Solutions Manual and Test Bank of Intermediate Accounting Kieso Weygandt Warfield 15th edition

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CHAPTER 3

THE ACCOUNTING INFORMATION SYSTEM


MULTIPLE CHOICE—Conceptual

   21.     Factors that shape an accounting information system include the
            a.   nature of the business.
            b.   size of the firm.
            c.   volume of data to be handled.
            d.   all of these.

   22.     Maintaining a set of accounting records is
            a.   optional.
            b.   required by the Internal Revenue Service.
            c.   required by the Foreign Corrupt Practices Act.
            d.   required by the Internal Revenue Service and the Foreign Corrupt Practices Act.

   23.     Debit always means
            a.   right side of an account.
            b.   increase.
            c.   decrease.
            d.   none of these.

   24.     An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the
            a.   ledger.
            b.   account.
            c.   trial balance.
            d.   none of these.



   25.     A trial balance
a.   proves that debits and credits are equal in the ledger.
b.   supplies a listing of open accounts and their balances that are used in preparing financial statements.
c.   is normally prepared three times in the accounting cycle.
d.   all of these.

   26.     Which of the following is a real (permanent) account?
            a.   Goodwill
            b.   Sales
            c.   Accounts Receivable
            d.   Both Goodwill and Accounts Receivable

   27.     Which of the following is a nominal (temporary) account?
            a.   Unearned Revenue
            b.   Salary Expense
            c.   Inventory
            d.   Retained Earnings

   28.     Nominal accounts are also called
            a.   temporary accounts.
            b.   permanent accounts.
            c.   real accounts.
            d.   none of these.

   29.     The double-entry accounting system means
            a.   Each transaction is recorded with two journal entries.
            b.   Each item is recorded in a journal entry, then in a general ledger account.
            c.   The dual effect of each transaction is recorded with a debit and a credit.
            d.   More than one of the above.    

  30.     When a corporation pays a note payable and interest,
            a.   the account notes payable will be increased.
            b.   the account interest expense will be decreased.
            c.   they will debit notes payable and interest expense.
            d.   they will debit cash.

  31.     Stockholders’ equity is not affected by all
            a.   cash receipts.
            b.   dividends.
            c.   revenues.
            d.   expenses.

   32.     The debit and credit analysis of a transaction normally takes place
            a.   before an entry is recorded in a journal.
            b.   when the entry is posted to the ledger.
            c.   when the trial balance is prepared.
            d.   at some other point in the accounting cycle.



   33.     The accounting equation must remain in balance
            a.   throughout each step in the accounting cycle.
            b.   only when journal entries are recorded.
            c.   only at the time the trial balance is prepared.
            d.   only when formal financial statements are prepared.

   34.     The difference between the accounting process and the accounting cycle is
a.   the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions.
b.   the accounting cycle represents the steps taken to accomplish the accounting process.
c.   the accounting process represents the steps taken to accomplish the accounting cycle.
d.   merely semantic, because both concepts refer to the same thing.

   35.     An optional step in the accounting cycle is the preparation of
a.   adjusting entries.
b.   closing entries.
c.   a statement of cash flows.
d.   a post-closing trial balance.

   36.     Which of the following criteria must be met before an event or item should be recorded for accounting purposes?
            a.   The event or item can be measured objectively in financial terms.
            b.   The event or item is relevant and reliable.
            c.   The event or item is an element.
            d.   All of these must be met.

   37.     Which of the following is a recordable event or item?
            a.   Changes in managerial policy
            b.   The value of human resources
            c.   Changes in personnel
            d.   None of these

   38.     Which of the following is not an internal event?
            a.   Depreciation
            b.   Using raw materials in the production process
            c.   Dividend declaration and subsequent payment
            d.   All of these are internal transactions.

   39.     External events do not include
            a.   interaction between an entity and its environment.
            b.   a change in the price of a good or service that an entity buys or sells, a flood or earthquake.
            c.   improvement in technology by a competitor.
            d.   using buildings and machinery in operations.

   40.     A trial balance may prove that debits and credits are equal, but
            a.   an amount could be entered in the wrong account.
            b.   a transaction could have been entered twice.
            c.   a transaction could have been omitted.
            d.   all of these.



   41.     A general journal
            a.   chronologically lists transactions and other events, expressed in terms of debits and credits.
            b.   contains one record for each of the asset, liability, stockholders’ equity, revenue, and expense accounts.
            c.   lists all the increases and decreases in each account in one place.
            d.   contains only adjusting entries.

   42.     A journal entry to record the sale of inventory on account will include a
            a.   debit to inventory.
            b.   debit to accounts receivable.
            c.   debit to sales.
            d.   credit to cost of goods sold.

   43.     A journal entry to record a payment on account will include a
            a.   debit to accounts receivable.
            b.   credit to accounts receivable.
            c.   debit to accounts payable.
            d.   credit to accounts payable.

   44.     A journal entry to record a receipt of rent revenue in advance will include a
            a.   debit to rent revenue.
            b.   credit to rent revenue.
            c.   credit to cash.
            d.   credit to unearned rent.

   45.     Which of the following errors will cause an imbalance in the trial balance?
a.   Omission of a transaction in the journal.
b.   Posting an entire journal entry twice to the ledger.
c.   Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable.
d.   Listing the balance of an account with a debit balance in the credit column of the trial balance.

S46.     Which of the following is not a principal purpose of an unadjusted trial balance?
a.   It proves that debits and credits of equal amounts are in the ledger.
b.   It is the basis for any adjustments to the account balances.
c.   It supplies a listing of open accounts and their balances.
d.   It proves that debits and credits were properly entered in the ledger accounts.

S47.     An adjusting entry should never include
a.   a debit to an expense account and a credit to a liability account.
b.   a debit to an expense account and a credit to a revenue account.
c.   a debit to a liability account and a credit to revenue account.
d.   a debit to a revenue account and a credit to a liability account.

   48.     Which of the following is an example of an accrued expense?
a.   Office supplies purchased at the beginning of the year and debited to an expense account.
b.   Property taxes incurred during the year, to be paid in the first quarter of the subsequent year.
c.   Depreciation expense
d.   Rent earned during the period, to be received at the end of the year
P49.     Which of the following statements is associated with the accrual basis of accounting?
a.   The timing of cash receipts and disbursements is emphasized.
b.   A minimum amount of record keeping is required.
c.   This method is used less frequently by businesses than the cash method of accounting.
d.   Revenues are recognized in the period they are earned, regardless of the time period the cash is received.

P50.     An adjusting entry to record an accrued expense involves a debit to a(an):
a.   expense account and a credit to a prepaid account.
b.   expense account and a credit to Cash.
c.   expense account and a credit to a liability account.
d.   liability account and a credit to an expense account.

P51.     The failure to properly record an adjusting entry to accrue an expense will result in an:
a.   understatement of expenses and an understatement of liabilities.
b.   understatement of expenses and an overstatement of liabilities.
c.   understatement of expenses and an overstatement of assets.
d.   overstatement of expenses and an understatement of assets.

P52.     Which of  the following properly describes a deferral?
a.   Cash is received after revenue is earned.
b.   Cash is received before revenue is earned.
c.   Cash is paid after expense is incurred.
d.   Cash is paid in the same time period that an expense is incurred.

P53.     The failure to properly record an adjusting entry to accrue a revenue item will result in an:
a.   understatement of revenues and an understatement of liabilities.
b.   overstatement of revenues and an overstatement of liabilities.
c.   overstatement of revenues and an overstatement of assets.
d.   understatement of revenues and an understatement of assets.

P54.     The omission of the adjusting entry to record depreciation expense will result in an:
a.   overstatement of assets and an overstatement of owners' equity.
b.   understatement of assets and an understatement of owner's equity.
c.   overstatement of assets and an overstatement of liabilities.
d.   overstatement of liabilities and an understatement of owners' equity.

   55.     Adjustments are often prepared
            a.   after the balance sheet date, but dated as of the balance sheet date.
            b.   after the balance sheet date, and dated after the balance sheet date.
            c.   before the balance sheet date, but dated as of the balance sheet date.
            d.   before the balance sheet date, and dated after the balance sheet date.

   56.     At the time a company prepays a cost
            a.   it debits an asset account to show the service or benefit it will receive in the future.
            b.   it debits an expense account to match the expense against revenues earned.
            c.   its credits a liability account to show the obligation to pay for the service in the future.
            d.   more than one of the above.



   57.     How do these prepaid expenses expire?
                                         Rent                                          Supplies
            a.   With the passage of time                              Through use and consumption
            b.   With the passage of time                              With the passage of time
            c.   Through use and consumption                       Through use and consumption
            d.   Through use and consumption                       With the passage of time

   58.     Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for
            a.   an unearned revenue.
            b.   a prepaid expense.
            c.   an accrued revenue.
            d.   an accrued expense.

   59.     Unearned revenue on the books of one company is likely to be
            a.   a prepaid expense on the books of the company that made the advance payment.
            b.   an unearned revenue on the books of the company that made the advance payment.
            c.   an accrued expense on the books of the company that made the advance payment.
            d.   an accrued revenue on the books of the company that made the advance payment.

   60.     To compute interest expense for an adjusting entry, the formula is (principal X annual rate X a fraction). The numerator and denominator of the fraction are:
                                           Numerator                                   Denominator
            a.   Length of time note has been outstanding                       12 months
            b.   Length of note                                                              12 months
            c.   Length of time until note matures                                   Length of note
            d.   Length of time note has been outstanding                       Length of note

   61.     Adjusting entries are necessary to
                              1.  obtain a proper matching of revenue and expense.
                              2.  achieve an accurate statement of assets and equities.
                              3.  adjust assets and liabilities to their fair market value.
            a.   1
            b.   2
            c.   3
            d.   1 and 2

   62.     Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles?
            a.   To reduce the federal income tax liability
            b.   To aid management in cash-flow analysis
            c.   To match the costs of production with revenues as earned
            d.   To adhere to the accounting constraint of conservatism

   63.     When an item of expense is paid and recorded in advance, it is normally called a(n)
            a.   prepaid expense.
            b.   accrued expense.
            c.   estimated expense.
            d.   cash expense.



   64.     When an item of revenue or expense has been earned or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense.
            a.   prepaid
            b.   adjusted
            c.   estimated
            d.   none of these

   65.     When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue.
            a.   accrued
            b.   prepaid
            c.   unearned
            d.   cash

   66.     An accrued expense can best be described as an amount
            a.   paid and currently matched with earnings.
            b.   paid and not currently matched with earnings.
            c.   not paid and not currently matched with earnings.
            d.   not paid and currently matched with earnings.

   67.     If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve
            a.   a liability account and an asset account.
            b.   an asset or contra asset account and an expense account.
            c.   a liability account and an expense account.
            d.   a receivable account and a revenue account.

   68.     Which of the following must be considered in estimating depreciation on an asset for an accounting period?
            a.   The original cost of the asset
            b.   Its useful life
            c.   The decline of its fair market value
            d.   Both the original cost of the asset and its useful life.

   69.     Which of the following would not be a correct form for an adjusting entry?
            a.   A debit to a revenue and a credit to a liability
            b.   A debit to an expense and a credit to a liability
            c.   A debit to a liability and a credit to a revenue
            d.   A debit to an asset and a credit to a liability

   70.     Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?
            a.   Expiration of prepaid insurance
            b.   Depreciation of fixed assets
            c.   Accrued wages payable
            d.   All of these

   71.     A prepaid expense can best be described as an amount
            a.   paid and currently matched with revenues.
            b.   paid and not currently matched with revenues.
            c.   not paid and currently matched with revenues.
            d.   not paid and not currently matched with revenues.
   72.     An accrued revenue can best be described as an amount
            a.   collected and currently matched with expenses.
            b.   collected and not currently matched with expenses.
            c.   not collected and currently matched with expenses.
            d.   not collected and not currently matched with expenses.

   73.     An unearned revenue can best be described as an amount
            a.   collected and currently matched with expenses.
            b.   collected and not currently matched with expenses.
            c.   not collected and currently matched with expenses.
            d.   not collected and not currently matched with expenses.

   74.     An adjusted trial balance
            a.   is prepared after the financial statements are completed.
            b.   proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
            c.   is a required financial statement under generally accepted accounting principles.
            d.   cannot be used to prepare financial statements.

   75.     Which type of account is always debited during the closing process?
            a.   Dividends.
            b.   Expense.
            c.   Revenue.
            d.   Retained earnings.

S76.     Which of the following statements best describes the purpose of closing entries?
a.   To faciliate posting and taking a trial balance.
b.   To determine the amount of net income or net loss for the period.
c.   To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period.
d.   To complete the record of various transactions that were started in a prior period.

P77.     If ending accounts receivable exceeds the beginning accounts receivable:
a.   cash collections during the period exceed the amount of revenue earned.
b.   net income for the period is less than the amount of cash basis income.
c.   no cash was collected during the period.
d.   cash collections during the year are less than the amount of revenue earned.

*78.     Under the cash basis of accounting, revenues are recorded
            a.   when they are earned and realized.
            b.   when they are earned and realizable.
            c.   when they are earned.
            d.   when they are realized.

*79.     When converting from cash basis to accrual-basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue?
            a.   Subtract ending accounts receivable.
            b.   Subtract beginning unearned service revenue.
            c.   Add ending accounts receivable.
            d.   Add cash sales.

*80.     When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual basis operating expenses?
            a.   Add beginning accrued liabilities.
            b.   Add beginning prepaid expense.
            c.   Subtract ending prepaid expense.
            d.   Subtract interest expense.

*81.     Reversing entries are
                              1.  normally prepared for prepaid, accrued, and estimated items.
                              2.  necessary to achieve a proper matching of revenue and expense.
                              3.  desirable to exercise consistency and establish standardized procedures.
            a.   1
            b.   2
            c.   3
            d.   1 and 2

*82.     Adjusting entries that should be reversed include those for prepaid or unearned items that
a.   create an asset or a liability account.
b.   were originally entered in a revenue or expense account.
c.   were originally entered in an asset or liability account.
d.   create an asset or a liability account and were originally entered in a revenue or expense account.

*83.     Adjusting entries that should be reversed include
            a.   all accrued revenues.
            b.   all accrued expenses.
            c.   those that debit an asset or credit a liability.
            d.   all of these.

S*84.     A reversing entry should never be made for an adjusting entry that
a.   accrues unrecorded revenue.
b.   adjusts expired costs from an asset account to an expense account.
c.   accrues unrecorded expenses.
d.   adjusts unexpired costs from an expense account to an asset account.

S*85.     The worksheet for Sharko Co. consisted of five pairs of debit and credit columns. The dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. That item is
a.   net income for the period.
b.   beginning inventory.
c.   cost of goods sold.
d.   Net loss for the period.


Multiple Choice—Computational

   86.     Maso Company recorded journal entries for the issuance of common stock for $80,000, the payment of $26,000 on accounts payable, and the payment of salaries expense of $42,000. What net effect do these entries have on owners’ equity?
            a.   Increase of $80,000.
            b.   Increase of $54,000.
            c.   Increase of $38,000.
            d.   Increase of $12,000.

   87.     Mune Company recorded journal entries for the declaration of $100,000 of dividends, the $64,000 increase in accounts receivable for services rendered, and the purchase of equipment for $42,000. What net effect do these entries have on owners’ equity?
            a.   Decrease of $142,000.
            b.   Decrease of $78,000.
            c.   Decrease of $36,000.
            d.   Increase of $22,000.

   88.     Pappy Corporation received cash of $18,000 on September 1, 2012 for one year’s rent in advance and recorded the transaction with a credit to Unearned Rent Revenue. The December 31, 2012 adjusting entry is
            a.   debit Rent Revenue and credit Unearned Rent Revenue, $6,000.
            b.   debit Rent Revenue and credit Unearned Rent Revenue, $12,000.
            c.   debit Unearned Rent Revenue and credit Rent Revenue, $6,000.
            d.   debit Cash and credit Unearned Rent Revenue, $12,000.

   89.     Panda Corporation paid cash of $30,000 on June 1, 2012 for one year’s rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2012 adjusting entry is
            a.   debit Prepaid Rent and credit Rent Expense, $12,500.
            b.   debit Prepaid Rent and credit Rent Expense, $17,500.
            c.   debit Rent Expense and credit Prepaid Rent, $17,500.
            d.   debit Prepaid Rent and credit Cash, $12,500.

   90.     Tate Company purchased equipment on November 1, 2012 and gave a 3-month, 9% note with a face value of $40,000.  The December 31, 2012 adjusting entry is
            a.   debit Interest Expense and credit Interest Payable, $3,600.
            b.   debit Interest Expense and credit Interest Payable, $900.
            c.   debit Interest Expense and credit Cash, $600.
            d.   debit Interest Expense and credit Interest Payable, $600.

   91.     Brown Company's account balances at December 31, 2012 for Accounts Receivable and the related Allowance for Doubtful Accounts are $920,000 debit and $1,400 credit, respectively.  From an aging of accounts receivable, it is estimated that $25,000 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for
            a.   $25,000.
            b.   $26,400.
            c.   $23,600.
            d.   $1,400.

   92.     Chen Company's account balances at December 31, 2012 for Accounts Receivable and the Allowance for Doubtful Accounts are $480,000 debit and $900 credit. Sales during 2012 were $1,350,000. It is estimated that 1% of sales will be uncollectible. The adjusting entry would include a credit to the allowance account for
            a.   $14,400.
            b.   $13,500.
            c.   $12,600.
            d.   $4,800.

   93.     Starr Corporation loaned $150,000 to another corporation on December 1, 2012 and received a 3-month, 8% interest-bearing note with a face value of $150,000. What adjusting entry should Starr make on December 31, 2012?
            a.   Debit Interest Receivable and credit Interest Revenue, $3,000.
            b.   Debit Cash and credit Interest Revenue, $1,000.
            c.   Debit Interest Receivable and credit Interest Revenue, $1,000.
            d.   Debit Cash and credit Interest Receivable, $3,000.

   94.     A company receives interest on a $40,000, 8%, 5-year note receivable each April 1. At December 31, 2012, the following adjusting entry was made to accrue interest receivable:
                  Interest Receivable ..................................................................           2,400
                              Interest Revenue ..........................................................                                2,400



            Assuming that the company does not use reversing entries, what entry should be made on April 1, 2013 when the annual interest payment is received?
            a.   Cash ......................................................................................              800
                              Interest Revenue ..........................................................                                   800
            b.   Cash ......................................................................................           2,400
                              Interest Receivable ......................................................                                2,400
            c.   Cash ......................................................................................           3,200
                              Interest Receivable ......................................................                                2,400
                              Interest Revenue ..........................................................                                   800
            d.   Cash ......................................................................................           3,200
                              Interest Revenue ..........................................................                                3,200

*95.     A company receives interest on a $40,000, 8%, 5-year note receivable each April 1. At December 31, 2012, the following adjusting entry was made to accrue interest receivable:
                  Interest Receivable ..................................................................           2,400
                              Interest Revenue ..........................................................                                2,400

            Assuming that the company does use reversing entries, what entry should be made on April 1, 2013 when the annual interest payment is received?
            a.   Cash ......................................................................................              800
                              Interest Revenue ..........................................................                                   800
            b.   Cash ......................................................................................           2,400
                              Interest Receivable ......................................................                                2,400
            c.   Cash   .....................................................................................           3,200
                              Interest Receivable ......................................................                                2,400
                              Interest Revenue ..........................................................                                   800
            d.   Cash ......................................................................................           3,200
                              Interest Revenue..........................................................                                3,200

   96.     Murphy Company sublet a portion of its warehouse for five years at an annual rental of $30,000, beginning on May 1, 2012. The tenant, Sheri Charter, paid one year's rent in advance, which Murphy recorded as a credit to Unearned Rent Revenue. Murphy reports on a calendar-year basis. The adjustment on December 31, 2012 for Murphy should be
            a.   No entry
            b.   Unearned Rent Revenue ...........................................................         10,000
                              Rent Revenue ..............................................................                              10,000
            c.   Rent Revenue ..........................................................................         10,000
                              Unearned Rent Revenue ...............................................                              10,000
            d.   Unearned Rent Revenue ...........................................................         20,000
                              Revenue Revenue........................................................                              20,000

   97.     During the first year of Wilkinson Co.'s operations, all purchases were recorded as assets. Supplies in the amount of $25,800 were purchased. Actual year-end supplies amounted to $8,600. The adjusting entry for store supplies will
a.   increase net income by $17,200.
b.   increase expenses by $17,200.
c.   decrease supplies by $8,600.
d.   debit Accounts Payable for $8,600.



   98.     Big-Mouth Frog Corporation had revenues of $300,000, expenses of $180,000, and dividends of $45,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a
            a.   debit of $75,000.
            b.   debit of $120,000.
            c.   credit of $75,000.
            d.   credit of $120,000.

*99.     The income statement of Dolan Corporation for 2012 included the following items:
            Interest revenue                                                            $131,000
            Salaries and wages expense                                           170,000
            Insurance expense                                                           15,200
The following balances have been excerpted from Dolan Corporation's balance sheets:
                                                                              December 31, 2012              December 31, 2011
            Interest receivable                                               $18,200                               $15,000
            Salaries and wages payable                                  17,800                                  8,400
            Prepaid insurance                                                  2,200                                  3,000

            The cash received for interest during 2012 was
            a.   $112,800.
            b.   $127,800.
            c.   $131,000.
            d.   $134,200.

*100.     The income statement of Dolan Corporation for 2012 included the following items:
            Interest revenue                                                            $131,000
            Salaries and wages expense                                           170,000
            Insurance expense                                                           15,200
The following balances have been excerpted from Dolan Corporation's balance sheets:
                                                                              December 31, 2012              December 31, 2011
            Interest receivable                                               $18,200                               $15,000
            Salaries and wages payable                                  17,800                                  8,400
            Prepaid insurance                                                  2,200                                  3,000

            The cash paid for salaries during 2012 was
            a.   $179,400.
            b.   $160,600.
            c.   $161,600.
            d.   $187,800.

*101.     The income statement of Dolan Corporation for 2012 included the following items:
            Interest revenue                                                            $131,000
            Salaries and wages expense                                           170,000
            Insurance expense                                                           15,200
     


The following balances have been excerpted from Dolan Corporation's balance sheets:
                                                                              December 31, 2012              December 31, 2011
            Interest receivable                                               $18,200                               $15,000
            Salaries and wages payable                                  17,800                                  8,400
            Prepaid insurance                                                  2,200                                  3,000

            The cash paid for insurance premiums during 2012 was
            a.   $13,000.
            b.   $12,200.
            c.   $16,000.
            d.   $14,400.

*102.     Olsen Company paid or collected during 2012 the following items:
                  Insurance premiums paid                                                               $  20,800
                  Interest collected                                                                                67,800
                  Salaries paid                                                                                    240,400

The following balances have been excerpted from Olsen's balance sheets:
                                                                                  December 31, 2012              December 31, 2011
                  Prepaid insurance                                             $  2,400                             $  3,000
                  Interest receivable                                                  7,400                                  5,800
                  Salaries and wages payable                                  24,600                                21,200

            The insurance expense on the income statement for 2012 was
            a.   $15,400.
            b.   $20,200.
            c.   $21,400.
            d.   $26,200.

*103.     Olsen Company paid or collected during 2012 the following items:
                  Insurance premiums paid                                                               $  20,800
                  Interest collected                                                                                67,800
                  Salaries paid                                                                                    240,400

The following balances have been excerpted from Olsen's balance sheets:
                                                                                  December 31, 2012              December 31, 2011
                  Prepaid insurance                                             $  2,400                             $  3,000
                  Interest receivable                                                  7,400                                  5,800
                  Salaries and wages payable                                  24,600                                21,200

            The interest revenue on the income statement for 2012 was
            a.   $54,600.
            b.   $66,200.
            c.   $69,400.
            d.   $81,000.



*104.     Olsen Company paid or collected during 2012 the following items:
                  Insurance premiums paid                                                               $  20,800
                  Interest collected                                                                                67,800
                  Salaries paid                                                                                    240,400

The following balances have been excerpted from Olsen's balance sheets:
                                                                                  December 31, 2012              December 31, 2011
                  Prepaid insurance                                             $  2,400                             $  3,000
                  Interest receivable                                                  7,400                                  5,800
                  Salaries and wages payable                                  24,600                                21,200

            Salaries expense on the income statement for 2012 was
            a.   $194,600.
            b.   $237,000.
            c.   $243,800.
            d.   $286,200.

*105.     The Supplies account had a balance at the beginning of year 3 of $8,000 (before the reversing entry). Payments for purchases of supplies during year 3 amounted to $50,000 and were recorded as expense. A physical count at the end of year 3 revealed supplies costing $9,500 were on hand. Reversing entries are used by this company. The required adjusting entry at the end of year 3 will include a debit to:
            a.   Supplies Expense for $1,500.
            b.   Supplies for $1,500.
            c.   Supplies Expense for $48,500.
            d.   Supplies for $9,500.

*106.     At the end of 2012, Drew Company made four adjusting entries for the following items:
            1.   Depreciation expense, $25,000.
            2.   Expired insurance, $2,200 (originally recorded as prepaid insurance.)
            3.   Interest payable, $6,000.
            4.   Rent receivable, $10,000.
            In the normal situation, to facilitate subsequent entries, the adjusting entry or entries that may be reversed is (are)
a.   Entry No. 3.
b.   Entry No. 4.
c.   Entry No. 3 and No. 4.
d.   Entry No. 2, No. 3 and No. 4.

*107.     Garcia Corporation received cash of $24,000 on August 1, 2012 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2012 adjusting entry is
            a.   debit Rent Revenue and credit Unearned Rent Revenue, $10,000.
            b.   debit Rent Revenue and credit Unearned Rent Revenue, $14,000.
            c.   debit Unearned Rent Revenue and credit Rent Revenue, $10,000.
            d.   debit Cash and credit Unearned Rent Revenue, $14,000.



*108.     Lopez Company received $9,600 on April 1, 2012 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2012 adjusting entry is
            a.   debit Rent Revenue and credit Unearned Rent Revenue, $2,400.
            b.   debit Rent Revenue and credit Unearned Rent Revenue, $7,200.
            c.   debit Unearned Rent Revenue and credit Rent Revenue, $2,400.
            d.   debit Unearned Rent Revenue and credit Rent Revenue, $7,200.

*109.     Gibson Company paid $6,000 on June 1, 2012 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2012 adjusting entry is
            a.   debit Insurance Expense and credit Prepaid Insurance, $1,750.
            b.   debit Insurance Expense and credit Prepaid Insurance, $4,250.
            c.   debit Prepaid Insurance and credit Insurance Expense, $1,750
            d.   debit Prepaid Insurance and credit Insurance Expense, $4,250.


Multiple Choice—CPA Adapted

110.    On September 1, 2012, Lowe Co. issued a note payable to National Bank in the amount of $900,000, bearing interest at 12%, and payable in three equal annual principal payments of $300,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2013. At December 31, 2013, Lowe should record accrued interest payable of
            a.   $36,000.
            b.   $33,000.
            c.   $24,000.
            d.   $22,000.

111.     Eaton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenue. This account had a balance of $3,600,000 at December 31, 2012 before year-end adjustment. Service contract costs are charged as incurred to the Service Contract Expense account, which had a balance of $900,000 at December 31, 2012.
            Service contracts still outstanding at December 31, 2012 expire as follows:
                  During 2013                                                $760,000
                  During 2014                                               1,140,000
                  During 2015                                                 700,000
            What amount should be reported as Unearned Service Revenue in Eaton's December 31, 2012 balance sheet?
            a.   $2,700,000.
            b.   $2,600,000.
            c.   $1,700,000.
            d.   $1,000,000.

112.     In November and December 2012, Lane Co., a newly organized magazine publisher, received $75,000 for 1,000 three-year subscriptions at $25 per year, starting with the January 2013 issue. Lane included the entire $75,000 in its 2012 income tax return. What amount should Lane report in its 2012 income statement for subscriptions revenue?
            a.   $0.
            b.   $4,167.
            c.   $25,000.
            d.   $75,000.

113.     On June 1, 2012, Nott Corp. loaned Horn $600,000 on a 12% note, payable in five annual installments of $120,000 beginning January 2, 2013. In connection with this loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Horn after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2012. Horn made timely payments through November 1, 2012. On January 2, 2013, Nott received payment of the first principal installment plus all interest due. At December 31, 2012, Nott's interest receivable on the loan to Horn should be
            a.   $0.
            b.   $6,000.
            c.   $12,000.
            d.   $18,000.

114.     Allen Corp.'s liability account balances at June 30, 2013 included a 10% note payable in the amount of $3,000,000. The note is dated October 1, 2011 and is payable in three equal annual payments of $1,000,000 plus interest. The first interest and principal payment was made on October 1, 2012. In Allen's June 30, 2013 balance sheet, what amount should be reported as accrued interest payable for this note?
            a.   $225,000.
            b.   $150,000.
            c.   $75,000.
            d.   $50,000.

115.     Colaw Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Colaw accrues salaries expense only at its December 31 year end. Data relating to salaries earned in December 2012 are as follows:
            Last payroll was paid on 12/26/12, for the 2-week period ended 12/26/12.
            Overtime pay earned in the 2-week period ended 12/26/12 was $15,000.
            Remaining work days in 2012 were December 29, 30, 31, on which days there was no overtime.
            The recurring biweekly salaries total $270,000.


            Assuming a five-day work week, Colaw should record a liability at December 31, 2012 for accrued salaries of
            a.   $81,000.
            b.   $96,000.
            c.   $162,000.
            d.   $177,000.

116.     Tolan Corp.'s trademark was licensed to Eddy Co. for royalties of 15% of sales of the trademarked items. Royalties are payable semiannually on March 15 for sales in July through December of the prior year, and on September 15 for sales in January through June of the same year. Tolan received the following royalties from Eddy:
                                                             March 15            September 15
                  2011                                     $5,000                    $7,500
                  2012                                       6,000                      8,500
            Eddy estimated that sales of the trademarked items would total $30,000 for July through December 2012. In Tolan's 2012 income statement, the royalty revenue should be
            a.   $13,000.
            b.   $14,500.
            c.   $19,000.
            d.   $20,500.

117.     At December 31, 2012, Sue’s Boutique had 1,000 gift certificates outstanding, which had been sold to customers during 2012 for $75 each. Sue’s operates on a gross profit of 60% of its sales. What amount of revenue pertaining to the 1,000 outstanding gift certificates should be deferred at December 31, 2012?
            a.   $0.
            b.   $30,000.
            c.   $45,000.
            d.   $75,000.

*118.     Compared to the accrual basis of accounting, the cash basis of accounting overstates income by the net increase during the accounting period of the
                     Accounts Receivable           Accrued Expenses Payable
            a.                   No                                           No
            b.                   No                                          Yes
            c.                   Yes                                          No
            d.                   Yes                                         Yes

*119.     Gregg Corp. reported revenue of $1,250,000 in its accrual basis income statement for the year ended June 30, 2013. Additional information was as follows:
                  Accounts receivable June 30, 2012                                                               $400,000
                  Accounts receivable June 30, 2013                                                                530,000
                  Uncollectible accounts written off during the fiscal year                                      15,000
            Under the cash basis, Gregg should report revenue of
            a.   $835,000.
            b.   $850,000.
            c.   $1,105,000.
            d.   $1,135,000.

*120.     Jim Yount, M.D., keeps his accounting records on the cash basis. During 2013, Dr. Yount collected $300,000 from his patients. At December 31, 2012, Dr. Yount had accounts receivable of $40,000. At December 31, 2013, Dr. Yount had accounts receivable of $70,000 and unearned revenue of $10,000. On the accrual basis, how much was Dr. Yount's patient service revenue for 2013?
            a.   $260,000.
            b.   $320,000.
            c.   $330,000.
            d.   $340,000.
     
*121.     The following information is available for Ace Company for 2012:
                  Disbursements for purchases                                                                    $1,160,000
                  Increase in trade accounts payable                                                                100,000
                  Decrease in merchandise inventory                                                                  40,000
            Cost of goods sold for 2012 was
            a.   $1,300,000.
            b.   $1,220,000.
            c.   $1,100,000.
            d.   $1,020,000.