FAR I

1. Hardy Company purchased a computer for $4,800 on December 1. It is estimated that

annual depreciation on the computer will be $960. If financial statements are to be prepared
on December 31, the company should make the following adjusting entry:

a. Debit Depreciation Expense, $960; Credit Accumulated Depreciation, $960.

b. Debit Depreciation Expense, $80; Credit Accumulated Depreciation, $80.
c. Debit Depreciation Expense, $3,840; Credit Accumulated Depreciation, $3,840.
d. Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800.

2. Baden Realty Company received a check for $18,000 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 $18,000. Financial statements will be prepared on July 31. Baden Realty should
make the following adjusting entry on July 31:

a. Debit Unearned Rent, $3,000; Credit Rental Revenue, $3,000.

b. Debit Rental Revenue, $3,000; Credit Unearned Rent, $3,000.
c. Debit Unearned Rent, $18,000; Credit Rental Revenue, $18,000.
d. Debit Cash, $18,000; Credit Rental Revenue, $18,000.

3. At December 31, 2008, before any year-end adjustments, Karr Company's Insurance
Expense account had a balance of $1,450 and its Prepaid Insurance account had a balance
of $3,800. It was determined that $3,000 of the Prepaid Insurance had expired. The adjusted
balance for Insurance Expense for the year would be

a. $3,000.
b. $1,450.
c. $4,450.
d. $2,250.

4. A new accountant working for Metcalf Company records $800 Depreciation Expense on
store equipment as follows:

Dr. Depreciation Expense ............................................. 800

Cr. Cash ............................................................... 800

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.

5. White 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, $2,000; Credit Laundry Supplies Expense, $2,000.
c. Debit Laundry Supplies, $4,500; Credit Laundry Supplies Expense, $4,500.
d. Debit Laundry Supplies Expense, $4,500; Credit Laundry Supplies, $4,500.

6. On July 1, Dexter Shoe Store paid $8,000 to Ace Realty for 4 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 Dexter Shoe Store is

a. Debit Rent Expense, $8,000; Credit Prepaid Rent, $2,000.

b. Debit Prepaid Rent, $2,000; Credit Rent Expense, $2,000.
c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000.
d. Debit Rent Expense, $8,000; Credit Prepaid Rent, $8,000.

7. Waterfalls Corporation purchased a one-year insurance policy in January 2008 for $66,000.
The insurance policy is in effect from March 2008 through February 2009. If the company
neglects to make the proper year-end adjustment for the expired insurance

a. Net income and assets will be understated by $55,000.

b. Net income and assets will be overstated by $55,000.
c. Net income and assets will be understated by $11,000.
d. Net income and assets will be overstated by $11,000.

8. If an adjusting entry is not made for accrued revenue,

 a. assets will be overstated.
b. expenses will be understated.
c. owner's equity will be understated.
d. revenues will be overstated.

9. If an adjusting entry is not made for an accrued expense,

a. expenses will be overstated.

b. liabilities will be understated.
c. net income will be understated.
d. owner's equity will be understated.

10. Which financial statement's structure is closest to that of the basic accounting equation?

a. Balance Sheet
b. Statement Of Cash Flows
c. Statement Of Comprehensive Income
d. Statement Of Stockholders’ Equity
e. Income Statement

11. Is it true or false that a grocery store’s sale of its old delivery van to one of its employees
for $2,000 should be recorded in the general ledger account Sales?

a. True
b. False

12. During the first year of Wilkinson Co.'s operations, all purchases were recorded as assets.
Store supplies in the amount of $19,350 were purchased. Actual year-end store supplies
amounted to $6,450. The adjusting entry for store supplies will

a. increase net income by $12,900.

b. increase expenses by $12,900.
c. decrease store supplies by $6,450.
d. debit Accounts Payable for $6,450.

13. Which of the following is a real (permanent) account?

 a. Goodwill
b. Sales
c. Accounts Receivable
d. Both Goodwill and Accounts Receivable

14. Which of the following is a nominal (temporary) account?

a. Unearned Revenue
b. Salary Expense
c. Inventory
d. Retained Earnings

Use the following information for questions 15 through 17:

The income statement of Dolan Corporation for 2010 included the following items:

Interest revenue $65,500

Salaries expense 85,000

Insurance expense 7,600

The following balances have been excerpted from Dolan Corporation's balance sheets:

December 31, 2010 December 31, 2009

Accrued interest receivable $9,100 $7,500

Accrued salaries payable 8,900 4,200

Prepaid insurance 1,100 1,500

15. The cash received for interest during 2010 was

a. $56,400.
b. $63,900.
c. $65,500.
d. $67,100.

16. The cash paid for salaries during 2010 was

 a. $89,700.
b. $80,300.
c. $80,800.
d. $93,900.

17. The cash paid for insurance premiums during 2010 was

a. $6,500.
b. $6,100.
c. $8,000.
d. $7,200.

18. The following information is available for Ace Company for 2010:

Disbursements for purchases $1,050,000

Increase in trade accounts payable 75,000

Decrease in merchandise inventory 30,000

Costs of goods sold for 2010 was

a. $1,155,000.
b. $1,095,000.
c. $1,005,000.
d. $945,000.

19. Gregg Corp. reported revenue of $1,100,000 in its accrual basis income statement for the
year ended June 30, 2011. Additional information was as follows:

Accounts receivable June 30, 2010 $350,000

Accounts receivable June 30, 2011 530,000

Uncollectible accounts written off during the fiscal year 13,000

Under the cash basis, Gregg should report revenue of

a. $687,000.
b. $700,000.
 c. $907,000.
d. $933,000.

20. 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.

21. The major elements of the income statement are

a. revenue, cost of goods sold, selling expenses, and general expense.

b. operating section, non-operating section, discontinued operations, extraordinary items,
and cumulative effect.
c. revenues, expenses, gains, and losses.
d. all of these.

(22-23) Ortiz Co. had the following account balances:

Sales $ 120,000

Cost of goods sold 60,000

Salary expense 10,000

Depreciation expense 20,000

Dividend revenue 4,000

Utilities expense 8,000

Rental revenue 20,000

Interest expense 12,000

Sales returns 11,000

Advertising expense 13,000

22. What would Ortiz report as total revenues in a single-step income statement?
 a. $133,000
b. $ 10,000
c. $144,000
d. $120,000

23. What would Ortiz report as total expenses in a single-step income statement?

a. $127,000
b. $134,000
c. $123,000
d. $ 63,000

24. For Mortenson Company, the following information is available:

Cost of goods sold $ 60,000

Dividend revenue 2,500

Income tax expense 6,000

Operating expenses 23,000

Sales 100,000

In Mortenson’s multiple-step income statement, gross profit

a. should not be reported

b. should be reported at $13,500.
c. should be reported at $40,000.
d. should be reported at $42,500.

25. Gross billings for merchandise sold by Lang Company to its customers last year
amounted to $15,720,000; sales returns and allowances were $370,000, sales discounts
were $175,000, and freight-out was $140,000. Net sales last year for Lang Company were

a. $15,720,000.
b. $15,350,000.
c. $15,175,000.
d. $15,035,000.
26. The current assets section of the balance sheet should include

a. machinery.
b. patents.
c. goodwill.
d. inventory.

27. Lohmeyer Corporation reports:

Cash provided by operating activities $250,000

Cash used by investing activities 110,000

Cash provided by financing activities 140,000

Beginning cash balance 70,000

What is Lohmeyer’s ending cash balance?

a. $280,000.
b. $350,000.
c. $500,000.
d. $570,000.

28. In a statement of cash flows, interest payments to lenders and other creditors should be
classified as cash outflows for

a. operating activities.
b. borrowing activities.
c. lending activities.
d. financing activities.

29. In a statement of cash flows, proceeds from issuing equity instruments should be
classified as cash inflows from

a. lending activities.
b. operating activities.
c. investing activities.
d. financing activities.
30. In a statement of cash flows, payments to acquire debt instruments of other entities (other
than cash equivalents) should be classified as cash outflows for

a. operating activities.
b. investing activities.
c. financing activities.
d. lending activities.