 42+ 2'+!42+
Income ummary .......................................................................... alaries Expense ................................................................ Rent Expense ..................................................................... (epreciation Expense ......................................................... 9ad (ebt Expense .............................................................. Insurance Expense ............................................................. 7ost of ?oods old .............................................................
1)1!"++
Income ummary .......................................................................... Retained Earnings ..............................................................
''!)2+
""!'++ %!4++ 12!"++ 2!'++ 2!+++ 111!+++ ''!)2+
3 ( 35
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
;Pr. 3(757 S7ash to accrual accounting.
6he follo,ing information is a*ailable for Renn 7orporationNs first year of operations $ayment for merchandise purchases P2"+!+++ Ending merchandise in*entory 11+!+++ ccounts payable 0balance at end of year #+!+++ 7ollections from customers 21+!+++ 6he balance in accounts payable relates only to merchandise purchases. ll merchandise items ,ere mared to sell at 4+M abo*e cost. =hat should be the ending balance in accounts recei*able! assuming all accounts are deemed collectible> ;So*$t"on 3(757
ince this is the first year of operations and there ,ere P21+!+++ of accounts recei*able collected! one must compute total sales to determine the ending balance in accounts recei*able. 7ost of goods sold is P2++!+++ assuming the accounts payable are for in*entory 0the P2"+!+++ constitutes only payments made for purchases. ince the marup is 4+M on cost! the sales are P2'+!+++ 0P2++!+++ V 14+M. ales of P2'+!+++ less collections of P21+!+++ results in an ending accounts recei*able balance of P%+!+++ as calculated belo,. 7ash purchases $ balance 6otal purchases Ending in*entory 7ost of goods sold ales @ess collections Ending R
P2"+!+++ #+!+++ 31+!+++ 11+!+++ 2++!+++ V 14+M 2'+!+++ 21+!+++ P%+!+++
;Pr. 3(75) Sccrual accounting.
Hates 7ompanyNs records pro*ide the follo,ing information concerning certain account balances and changes in these account balances during the current year. 6ransaction information is missing from each item belo,. Instr$#t"ons
$repare the entry to record the missing information for each account. 07onsider each independently. 1. ccounts Recei*able Aan. 1! balance O41!+++! (ec. 31! balance O""!+++! uncollectible accounts ,ritten off during the year! O#!+++< accounts recei*able collected during the year! O134!+++. $repare the entry to record sales. 2. llo,ance for (oubtful ccounts Aan. 1! balance O4!+++! (ec. 31! balance O%!"++! uncollectible accounts ,ritten off during the year! O2"!+++. $repare the entry to record bad debt expense. 3. ccounts $ayable Aan. 1! balance O2"!+++! (ec. 31! balance O44!+++! purchases on account for the year! O11+!+++. $repare the entry to record payments on account. 4. Interest Recei*able Aan. 1 accrued! O3!+++! (ec. 31 accrued! O2!1++! earned for the year! O3+!+++. $repare the entry to record cash interest recei*ed.
6he ccounting Information ystem
3 ( 36
;So*$t"on 3(75)
1. Ending balance 9eginning balance (ifference Uncollectible accounts Recei*ables collected ales for period
O ""!+++ 41!+++ 14!+++ #!+++ 134!+++ O1"4!+++
Ending balance $lus Rec. collected =rite-offs 5R @ess 9eginning balance ales for period
ccounts Recei*able ...................................................................... ales ................................................................................... 2. Ending balance 9eginning balance (ifference =rite-off dusting entry
O %!"++ 4!+++ 3!"++ 2"!+++ O2'!"++
1"4!+++
O 44!+++ 2"!+++ 1)!+++ 11+!+++ O )1!+++
O3+!+++ 02!1++ 3!+++ O3+!)++
O %!"++ 2"!+++ 32!"++ 4!+++ O2'!"++
5R 9eginning balance dusting entry 2'!"++
2'!"++
9eginning balance $lus purchases
O 2"!+++ 11+!+++ 13"!+++ 44!+++ O )1!+++
5R @ess ending balance $ayments
ccounts $ayable............................................................................ 7ash ................................................................................... 4. Re*enue Earned @ess (ec. 31 accrual $lus Aan. 1 accrual 7ash recei*ed
1"4!+++
Ending balance =rite-off
9ad (ebt Expense ......................................................................... llo,ance for (oubtful ccounts ........................................ 3. Ending balance 9eginning balance (ifference $urchases $ayments
)1!+++ )1!+++
9eginning balance $lus re*enue earned
O 3!+++ 3+!+++ 33!+++ 2!1++ O3+!)++
5R @ess ending balance 7ash recei*ed
7ash ............................................................................................... Interest Recei*able............................................................. 06his entry assumes that the O3+!+++ interest earned ,as first recorded as a recei*able.
O ""!+++ 134!+++ #!+++ 1)"!+++ 41!+++ O1"4!+++
3+!)++ 3+!)++
3 ( /8
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
;Pr. 3(753 Sccrual basis.
?rier W ssociates maintains its records on the cash basis. Hou ha*e been engaged to con*ert its cash basis income statement to the accrual basis. 6he cash basis income statement! along ,ith additional information! follo,s ?rier W ssociates Income tatement 07ash 9asis or the Hear Ended (ecember 31! 2+11 7ash receipts from customers 7ash payments =ages 6axes Insurance Interest /et income
CKD4"+!+++ CKD1"+!+++ #"!+++ 4+!+++ 2"!+++
2'+!+++ CKD1%+!+++
dditional information ccounts recei*able =ages payable 6axes payable $repaid insurance ccumulated depreciation Interest payable
9alances at 1231 2+11 2+1+ CKD"+!+++ CKD3+!+++ 1+!+++ 2+!+++ 14!+++ 1)!+++ '!+++ 4!+++ )+!+++ %"!+++ 3!+++ )!+++
/o plant assets ,ere sold during 2+11. ;So*$t"on 3(753
?rier W ssociates Income tatement 0ccrual 9asis or the Hear Ended (ecember 31! 2+11 Re*enue 0CKD4"+!+++ T CKD"+!+++ 8 CKD3+!+++ Expenses =ages 0CKD1"+!+++ T CKD1+!+++ 8 CKD2+!+++ 6axes 0CKD#"!+++ T CKD14!+++ 8 CKD1)!+++ Insurance 0CKD4+!+++ T CKD4!+++ 8 CKD'!+++ (epreciation 0CKD)+!+++ 8 CKD%"!+++ Interest 0CKD2"!+++ T CKD3!+++ 8 CKD)!+++ 6otal expenses /et Income
CKD4%+!+++ CKD14+!+++ #+!+++ 3#!+++ 1"!+++ 1)!+++ 2%+!+++ CKD2++!+++
6he ccounting Information ystem
3 ( /7
;Pr. 3(75/ SEight-column ,orsheet.
6he trial balance of =insor 7orporation is reproduced belo,. 6he information belo, is rele*ant to the preparation of adusting entries needed to both properly match re*enues and expenses for the period and reflect the proper balances in the real and nominal accounts. Instr$#t"ons s the accountant for =insor 7orporation! you are to prepare adusting entries based on the follo,ing data! entering the adustments on the ,orsheet and completing the additional columns ,ith respect to the income statement and statement of financial position. 7arefully ey your adustments and label all items. 0(ue to time constraints! an adusted trial balance is not re:uired. Round all computations to the nearest dollar.
0a =insor determined that one percent of sales ,ill become uncollectible. 0b (epreciation is computed using the straight-line method! ,ith an eight year life and X1!+++ sal*age *alue. 0c alesmen are paid commissions of 1+M of sales. 7ommissions on sales for the last ,ee of (ecember ha*e not been paid. 0d 6he note ,as issued on 5ctober 1! bearing interest at 'M! due eb. 1! 2+11. 0e physical in*entory of supplies indicated X44+ of supplies currently in stoc. 0f
$ro*isions of a lease contract specify payments must be made one month in ad*ance! ,ith monthly payments at X'++mo. 6his pro*ision has been complied ,ith as of (ec. 31! 2+1+. =insor 7orporation =orsheet or the Hear Ended (ecember 31! 2+1+
Accounts Cash Tradin! Sec. Accounts #ec. Allo$. for D. A. %dse. In&entor' Su**lies +ui*ment Accum. De*r.-+. Accounts Pa'a/le 0otes Pa'a/le Share Ca*ital 8rd. #et. +arnin!s Cost of 3oods Sold ffice Salaries +*. Sales Comm. +*. #ent +*ense %isc. +*ense Sales Totals
Trial Balance Dr. Cr. 12,4 4," ", 42 1(,) 1,4 4", ," 4,4 ", 4, 4,( 22","2 2,) 2, 5,2 2,2 2, 414,1 414,1
Adjustments Dr. Cr.
Income Statement Dr. Cr.
Statement of Financial Position Dr. Cr.
3 ( /)
Test Bank for Intere!"ate A##o$nt"n%& IFRS E!"t"on
So*$t"on 3(75/
=insor 7orporation =orsheet or the Hear Ended (ecember 31! 2+1+ Accounts Cash Tradin! Sec. Accounts #ec. Allo$. for D. A. %dse. In&entor' Su**lies +ui*ment Accum. De*r.-+. Accounts Pa'a/le 0otes Pa'a/le Share Ca*ital 8rd. #et. +arnin!s Cost of 3oods Sold ffice Salaries +*. Sales Comm. +*. #ent +*ense %isc. +*ense Sales Totals
Trial Balance Dr. Cr. 12,4 4," ", 42 1(,) 1,4 4", ," 4,4 ", 4, 4,( 22","2 2,) 2, 5,2 2,2 2, 414,1 414,1
Bad De/t +*. De*r. +*. Sales Com. Pa'. Interest +*ense Interest Pa'a/le Su**lies +*ense Pre*aid #ent Totals 0et Income Totals
Adjustments Dr. Cr.
Statement of Financial Position Dr. Cr. 12,4 4," ", ,(2 1(,) 44 4", 1", 4,4 ", 4, 4,(
Income Statement Dr. Cr.
6a7 ,2 6e7
(
6/7 ","
6c7
, 6f7
)
22","2 2,) 2, (,4 2,2 2,
6a7 ,2 6/7 ","
,2 "," 6c7 ,
6d7
1
1 6d7
6e7 6f7
( ) 1,2
,
1
1 (
1,2
2(,2 2,() 2,
2,
) 12,4
2,
12,4
1",)1 2,() 12,4
dusting entries and explanations 0a 9ad (ebt Expense 0X32+!+++ x 1M .............................................. llo,ance for (oubtful ccounts ........................................
3!2++
0b (epreciation Expense .................................................................... ccumulated (epreciationSE:uipment ...................... ....... 0X4"!+++ 8 X1!+++ is X44!+++. 5ne-eighth of X44!+++ is X"!"++.
"!"++
3!2++ "!"++
6he ccounting Information ystem
3 ( /3
So*$t"on 3(75/ 0cont.
0c ales 7ommission Expense ........................................................... ales 7ommissions $ayable .............................................. 01+M of sales is 1+M V X32+!+++! ,hich is X32!+++. 6he balance in the ales 7ommission Expense account is X2)!+++ before adustment! indicating that X3!+++ of 7ommissions are accrued but unpaid.
3!+++
0d Interest Expense ............................................................................ Interest $ayable .................................................................. 0X"!+++ V .+' V 312 X1++
1++
0e upplies Expense ........................................................................... upplies .............................................................................. 06he balance of X1!+4+ in the upplies account before adustment less the correct ending balance of X44+ is X#++.
#++
0f $repaid Rent .................................................................................. Rent Expense ..................................................................... 0ince the trial balance contains no account for prepaid rent! the X'++ lease payment has apparently been debited to Rent Expense. n account must be set up for the $repaid Rent.
'++
3!+++
1++
#++
'++
