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Della's Donuts Taunton Company

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1. Cash investments by owners are listed on which of the following statements?
Trial Balance.
Income statement.
Statement of cash flows only.
Statement of owner's equity and statement of cash flows.
Statement of owner's equity only.

2. A contra account is an account linked with another account; it is added to that account to show the proper amount for the item recorded in the associated account.
True
False

3. If cash was incorrectly debited for $100 instead of correctly credited for $100, the cash account is out of balance by $100.
True
FALSE
4. Every business transaction leaves the accounting equation in balance.
TRUE
FALSE

5. Asset accounts normally have credit balances and revenue accounts normally have debit balances.
TRUE
FALSE

6. PPW Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,175. This other company paid the entire $9,400 cash on October 1, which PPW Co. recorded as unearned revenue. The journal entry made by PPW Co. at year-end on December 31 would include:

A debit to Cash for $9,400.
A credit to Rent Earned for $3,525. (9400*3/8)
A credit to Unearned Rent for $3,525.
A debit to Rent Earned for $3,525.
A debit to Unearned Rent for $5,875.

7. Determine the net income of a company for which the following information is available for the month of May.

Employee salaries expense $181,000
Interest expense 10,500
Rent expense 20,500
Consulting revenue 401,000
$189,000. (401000- (181000+10500+20500)
$613,000.
$230,500.
$212,000.
$401,000.

8. A company purchased a new truck at a cost of $36,600 on July 1. The truck is estimated to have a useful life of 4 years and a salvage value of $5,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the truck during the first year ended December 31?

$4,575.
$4,700.
$9,150.
$3,950. (=((36600-5000)/4)*1/2
$7,900

9. When a company provides services for which cash will not be received until some future date, the company should record the amount charged as unearned revenue.
TRUE
FALSE

10. Della's Donuts owner made investments of $52,500 and withdrawals of $20,500. The company has revenues of $83,500 and expenses of $63,500. Calculate its net income.

$83,500.
$63,500.
$32,000.
$52,000.
$20,000.

11. A $35 credit to Sales was posted as a $160 credit. By what amount is Sales in error?
$160 understated.
$125 understated.
$35 understated.
$125 overstated.
$160 overstated.

12. On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31? (Round your answer to 1 decimal places.)
$37.50.
$337.50.
$450.00.
$1,350.00.
$1,012.50.

13. If the totals of a trial balance are equal, then:
All transactions have been recorded correctly.
The balance sheet would be correct.
The total of debit column and total of credit column is equal.
All ledger account balances are correct.
All entries from the journal have been posted to the ledger correctly.

14. The statement of owner's equity:

Reports on cash flows for operating, financing, and investing activities over a period of time.

Reports how equity changes over a period of time.

Reports how equity changes at a point in time.

Reports on amounts for assets, liabilities, and equity at a point in time.

Reports on cash flows for operating, financing, and investing activities at a point in time.

15. Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or withdrawals by the owner.
TRUE
FALSE

16. At the beginning of the current year, Taunton Company's total assets were $248,000 and its total liabilities were $175,000. During the year, the company reported total revenues of $93,000, total expenses of $76,000 and owner withdrawals of $5,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $260,000. Taunton Company's debt ratio at the end of the current year is:

32.7%.

48.6%.

67.3%.
Cannot be determined from the information provided.

70.6%.

17. Hal Smith opened Smith's Repairs on March 1 of the current year. During March, the following transactions occurred and were recorded in the company's books:

1. Smith invested $32,000 cash in the business.
2. Smith contributed $114,000 of equipment to the business.
3. The company paid $3,400 cash to rent office space for the month.
4. The company received $23,000 cash for repair services provided during March.
5. The company paid $7,600 for salaries for the month.
6. The company provided $4,400 of services to customers on account.
7. The company paid cash of $640 for monthly utilities.
8. The company received $4,500 cash in advance of providing repair services to a customer.
9. Smith withdrew $6,400 for his personal use from the company.

18. Based on this information, the balance in Hal Smith, Capital reported on the Statement of Owner's Equity at the end of March would be:
$20,360.
$159,860.
$13,860.
$155,360.

19. A corporation:
Is controlled by the FASB.
Has shareholders who have unlimited liability for the acts of the corporation.
Is the same as a limited liability partnership.
Is a business legally separate from its owners.
Is not subject to double taxation.

19. The International Accounting Standards Board (IASB)
Is the government group that establishes reporting requirements for companies that issue stock to the public.
Hopes to create harmony among accounting practices of different countries.
Is the only source of generally accepted accounting principles (GAAP).
Only applies to companies that are members of the European Union.
Has the authority to impose its standards on companies.

20. At the beginning of January of the current year, Thomas Law Center's ledger reflected a normal balance of $54,400 for accounts receivable. During January, the company collected $17,200 from customers on account and provided additional services to customers on account totaling $13,700. Additionally, during January one customer paid Thomas $6,200 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be:
$57,100.
$3,500.
$51,700.
$50,900.
$57,900.

21. A company purchased a new truck at a cost of $42,000 on July 1. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the truck during the first year ended December 31?
$3,250.
$7,000.
$6,500.
$4,000.
$3,500.

22. Unlimited liability is an advantage of a sole proprietorship.
True
FALSE

23. On March 31, Phoenix, Inc. paid Melanie Publishing Company $21,240 for a 3-year subscription for five different magazines. The subscriptions started immediately. What is the adjusting entry that should be recorded by Melanie Publishing Company on December 31 of the first year if the credit to record the collection was made to Unearned Fees?
Debit Unearned Fees, $1,770; credit Fees Earned, $1,770.
Debit Unearned Fees, $5,310; credit Fees Earned, $5,310.
Debit Unearned Fees, $21,240; credit Fees Earned, $21,240.
Debit Unearned Fees, $15,930; credit Fees Earned, $15,930.
Debit Unearned Fees, $7,080; credit Fees Earned, $7,080.

24. Prior to recording adjusting entries, the Office Supplies account had a $349 debit balance. A physical count of the supplies showed $115 of unused supplies available. The required adjusting entry is:
Debit Office Supplies Expense $234 and credit Office Supplies $234.
Debit Office Supplies $234 and credit Office Supplies Expense $234.
Debit Office Supplies $115 and credit Supplies Expense $234.
Debit Office Supplies $115 and credit Office Supplies Expense $115.
Debit Office Supplies Expense $115 and credit Office Supplies $115.

25. The accrual basis of accounting recognizes expenses when cash is paid.
TRUE
FALSE

26. The first step in the processing of a transaction is to analyze the transaction and source documents.
TRUE
FALSE

27. The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been owned:
Is only recorded when the asset is disposed of.
Is referred to as depreciation expense.
Is referred to as an accrued asset.
Is referred to as accumulated depreciation.
Is shown on the income statement of the final period.

28. On December 1, Miller Company borrowed $330,000, at 8% annual interest, from the Nomo Bank. Miller has 45 days before the first payment is required. What is the adjusting entry that Miller would need to make on December 31, the calendar year-end? (Use 360 days in a year.)
Debit Interest Expense, $2,200; credit Interest Payable, $2,200.
Debit Interest Expense, $26,400; credit Interest Payable, $26,400.
Debit Interest Expense, $3,300; credit Interest Payable, $3,300.
Debit Interest Expense, $2,200; credit Cash, $2,200.
Debit Interest Payable, $2,200; credit Interest Expense, $2,200.

29. Failure to record depreciation expense will overstate the asset and understate the expense.
TRUE
FALSE

30. If the assets of a business increased $89,100 during a period of time and its liabilities increased $66,800 during the same period, equity in the business must have:
Decreased $155,900.
Increased $22,300.
Increased $89,100.
Decreased $22,300.
Increased $155,900.

31. Andrea Conaway opened Wonderland Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books:

1. Conaway invested $18,500 cash in the business.
2. Conaway contributed $25,000 of photography equipment to the business.
3. The company paid $3,100 cash for an insurance policy covering the next 24 months.
4. The company received $7,700 cash for services provided during January.
5. The company purchased $7,200 of office equipment on credit.
6. The company provided $3,250 of services to customers on account.
7. The company paid cash of $2,000 for monthly rent.
8. The company paid $3,600 on the office equipment purchased in transaction #5 above.
9. Paid $325 cash for January utilities.

Based on this information, the balance in the Andrea Conaway, Capital account reported on the Statement of Owner's Equity at the end of the month would be:
$52,125
$41,325
$41,650
$51,200
$40,400

32. If a parcel of land that was originally acquired for $94,500 is offered for sale at $141,000, is assessed for tax purposes at $104,500, is recognized by its purchasers as easily being worth $131,000, and is sold for $128,000, the land should be recorded in the purchaser's books at:
$104,500.
$141,000.
$131,000.
$128,000.
$129,500.

33. The accounting equation implies that: Assets + Liabilities = Equity.
TRUE
FALSE

34. A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n):
T-account.
Account.
Trial balance.
Journal.
Balance column account.

35. The following transactions occurred during July:

1. Received $1,040 cash for services provided to a customer during July.
2. Received $3,600 cash investment from Barbara Hanson, the owner of the business.
3. Received $890 from a customer in partial payment of his account receivable which arose from sales in June.
4. Provided services to a customer on credit, $445.
5. Borrowed $7,400 from the bank by signing a promissory note.
6. Received $1,390 cash from a customer for services to be rendered next year.

What was the amount of revenue for July?
$2,875.
$3,765.
$1,040.
$14,320.
$1,485.

36. On May 1, Year 1, Carter Advertising Company received $3,600 from Kaitlyn Breanna for advertising services to be completed April 30 of the following year. The Cash receipt was recorded as unearned fees. Assume no entry was made for unearned fees during year 2. The adjusting entry for the year ended December 31, Year 2 would include:
a debit to Earned Fees for $2,400.
a debit to Earned Fees for $3,600.
a debit to Unearned Fees for $1,200.
a credit to Unearned Fees for $1,200.
a credit Earned Fees for $2,400.

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