Question 1

A lawyer collected $710 of legal fees in advance. He erroneously debited Cash for $170 and credited Accounts Receivable for $170. The correcting entry is a. Cash$\quad$$\quad$170
$\quad$Accounts Receivable$\quad$$\quad$540
$\quad$$\quad$Unearned Service Revenue.$\quad$$\quad$710
b. Cash$\quad$$\quad$710
$\quad$Service Revenue$\quad$$\quad$710
c. Cash$\quad$$\quad$540
$\quad$Accounts Receivable$\quad$$\quad$170
$\quad$$\quad$Unearned Service Revenue.$\quad$$\quad$710
d. Cash$\quad$$\quad$540
$\quad$Accounts Receivable$\quad$$\quad$540

Accepted Answer

The answer of A lawyer collected $710 of legal fees...

Question 2

Which of the following steps in the accounting cycle would not generally be performed daily?
A) Journalize transactions
B) Post to ledger accounts
C) Prepare adjusting entries
D) Analyze business transactions

Accepted Answer

Adjusting entries are typically made at the end of the accounting period to update accounts for accruals, deferrals, and other adjustments. These are not made on a daily basis, unlike journalizing transactions and posting to ledger accounts which are part of the daily accounting routine. Analyzing business transactions may also not happen on a daily basis, but it is typically done more frequently than preparing adjusting entries.

Question 3

A correcting entry
A) must involve one balance sheet account and one income statement account.
B) is another name for a closing entry.
C) may involve any combination of accounts.
D) is a required step in the accounting cycle.

Accepted Answer

A correcting entry may involve any combination of accounts, including both balance sheet and income statement accounts. It is not the same as a closing entry and is not always a required step in the accounting cycle.

Question 4

Which of the following steps in the accounting cycle may be performed most frequently?
A) Prepare a post-closing trial balance
B) Journalize closing entries
C) Post closing entries
D) Prepare a trial balance

Accepted Answer

The preparation of a trial balance is often done at the end of each accounting period to ensure that debits and credits are in balance. This step is performed frequently throughout the accounting cycle to check for accuracy and identify errors. The other options (A, B, and C) are usually done less frequently, typically at the end of an accounting period or year.

Question 5

On March 8, Black Candy Company bought supplies on account from the Arcade Fire Company for $550. Black Candy Company incorrectly debited Equipment for $500 and credited Accounts Payable for $500. The entries have been posted to the ledger. the correcting entry should be: a. Supplies$\quad$$\quad$550
$\quad$Accounts Payable$\quad$550
b. Supplies$\quad$$\quad$550
$\quad$Accounts Payable$\quad$500
$\quad$Equipment$\quad$$\quad$50
c. Supplies$\quad$$\quad$550
$\quad$Equipment$\quad$$\quad$550
d. Supplies$\quad$$\quad$550
$\quad$Equipment$\quad$500
$\quad$Accounts Payable$\quad$50

Accepted Answer

The answer of On March 8, Black Candy Company bought...

Question 6

An unacceptable way to make a correcting entry is to
A) reverse the incorrect entry.
B) erase the incorrect entry.
C) compare the incorrect entry with the correct entry and make a correcting entry to correct the accounts.
D) correct it immediately upon discovery.

Accepted Answer

Erasing the incorrect entry is unacceptable because it can lead to doubts on the accuracy and integrity of the accounting records. It is important to create a correcting entry that clearly shows the correction made to the original entry. The other options (A, C, and D) are acceptable ways to make correcting entries.

Question 7

If errors occur in the recording process, they
A) should be corrected as adjustments at the end of the period.
B) should be corrected as soon as they are discovered.
C) should be corrected when preparing closing entries.
D) cannot be corrected until the next accounting period.

Accepted Answer

Errors should be corrected as soon as they are discovered to ensure the accuracy and reliability of the financial statements. Delaying corrections until the end of the period or until the next accounting period could lead to further errors and inconsistencies in the records. Additionally, correcting errors as soon as possible enables management to make informed decisions based on accurate financial data.

Question 8

Jawbreaker Company paid $940 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $490 and a credit to Accounts Receivable, $490. The correcting entry is a. Accounts Payable$\quad$$\quad$940
$\quad$Cash$\quad$$\quad$940
b. Accounts Receivable$\quad$$\quad$490
$\quad$Cash$\quad$$\quad$490
c. Accounts Receivable$\quad$$\quad$490
$\quad$Accounts Payable.$\quad$$\quad$490
d. Accounts Receivable $\quad$$\quad$490
$\quad$Accounts Payable$\quad$$\quad$940
$\quad$Cash$\quad$$\quad$1,430

Accepted Answer

The answer of Jawbreaker Company paid $940 on account to...

Question 9

Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages Expense for $47,000. The accountant preparing the payroll entry overlooked the fact that Salaries and Wages Expense of $27,000 had been accrued at year end on December 31. The correcting entry is a. Salaries and Wages Payable$\quad$$\quad$27,000
$\quad$$\quad$Cash$\quad$$\quad$27,000
b. Cash$\quad$$\quad$27,000
$\quad$$\quad$Salaries and Wages Expense.$\quad$$\quad$27,000
c. Salaries and Wages Payable$\quad$$\quad$27,000
$\quad$$\quad$Salaries and Wages Expense.$\quad$$\quad$27,000
d. Cash$\quad$$\quad$27,000
$\quad$$\quad$Salaries and Wages Expense$\quad$$\quad$27,000

Accepted Answer

The answer of Zen Arcade paid the weekly payroll on...

Question 10

Merriweather Post Pavillion received a $820 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $280 and a credit to Service Revenue $280. The correcting entry is
A) debit Cash, $820; credit Accounts Receivable, $820.
B) debit Cash, $540 and Accounts Receivable, $280; credit Service Revenue, $820.
C) debit Cash, $540 and Service Revenue, $280; credit Accounts Receivable, $820.
D) debit Accounts Receivable, $820; credit Cash, $540 and Service Revenue, $280.

Accepted Answer

The correcting entry must reverse the erroneous entry and record the actual transaction. As the customer paid the balance due, Cash must be debited for the actual amount of $820. To correct the Service Revenue account, which was erroneously credited for $280, it must be debited for $280 to reverse the entry, and credited for $540 to record the actual revenue received. Therefore, option C is the correct entry. The incorrect options either fail to reverse the entry or do not record the actual transaction correctly.

Question 11

The following information is for Bright Eyes Auto Supplies: Bright Eyes Auto Supplies 
Balance Sheet 
December 31, 2015
$\begin{array}{lrlr}
\text { Cash } & \$ 40,000 & \text { Accounts Payable } & \$ 130,000 \
\text { Prepaid Insurance } & 80,000 & \text { Salaries and Wages Payable } & 50,000 \
\text { Accounts Receivable } & 100,000 & \text { Mortgage Payable } & 150,000 \
\text { Inventory } & 140,000 & \text { Total Liabilities } & 330,000\\text { Land Held for Investment } & 180,000 \
\text { Land } & 250,000\
\text { Buildings }  \$ 200,000 && \text { Common Stock }  \$ 400,000\
\text { Less Accumulated } && \text { Retained Earnings }  340,000&740,000 \
\text { Depreciation }  (60,000) & 140,000\
\text { Trademark } & 140,000 & \text { Total Liabilities and }\
\text { Total Assets }&\$1,070,000&\text { Stockholders' Equity }&\$1,070,000
\end{array}$ The total dollar amount of assets to be classified as current assets is
A) $140,000.
B) $220,000.
C) $360,000.
D) $500,000.

Accepted Answer

Current assets are assets that can be converted into cash within one year. The current assets of Bright Eyes Auto Supplies are cash, prepaid insurance, accounts receivable, and inventory. The total dollar amount of these assets is $360,000.

Question 12

The following information is for Sunny Day Real Estate: Sunny Day Real Estate
Balance Sheet
December 31, 2015
$\begin{array}{lrlr}
\text { Cash } & \$ 25,000 & \text { Accounts Payable } & \$ 60,000 \
\text { Prepaid Insurance } & 30,000 & \text { Salaries and Wages Payable } & 15,000 \
\text { Accounts Receivable } & 50,000 & \text { Mortqage Payable } & 85,000\
\text { Inventory } & 70,000 & \text { Total Liabilities } & 160,000 \
\text { Land Held for Investment } & 85,000 & & \
\text { Land } & 120,000 & &\
\text { Buildings }& \$ 100,000 & \text { Common Stock }  \$ 120,000 \
\text { Less Accumulated }&&\text { Retained Earnings }250,000&370,000\
\text { Trademark } & {70,000} & \text { Total Liabilities and } \
\text { Total Assets } & \$ 530,000 & \text { Stockholders' Equity } & \$ 530,000
\end{array}$ The total dollar amount of assets to be classified as investments is
A) $0.
B) $70,000.
C) $85,000.
D) $155,000.

Accepted Answer

The only asset classified as an investment on the balance sheet is "Land Held for Investment," which is valued at $85,000.

Question 13

Which of the following depicts the proper sequence of steps in the accounting cycle?
A) Journalize the transactions, analyze business transactions, prepare a trial balance
B) Prepare a trial balance, prepare financial statements, prepare adjusting entries
C) Prepare a trial balance, prepare adjusting entries, prepare financial statements
D) Prepare a trial balance, post to ledger accounts, post adjusting entries

Accepted Answer

The proper sequence of steps in the accounting cycle includes preparing a trial balance, preparing adjusting entries, and then preparing financial statements. Journalizing transactions and analyzing business transactions are typically done before the accounting cycle begins, and posting to ledger accounts comes after the adjusting entries have been made. Therefore, C is the correct answer.

Question 14

The two optional steps in the accounting cycle are preparing
A) a post-closing trial balance and reversing entries.
B) a worksheet and post-closing trial balances.
C) reversing entries and a worksheet.
D) an adjusted trial balance and a post-closing trial balance.

Accepted Answer

The two optional steps in the accounting cycle are preparing reversing entries and a worksheet. Reversing entries are made at the beginning of the new accounting period to reverse or cancel out adjusting entries made at the end of the previous period, and they are optional because not all businesses find them necessary. A worksheet is a tool used for planning and is not mandatory for the accounting cycle.

Question 15

On May 25, Yellow House Company received a $650 check from Grizzly Bean for services to be performed in the future. The bookkeeper for Yellow House Company incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should:
A) debit Cash $650 and credit Unearned Service Revenue $650.
B) debit Accounts Receivable $650 and credit Service Revenue $650.
C) debit Accounts Receivable $650 and credit Cash $650.
D) debit Accounts Receivable $650 and credit Unearned Service Revenue $650.

Accepted Answer

The initial entry incorrectly recorded the receipt of payment for future services as a sale on account, causing an overstatement of both Cash and Accounts Receivable. To correct this, Accounts Receivable must be reduced by debiting it and Cash must be increased by crediting it. However, since the services have not yet been performed, the revenue should not be recognized as Service Revenue. Instead, it should be recorded as Unearned Service Revenue, a liability account that represents money received for services that have not yet been rendered. Therefore, the correcting entry should be a debit to Accounts Receivable for $650 and a credit to Unearned Service Revenue for $650.

Question 16

The following information is for Sunny Day Real Estate: Sunny Day Real Estate
Balance Sheet
December 31, 2015
$\begin{array}{lrlr}
\text { Cash } & \$ 25,000 & \text { Accounts Payable } & \$ 60,000 \
\text { Prepaid Insurance } & 30,000 & \text { Salaries and Wages Payable } & 15,000 \
\text { Accounts Receivable } & 50,000 & \text { Mortqage Payable } & 85,000\
\text { Inventory } & 70,000 & \text { Total Liabilities } & 160,000 \
\text { Land Held for Investment } & 85,000 & & \
\text { Land } & 120,000 & &\
\text { Buildings }& \$ 100,000 & \text { Common Stock }  \$ 120,000 \
\text { Less Accumulated }&&\text { Retained Earnings }250,000&370,000\
\text { Trademark } & {70,000} & \text { Total Liabilities and } \
\text { Total Assets } & \$ 530,000 & \text { Stockholders' Equity } & \$ 530,000
\end{array}$ The total dollar amount of liabilities to be classified as current liabilities is
A) $15,000.
B) $60,000.
C) $75,000.
D) $160,000.

Accepted Answer

Current liabilities include accounts payable ($60,000) and salaries and wages payable ($15,000), totaling $75,000.

Question 17

The first required step in the accounting cycle is
A) reversing entries.
B) journalizing transactions in the book of original entry.
C) analyzing transactions.
D) posting transactions.

Accepted Answer

Analyzing transactions is the first step in the accounting cycle, where transactions are identified, measured, and recorded. The other options, such as journalizing, posting, and reversing entries, come after the analysis.

Question 18

Correcting entries
A) always affect at least one balance sheet account and one income statement account.
B) affect income statement accounts only.
C) affect balance sheet accounts only.
D) may involve any combination of accounts in need of correction.

Accepted Answer

Correcting entries may involve any combination of accounts in need of correction, such as both balance sheet and income statement accounts.

Question 19

The following information is for Sunny Day Real Estate: Sunny Day Real Estate
Balance Sheet
December 31, 2015
$\begin{array}{lrlr}
\text { Cash } & \$ 25,000 & \text { Accounts Payable } & \$ 60,000 \
\text { Prepaid Insurance } & 30,000 & \text { Salaries and Wages Payable } & 15,000 \
\text { Accounts Receivable } & 50,000 & \text { Mortqage Payable } & 85,000\
\text { Inventory } & 70,000 & \text { Total Liabilities } & 160,000 \
\text { Land Held for Investment } & 85,000 & & \
\text { Land } & 120,000 & &\
\text { Buildings }& \$ 100,000 & \text { Common Stock }  \$ 120,000 \
\text { Less Accumulated }&&\text { Retained Earnings }250,000&370,000\
\text { Trademark } & {70,000} & \text { Total Liabilities and } \
\text { Total Assets } & \$ 530,000 & \text { Stockholders' Equity } & \$ 530,000
\end{array}$ The total dollar amount of assets to be classified as property, plant, and equipment is
A) $200,000.
B) $220,000.
C) $285,000.
D) $305,000.

Accepted Answer

Property, plant, and equipment include Land ($120,000) and Buildings ($100,000), totaling $220,000. However, Land Held for Investment is not included in this category.

Question 20

The following information is for Sunny Day Real Estate: Sunny Day Real Estate
Balance Sheet
December 31, 2015
$\begin{array}{lrlr}
\text { Cash } & \$ 25,000 & \text { Accounts Payable } & \$ 60,000 \
\text { Prepaid Insurance } & 30,000 & \text { Salaries and Wages Payable } & 15,000 \
\text { Accounts Receivable } & 50,000 & \text { Mortqage Payable } & 85,000\
\text { Inventory } & 70,000 & \text { Total Liabilities } & 160,000 \
\text { Land Held for Investment } & 85,000 & & \
\text { Land } & 120,000 & &\
\text { Buildings }& \$ 100,000 & \text { Common Stock }  \$ 120,000 \
\text { Less Accumulated }&&\text { Retained Earnings }250,000&370,000\
\text { Trademark } & {70,000} & \text { Total Liabilities and } \
\text { Total Assets } & \$ 530,000 & \text { Stockholders' Equity } & \$ 530,000
\end{array}$ The total dollar amount of assets to be classified as current assets is
A) $105,000.
B) $175,000.
C) $190,000.
D) $260,000.

Accepted Answer

Current assets include Cash ($25,000), Prepaid Insurance ($30,000), Accounts Receivable ($50,000), and Inventory ($70,000), totaling $175,000.

Quiz 4: Completing the Accounting Cycle

Which of the following steps in the accounting cycle would not generally be performed daily?

A correcting entry

Which of the following steps in the accounting cycle may be performed most frequently?

An unacceptable way to make a correcting entry is to

If errors occur in the recording process, they

Merriweather Post Pavillion received a $820 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $280 and a credit to Service Revenue $280. The correcting entry is

Which of the following depicts the proper sequence of steps in the accounting cycle?

The two optional steps in the accounting cycle are preparing

The first required step in the accounting cycle is

Correcting entries