Question 1

In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What is the balance in income tax payable at the end of the year?
A) $160,000 credit.
B) $150,000 credit.
C) $10,000 credit.
D) $10,000 debit.

Accepted Answer

Income tax expense = $400,000 × 40% = $160,000 11ea937b_3668_ce29_a419_2130cb243092_TB2599_00

Question 2

The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues payroll checks totaling $32,000. The current pay period ends on Friday, July 3. Neat Clothes is now preparing quarterly financial statements for the three months ended June 30. What is the adjusting entry to record accrued salaries at the end of June?
A) $\begin{array}{|l|r|r|}
\hline \text { Salaries expense } & 22,400 & \
\hline \text { Prepaid salaries } & 9,600 & \
\hline \text { Salaries payable } & & 32,000 \
\hline
\end{array}$
B) $\begin{array}{|c|r|r|}
\hline \text { Salaries expense } & 6,400 \
\hline \text { Salaries payable } & &6,400\
\hline
\end{array}$
C) $\begin{array}{|c|r|r|}
\hline \text { Prepaid salaries } & 9,600 \
\hline \text { Salaries payable } && 9,600 \
\hline
\end{array}$
D) $\begin{array}{|l|r|r|}
\hline \text { Salaries expense } & 22,400 \
\hline \text { Salaries payable } && 22,400 \
\hline
\end{array}$

Accepted Answer

Amount accrued: $32,000 × 7/10 = $22,400

Question 3

The adjusting entry required to record accrued expenses includes:
A) A credit to cash.
B) A debit to an asset.
C) A credit to an asset.
D) A credit to liability.

Accepted Answer

The adjusting entry required to record accrued expenses involves debiting an expense account and crediting a liability account (usually called Accrued Expenses Payable or Accrued Liabilities). This is because, at the end of an accounting period, some expenses may have been incurred, but not yet paid for or entered into the accounting system. Therefore, a liability is accrued, recognizing that the company owes money for these expenses, but has not yet paid them.

Question 4

Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave's purchased during the year?
A) $1,600,000.
B) $1,800,000.
C) $2,200,000.
D) $2,400,000.

Accepted Answer

11ea937b_3669_1c4b_a419_f3da19f7c60f_TB2599_00 Purchases = $2,000,000 - $200,000 + $400,000 = $2,200,000

Question 5

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:
A) Plus revenues, minus liabilities.
B) Plus accruals, minus deferrals.
C) Plus net income, minus dividends.
D) Plus assets, minus liabilities.

Accepted Answer

The balance in retained earnings at the end of the year is determined by adding the net income to the beginning balance of retained earnings and then subtracting any dividends paid during the year. This is represented by the formula: Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings. Therefore, option C which states "Plus net income, minus dividends" is the correct answer. The other options do not accurately reflect how retained earnings are calculated.

Question 6

Which of the following accounts has a balance whereby credits normally exceed debits?
A) Salary expense.
B) Accrued income taxes payable.
C) Land.
D) Prepaid rent.

Accepted Answer

Accrued income taxes payable is a liability account, and like all liability accounts, it normally has a credit balance, meaning credits exceed debits.

Question 7

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?
A) $300,000.
B) $280,000.
C) $260,000.
D) $240,000.

Accepted Answer

11ea937b_3667_e3b3_a419_bf9755c3b33c_TB2599_00 Supplies expense = $56,000 + $270,000 - $66,000 = $260,000

Question 8

Permanent accounts would not include:
A) Interest expense.
B) Salaries and wages payable.
C) Prepaid rent.
D) Deferred revenues.

Accepted Answer

Permanent accounts are those that carry their balances over into the next accounting period. Interest expense is a temporary account because it relates to a specific period and is closed to the income summary at the end of that period. Salaries and wages payable, prepaid rent, and deferred revenues are all examples of permanent accounts because their balances are carried forward into future accounting periods.

Question 9

When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:
A) Accounts payable.
B) Supplies.
C) Cash.
D) Retained earnings.

Accepted Answer

When a business makes an end-of-period adjusting entry with a debit to supplies expense, it means that the company has used up a portion of the supplies they have purchased, and therefore the supplies account needs to be reduced. The usual credit entry to make to reduce the supplies account is Supplies.

Question 10

An economic resource of an entity is:
A) A revenue.
B) An asset.
C) A liability.
D) A contra asset until used.

Accepted Answer

An economic resource of an entity refers to an asset. An asset is a resource that is owned or controlled by an entity, which is expected to generate economic benefits in the future. Examples of assets include cash, property, inventory, equipment, and investments.

Question 11

Cost of goods sold is:
A) An asset account.
B) A revenue account.
C) An expense account.
D) A permanent equity account.

Accepted Answer

Cost of goods sold is an expense account that reflects the cost of the goods or services sold by a company during a specific period. It is deducted from revenues to calculate gross profit.

Question 12

Eve's Apples opened its business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2018?
A) $9,000.
B) $18,000.
C) $30,000.
D) $48,000.

Accepted Answer

Prepaid liability insurance: $36,000 × 6/18$ 12,000
Prepaid hazard insurance: $12,000 × 12/24 6,000
Total prepaid insurance at 12/31/18$ 18,000

Question 13

On September 1, 2018, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to deferred subscriptions revenue. What is the required adjusting entry at December 31, 2018?
A) $\begin{array}{|c|c|c|}
\hline \text { Deferred subscriptionsrevenue } & 48,600 & \
\hline \text { Subscriptions revenue } & & 16,200 \
\hline \text { Prepaid subscriptions } & & 32,400 \
\hline
\end{array}$
B) $\begin{array}{|c|r|r|}
\hline \text { Deferred subscriptions revenue } & 16,200 & \
\hline \text { Subscriptions revenue } & & 16,200 \
\hline
\end{array}$
C) $\begin{array}{|c|c|c|}
\hline \text { Deferred subscriptionsrevenue } & 16,200 & \
\hline \text { Subscriptions payable } & & 16,20 0\
\hline
\end{array}$
D) $\begin{array}{|c|r|r|}
\hline \text { Deferred subscriptions revenue } & 32,400 \
\hline \text { Subscriptions revenue } & & 32,400 \
\hline
\end{array}$

Accepted Answer

$\begin{array}{|l|l|l|l|}
\hline \text { Entry on 9/1: } & \text { Cash } & 48,600 & \
\hline & \text { Deferred subscriptions revenue } & & 48,600 \
\hline
\end{array}$ Amount recorded as revenue: $48,600 × 4/12 = $16,200

Question 14

Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2018, with principal and interest due on October 31, 2019. The company's fiscal year ends June 30, 2018. What adjusting entry is necessary on June 30, 2018?
A) No entry.
B) $\begin{array}{|l|l|l|}
\hline \text { Interest expense } & 240 & \
\hline \text { Interest payable } & & 240 \
\hline
\end{array}$
C) $\begin{array}{|l|l|l|}
\hline \text { Interest expense } & 120 & \
\hline \text { Interest payable } & & 120 \
\hline
\end{array}$
D) $\begin{array}{|l|l|l|}
\hline \text { Prepaid interest } & 120 & \
\hline \text { Interest payable } & & 120 \
\hline
\end{array}$

Accepted Answer

Accrued interest expense: $8,000 × 9% × 2/12 = $120

Question 15

In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?
A) $290,000.
B) $294,000.
C) $300,000.
D) $306,000.

Accepted Answer

Income before tax $500,000 ? (40% × $500,000) = $300,000

Question 16

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:
A) (S)he usually debits cash.
B) (S)he usually debits an expense account.
C) (S)he debits a liability account.
D) (S)he credits an owners' equity account.

Accepted Answer

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account, it means that part of the prepaid rent has now been used up, and thus, it is recognized as an expense. Therefore, the tenant debits an expense account, typically "Rent Expense," to reflect the cost of the rent for that period.

Question 17

On November 1, 2018, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What is the balance of interest payable for the loan as of December 31, 2018?
A) $112,500.
B) $225,000.
C) $450,000.
D) $1,350,000.

Accepted Answer

Accrued interest payable = $30,000,000 × 9% × 2/12 = $450,000

Question 18

Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Deferred premiums account increased from $6 million to $8 million dollars during the year. What is Fink's revenue from insurance premiums recognized for the current year?
A) $10,000,000.
B) $16,000,000.
C) $18,000,000.
D) $20,000,000.

Accepted Answer

11ea937b_3668_f53a_a419_e79e06ffa497_TB2599_00

Question 19

On September 15, 2018, Oliver's Mortuary received a $6,000, nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver's has a December 31 year-end. What adjusting entry will the company record on December 31, 2018?
A) $\begin{array}{|c|r|r|}
\hline \text { Interest receivable } & 175 \
\hline \text { Interest revenue } & & 175 \
\hline
\end{array}$
B) $\begin{array}{|c|r|r|}
\hline \text { Interest receivable } & 230 & \
\hline \text { Interest revenue } & & 230 \
\hline
\end{array}$
C) $\begin{array}{|l|r|l|}
\hline \text { Interest receivable } & 175 & \
\hline \text { Notes receivable } & & 175\
\hline
\end{array}$
D) $\begin{array}{|l|r|r|}
\hline \text { Interest receivable } & 600 & \
\hline \text { Interest revenue } & & 175 \
\hline \text { Cash } & & 425 \
\hline
\end{array}$

Accepted Answer

Accrued interest revenue: $6,000 × 10% × 3.5/12 = $175

Question 20

Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2018, and charged the $4,200 premium to Insurance expense. At its December 31, 2018, year-end, Yummy Foods would record which of the following adjusting entries?
A) 
B) $\begin{array}{|c|r|r|}
\hline \text { Prepaid insurance } & 875 & \
\hline \text { Insurance expense } & & 875 \
\hline
\end{array}$
C) $\begin{array}{|l|r|r|}
\hline \text { Insurance expense } & 875 & \
\hline \text { Prepaid insurance } & 3,325 & \
\hline \text { Insurance payable } & & 4,200 \
\hline
\end{array}$
D) $\begin{array}{|l|r|r|}
\hline \text { Prepaid insurance } & 3,325 & \
\hline \text { Insurance expense } & & 3,325 \
\hline
\end{array}$

Accepted Answer

11ea937b_3668_31d8_a419_25862816b73b_TB2599_00 Unused at 12/31: $4,200 × 19/24 = $3,325

Quiz 2: Review of the Accounting Process

In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What is the balance in income tax payable at the end of the year?

The adjusting entry required to record accrued expenses includes:

Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave's purchased during the year?

The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:

Which of the following accounts has a balance whereby credits normally exceed debits?

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?

Permanent accounts would not include:

When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:

An economic resource of an entity is:

Cost of goods sold is:

Eve's Apples opened its business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the crop damage policy was $12,000 for a two-year term. What is the balance in Eve's prepaid insurance as of December 31, 2018?

On September 1, 2018, Fortune Magazine sold 600 one-year subscriptions for $81 each. The total amount received was credited to deferred subscriptions revenue. What is the required adjusting entry at December 31, 2018?

Mama's Pizza Shoppe borrowed $8,000 at 9% interest on May 1, 2018, with principal and interest due on October 31, 2019. The company's fiscal year ends June 30, 2018. What adjusting entry is necessary on June 30, 2018?

In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:

On November 1, 2018, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What is the balance of interest payable for the loan as of December 31, 2018?

Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Deferred premiums account increased from $6 million to $8 million dollars during the year. What is Fink's revenue from insurance premiums recognized for the current year?

On September 15, 2018, Oliver's Mortuary received a $6,000, nine-month note bearing interest at an annual rate of 10% from the estate of Jay Hendrix for services rendered. Oliver's has a December 31 year-end. What adjusting entry will the company record on December 31, 2018?

Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2018, and charged the $4,200 premium to Insurance expense. At its December 31, 2018, year-end, Yummy Foods would record which of the following adjusting entries?