Q1 Multiple Choice Questions (MCQs)

i) As of December 31, 2018, Nevenda Company has assets of $3,500 and owner’s equity of
$2,000. The liabilities for Nevenda Company as of December 31, 2018?
a. $1,500. b. $1,000. c. $2,500. d. $2,000.

ii) Which of the following events is not recorded in the accounting records?
a. Equipment is purchased on account. b. An employee is terminated.
c. A cash investment is made into the business. d. The owner withdraws cash for personal use.

iii) In a worksheet, net income is entered in the following columns:

a. income statement (Dr) and balance sheet (Dr).
b. income statement (Cr) and balance sheet (Dr).
c. income statement (Dr) and balance sheet (Cr).
d. income statement (Cr) and balance sheet (Cr).

iv) During 2012, Gibson Company’s assets decreased $50,000 and its liabilities decreased
$90,000. Its owner’s equity therefore:
a. increased $40,000. b. decreased $140,000. c. decreased $40,000. d. increased $140,000.

v) When Alexander Company purchased supplies worth $500, it incorrectly recorded a credit to
Supplies for $5,000 and a debit to Cash for $5,000. Before correcting this error:
a. Cash is overstated and Supplies is overstated.
b. Cash is understated and Supplies is understated.
c. Cash is understated and Supplies is overstated.
d. Cash is overstated and Supplies is understated.

vi) The expanded accounting equation is:

a. Assets + Liabilities = Owner’s Capital + Owner’s Drawings + Revenues + Expenses
b. Assets = Liabilities + Owner’s Capital + Owner’s Drawings + Revenues – Expenses
c. Assets = Liabilities - Owner’s Capital - Owner’s Drawings - Revenues - Expenses
d. Assets = Liabilities + Owner’s Capital - Owner’s Drawings + Revenues – Expenses

vii) The order of the accounts in the ledger is:

a. assets, revenues, expenses, liabilities, owner’s capital, owner’s drawings.
b. assets, liabilities, owner’s capital, owner’s drawings, revenues, expenses.
c. owner’s capital, assets, revenues, expenses, liabilities, owner’s drawings.
d. revenues, assets, expenses, liabilities, owner’s capital, owner’s drawings.

viii) The trial balance of Clooney Company had accounts with the following normal balances:
Cash $5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages
Expense $40,000, Rent Expense $10,000, Owner’s Capital $42,000; Owner’s Drawings $15,000;
Equipment $61,000. In preparing a trial balance, the total in the debit column is:
a. $131,000. b. $216,000 c. $91,000. d. $116,000.

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ix) Accounts that normally have debit balances are:

a. assets, expenses, and revenues. b. assets, expenses, and owner’s capital.

c. assets, liabilities, and owner’s drawings. d. assets, owner’s drawings, and expenses.

x) All of the following are required steps in the accounting cycle except:

a. journalizing and posting closing entries. b. preparing financial statements.

c. journalizing the transactions. d. preparing a worksheet.

xi) Which of the following statements about users of accounting information is incorrect?

a. Management is an internal user. b. Taxing authorities are external users.

c. Present creditors are external users. d. Regulatory authorities are internal users.

xii) Performing services on account will have the following effects on the components of the
basic accounting equation:

a. increase assets and decrease owner’s equity. b. increase assets and increase owner’s equity.
c. increase assets and increase liabilities. d.increase liabilities and increase owner’s equity.

xiii) A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on
June 16. The amount received as payment in full on June 23 is:
a. $700. b. $686 c. $685 d. $650.

xiv) If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are
$60,000, the gross profit is:
a. $30,000. b. $90,000 c. $340,000 d. $400,000.

xv) In determining cost of goods sold:

a. purchase discounts are deducted from net purchases.
b. freight-out is added to net purchases.
c. purchase returns and allowances are deducted from net purchases.
d. freight-in is added to net purchases.
Q2 Define the following terms briefly.
Contra asset account FOB shipping point prepayments
Adjusting entries Accrual-basis accounting Normal balance
Closing entries Contra asset account Permanent accounts
Unearned revenues

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Q3 Melton River Resort opened for business on January 1 with eight air-conditioned units. Its
trial balance before adjustment on March 31 is as follows.
MELTON RIVER RESORT
Trial Balance
March 31, 2012

Other data:
1. Insurance expires at the rate of $300 per month.
2. A count on March 31 shows $800 of supplies on hand.
3. Annual depreciation is $6,000 on buildings and $2,400 on equipment.
4. Unearned rent revenue of $4,800 was earned prior to March 31.
5. Salaries of $400 were unpaid at March 31.
6. Rentals of $4,000 were due from tenants at March 31. (Use Accounts Receivable.)
7. The mortgage interest rate is 9% per year. (The mortgage was taken out on March 1.)

Instructions
(a) Journalize the adjusting entries on March 31 for the 3-month period January 1– March 31.
(b) Posting the adjusting journal entries in the Ledger by entering the trial balance amounts.
(c) Prepare an adjusted trial balance on August 31.

Q4 Complete the Work Sheet:

BEAR MOTEL
MAY 31,2018

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 Income
TRIAL BALANCE Adjustments Adjusted Trial Bal Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash $3,500
Supplies 2,080
Prepaid Insurance 2,400
Land 12,000
Buildings 60,000
Equipment 15,000
Accounts Payable $4,800
Unearned Revenue 3,300
Mortgage Payable 40,000
Owner's Capital 41,380
Rent Revenue 10,300
Adv. Expense 600
Wages Expense 3,300
Utilities Expense 900
$99,780 $99,780

Adjustment:
1. Prepaid insurance is a 1-year policy starting May 1, 2018.
2. A count of supplies shows $750 of unused supplies on May 31.
3. Annual depreciation is $3,000 on the buildings and $1,500 on equipment.
4. The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)
5. Two-thirds of the unearned rent revenue has been earned.
6. Salaries of $750 are accrued and unpaid at May 31.

Q5 The following selected data are taken from the record of Apple Company at the end of
September 30. The Company employs Periodic Inventory method to account for merchandising

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inventory. You are required to prepare a multiple-step Income statement for the month ended
September 30, 2018 in proper format.

Cash $90,000 AD-Equipment $30,000

Accounts Receivable 80,000 Notes Payable 80,000
Inventory, ending 65,000 Accounts Payable 35,000
Prepaid Insurance 48,000 Salaries Payable 15,000
Equipment 98,000 Owner’s Capital 225,000
Owner’s Drawing 9,000 Sales Revenue 624,000
Sales Returns & Allow 18,000 Purchase Returns & Allow 25,000
Sales Discounts 17,000 Purchase Discounts 20,000
Purchases 350,000 Freight-in 8,000
Freight-out 7,000 Insurance Expense 24,000
Salary Expense 150,000 Miscellaneous Expense 55,000
Inventory, beginning 10,000 Interest expense 15,000
Depreciation Expense 10,000 Tax Expense 11,000
Utility expense 25,000 Rent expense 16,000

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