Accounting 321 Practice Quiz 1 - Drexel University
Accounting 321
Practice Quiz 1
Solutions
1. To compute interest expense for an adjusting entry, the formula is principal X rate X a fraction. The numerator and denominator of the fraction are:
Numerator Denomintor
( a. Length of time note has been outstanding 12 months
b. Length of note 12 months
c. Length of time until note matures Length of note
d. Length of time note has been outstanding Length of note
2. Adjusting entries are necessary to
1. obtain a proper matching of revenue and expense.
2. achieve an accurate statement of assets and equities.
3. adjust assets and liabilities to their fair market value.
a. 1
b. 2
c. 3
( d. 1 and 2
3. Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?
a. To reduce the federal income tax liability
b. To aid management in cash-flow analysis
( c. To match the costs of production with revenues as earned
d. To adhere to the accounting constraint of conservatism
4. When an item of revenue or expense has been earned or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense.
a. prepaid
b. adjusted
c. estimated
( d. none of these
5. An adjusted trial balance
a. is prepared after the financial statements are completed.
( b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
c. is a required financial statement under generally accepted accounting principles.
d. cannot be used to prepare financial statements.
Selected amounts from Blues Clues Company's trial balance of 12/31/07 appear below:
1. Accounts Payable $ 160,000
2. Accounts Receivable 150,000
3. Accumulated Depreciation—Equipment 200,000
4. Allowance for Doubtful Accounts 20,000
5. Bonds Payable 500,000
6. Cash 150,000
7. Common Stock 60,000
8. Equipment 840,000
9. Insurance Expense 30,000
10. Interest Expense 10,000
11. Merchandise Inventory 300,000
12. Notes Payable (due 6/1/08) 200,000
13. Prepaid Rent 150,000
14. Retained Earnings 818,000
15. Salaries and Wages Expense 328,000
(All of the above accounts have their standard or normal debit or credit balance.)
Prepare adjusting journal entries at year end, December 31, 2007, based on the following supplemental information.
a. The annual depreciation rate on the equipment is 8%. Salvage value is estimated to be 5% of cost. (Straight-line method being used.)
Dep Exp: Equ 63,840
A/D: Equ 63,840
b. Interest accrued on the bonds payable is $15,000 as of 12/31/07. Interest accrued on the notes payable is $9,000 as of 12/31/07.
Int Exp: Bonds 15,000
Int Pbl: Bonds 15,000
Int Exp: N/P 9,000
Int Pbl: N/P 9,000
c. The rent payment of $150,000 covers the six months from November 30, 2007 through May 31, 2008.
Rent Exp: 25,000
Ppd Rent: 25,000
d. Salaries and wages of $22,000 were unpaid at 12/31/07,
Sal Exp: 22,000
Sal Pbl: 22,000
The adjusted trial balance of Jumpstart Financial Planners appears below. Using the information from the adjusted trial balance, you are to prepare for the month ending December 31:
1. an income statement.
2. a statement of retained earnings.
3. a balance sheet.
JUMPSTART FINANCIAL PLANNERS
Adjusted Trial Balance
December 31, 2007
Cash $ 4,400
Accounts Receivable 2,200
Office Supplies 1,800
Office Equipment 15,000
Accumulated Depreciation—Office Equipment $ 4,000
Accounts Payable 2,800
Unearned Revenue 4,000
Common Stock 10,000
Retained Earnings 4,400
Dividends 2,500
Sales Revenue 5,700
Sales Discounts………………………………………………………… 100
Cost of Goods Sold 2,500
Salary Expense…………………………………………………………. 1,000
Depreciation Expense 500
Rent Expense 900 ______
$30,900 $30,900
I/S fye 12/31 Stmt R/E fye 12/31 B/S 12/31
Rev: Sales Rev 5,700 Begin Bal 4,400 Assets:
Sales D/C 100 NI 700 Cash 4,400
Net Sales 5,600 Div 2,500 A/R 2,200
Exp: COGS 2,500 End Bal 2,600 Office Sup 1,800
Salary Exp 1,000 Office Equ 15,000
Dep Exp 500 A/D 4,000
Rent Exp 900 Book Value 11,000
Total Exp 4,900 Total Assets 19,400
Net Income 700 Liab and S/H:
Liabilities:
A/P 2,800
Unearned Rev 4,000
Total Liab 6,800
S/H:
C/S 10,000
R/E 2,600
Total S/H 12,600
Total L + S/H 19,400
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