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Multiple Choice Questions in Financial Accounting

Please see the questions attached.
An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit a stockholders' equity account for $500.
c. Debit another asset account for $500.
d. Credit a different asset account for $500.

12. An accountant has debited an asset account for $1,000 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?
a. Credit an asset account for $500.
b. Credit another liability account for $500.
c. Credit a stockholders' equity account for $500.
d. Debit a stockholders' equity account for $500.

On June 1, 2000 Donna Lane buys a copier machine for her business and finances this purchase with cash and a note. When journalizing this transaction, she will
a. use two journal entries.
b. make a compound entry.
c. make a simple entry.
d. list the credit entries first, which is proper form for this
type of transaction

15. A company spends $10 million dollars for an office building.
Over what period should the cost be written off?
a. When the $10 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $10 million in revenue is earned

Reed Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be to
a. Debit Office Supplies Expense, $1,200; Credit Office Supplies,
$1,200.
b. Debit Office Supplies, $2,800; Credit Office Supplies Expense,
$2,800.
c. Debit Office Supplies Expense, $2,800; Credit Office Supplies,
$2,800.
d. Debit Office Supplies, $1,200; Credit Office Supplies Expense,
$1,200.

19. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.

20 On July 1 the Dryer Shoe Store paid $9,000 to Ace 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 Dryer Shoe Store is
a. Debit Rent Expense, $9,000; Credit Prepaid Rent, $1,500.
b. Debit Prepaid Rent, $1,500; Credit Rent Expense, $1,500.
c. Debit Rent Expense, $1,500; Credit Prepaid Rent, $1,500.
d. Debit Rent Expense, $9,000; Credit Prepaid Rent, $9,000.

21. Neal Realty Company received a check for $15,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $15,000. Financial statements will be prepared on July 31. Neal Realty should make the following adjusting entry on July 31:
a. Debit Unearned Rent, $2,500; Credit Rent Revenue, $2,500.
b. Debit Rent Revenue, $2,500; Credit Unearned Rent Revenue,
$2,500.
c. Debit Unearned Rent, $15,000; Credit Rent Revenue, $15,000.
d. Debit Cash, $15,000; Credit Rent Revenue, $15,000.

22 A lawyer collected $960 of legal service revenue in advance. He erroneously debited Cash for $690 and credited Accounts Receivable for $690. The correcting entry is
a. Cash .................................. 690
Accounts Receivable ................... 270
Unearned Legal Service Revenue .... 960
b. Cash .................................. 960
Legal Service Revenue ............. 960
c. Cash .................................. 270
Accounts Receivable ................... 690
Unearned Legal Service Revenue .... 960
d. Cash .................................. 270
Accounts Receivable ............... 270

40 A company has goods available for sale during a period at cost and at retail of $60,000 and $100,000, respectively. If sales during the period amounted to $80,000, an estimate of the ending inventory at cost at the end of the period under the retail method is
a. $32,000.
b. $48,000.
c. $12,000.
d. $20,000.

42. Winter Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 70%. Goods available for sale at retail amounted to $300,000 and goods were sold during the period for $200,000. The estimated cost of the ending inventory is
a. $100,000.
b. $210,000.
c. $70,000.
d. $142,857.

43 Winter Department Store utilizes the retail inventory method to
estimate its inventories. It calculated its cost to retail ratio
during the period at 70%. Goods available for sale at retail
amounted to $300,000 and goods were sold during the period for
$200,000. The estimated cost of the ending inventory is
a. $100,000.
b. $210,000.
c. $70,000.
d. $142,857.

1. A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for
a total of $250 and used FIFO costing, the gross profit for the
period would be
a. $75.
b. $85.
c. $70.
d. $60.

2. The income statement and balance sheet columns of Grant Company's
work sheet reflects the following totals:
?????????????????????????????????????????
Income Statement Balance Sheet
?????????????????? ???????????????????
Dr. Cr. Dr. Cr.
??????? ??????? ??????? ???????
Totals $45,000 $55,000 $44,000 $34,000

24. The net income (or loss) for the period is
a. $45,000 income.
b. $10,000 loss.
c. $10,000 income.
d. not determinable.

1 A lawyer collected $960 of legal service revenue in advance. He
erroneously debited Cash for $690 and credited Accounts Receivable for $690. The correcting entry is
a. Cash .................................. 690
Accounts Receivable ................... 270
Unearned Legal Service Revenue .... 960
b. Cash .................................. 960
Legal Service Revenue ............. 960
c. Cash .................................. 270
Accounts Receivable ................... 690
Unearned Legal Service Revenue .... 960
d. Cash .................................. 270
Accounts Receivable ............... 270

2 Jeff is a barber who does his own accounting for his shop. When he buys supplies, he routinely debits Supplies Expense. Jeff purchased $1,500 of supplies in January and his inventory at the end of January shows $400 of supplies remaining. What adjusting entry should Jeff make on January 31?
a. Supplies Expense ...................... 400
Supplies .......................... 400
b. Supplies Expense ...................... 1,500
Cash .............................. 1,500
c. Supplies .............................. 400
Supplies Expense .................. 400
d. Supplies Expense ...................... 1,100
Supplies .......................... 1,100

32. A new accountant working for McCoy Company records $600 Depreciation Expense on store equipment as follows:
Dr. Depreciation Expense ............ 600
Cr. Cash ........................ 600
The effect of this entry is to
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at
December 31.
d. understate the book value of the depreciable assets as of
December 31.

38 On January 2, 2000, Columbia Savings and Loan purchased a general
liability insurance policy for $2,400 for coverage for the calendar year. The entire $2,400 was charged to Insurance Expense on January 2, 2000. If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2000, will be:
a. Insurance Expense ..................... 2,200
Prepaid Insurance ................. 2,200
b. Prepaid Insurance ..................... 2,200
Insurance Expense ................. 2,200
c. Insurance Expense ..................... 200
Prepaid Insurance ................. 200
d. Prepaid Insurance ..................... 200
Insurance Expense ................. 200

39. Reed Company purchased office supplies costing $4,000 and debited
Office Supplies for the full amount. At the end of the accounting
period, a physical count of office supplies revealed $1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
a. Debit Office Supplies Expense, $1,200; Credit Office Supplies,
$1,200.
b. Debit Office Supplies, $2,800; Credit Office Supplies Expense,
$2,800.
c. Debit Office Supplies Expense, $2,800; Credit Office Supplies,
$2,800.
d. Debit Office Supplies, $1,200; Credit Office Supplies Expense,
$1,200.

40 Larkin Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an
inventory of the laundry supplies indicated only $2,000 on hand.
The adjusting entry that should be made by the company on June 30 is
a. Debit Laundry Supplies Expense, $2,000; Credit Laundry Supplies,
$2,000.
b. Debit Laundry Supplies Expense, $4,500; Credit Laundry Supplies,
$4,000.
c. Debit Laundry Supplies, $4,500; Credit Laundry Supplies Expense,
$4,500.
d. Debit Laundry Supplies Expense, $4,500; Credit Laundry Supplies,
$4,500.

1. Carey Guitar Company borrowed $20,000 from the bank signing a 9%,
3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be
a. Debit Interest Expense, $1,800; Credit Interest Payable, $1,800.
b. Debit Interest Expense, $150; Credit Interest Payable, $150.
c. Debit Note Payable, $1,800; Credit Cash, $1,800.
d. Debit Cash, $450; Credit Interest Payable, $450.

2. Jill Ryan has performed $600 of CPA services for a client but
has not billed the client as of the end of the accounting period.
What adjusting entry must Jill make?
a. Debit Cash and credit Unearned Service Revenue
b. Debit Accounts Receivable and credit Unearned Service Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Service Revenue and credit Service Revenue

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Please see the attached file for answers/explanations in blue.

An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit a stockholders' equity account for $500.
c. Debit another asset account for $500.
d. Credit a different asset account for $500.

The accounting equation is assets = liabilities + equity
If assets are increased by 1,000 and liabilities are increased by 500, then to balance the equation we need to decrease the assets by $500 and that is done by crediting the asset.

12. An accountant has debited an asset account for $1,000 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?
a. Credit an asset account for $500.
b. Credit another liability account for $500.
c. Credit a stockholders' equity account for $500.
d. Debit a stockholders' equity account for $500.

Debiting stockholders equity would reduce the equity by 500 and the balance on the liabilities + equity side will be zero as compared to $1,000 on the assets side.

On June 1, 2000 Donna Lane buys a copier machine for her business and finances this purchase with cash and a note. When journalizing this transaction, she will
a. use two journal entries.
b. make a compound entry.
c. make a simple entry.
d. list the credit entries first, which is proper form for this
type of transaction

A compound entry has more than two items. Since the payment is made by cash and note, the entry would have three items
Equipment Dr
Cash Cr
Notes Payable Cr

15. A company spends $10 million dollars for an office building.
Over what period should the cost be written off?
a. When the $10 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $10 million in revenue is earned

All fixed assets are depreciated over the useful life of the asset.

Reed Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be to
a. Debit Office Supplies Expense, $1,200; Credit Office Supplies,
$1,200.
b. Debit Office Supplies, $2,800; Credit Office Supplies Expense,
$2,800.
c. Debit Office Supplies Expense, $2,800; Credit Office Supplies,
$2,800.
d. Debit Office Supplies, $1,200; Credit Office Supplies Expense,
$1,200.

Supplies for 4,000 are purchased and 1,200 are still on hand. This implies that $2,800 of supplies are consumed that these should be recorded as expense

19. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.

The unearned revenue is not recorded as revenue and so revenue is understated.

20 On July 1 the Dryer Shoe Store paid $9,000 to Ace Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial ...

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The solution explains multiple choice questions relating to financial accounting

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