Revision Accounting Principle II

Part 1: Direct Questions.

1. Distinguish between the two bases that may be used in estimating uncollectible accounts.
2. What are some examples of land improvements?
3. Identify three dates which are important in connection with cash dividend.
4. Identify the principles of internal control activities.
5. What is the difference between an accounts receivable and a note receivable?
6. Identify the process of partnership liquidation.
7. For what reasons might a company like IBM repurchase some of its stock (treasury stock)?
8. What are the major sources (inflows) of cash in a statement of cash flows?
9. Identify five items that are adjustments to convert net income to net cash provided by
operating activities under the indirect method.
10. Distinguish between revenue expenditures and capital expenditures during useful life.
11. Distinguish between revenue expenditures and capital expenditures during useful life.
12. What are the four functions associated with payroll activities?
13. What is liquidity? What are two measures of liquidity?

Part 2: Multiple Choice Questions (M C Q)

1. The principles of internal control do not include:
a. Establishment of responsibility.
b. Documentation procedures.
c. Management responsibility.
d. Independent internal verification.

2. The statement of cash flows classifies cash receipts and cash payments by these
activities:
a. Operating and none operating.
b. Investing, financing, and operating.
c. Financing, operating, and none operating.
d. Investing, financing, and none operating.

3. Which is an example of a cash flow from a financing activity?

a. Receipt of cash from sale of land.
b. Issuance of debt for cash.
c. Purchase of equipment for cash.
d. None of the above

1
4. Buehler Company on June 15 sells merchandise on account to Chaz Co. for $1,000,
terms 2/10, n /30. On June 20, Chaz Co. returns merchandise worth $300 to Buehler
Company. On June 24, payment is received from Chaz Co. for the balance due. What is
the amount of cash received?
a. $700. c. $686.
b. $680. d. None of the above.

5. In a worksheet for the statement of cash flows, a decrease in accounts receivable is

entered in the reconciling columns as a credit to Accounts Receivable and a debit in
the:
a. Investing activities section.
b. Operating activities section.
c. Financing activities section.
d. None of the above.

6. Jefferson Company purchased a piece of equipment on January 1, 2012. The equipment

cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What
was the depreciation expense for the asset for 2013 under the double-declining-balance
method?
a. $6,500. c. $15,000.
b. $11,250. d. $6,562.

7. Which of the following is incorrect about the statement of cash flows?

a. The direct method may be used to report cash provided by operations.
b. The statement shows the cash provided (used) for three categories of activity.
c. The operating section is the last section of the statement.
d. The indirect method may be used to report cash provided by operations.

8. When there is a change in estimated depreciation:

a. Previous depreciation should be corrected.
b. Current and future years’ depreciation should be revised.
c. Only future years’ depreciation should be revised.
d. None of the above.

9. Working capital is calculated as:

a. Current assets minus current liabilities.
b. Total assets minus total liabilities.
c. Long-term liabilities minus current liabilities.
d. Both (b) and (c).
2
10. Andy Manion earns $14 per hour for a 40-hour week and $21 per hour for any
overtime work. If Manion works 45 hours in a week, gross earnings are:
a. $560. c. $650.
b. $630. d. $665.

11. Additions to plant assets are: :

a. Revenue expenditures.
b. Debited to the Maintenance and Repairs Expense account.
c. Debited to the Purchases account.
d. Capital expenditures.

12. A contingent liability should be recorded in the accounts when:

a. It is probable the contingency will happen, but the amount cannot be reasonably
estimated.
b. It is reasonably possible the contingency will happen, and the amount can be
reasonably estimated.
c. It is probable the contingency will happen, and the amount can be reasonably
estimated.
d. It is reasonably possible the contingency will happen, but the amount cannot be
reasonably estimated.

13. Upon formation of a partnership, each partner’s initial investment of assets should be
recorded at their:
a. Book values. c. fair values.
b. Cost. d. appraised values.

14. In a bank reconciliation, deposits in transit are:

a. Deducted from the book balance.
b. Added to the book balance.
c. Added to the bank balance.
d. Deducted from the bank balance.

15. The NBC Company reports net income of $60,000. If partners N, B, and C have an
income ratio of 50%, 30%, and 20%, respectively, C’s share of the net income is:
a. $30,000. c. $18,000.
b. $12,000. d. No correct answer is given.

3
16. The account Retained Earnings is:
a. A subdivision of paid-in capital.
b. Net income retained in the corporation.
c. Reported as an expense in the income statement.
d. Closed to capital stock.

17. Preferred stock may have priority over common stock except in:
a. Dividends.
b. Assets in the event of liquidation.
c. Cumulative dividend features.
d. Voting.

18. Entries for cash dividends are required on the:

a. Declaration date and the payment date.
b. Record date and the payment date.
c. Declaration date, record date, and payment date.
d. Declaration date and the record date.

19. Which of the following can cause a restriction in retained earnings?

a. State laws regarding treasury stock.
b. Long-term debt contract terms.
c. Authorizations by the board of directors in light of planned expansion of corporate
facilities.
d. All of the above.
20. Treasury stock may be repurchased:
a. To reissue the shares to officers and employees under bonus and stock compensation
plans.
b. To signal to the stock market that management believes the stock is underpriced.
c. To have additional shares available for use in the acquisition of other companies.
d. More than one of the above.

21. Receivables are frequently classified as:

a. Accounts receivable, company receivables, and other receivables.
b. Accounts receivable, notes receivable, and employee receivables.
c. Accounts receivable and general receivables.
d. Accounts receivable, notes receivable, and other receivables.

4
22. The department that should pay the payroll is the:
a. Timekeeping department.
b. Human resources department.
c. Payroll department.
d. Treasurer’s department.

23. Which of the following is not reported under additional paid-in capital?
a. Paid-in capital in excess of par.
b. Common stock.
c. Paid-in capital in excess of stated value.
d. Paid-in capital from treasury stock.

24. Which is an example of a cash flow from an investing activity?

a. Receipt of cash from the issuance of bonds payable.
b. Payment of cash to repurchase outstanding capital stock.
c. Receipt of cash from the sale of equipment.
d. Payment of cash to suppliers for inventory.

Part 3: Problems
1. Compute interest and find the maturity date for the following notes

Date of Note Principal Interest Rate (%) Terms

(a) June 10 $80,000 6% 60 days
(b) July 14 $50,000 7% 90 days
(c) April 27 $12,000 8% 75 days

2. Muxtarim was started on Sept 1 by HUDEEY COMPANY. The following selected

events and transactions occurred during Sept 2021.
Sept. 1 HUDEEY invested $35,000 cash in the business.
4 Purchased land costing $27,000 for cash.
8 Incurred advertising expense of $1,800 on account.
11 Paid salaries to employees $1,500.
12 Hired park manager at a salary of $4,000 per month, effective Aug 1.
13 Paid $1,650 cash for a one-year insurance policy.
17 Withdrew $1,000 cash for personal use.
20 Received $6,800 in cash for admission fees.
25 Sold 100 coupon books for $25 each. Each book contains 10 coupons that entitle the holder
to one admission to the park.

5
 30 Received $8,900 in cash admission fees.
30 Paid $900 on balance owed for advertising incurred on Sept 8.

Instructions
Journalize the Sept transactions.

3. The following reconciling items are applicable to the bank reconciliation for
Weedhsame Company: (1) outstanding checks, (2) bank debit
memorandum for service charge, (3) bank credit memorandum for
collecting a note for the depositor, (4) deposits in transit. Indicate how each
item should be shown on a bank reconciliation.

4. The income statement of HUDEEY Company is presented here.

HUDEEY COMPANY
Income Statement
For the Year Ended September 30, 2019

Sales revenue $7,700,000

Cost of goods sold
Beginning inventory $1,900,000
Purchases 4,400,000
Goods available for sale 6,300,000
Ending inventory 1,400,000
Total cost of goods sold 4,900,000
Gross profit 2,800,000
Operating expenses 1,150,000
Net income $1,650,000

Additional information:
1. Accounts receivable increased $250,000 during the year, and inventory decreased $500,000.
2. Prepaid expenses increased $150,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $340,000 during the year.
4. Accrued expenses payable decreased $100,000 during the year.
5. Operating expenses include depreciation expense of $90,000.

Instructions
Prepare the operating activities section of the statement of cash flows for the year ended
September 30, 2019, for HUDEEY Company, using the indirect method.

6
 5. Mr. Weedhsame started his own consulting firm, Business Care Consulting, on Aug 1,
2021. The trial balance at May 31 is as follows.

BUSINESS CARE CONSULTING

Trial Balance
Aug 31, 2021
Account Number Debit Credit
101 Cash $ 4,500
112 Accounts Receivable 6,000
126 Supplies 1,900
130 Prepaid Insurance 3,600
149 Equipment 11,400
201 Accounts Payable $ 4,500
209 Unearned Service Revenue 2,000
301 Owner’s Capital 17,700
400 Service Revenue 7,500
726 Salaries and Wages Expense 3,400
729 Rent Expense 900

$31,700 $31,700

a)$900 of supplies have been used during the month.

b)Utilities expense incurred but not paid on Aug 31, 2021, $250.
c)The insurance policy is for 2 years.
d)$400 of the balance in the unearned service revenue account remains unearned at the end
of the month.
e) Aug 31 is a Tuesday, and employees are paid on Fridays. Business Care Consulting has
two employees, who are paid $900 each for a 5-day work week.
f) The office furniture has a 5-year life with no salvage value. It is being depreciated at
$190 per month for 60 months.
g) Invoices representing $1,700 of services performed during the month have not been
recorded as of Aug 31.
Instructions
a) Prepare the adjusting entries for the month of Aug. Use J4 as the page number for your
journal.
b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as
beginning account balances and place a check mark in the posting reference column.
c) Prepare an adjusted trial balance at Aug 31, 2021.

6. Hirey, the new controller of HUDEEY COMPANY, has reviewed the expected
useful lives and salvage values of selected depreciable assets at the beginning of
2019. His findings are as follows.
Accumulated Useful Life
Type of Date Depreciation in Years Salvage Value
Asset Acquired Cost 1/1/19 Old Proposed Old Proposed
Building 1/1/13 $800,000 $114,000 40 50 $40,000 $37,000
Warehouse /1/14 100,000 19,000 25 20 5,000 3,600

7
All assets are depreciated by the straight-line method. HUDEEY COMPANY uses a calendar
year in preparing annual financial statements. After discussion, management has agreed to
accept Hirey proposed changes.
Instructions
(a) Compute the revised annual depreciation on each asset in 2019. (Show computations.)
(b) Prepare the entry (or entries) to record depreciation on the building in 2019.
7. River Company’s chart of accounts includes the following selected accounts.

101 Cash 401 Sales Revenue

112 Accounts Receivable 414 Sales Discounts
120 Inventory 505 Cost of Goods Sold
301 Owner’s Capital
On April 1 the accounts receivable ledger of River Company showed the following
balances:
Summer $1,550, Glav $1,200, Sheppard Co. $2,900, and Book $1,800. The April
transactions involving the receipt of cash were as follows.

Apr. 1 The owner, T. River, invested additional cash in the business $7,200.
4 Received check for payment of account from Book less 2% cash discount.
5 Received check for $920 in payment of invoice no. 307 from Sheppard Co.
8 Made cash sales of merchandise totaling $7,245. The cost of the merchandise sold
was $4,347.
10 Received check for $600 in payment of invoice no. 309 from Summer.
11 Received cash refund from a supplier for damaged merchandise $740.
23 Received check for $1,500 in payment of invoice no. 310 from Sheppard Co.
29 Received check for payment of account from Glav.
Instructions
(a) Journalize the transactions above in a six-column cash receipts journal with columns
for
Cash Dr., Sales Discounts Dr., Accounts Receivable Cr., Sales Revenue Cr., Other
Accounts
Cr., and Cost of Goods Sold Dr./Inventory Cr. Foot and cross foot the journal.
(b) Insert the beginning balances in the Accounts Receivable control and subsidiary
accounts, and post the April transactions to these accounts.
(c) Prove the agreement of the control account and subsidiary account balances.

Have a nice Work

END