Commercia law questions and answers, Quizzes of International Commercial Law

Download Commercia law questions and answers and more Quizzes International Commercial Law in PDF only on Docsity! Chapter 4 Question Review 1 Chapter 4 Questions Multiple Choice 1. The final step in the accounting cycle is to prepare: a. closing entries. b. financial statements. c. a post-closing trial balance. d. adjusting entries. 2. Accumulated Depreciation is a(n): a. expense account. b. stockholders’ equity account. c. liability account. d. contra asset account. 3. If a business has received cash in advance of services performed and credits a liability ac-count, the adjusting entry needed after the services are performed will be: a. debit Unearned Service Revenue and credit Cash. b. debit Unearned Service Revenue and credit Service Revenue. c. debit Unearned Service Revenue and credit Prepaid Expense. d. debit Unearned Service Revenue and credit Accounts Receivable. 4. A law firm has billed their clients for services performed. They subsequently received payments from their clients. What entry will the law firm make upon receipt of the payments? a. Debit Unearned Service Revenue and credit Service Revenue b. Debit Cash and credit Accounts Receivable c. Debit Accounts Receivable and credit Service Revenue d. Debit Cash and credit Service Revenue 5. The expense recognition principle matches: a. customers with businesses. b. expenses with revenues. c. assets with liabilities. d. creditors with businesses. 6. Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. Revenue recognized $19,000 Accounts receivable 3,000 Expenses incurred 7,250 Accounts payable (related to expenses) 750 Supplies purchased with cash 1,800 a. $11,750 b. $14,000 c. $9,500 d. $12,200 Chapter 4 Question Review 2 7. La More Company had the following transactions during 20X1. • Sales of $9,000 on account • Collected $4,000 for services to be performed in 20X2 • Paid $2,650 cash in salaries • Purchased airline tickets for $500 in December for a trip to take place in 20X2 What is La More’s 20X1 net income using cash basis accounting? a. $10,350 b. $1,350 c. $9,850 d. $850 8. The primary source used in the preparation of the financial statements is the: a. trial balance. b. post-closing trial balance. c. general trial balance. d. adjusted trial balance. 9. Which of the following accounts is a temporary account? a. Common Stock b. Retained Earnings c. Cash d. Dividends 10. On July 1 the Fisher Shoe Store paid $24,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is: a. debit Rent Expense, $24,000; credit Prepaid Rent, $4,000. b. debit Prepaid Rent, $4,000; credit Rent Expense, $4,000. c. debit Rent Expense, $4,000; credit Prepaid Rent, $4,000. d. debit Rent Expense, $24,000; credit Prepaid Rent, $20,000. 11. The Harris Company purchased equipment for $15,000 on December 1. It is estimated that annual depreciation on the computer will be $3,000. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: a. debit Depreciation Expense, $3,000; credit Accumulated Depreciation, $3,000. b. debit Depreciation Expense, $250; credit Accumulated Depreciation, $250. c. debit Depreciation Expense, $12,000; credit Accumulated Depreciation, $12,000. d. debit Equipment, $15,000; credit Accumulated Depreciation, $15,000. 12. If a company fails to adjust an Unearned Rent Revenue account for rent that has been recognized, what effect will this have on that month’s financial statements? a. Assets will be understated and revenues will be understated. b. Liabilities will be understated and revenues will be understated. c. Liabilities will be overstated and revenues will be understated. d. Assets will be overstated and revenues will be understated. Chapter 4 Question Review 5 2. Prepare adjusting entries on December 31 for the following transactions. Omit explanations. (Lines provided below and on the next page) a. Depreciation on equipment is $1,340 for the accounting period. b. Interest owed on a loan but not paid or recorded is $275. c. There was no beginning balance of supplies and $550 of office supplies were purchased during the period. At the end of the period $100 of supplies were on hand. d. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $700 had expired. e. Accrued salaries at the end of the period amounted to $900. Date Debit Credit Example: Bought supplies for $500 on Jan. 1. Supplies Jan. 1 500 Cash 500 Chapter 4 Question Review 6 3. Prepare adjusting entries on December 31 for the following transactions. Omit explanations. (Lines provided below and on the next page) a. Accrued interest on notes receivable is $30. b. $1,000 of unearned service revenue has been recognized. c. Three years’ rent, totaling $45,000, was paid in advance at the beginning of the year. d. Services totaling $2,900 had been performed but not yet billed at the end of the year. e. Depreciation on equipment totaled $6,500 for the year. f. Supplies purchased totaled $850. By year end, only $250 of supplies remained. g. Salaries owed to employees at the end of the year total $960 Date Debit Credit Example: Bought supplies for $500 on Jan. 1. Supplies Jan. 1 500 Cash 500 Chapter 4 Question Review 7 4. The adjusted trial balance shown below is for Rich Company at the end of its fiscal year: RICH COMPANY Trial Balance March 31, 2017 ___________________________________________________________________________________ Debit Credit Cash ................................................................................................................... $ 12,900 Accounts Receivable ......................................................................................... 9,400 Supplies ............................................................................................................. 700 Prepaid Insurance ............................................................................................. 2,500 Equipment ......................................................................................................... 16,000 Accumulated Depreciation—Equipment .......................................................... $ 4,800 Accounts Payable .............................................................................................. 5,800 Salaries and Wages Payable .............................................................................. 1,100 Unearned Rent Revenue ................................................................................... 600 Common Stock ................................................................................................... 15,000 Retained Earnings ............................................................................................. 5,600 Dividends ........................................................................................................... 5,800 Service Revenue ................................................................................................ 34,600 Rent Revenue .................................................................................................... 14,400 Salaries and Wages Expense ............................................................................. 18,100 Supplies Expense ............................................................................................... 1,800 Rent Expense ..................................................................................................... 12,000 Insurance Expense ............................................................................................ 1,500 Depreciation Expense ........................................................................................ 1,200 $81,900 $81,900 Instructions: Prepare the closing entries for the temporary accounts at March 31. Date Debit Credit Chapter 4 Question Review 10 Chapter 4 Solutions (Cont.) Exercise Solutions (Cont.) 3. Date Debit Credit Example: Bought supplies for $500 on Jan. 1. Supplies Jan. 1 500 Cash 500 a. Interest Receivable Dec. 31 30 Interest Revenue 30 b. Unearned Service Revenue Dec. 31 1,000 Service Revenue 1,000 c. Rent Expense ($45,000 ÷ 3 years) Dec. 31 15,000 Prepaid Rent 15,000 d. Accounts Receivable Dec. 31 2,900 Service Revenue 2,900 e. Depreciation Expense Dec. 31 6,500 Accumulated Depreciation—Equipment 6,500 f. Supplies Expense ($850 – $250) Dec. 31 600 Supplies 600 g. Salaries and Wages Expense Dec. 31 960 Salaries and Wages Payable 960 Chapter 4 Question Review 11 Chapter 4 Solutions (Cont.) Exercise Solutions (Cont.) 4. Date Debit Credit Service Revenue Dec. 31 34,600 Rent Revenue Closing 14,400 Income Summary 49,000 Income Summary Dec. 31 34,600 Salaries and Wages Expense Closing 18,100 Rent Expense 12,000 Supplies Expense 1,800 Insurance Expense 1,500 Depreciation Expense 1,200 Income Summary Dec. 31 14,400 Retained Earnings Closing 14,400 Retained Earnings Dec. 31 5,800 Dividends Closing 5,800