A - 12 Test Bank for Accounting Principles, Eleventh EditionProblem A - III — Adjusting Entries 15 points The following information for Mountaintop Company is available on June 30, 2014,
Trang 1COMPREHENSIVE EXAMINATION A
(CHAPTERS 1 - 5)
Approximate
A - I Multiple Choice 20 10
A - II Matching 10 10
A - III Adjusting Entries 15 20
A - IV Closing Entries 10 10
A - V Journal Entries 18 12
A - VI Multiple-Step Income Statement 15 10
A - VII Correcting Entries 12 15
Checking Work 5
92
Trang 2A - 2 Test Bank for Accounting Principles, Eleventh Edition
Problem A - I — Multiple Choice (20 points)
Instructions: Designate the best answer for each of the following questions.
1 The ACER Company has five plants nationwide that cost $60 million The current market value of the plants is $190 million The plants will be recorded and reported as assets at:
a $60 million
b $250 million
c $190 million
d $130 million
2 An increase in an expense:
a increases revenues
b increases assets
c decreases liabilities
d decreases owner's equity
3 A proprietorship business with total owner's equity of $90,000 paid a $12,000 business debt As a result of this transaction, total owner's equity:
a increased to $90,000
b increased by $12,000
c decreased by $12,000
d did not change
4 The left side of an account is always:
a the balance of that account
b the credit side
c the debit side
d carried forward to the next accounting period
5 In a service-type business, revenue is recognized:
a when the service is performed
b at the end of the year
c at the end of the month
d when cash is received
6 The purpose of recording depreciation on productive assets is to:
a reflect the decline in the market value of the assets each period
b allocate the original cost of productive assets to expense over its useful life
c reduce income when the company has an exceptionally profitable year
d be in conformity with the revenue recognition principle
7 Trans Company debited Prepaid Insurance for $1,320 on July 1, 2014, for a one-year fire insurance policy If the company prepares monthly financial statements, failure to make an adjusting entry on July 31 for the amount of insurance that has expired would cause:
a assets to be overstated by $1,320 and expenses to be understated by $1,320
b expenses to be overstated by $110 and assets to be understated by $110
c assets to be overstated by $110 and expenses to be understated by $110
d expenses to be overstated by $1,320 and assets to be understated by $1,320
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Comprehensive Examination A
8 Which one of the following accounts is not closed at the end of an accounting period?
a Owner's Capital account
b Service Revenue account
c Owner's Drawing account
d Insurance Expense account
9 Sullivan Bike Company received a $450 check from a customer for the balance due The transaction was erroneously recorded as a debit to Cash $540 and a credit to Service Revenue $540 The correcting entry is:
a debit Accounts Receivable, $450; credit Cash, $450
b debit Service Revenue, $540; credit Accounts Receivable, $90; credit Cash, $450
c debit Service Revenue, $540; credit Cash $90; credit Accounts Receivable, $450
d debit Cash, $90; debit Service Revenue, $450; credit Accounts Receivable, $540
10 During the year, Sally’s Pet Shop’s inventory account balance decreased by $29,000 If
the company’s cost of goods sold for the year was $245,000, purchases must have been:
a $187,000
b $216,000
c $274,000
d Unable to determine
Problem A - II — Matching (10 points)
Match the items below by entering the appropriate letter in the space
1 Partnership
2 Liabilities
3 Revenues
4 General ledger
5 Expense Recognition Principle
6 Unearned service revenue
7 Income summary
8 Intangible assets
9 Freight-out
10 Sales returns and allowances
A A contra-revenue account
B Creditorship claims on total assets
C Noncurrent resources that do not have a physical substance
D Gross increases in owner's equity resulting from business activities entered into for the purpose of earning income
E The matching of efforts (expenses) with accomplishments (revenues)
F Freight costs incurred by the seller
G An economic entity which is not a separate legal entity
H A temporary account used in closing revenue and expense accounts
I Contains all assets, liabilities, and owner's equity accounts
J A liability created when cash is received
in advance of performing a service for a customer
Trang 5A - 12 Test Bank for Accounting Principles, Eleventh Edition
Problem A - III — Adjusting Entries (15 points)
The following information for Mountaintop Company is available on June 30, 2014, the end of a monthly accounting period You are to prepare the necessary adjusting journal entries for Mountaintop Company for the month of June for each situation given Appropriate adjusting entries had been recorded in previous months You may omit journal entry explanations
1 Mountaintop Company purchased a 2-year insurance policy on March 1, 2014 and debited Prepaid Insurance for $5,280
2 On January 1, 2014, a tenant in an apartment building owned by Mountaintop Company paid
$4,140 which represents six months' rent in advance The amount received was credited to the Unearned Rent account
3 On June 1, 2014, the balance in the Supplies account was $600 During June, supplies costing $1,200 were purchased A physical count of supplies at June 30 revealed that there was $420 still on hand
4 On March 31, 2014, Mountaintop Company purchased a delivery van for $36,000 It is estimated that the annual depreciation will be $7,200
5 Mountaintop Company has two employees who earn $65 and $70 per day, respectively They are paid each Friday for a five-day work week that begins each Monday Assume June 30 is a Thursday in 2014
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Comprehensive Examination A
Problem A - IV — Closing Entries (10 points)
The end of the period account balances after adjustments of Hernandez Shoe Repair are as follows:
Account Balances (After Adjustments)
Accumulated Depreciation—Equipment 22,000
Salaries and Wages Expense 1,200
Instructions: Prepare the end of the period closing entries for Hernandez Shoe Repair You may
omit journal entry explanations
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Problem A - V — Journal Entries (18 points)
Prepare the necessary general journal entries for the month of March for Dogwood Company for each situation given below Dogwood uses a perpetual inventory system
1 Mar 5 Paid cash of $6,000 for operating expenses that were incurred and properly
recorded in the previous period
2 Mar 8 Purchased merchandise for $28,000 on account Credit terms: 1/10, n/30; Freight
term: FOB Destination
3 Mar 12 Borrowed $10,000 from Citizen’s Bank signing a 6%, 6-month note
4 Mar 15 Paid for merchandise purchased on March 8 The company takes all discounts to
which it is entitled
5 Mar 20 Sold merchandise for $25,000 to Chris Martin on account The cost of the
merchandise sold was $16,000 Credit terms: 1/10, n/30
6 Mar 21 Freight term on sale made on March 20th was FOB destination Cash paid for
shipping was $600
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Comprehensive Examination A
7 Mar 22 Purchased a 2-year insurance policy for $4,100 cash
8 Mar 25 Credited Chris Martin’s account for $400 for merchandise returned by him from the
sale on March 20 The cost of the merchandise returned was $225
9 Mar 29 Purchased equipment for $34,000 paying $8,000 in cash and signing a 12-month,
6% note for the remainder
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Problem A - VI — Multiple-Step Income Statement (15 points)
Below is a partial listing of the adjusted account balances of Pacific Department Store at year end
on December 31, 2014
Selling Expenses (includes depreciation) 13,500
Accumulated Depreciation—Building 16,500
Administrative Expenses (includes depreciation) 9,000
Instructions: Using the data provided as appropriate, prepare a multiple-step income statement
for Pacific Department Store for the year ended December 31, 2014
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Comprehensive Examination A
Problem A - VII — Correcting Entries (12 points)
The following errors were made in journalizing and posting transactions in September in the Marburg Company
Instructions: Prepare the correcting entries at September 30 assuming the incorrect entry is not
reversed (Omit explanations.)
1 The receipt of $9,000 from a customer for future service was recorded as a debit to Cash
$900 and a credit to Service Revenue $900
2 A bill for $8,000 for new office equipment was debited to Supplies $8,000 and credited to Accounts Payable $8,000
3 A $1,000 payment for freight charges incurred on inventory purchased in September was debited to Inventory $1,000 and credited to Cash $1,000
4 A collection of $8,500 on account from a customer was recorded as a debit to Cash $8,500 and a credit to Service Revenue $8,500
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Solutions — Comprehensive Examination A
Problem A - I — Multiple Choice (20 points)
Problem A - II — Matching (10 points)
Problem A - III — Adjusting Entries (15 points)
1 Insurance Expense 220
Prepaid Insurance 220
2 Unearned Rent 690
Rent Revenue 690
3 Supplies Expense 1,380 Supplies 1,380 4 Depreciation Expense 600
Accumulated Depreciation—Delivery Van 600
5 Salaries and Wages Expense 540
Salaries and Wages Payable 540
Problem A - IV — Closing Entries (10 points) Service Revenues 41,000 Income Summary 41,000 Income Summary 8,900 Supplies Expense 2,000 Depreciation Expense 3,000 Rent Expense 900 Salaries and Wages Expense 1,200 Utilities Expense 1,800 Income Summary 32,100
Owner’s Capital 32,100 Owner’s Capital 7,500
Owner’s Drawing 7,500
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Comprehensive Examination A
Problem A - V — Journal Entries (18 points)
1 Mar 5 Accounts Payable 6,000
Cash 6,000
2 Mar 8 Inventory 28,000
Accounts Payable 28,000
3 Mar 12 Cash 10,000
Notes Payable 10,000
4 Mar 15 Accounts Payable 28,000
Inventory 280
Cash 27,720 5 Mar 20 Accounts Receivable 25,000 Sales Revenue 25,000 Cost of Goods Sold 16,000 Inventory 16,000 6 Mar 21 Freight-out 600
Cash 600
7 Mar 22 Prepaid Insurance 4,100 Cash 4,100 8 Mar 25 Sales Returns and Allowances 400
Accounts Receivable 400
Inventory 225
Cost of Goods Sold 225
9 Mar 29 Equipment 34,000
Cash 8,000 Notes Payable 26,000
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Problem A - VI — Multiple-Step Income Statement (15 points)
PACIFIC DEPARTMENT STORE
Income Statement For Year Ended December 31, 2014 Sales revenues
Sales Revenue $165,000
Less: Sales discounts 6,500
Net sales $158,500 Cost of goods sold 107,500 Gross profit 51,000 Operating expenses
Selling expenses 13,500
Administrative expenses 9,000
Total operating expenses 22,500 Income from operations 28,500 Other revenues and gains
Interest revenue 300
Other expenses and losses
Interest expense 400 (100) Net Income $ 28,400
Problem A - VII — Correcting Entries (12 points)
1 May 31 Cash 8,100
Service Revenue 900 Unearned Service Revenue 9,000
2 May 31 Equipment 8,000
Supplies 8,000
3 May 31 No correction needed
4 May 31 Service Revenue 8,500
Accounts Receivable 8,500 Note: No explanations either before or after entries