Question

1. Adjusting entries:
A. Affect only income statement accounts.
B. Affect only balance sheet accounts.
C. Affect both income statement and balance sheet accounts.
D. Affect only cash flow statement accounts.
E. Affect only equity accounts.

2. The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:
A. Recognition principle.
B. Cost principle.
C. Cash basis of accounting.
D. Matching principle.
E. Time period principle.

3. Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:
A. Items that require contra accounts.
B. Items that require adjusting entries.
C. Asset and equity.
D. Asset accounts.
E. Income statement accounts.

4. A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:
A. Understate net income by $28,000.
B. Overstate net income by $28,000.
C. Have no effect on net income.
D. Overstate assets by $28,000.
E. Understate assets by $28,000.

5. A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?
A. $75.
B. $125.
C. $175.
D. $250.
E. $325.

6. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:
A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
B. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.
C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
D. Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
E. Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.

7. On April 30, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31?
A. $500.
B. $4,000.
C. $6,000.
D. $14,000.
E. $18,000.

8. On May 1, Giltus Advertising Company received $1,500 from Julie Bee for advertising services to be completed April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. The adjusting entry on December 31 would include:
A. A debit to Unearned Fees for $500.
B. A credit to Unearned Fees for $500.
C. A credit to Earned Fees for $1,000.
D. A debit to Earned Fees for $1,000.
E. A debit to Earned Fees for $500.   

9. A company purchased a new truck at a cost of $42,000 on July 1. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the truck during the first year ended December 31?
A. $3,250.
B. $3,500.
C. $4,000.
D. $6,500.
E. $7,000.

10. The adjusted trial balance contains information pertaining to:
A. Asset accounts only.
B. Balance sheet accounts only.
C. Income statement accounts only.
D. All general ledger accounts.
E. Revenue accounts only.

11. All of the following are True regarding prepaid expenses except:
A. They are paid for in advance of receiving their benefits.
B. They are assets.
C. When they are used, their costs become expenses.
D. The adjusting entry for prepaid expenses increases expenses and increases liabilities.
E. The adjusting entry for prepaid expenses increases expenses and decreases assets.

12. . When closing entries are made:
A. All ledger accounts are closed to start the new accounting period.
B. All temporary accounts are closed but not the permanent accounts.
C. All real accounts are closed but not the nominal accounts.
D. All permanent accounts are closed but not the nominal accounts.
E. All balance sheet accounts are closed.

13. Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming period and to update the owner's capital account for the events of the period just finished are referred to as:
A. Adjusting entries.
B. Closing entries.
C. Final entries.
D. Work sheet entries.
E. Updating entries.

14. The Income Summary account is used:
A. To adjust and update asset and liability accounts.
B. To close the revenue and expense accounts.
C. To determine the appropriate withdrawal amount.
D. To replace the income statement under certain circumstances.
E. To replace the capital account in some businesses.

15. The following statements regarding merchandise inventory are true except:
A. Merchandise inventory is reported on the balance sheet as a current asset.
B. Merchandise inventory refers to products a company owns and intends to sell.
C. Merchandise inventory can include the cost of shipping the goods to the store and making them ready for sale.
D. Merchandise inventory does not appear on the balance sheet of a service company.
E. Merchandise inventory purchases are not considered part of the operating cycle for a business.

16. The credit terms 2/10, n/30 are interpreted as:
A. 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
B. 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
C. 30% discount if paid within 2 days.
D. 30% discount if paid within 10 days.
E. 2% discount if paid within 30 days.

17. A trade discount is:
A. A term used by a purchaser to describe a cash discount given to customers for prompt payment.
B. A reduction in price below the list price.
C. A term used by a seller to describe a cash discount granted to customers for prompt payment.
D. A reduction in price for prompt payment.
E. Also called a rebate.

18. The amount recorded for merchandise inventory includes all of the following except:
A. Purchase discounts.
B. Returns and allowances.
C. Freight costs paid by the buyer.
D. Freight costs paid by the seller.
E. Trade discounts.

19. A company purchased $1,800 of merchandise on December 5. On December 7, it returned $200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 equals:
A. $200.
B. $1,564.
C. $1,568.
D. $1,600.
E. $1,800.

Journal Entries --Peachtree
Journalize the following transactions. Post the general journal, general ledger, trial balance, income statement and the balance sheet. Save all reports to one Excel file. Do not submit more than one file.
Create the company and chart of accounts for each of the exercises.
#1. Mary Smith opens Mary Maids Cleaning Service on January 1, 2013 as a sole proprietorship.
Chart of accounts includes:
101 Cash
112 Accounts Receivable
126 Cleaning Supplies
130 Prepaid Insurance
157 Equipment
158 Accumulated Depreciation - Equipment
201 Accounts Payable
212 Salaries Payable
301 Mary Smith, Capital
306 Mary Smith drawing
350 Income Summary
400 Service Revenue
633 Gas and Oil expense
634 Cleaning supply expense
711 Depreciation Expenses
722 Insurance Expense
726 Salary Expense

January 2013 – The numbers correspond to the dates in the month
1. invests 14,000 cash in the business
2. purchases a used truck for 10,000, paying 3,000 cash and balance on account
3. purchased cleaning supplies of 800 on account
5    paid 2400 for a one year insurance policy effective January 1
12   billed customers 3800 for cleaning services
15   used $250 worth of cleaning supplies
18   paid 1,000 owed on truck and 400 owed on cleaning supplies
20   paid 1,600 for employee salaries
21   collected 1400 from customers billed on January 1
25   billed customers 2500 for cleaning services
31   paid 400 for gas and oil for truck
31   withdrew 600 for personal use

Adjusting entries – January 31
Income earned but unbilled - $1300
Depreciation on equipment - $200
1/12 of the insurance policy expired
Cleaning supplies on hand - $300
Accrued unpaid salaries of $500

#2.
Journalize the following transactions for Green Merchandise Company. Create the company and a chart of accounts before journalizing. It is a sole proprietorship.
   
Chart of Accounts:
101 Cash
112 Accounts Receivable
113 Merchandise Inventory
201 Accounts Payable
502 Cost of Goods Sold
400 Sales Revenue
412 Sales Discounts
413 Sales Return and Allowances
**Add any missing accounts*

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1. C) Affect both income statement and balance sheet accounts.
2. D) Matching principle
3. B) Items that require adjusting entries
4. B) Overstate net income by $28,000...

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