How does the purchase of supplies on account affect the accounting equation?

1. How does the purchase of supplies on account affect the accounting equation?

assets increase; owner's equity decreases

assets increase; liabilities increase

assets increase; liabilities decrease

liabilities increase; owner's equity decreases

2. Which of the following is not a true statement about the accounting equation and its elements?

The accounting equation is Assets = Liabilities - Owners' Equity.

Assets are the resources a business possesses.

Liabilities represent debts of a business.

Examples of assets are cash, land, buildings, and equipment.

Owners' equity are the rights of the owners.

3. For accounting purposes, the business entity should be considered separate from its owners if the entity is

a corporation

a proprietorship

a partnership

all of the above

4. Which of the following are guidelines for behaving ethically?

I. Identify the consequences of a decision and its effect on others.

II. Consider your obligations and responsibilities to those affected by the decision.

III. Identify your decision based on personal standards of honesty and fairness.

I and II.

II and III.

I and III.

I, II, and III.

5. The payment for the monthly rent will require the following entry

Debit Cash and Debit Rent Expense

Credit Cash and Credit Rent Expense

Debit Rent Expense and Credit Cash

Credit Rent Expense and Debit Cash

6. Randomly listed below are the steps for preparing a trial balance:

(1.) Verify that the total of the Debit column equals the total of the Credit column.

(2.) List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance.

(3.) List the name of the company, the title of the trial balance, and the date the trial balance is prepared.

(4.) Total the Debit and Credit columns of the trial balance.

(3), (2), (4), (1)

(2), (3), (4), (1)

(3), (2), (1), (4)

(4), (3), (2), (1)

7. Prairie Clinic purchased X-ray equipment for $4,000, paid $1,275 down, with the remainder to be paid later. The correct entry would be

Equipment 1,275

Cash 1,275

Cash 1,275

Accounts Payable 2,725

Equipment 4,000

Equipment Expense 4,000

Accounts Payable 1,275

Cash 2,725

Equipment 4,000

Accounts Payable 2,725

Cash 1,275

8. A credit balance in which of the following accounts would indicate a likely error?

Fees Earned

Salary Expense

Janet James, Capital

Accounts Payable

9. Which of the following is not a characteristic of accrual basis of accounting?

Revenues and expenses are reported in the period in which cash is received or paid

Revenues are reported in the income statement in the period in which they are earned

Supports the matching concept

All are correct.

10. The net income reported on the income statement is $85,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $800. Net income, as corrected, is

$84,200

$85,000

$82,800

$82,000

11. The matching concept

addresses the relationship between the journal and the balance sheet

determines whether the normal balance of an account is a debit or credit

requires that the dollar amount of debits equal the dollar amount of credits on a trial balance

determines that expenses related to revenue be reported at the same time the revenue is reported

12. The entry to adjust for the cost of supplies used during the accounting period is

Supplies Expense, debit; Supplies, credit

James Smith, Capital, debit; Supplies, credit

Accounts Payable, debit; Supplies, credit

Supplies, debit; credit James Smith, Capital

13. Which of the accounts below would be closed by posting a debit to the account?

Unearned Revenue

Fees Earned

Josh Morton, Drawing

Rent Expense

14. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance?

The Adjusted Trial Balance will show the net income (loss) as an additional account.

Both will need to be in balance in order to continue with the end-of-period processing

The Adjusted Trial Balance includes the postings of the adjustments for the period in the balance of the accounts.

The Unadjusted Trial Balance will be used to record the adjustments for the period.

15. The Statement of Owner's Equity should be prepared

before the income statement and after the balance sheet

before the income statement and balance sheet

after the income statement and balanace sheet

after the income statement and before the balance sheet

16. A summary of selected ledger accounts appear below for Alberto's Plumbing Services for the 2009 calendar year end.

Alberto, Capital

31-Dec DEBIT 8,500

1-Jan CREDIT 6,500

31-Dec CREDIT 18,500

Alberto, Drawing

30-Jun DEBIT 3,500

31-Dec CREDIT 8,500

30-Nov DEBIT 5,000

Income Summary

31-Dec DEBIT 15,000

31-Dec CREDIT 33,500

31-Dec DEBIT 18,500

Net income for the period is

$16,500

$33,500

$18,500

$15,000

17. After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the debit and credit columns are $77,500 and $85,300, respectively. What is the amount of the net income or net loss for the period?

$7,800 net income

$7,800 net loss

$85,300 net income

$77,500 net loss

18. The following are steps to the accounting cycle. Of the following, which step should be done first?

Closing entries are journalized and posted to the ledger.

Transactions are posted to the ledger.

Adjusting entries are journalized and posted to the ledger.

Financial statements are prepared.

19. A work sheet includes columns for

adjusting entries

closing entries

reversing entries

adjusting and closing entries

20. Net income appears on the work sheet in the

debit column of the Balance Sheet columns

debit column of the Adjustments columns

debit column of the Income Statement columns

credit column of the Income Statement columns

21. A company, using the periodic inventory system, has merchandise inventory costing $175 on hand at the beginning of the period. During the period, merchandise costing $635 is purchased. At year-end, merchandise inventory costing $160 is on hand. The cost of merchandise sold for the year is

$970

$650

$300

$620

22. When merchandise is returned under the perpetual inventory system, the buyer would credit

Merchandise Inventory

Purchases Returns and Allowances

Accounts Payable

depending on the inventory system used.

23. Multiple-step income statements show

gross profit but not income from operations

neither gross profit nor income from operations

both gross profit and income from operations

income from operations but not gross profit

24. The primary difference between a periodic and perpetual inventory system is that a

periodic system determines the inventory on hand only at the end of the accounting period

periodic system keeps a record showing the inventory on hand at all times

periodic system provides an easy means to determine inventory shrinkage

periodic system records the cost of the sale on the date the sale is made

25. Beginning inventory, purchases and sales data for tennis rackets are as follows:

Apr 3 Inventory 12 units @ $45

11 Purchase 13 units @$47

14 Sale 18 units

21 Purchase 9 units @ $60

25 Sale 10 units

Assuming the business maintains a perpetual inventory system, calculate the cost of merchandise sold and ending inventory under First-in, first-out:

cost of merchandise sold $1,151; ending inventory $180

cost of merchandise sold $180; ending inventory $1,151

cost of merchandise sold $1,331; ending inventory $360

cost of merchandise sold $360; ending inventory $1,331

26. The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May.

DateProduct ZUnitsCost

May 3Purchase5$30

May 10Sale3

May 17Purchase10$34

May 20Sale6

May 23Sale3

May 30Purchase10$40

Assuming that the company uses the perpetual inventory system, determine the ending inventory for the month of May using the FIFO inventory cost method.

$264

$502

$400

$790

27. The inventory system employing accounting records that continuously disclose the amount of inventory is called

Retail

Periodic

Physical

Perpetual

28. When merchandise sold is assumed to be in the order in which the expenditures were made, the inventory method is called

first-in, last-out

last-in, first-out

first-in, first-out

average cost

29. The following lots of a particular commodity were available for sale during the year:

Beginning inventory5 units @ $61

First purchase15 units @ $63

Second purchase10 units @ $74

Third purchase10 units @ $77

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the average cost method?

$1,380

$1,375

$1,510

$1,220

30. On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 by the retail method?

Cost Retail

May 1Merchandise Inventory$125,000 $166,667

May 1-31Purchases (net) 235,000 313,333

May 1-31Sales (net) 230,000

$250,000

$360,000

$172,500

$187,500

31. Inventory turnover

is computed by dividing average inventory by cost of merchandise sold

measures the relationship between the volume of goods sold and amount of inventory carried

increases the risk of loss from damaged merchandise

is computed by dividing the beginning inventory plus the ending inventory by two

32. Garrison Company uses the retail method of inventory costing. They started the year with an inventory that had a retail cost of $45,000. During the year they purchased an inventory with a retail cost of $300,000. After performing a physical inventory, they calculated their inventory at $80,000. The mark up is 100% of cost. Determine the ending inventory at its estimated cost.

$160,000

$80,000

$40,000

33. If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?

No change to net income.

Net income will be overstated

Net income will be understated.

Only gross profit will be affected.

34. Too much inventory on hand

reduces solvency

increases the cost to safeguard the assets

increases the losses due to price declines

all of the above

35. Under a periodic inventory system

accounting records continuously disclose the amount of inventory

a separate account for each type of merchandise is maintained in a subsidiary ledger

a physical inventory is taken at the end of the period

merchandise inventory is debited when goods are returned to vendors