Intermediate Accounting, 19th Edition
Earl K. Stice, James D. Stice
ISBN-10: 1133957919
ISBN-13: 9781133957911
© 2014
Excel Templates Solutions Instructor PowerPoints Instructor's Manual Solutions Manual PDFs CHAPTER 2
QUESTIONS
1. The accounting system generates a variety
of reports for use by various decision mak-
ers. Among the most common are general-
purpose financial statements, management
reports, tax returns, and other reports pre-
pared for government agencies such as the
SEC.
2. A manual and an automated accounting
system are similar in that both are designed
to serve the same information-gathering
and processing functions. Both systems
also use the same underlying accounting
concepts and principles. The differences
between a manual and an automated ac-
counting system involve some mechanical
aspects, time requirements, and the ap-
pearance of records and reports. Due to
advanced technology and reduced prices,
today almost all successful businesses of
any size use computers to assist in the var-
ious accounting functions.
3. The accounting process involves certain
procedures used by businesses to produce
financial statement data. The recording
phase of the accounting process consists
of those procedures used in the continuing
activity of analyzing, recording, and classi-
fying business transactions in the various
books of record (journals and ledgers) dur-
ing the fiscal period. The reporting phase of
the accounting process consists of those
procedures used at the end of the fiscal pe-
riod to update and summarize data collect-
ed during the recording phase. Financial
statements are prepared from the updated
and summarized data.
4. The accounting process includes the fol-
lowing steps:
(1) Business documents are analyzed.
Business documents provide detailed
information concerning each transac-
tion and establish support for the data
recorded in the books of original entry.
(2) Transactions are recorded in chrono-
logical order in books of original entry—
the journals. Transactions are analyzed
in terms of their effects on the various
asset, liability, owners’ equity, revenue,
and expense accounts of the business
unit.
(3) Transactions are posted to the appro-
priate accounts in the general and sub-
sidiary ledgers. The ledger accounts
classify and summarize the full effect of
all transactions recorded in the journals
and can be used in the preparation of
financial statements.
(4) A trial balance may be prepared showing
the account balances in the general
ledger and reconciling subsidiary ledger
balances with respective control account
balances. The trial balance provides a
summary of the information as classi-
fied and summarized in the ledgers as
well as a verification of the accuracy of
recording and posting.
(5) Adjustments are made to bring the ac-
counts up to date. Adjustments are
necessary to record all accounting
information that has not yet
Solutions Manual Word Volume 1 Solutions Manual Word Volume 2 Test Bank
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.
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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.
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signing a note payable to purchase
equipment.
|
|
b.
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payment of property taxes.
|
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c.
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billing of customers for services rendered.
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d.
|
payment of dividends.
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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.
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overstate net income.
|
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c.
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overstate owners' equity.
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d.
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understate liabilities.
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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.
|
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b.
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overstates assets.
|
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c.
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understates net income.
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d.
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overstates both owners’ equity and assets.
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ANS: D PTS: 1 DIF: Medium OBJ: LO 3
TOP: AICPA FN-Measurement MSC: AACSB
Analytic
5. A chart of accounts is a
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a.
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subsidiary ledger.
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b.
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listing of all account titles.
|
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c.
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general ledger.
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d.
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general journal.
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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.
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The event must be repeatable in a future
period.
|
|
c.
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The event must be measurable in financial
terms.
|
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d.
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The event must be disclosed in the reported
footnotes.
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ANS: C PTS: 1 DIF: Medium OBJ: LO 2
TOP: AICPA FN-Measurement MSC: AACSB
Reflective Thinking
7. Adjusting entries normally involve
|
a.
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real accounts only.
|
|
b.
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nominal accounts only.
|
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c.
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real and nominal accounts.
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d.
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liability accounts only.
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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.
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The value of human resources
|
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c.
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Changes in personnel
|
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d.
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Changes in inventory costing methods
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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.
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Yes No
|
|
c.
|
No Yes
|
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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.
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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.
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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
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