Assessment of General Accounting Knowledge

Business Transactions

102) If a company is considering the purchase of a parcel of land that was acquired by the seller for
$85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the
purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in
the purchaser's books at:
A) $95,000.
B) $137,000.
C) $138,500.
D) $140,000.
E) $150,000.

114) Which of the following accounting principles prescribes that a company record its expenses incurred
to generate the revenue reported?
A) Going-concern assumption.
B) Expense recognition (Matching) principle.
C) Measurement (Cost) principle.
D) Business entity assumption.
E) Consideration assumption.

139) Distributions of cash or other resources by a business to its owners are called:
A) Withdrawals.
B) Expenses.
C) Assets.
D) Retained earnings.
E) Net Income.

161) The basic financial statements include all of the following except:
A) Balance Sheet.
B) Income Statement.
C) Statement of Owner's Equity.
D) Statement of Cash Flows.
E) Statement of Changes in Assets.

165) A financial statement providing information that helps users understand a company's financial status,
and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n):
A) Balance sheet.
B) Income statement.
C) Statement of cash flows.
D) Statement of owner's equity.
E) Financial Status Statement.

211) Which of the following accounts is not included in the asset section of the balance sheet?
A) Cash.
B) Accounts receivable.
C) Supplies.
D) Land.
E) Services revenue.
Analyzing and Recording Transactions

73) Identify the statement below that is correct.

A) When a future expense is paid in advance, the payment is normally recorded in a liability account
called Prepaid Expense.
B) Promises of future payment by the customer are called accounts receivable.
C) Increases and decreases in cash are always recorded in the owner's capital account.
D) An account called Land is commonly used to record increases and decreases in both the land and
buildings owned by a business.
E) Accrued liabilities include accounts receivable.

74) Unearned revenues are generally:

A) Revenues that have been earned and received in cash.
B) Revenues that have been earned but not yet collected in cash.
C) Liabilities created when a customer pays in advance for products or services before the revenue is
earned.
D) Recorded as an asset in the accounting records.
E) Increases to owners' capital.

85) A credit is used to record an increase in all of the following accounts except:
A) Accounts Payable
B) Service Revenue
C) Unearned Revenue
D) Wages Expense
E) Owner's Capital

86) A debit is used to record an increase in all of the following accounts except:
A) Supplies
B) Cash
C) Accounts Payable
D) Owner's Withdrawals
E) Prepaid Insurance

102) Ralph Pine Consulting received its telephone bill in the amount of $300, and immediately paid it.
Pine's general journal entry to record this transaction will include a
A) Debit to Telephone Expense for $300.
B) Credit to Accounts Payable for $300.
C) Debit to Cash for $300.
D) Credit to Telephone Expense for $300.
E) Debit to Accounts Payable for $300.

107) Paul's Landscaping purchased $500 of office supplies on credit. The company's policy is to initially
record prepaid and unearned items in balance sheet accounts. Which of the following general journal
entries will Paul's Landscaping make to record this transaction?
A) Debit Office supplies expense, $500; credit Cash, $500.
B) Debit Cash, $500; credit Office supplies, $500.
C) Debit Office supplies, $500; credit Cash, $500.
D) Debit Office supplies, $500; credit Accounts payable, $500.
E) Debit Accounts payable, $500; credit Office supplies, $500.
130) On April 30, Victor Services had an Accounts Receivable balance of $18,000. During the month of
May, total credits to Accounts Receivable were $52,000 from customer payments. The May 31 Accounts
Receivable balance was $13,000. What was the amount of credit sales during May?
A) $5,000.
B) $47,000.
C) $52,000.
D) $57,000.
E) $32,000.

132) The following transactions occurred during July:

Received $900 cash for services provided to a customer during July.

Received $2,200 cash investment from Bob Johnson, the owner of the business.
Received $750 from a customer in partial payment of his account receivable which arose from sales in
June.
Provided services to a customer on credit, $375.
Borrowed $6,000 from the bank by signing a promissory note.
Received $1,250 cash from a customer for services to be rendered next year.

What was the amount of revenue for July?

A) $900.
B) $1,275.
C) $2,525.
D) $3,275.
E) $11,100.

211) Mary Sunny began business as Sunny Law Firm on November 1. Record the following
November transactions by making entries directly to the T-accounts provided. Then, prepare a trial
balance, as of November 30.

a) Mary invested $15,000 cash and a law library valued at $6,000.

b) Purchased $7,500 of office equipment from John Bronx on credit.
c) Completed legal work for a client and received $1,500 cash in full payment.
d) Paid John Bronx. $3,500 cash in partial settlement of the amount owed.
e) Completed $4,000 of legal work for a client on credit.
f) Mary withdrew $2,000 cash for personal use.
g) Received $2,500 cash as partial payment for the legal work completed for the client in (e).
h) Paid $2,500 cash for the legal secretary's salary.
231) Jason Hope decided to open a hotel in his hometown. Prepare journal entries to record the following
transactions. Hope uses the accounts Room Rental Revenue and Event Revenue. All expenses for special
events are recorded as Event Expense. (Omit explanations.)

June 1 Hope invested $400,000 into the business

Hope purchased an existing building and land for the hotel costing $900,000. The
purchase appraisal allocated $100,000 for land and $800,000 to the building. Hope paid
June 2 $250,000 and financed the remainder with a mortgage note payable.
June 3 Paid $6,000 for a six month insurance policy on the hotel.
June 5 Purchased linens and other supplies costing $4,000 on account.
Received advance payments of $12,000 from customers that will be staying at the hotel
in July. Payments will be refunded if the customer cancels within 7 days of their
June 10 scheduled arrival time.
June 14 Received cash payments of $13,000 from current customers staying at the hotel in June.
June 15 Paid the staff $2,000 for the first semi-monthly payroll.
June 16 Paid $500 for general maintenance and repairs expense.
June 17 Received $10,000 payment for a wedding reception during the weekend.
June 18 Paid the caterer $2,500 for providing catering services for the wedding reception.
June 18 Paid Fixture Rentals $1,000 for table and chair rental.
June 19 Paid the florist $2,000 for flowers for the event.
June 24 Paid for the linens and supplies purchased on June 5.
June 25 Recorded an additional $5,000 from current hotel customers for June.
June 30 Paid the staff $2,000 for the second semi-monthly payroll.
June 30 The owner withdrew $4,000 for personal use.
Adjusting Entries

82) Adjusting entries made at the end of an accounting period accomplish all of the following except:
A) Updating liability and asset accounts to their proper balances.
B) Assigning revenues to the periods in which they are earned.
C) Assigning expenses to the periods in which they are incurred.
D) Assuring that financial statements reflect the revenues earned and the expenses incurred.
E) Assuring that external transaction amounts remain unchanged.

86) In its first year of operations, Grace Company reports the following: Earned revenues of
$60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash
paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net
income under the accrual basis of accounting is:
A) $17,000.
B) $21,000.
C) $13,000.
D) $25,000.
E) None of these options are correct

89) An adjusting entry could be made for each of the following except:
A) Prepaid expenses.
B) Depreciation.
C) Owner investments.
D) Unearned revenues.
E) Accrued expenses.

107) On July 1, a company paid the $2,400 premium on a one-year insurance policy with
benefits beginning on that date. What will be the insurance expense on the annual income
statement for the first year ended December 31?
A) $1,200.
B) $2,400.
C) $1,000.
D) $400.
E) $1,400.

108) 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.

144) A company purchased new furniture at a cost of $16,000 on January 1. The furniture is
estimated to have a useful life of 6 years and a $1,000 salvage value. The company uses the
straight-line method of depreciation. What is the book value of the furniture on December 31 of
the first year?
A) $16,000
B) $15,000
C) $2,500
D) $13,500
E) $13,333

224) Based on the unadjusted trial balance for Glow Styling and the adjusting information given
below, prepare the adjusting journal entries for Glow Styling. After completing the adjusting
entries, prepare the trial balance for Glow Styling.

Glow Styling unadjusted trial balance for the current year follows:

Glow Styling
Trial Balance
December 31
Cash………………………… $ 4,200
Prepaid insurance …………………………………... 1,480
Shop supplies ............................................................. 990
Shop equipment ……………………………………. 3,860
Accumulated depreciation–shop equipment ……….. $ 770
Building……………………………………………... 57,500
Accumulated depreciation–building……………….. 3,840
Land …………………. 55,000
Unearned rent……………………………………….. 1,600
Long-term notes payable……………………………. 50,000
Bella Hanson, Capital ………………………………. 49,860
Rent earned …………………………………………. 2,400
Fees earned …………………………………………. 23,400
Wages expense ……………………………………... 3,200
Utilities expense …………………………………… 690
Property taxes expense ……………………………. 600
Interest expense …………………………………… 4,350 ________
Totals ……………………………………………….. $131,870 $131,870

Additional information:
a. An insurance policy examination showed $1,240 of expired insurance.
b. An inventory count showed $210 of unused shop supplies still available.
c. Depreciation expense on shop equipment, $350.
d. Depreciation expense on the building, $2,220.
e. A beautician is behind on space rental payments, and this $200 of accrued revenues was
unrecorded at the time the trial balance was prepared.
f. $800 of the Unearned Rent account balance was earned by year-end.
g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee
was paid last week but has worked four days this week for which she has not been paid.
h. Three months' property taxes, totaling $450, have accrued. This additional amount of property
taxes expense has not been recorded.
i. One month's interest on the note payable, $600, has accrued but is unrecorded.

Use the above information to prepare the adjusted trial balance for Glow Styling.

Completing the Accounting Cycle

64) Which of the following accounts is a permanent (real) account?
A) Fees earned.
B) Office supplies expense.
C) Interest revenue.
D) Accounts payable.
E) Salaries expense.

65) When closing entries are made:

A) All ledger accounts are closed to start the new accounting period.
B) All temporary accounts are closed but permanent accounts are not closed.
C) All real accounts are closed but nominal accounts are not closed.
D) All permanent accounts are closed but nominal accounts are not closed.
E) All balance sheet accounts are closed.

77) The usual order for the asset subgroups of a classified balance sheet is:
A) Current assets, prepaid expenses, long-term investments, intangible assets.
B) Long-term investments, current assets, plant assets, intangible assets.
C) Current assets, long-term investments, plant assets, intangible assets.
D) Intangible assets, current assets, long-term investments, plant assets.
E) Plant assets, intangible assets, long-term investments, current assets.

98) The special account used only in the closing process to temporarily hold the amounts of
revenues and expenses before the net difference is added to (or subtracted from) the owner's
capital account is the:
A) Income Summary account.
B) Closing account.
C) Balance column account.
D) Contra account.
E) Nominal account.

Accounts receivable
186) At December 31 of the current year, a company reported the following:
Total sales for the current year: $980,000 includes $160,000 in cash sales
Accounts receivable balance at Dec. 31, end of current year: $160,000
Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300
Bad debts written off during the current year: $5,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad
debts are estimated to equal 1.5% of credit sales:

187) A company has the following unadjusted account balances at December 31, of the current
year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit
balance). The company uses the aging of accounts receivable to estimate its bad debts. The
following aging schedule reflects its accounts receivable at the current year-end:

Estimated
Uncollectible
Account Age Balance Percentage
Current (not yet due) $96,000 1.0%
1–30 days past due 64,000 2.5%
30–60 days past due 16,000 11.0%
61–90 days past due 6,500 37.0%
Over 90 days past due 3,200 70.0%
Total $185,700

1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the
December 31, of the current year, balance sheet.
2. Prepare the adjusting journal entry to record bad debts expense for the current year .

Payroll
129) An employee earns $5,500 per month working for an employer. The FICA tax rate for
Social Security is 6.2% of the first $118,500 earned each calendar year and the FICA tax rate for
Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is
5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The
employee has $182 in federal income taxes withheld. The employee has voluntary deductions for
health insurance of $150 and contributes $75 to a retirement plan each month. What is the
amount of net pay for the employee for the month of January? (Round your intermediate
calculations to two decimal places.)
A) $4,827.00
B) $4,672.25
C) $4,628.25
D) $4,386.25
E) $4,430.25

135) An employee earns $5,500 per month working for an employer. The FICA tax rate for
Social Security is 6.2% of the first $118,500 of earnings each calendar year and the FICA tax
rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax
rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The
employee has $182 in federal income taxes withheld. The employee has voluntary deductions for
health insurance of $150 and contributes $75 to a retirement plan each month. What is the
amount the employer should record as payroll taxes expense for the employee for the month of
January?
A) $420.75
B) $464.75
C) $602.75
D) $841.50
E) $750.75

184) The payroll records of a company provided the following data for the weekly pay period
ended December 7:

Earnings
to End of Federal Medical
Previous Gross Income Insurance Union United
Employee Week Pay Taxes Deduction Dues Way
Ronald Arthur $ 54,000 $1,200 $216 $125 $15 $15
John Baines 40,500 900 162 125 15 30
Ted Carter 45,000 1,000 180 150 -0- 20

The FICA social security tax rate is 6.2% and the FICA Medicare tax rate is 1.45% on all of this
week's wages paid to each employee. The federal and state unemployment tax rates are 0.8% and
5.4%, respectively, on the first $7,000 paid to each employee. Prepare the journal entries to (a)
accrue the payroll and (b) record payroll taxes expense.