Multiple Choice: Identify the letter of the choice that best completes the statement or answers the

question.

1. Ace Electronics had cost of goods sold of $30,000. If purchases were $32,000 and ending inventory
was $10,500, Ace's beginning inventory must have been:
a. $8,500
b. $12,500
c. $40,500
d. $21,500

2. On August 1, Jackson Radiology signed a one-year note receivable of $60,000 with interest at of 15%
payable every six months. Jackson properly accrued interest on the note on December 31. What journal
entry would Jackson make on the following February 1 to record the interest payment received on that
date?
a. Debit Cash and credit Interest Revenue for $4,500
b. Debit Cash and credit Interest Revenue for $750
c. Debit Cash for $4,500, credit Interest Receivable for $3,750, and credit Interest Revenue for $750
d. Debit Cash for $750, debit Interest Receivable for $3,750, and credit Interest Revenue for $4,500

3. An asset is purchased on January 1 for $40,700. It is expected to have a useful life of five years after
which it will have an expected residual value of $5,200. The company uses the straight-line method. If it
is sold for $30,400 exactly two years after it is purchased, the company will record a:
a. loss of $6,400.
b. loss of $3,900.
c. gain of $3,900.
d. gain of $6,400.

4. Acme Enterprises just bought a new manufacturing machine. Which of these costs should not be
capitalized?
a. The $500,000 invoice price of the machine
b. The $15,000 freight bill to deliver the machine to Acme's factory
c. The $8,000 cost of tearing down Acme's factory wall to get the machine inside
d. The $100 increase in monthly utility bills to operate the machine

5. Beta Co. recorded a loss due to impairment of some of its assets. As a result of this journal entry:
a. liabilities are increased.
b. expenses are increased.
c. stockholders' equity is increased.
d. assets are decreased.
6. On October 1, 2015, Attra Inc. borrows $207,000 on a three-year note that requires the company to pay
12% interest on March 31 and September 30. On December 31, 2015, the adjusting entry to accrue
interest on the note should debit:
a. Interest Expense and credit Interest Payable for $6,210.
b. Interest Payable and credit Interest Expense for $6,210.
c. Interest Expense and credit Cash for $12,420.
d. Interest Expense and credit Interest Payable for $12,420.

7. The accounts receivable account has a beginning balance of $26,000 and an ending balance
of $32,000. The firm sold $62,000 of sales on account during the period. How much cash was
collected during the period?

ANSWER = $56,000

Accounts Receivable

Beg. 26,000 ? Cash Collected

Sales 62,000

End 32,000

Beginning Accounts Receivable + Debits to AR– Cash Collections = Ending Accounts

Receivable
26,000 + 62,000 - ? = 32,000
56,000 = ? = Cash Collections during the year

8. The accounts payable account has a beginning balance of $44,000 and an ending balance of
$55,000. The inventory account has a beginning balance of $12,000 and an ending balance of
$15,000. Cost of goods sold for the period was $30,000. Assume that all inventory is
purchased on credit (i.e. gets charged to accounts payable). How much cash did the firm pay to
its suppliers related to prior purchases made on credit during the month?

ANSWER = 22,000

Step 1 – Solve for Purchases

Beginning Inventory + Inventory Purchases – COGS = Ending Inventory
12,000 + ? – 30,000 = 15,000
? = 33,000 = Inventory Purchased (and charged to Accounts Payable)

Step 2 – How much cash did the firm pay to its suppliers?
Beginning Accounts Payable + Credit Purchases – Cash Payments = Ending Accounts Payable
44,000 + Credit Purchases – Cash Payments = 55,000
44,000 + 33,000 - ? = 55,000
? = 22,000 = Cash Payments made to suppliers related to prior credit purchases

9. The total amount of interest that will be paid on a six-month, $12,000, 9% note payable equals:
a. $540.00
b. $450.00
c. $1,080.00
d. $720.00

10. A corporation prepared its statement of cash flows for the year. The following information is taken
from that statement:

Net cash provided by financing activities $26,500

Net cash provided by investing activities $5,400
Cash balance, beginning of year $7,000
Cash balance, end of year $11,500

What is the amount of net cash provided by (used in) operating activities?
a. $4,500
b. ($27,400)
c. ($4,500)
d. $27,400
11.

Type of Closing Typical Financial

Account Status Balance (to Statement on
Asset, increase it) which reported:
Liability, Closed or Income Statement,
Stockholders’ Not closed Debit or Balance Sheet,
Equity, Contra Credit Statement of
Asset, Stockholders’
Revenue, Equity
Expense
Liability Not Credit Balance Sheet
Accrued Expenses
Closed
Revenue Closed Credit Income
Service Revenue
Statement
Asset Not Debit Balance Sheet
Prepaid Expenses
Closed
Expense Closed Debit Income
Cost of Goods Sold
Statement
Contra Asset Not Credit Balance Sheet
Accumulated Depreciation
Closed
Asset Not Debit Balance Sheet
Cash
Closed
Asset Not Debit Balance Sheet
Building
Closed
Liability Not Credit Balance Sheet
Notes Payable
Closed
Liability Not Credit Balance Sheet
Unearned revenue
Closed
Expense Closed Debit Income
Insurance Expense
Statement
Liability Not Credit Balance Sheet
Salaries Payable
Closed
12. During the month of November, Carey Company receives 75 t-shirt orders from
students at $15 each. 50 of the students pay cash at the time of the order, but the rest
promise to pay in December. You deliver 30 of the t-shirts in November and the
remaining 45 t-shirts in December.

What is Carey’s revenue using accrual basis accounting in November? In December?

ANSWERS = 450, 675
November = 30 shirts delivered in November x $15 = 450
December = 45 shirts delivered in December x $15 = 675

13. On January 1, 2022, Carey Corporation had $58,000 as its beginning cash
balance. During 2022, Carey engaged in the following transactions. However, the
invoice paid on May 13, 2022 was lost. At the end of the year, Carey had $80,000 in
cash.

Required:
(1) Journalize each of the following transactions.
(2) How much did Carey pay for the invoice on May 13?

a. On January 20, Carey collected $40,000 from a credit customer.

Cash 40,000
Accounts Receivable 40,000

b. Carey borrowed $10,000 in cash by signing a one year note on February 1.

Cash 10,000
Notes Payable 10,000

c. Carey paid its salaries payable of $25,000 on March 15.

Salaries Payable 25,000
Cash 25,000

d. On May 13, Carey paid an invoice. This invoice was lost, and the amount is unknown.
Accounts Payable xxx
Cash xxx

e. On July 11, Carey purchased $5,000 of supplies on credit.

Supplies 5,000
Accounts Payable 5,000
f. Carey issued 1,500 shares of stock for $20 per share on August 1.
Cash 30,000
Contributed Capital 30,000

g. On October 1 Carey purchased a two-year insurance plan for $10,000.

Prepaid Insurance 10,000
Cash 10,000

h. On December 31, Carey purchased inventory on credit for $1,000. The bill is to be paid on
January 15, 2023.
Inventory 1,000
Accounts Payable 1,000

(2)
Carey paid $23,000 for the invoice on May 13

Cash
Beg. 58,000
a. 40,000
b. 10,000
c. 25,000
d. X
f. 30,000
g. 10,000
end 80,000

58,000 + 40,000 + 10,000 – 25,000 – X + 30,000 – 10,000 = 80,000

X = 23,000
14. Shown below are accounts and their balances after adjusting entries have been
posted for Carey Inc. on December 31, 2021.
Account Title Amount ($)
Accounts Payable 5,400
Accounts Receivable 7,300
Accumulated Depreciation 2,000
Cash 3,300
Contributed Capital 4,700
Depreciation Expense 1,500
Interest Expense 2,000
Equipment 15,000
Inventory 2,050
Cost of Goods Sold 2,300
Rent Expense 2,500
Sales Revenue 28,000
Salary Expense 7,900
Telephone Expense 250
Unearned Revenue 4,000

(1) Prepare the closing entries.

Sales Revenue 28,000

Retained Earnings 28,000
Retained Earnings 16,450
Depreciation Expense 1,500
Interest Expense 2,000
Cost of Goods Sold 2,300
Rent Expense 2,500
Salary Expense 7,900
Telephone Expense 250

(2) What was Carey’s net income?

ANSWER = 11,550
Net Income = Revenue – Expenses = 28,000 – 16,450 = 11,550
(3) Assume Carey declared and paid dividends of 4,000 in 2021 and the ending
retained earnings balance for 2021 was 22,350. What was the retained earnings
balance at the beginning of 2021?

ANSWER = 14,800
Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings
? + 11,550 – 4,000 = 22,350
? = 14,800
15. Identify when and how much revenue Carey Company will recognize for each of the
following transactions. Also identify the effects of the transaction on balance sheet, if
any. Ignore the cost related recognition.

a. Carey receives $40,000 in cash in 2021 and delivers all the goods in 2022.
2021 2022
Income Statement Balance Sheet Income Statement Balance Sheet
None +40,000 Cash +40,000 Revenue -40,000 Unearned
+40,000 Unearned Revenue
Revenue +40,000 Retained
Earnings

b. Carey receives $60,000 in cash in 2021. Delivers goods worth $40,000 in 2021 and the
remaining are delivered in 2022.
2021 2022
Income Statement Balance Sheet Income Statement Balance Sheet
+40,000 Revenue +60,000 Cash +20,000 Revenue -20,000 Unearned
+20,000 Unearned Revenue
Revenue +20,000 Retained
+40,000 Retained Earnings
Earnings

c. Carey sells $45,000 of goods to customers on account in 2021 and delivers all of them.
The cash is received in 2022.
2021 2022
Income Statement Balance Sheet Income Statement Balance Sheet
+45,000 Revenue +45,000 Accounts None +45,000 Cash
Receivable -45,000 Accounts
+45,000 Retained Receivable
Earnings
16. Carey Company has provided the following information for 2012. What was
Carey Company’s operating income?
 Cash sales totaled $295,000.
 Cash collections from customers for the period totaled $95,000.
 A $12,000 gain from the sale of an investment occurred.
 Credit sales totaled $430,000.
 Interest expense was $3,000.
 Interest revenue was $12,000.
 Rent expense was $42,000.
 Salaries expense was $58,000.
 Supplies expenses totaled $81,000.
 Cost of goods sold was $301,000.
 A total of $49,000 was paid in taxes for the period.

ANSWER = 243,000

Operating Income = Operating Revenues – Operating Expenses

Operating Revenues = +295,000 (Cash Sales) +430,000 (Credit Sales)

Operating Expenses = 42,000Rent, 58,000Salaries, 81,000Supplies, 301,000COGS

Operating Revenues = 725,000

Operating Expenses = 482,000
Operating Income = 725,000-482,000 = 243,000
17. Amanda Corporation is preparing its financial statements for the year ending December 31, 20x4.
Ending inventory information about the three major items stocked for regular sale follows:
Quantity Unit Cost When Acquired Net Realizable Value
Item on Hand (FIFO) (Market) at Year-End
AA 100 $ 30 $ 26
BB 150 80 80
CC 200 100 104

Compute the valuation that should be used for the ending inventory using the LCM rule applied on an
item-by-item basis.

ANSWER: $34,600
Total Total LCM
Item Quantity Cost Market Valuation
AA 100 $ 3,000 (a) $ 2,600 (b) $ 2,600
BB 150 12,000 (c) 12,000 (c) 12,000
CC 200 20,000 (d) 20,800 (e) 20,000
$34,600

18. Capital Company began business on January 1, 20x4. During 20x4 Capital
Company engaged in the following transactions:

Apr. 1 Borrowed $40,000 from National Bank by issuing a 10-month,

12% note with the principal and interest payable at the end of 10
months.

Aug. 1 Rented out part of its building to a start-up firm who paid six
months’ rent in advance to Capital Company. Six months’ rent
amounted to $4800.

Nov. 8 Purchased inventory on credit at a cost of $13,580.

Dec. 17 Paid half of the November 8 invoice.

Dec. 20 Received $100 from a customer for services that Capital will
provide to the customer in January of 20x5.

Dec. 31 Determined wages of $6,500 were earned but not yet paid to
employees. Capital will pay the wages owed on January 15, 20x5.
Dec. 31 Capital Company’s Board of Directors declared dividends of $1,000
to its common stockholders that will be paid on March 1, 20x5.

Dec. 31 Capital Company’s lawyers estimates that it is probable that the

company will have to pay $1,300 to repair its products under
warranty in 20x5.

Show the total amount of current liabilities, as well as the individual accounts
and their balances that would appear in the current liabilities section of Capital’s
balance sheet as of December 31, 20x4.

Current Liabilities Amount

Accounts Payable $6,7901
Unearned Revenue 9002
Wages Payable 6,500
Dividends Payable 1,000
Estimated Warranty Liability 1,300
Notes Payable 40,000
Interest Payable 3,6003
Total Current Liabilities $60,090

1$13,580 – (.5)($13,580)
2($4,800/ 6) one month left of unearned revenue from rent + $100
3$40,000 * .12 * (9/12)
19. Carey Company has a fiscal year end date of December 31. Make the adjusting
journal entries for the following transactions for 2019. Assume that Carey only makes
adjusting entries at the end of the year.

a. Carey Company purchased an $18,000 three-year insurance policy on January 1, 2019.

The policy began on January 1, 2019.
December 31, 2009 Insurance Expense 6,000
Prepaid Insurance 6,000

b. Carey recorded depreciation on its equipment of $10,000.

December 31,2009 Depreciation Expense 10,000
Accumulated Depreciation 10,000

c. Carey had $300 of supplies on hand at the beginning of 2019. Carey purchased
$12,000 in office supplies during 2019 and had $5,500 left on hand at the end of 2019.
December 31, 2009 Supplies Expense 6,800
Supplies 6,800

d. On July 1, 2019, Carey prepaid twelve months of rent for $12,000 cash.
December 31, 2009 Rent Expense 6,000
Prepaid Rent 6,000

e. On October 1, 2019, Carey received $3,000 from a customer for a six-month service
contract. Carey began providing services on October 1, 2019.
December 31, 2009 Unearned Revenue 1,500
Revenue 1,500

f.On May 1, 2019, Carey borrowed $20,000 on a one-year note with 12% annual interest.
Both the interest and principal are due to the bank on May 1, 2020.
December 31, 2009 Interest Expense 1,600
Interest Payable 1,600

g. Carey owed $4,000 in wages at the end of 2019.

December 31, 2009 Wage Expense 4,000
Wages Payable 4,000
20. Joel Harvey Florists acquired a truck on January 1, 20x2. The company paid $11,000 for the
truck, $500 for destination charges, and $250 sales tax. The company’s accounting manager
estimates the truck to have a five-year useful life and a residual value of $1,750. The truck is
expected to be driven 100,000 miles in five years. It is actually driven 15,000 miles in 20x2,
25,000 miles in 20x3, 30,000 miles in 20x4, 25,000 miles in 20x5, and 5,000 miles in 20x6.

(a) On January 1, 20x2, how much should Joel Harvey Florist capitalize for the cost of the
truck?

$11,000 + $500 + $250 = $11,750.

(b) How much depreciation expenses that would be recorded for the years 20x2 through 20x6
using the straight-line method?

($11,750 – $1,750) ÷ 5 = $2,000 per year

(c) On December 31, 20x6, Joel Harvey sold the truck for $3,000 cash. Compute the gain or
loss on sale.

$3,000 – $1,750 = $1,250 gain