APPENDIX 2: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) Maxie's Game World sold games to a customer on credit for $2,700, terms 2/10, n/30 and the cost of the games was $1,800. When recording the sales transaction in its sales journal, Maxie’s would enter: A) $1,800 in the Accounts Receivable Dr./Sales Cr. column and $2,700 in the Cost of Goods Sold Dr./Inventory Cr. column. B) $2,700 in the Accounts Receivable Dr./Sales Cr. column and $1,800 in the Accounts Payable Dr./Purchases Cr. column. C) $2,700 in the Accounts Receivable Dr./Sales Cr. column and $2,700 in the Cash Cr. column. D) $2,700 in the Accounts Receivable Dr./Sales Cr. column and $1,800 in the Cost of Goods Sold Dr./Inventory Cr. column. E) $1,800 in the Accounts Receivable Dr./Sales Cr. column and $2,700 in the Other Accounts Dr. column.
2) Maxie's Game World sold games to a customer on credit for $4,300, terms 1/10, n/30 and the cost of the games was $3,400. When recording the collection from the customer made within the discount period, in its cash receipts journal, Maxie’s would enter: A) $4,300 in the Cash Dr. column and $4,300 in the Accounts Receivable Cr. column. B) $4,257 in the Cash Dr. column and $4,257 in the Accounts Receivable Cr. column. C) $4,257 in the Cash Dr. column, $43 in the Sales Discount Dr. column and $4,300 in the Accounts Receivable Cr. column. D) $4,300 in the Accounts Receivable Dr./Sales Cr. column and $4,300 in the Cash Cr. column. E) $4,300 in the Cash Dr. column. $3,400 in the Sales Cr. column, and $3,400 in the Cost of Goods Sold Dr./Inventory Cr. column.
3) Wildlife Wholesale Supply sold birdseed to a retailer for $1,760, receiving cash at the time of sale. The cost of the birdseed was $1,270. When recording the collection from the customer, in its cash receipts journal, Wildlife would enter:
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A) $1,760 in the Cash Dr. column and $1,760 in the Accounts Receivable Cr. column. B) $1,270 in the Cash Dr. column and $1,270 in the Accounts Receivable Cr. column. C) $1,760 in the Cash Dr. column; $1,760 in the Sales Cr. column; and $1,270 in the Other Accounts Cr. column. D) $1,760 in the Accounts Receivable Dr. column, $1,760 in the Cash Cr. column; and $1,270 in the Cost of Goods Sold Dr./Inventory Cr. column. E) $1,760 in the Cash Dr. column; $1,760 in the Sales Cr. column; and $1,270 in the Cost of Goods Sold Dr./Inventory Cr. column.
4) Farthington Soccer Supplies purchases merchandise from a supplier on credit, terms 2/10, n/30 for $15,700.When recording the purchase transaction in its purchases journal, Farthington would enter: A) $15,700 in the Inventory Dr. column and $15,700 in the Accounts Payable Cr. column. B) $15,700 in the Accounts Receivable Dr. column and $15,700 in the Accounts Payable Cr. column. C) $15,700 in the Inventory Dr. column, $15,386 in the Accounts Payable Cr. column, and $314 in the Discounts Lost Cr. column. D) $15,700 in the Cost of Goods Sold Dr. column and $15,700 in the Accounts Payable Cr. column. E) $15,700 in the Other Accounts Dr. column and $15,700 in the Inventory Cr. column.
5) Farthington Soccer Supplies purchases merchandise from a supplier on credit, terms 1/10, n/30 for $15,800. When recording the payment of the invoice within the discount period in its cash payments journal, Farthington would enter: A) $15,800 in the Cash Cr. column and $15,800 in the Inventory Dr. column. B) $15,800 in the Cash Cr. column and $15,800 in the Accounts Payable Dr. column. C) $15,800 in the Inventory Cr. column; $15,642 in the Accounts Payable Dr. column; and $158 in the Inventory Cr. column. D) $15,642 in the Accounts Payable Dr. column and $15,642 in the Cash Cr. column. E) $15,800 in the Accounts Payable Dr. column; $15,642 in the Cash Cr. column; and $158 in the Inventory Cr. column.
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6) Wexim Toys sold merchandise to a customer on credit, terms 1/10, n/30 for $11,500. Three days later, the customer returned $2,200 of the merchandise. When recording the return transaction, Wexim Toys would record: A) $2,200 in the Accounts Payable Cr. column and $2,200 in the Inventory Dr. column of the purchases journal. B) Debit Sales Returns and Allowances $2,200 and credit Accounts Receivable $2,200 in the general journal. C) $2,200 in the Cash Dr. column and $2,200 in the Inventory Cr. column in the cash receipts journal. D) Debit Cash $2,200 and credit Inventory $2,200 in the general journal. E) $2,200 in the Accounts Payable Dr. column and $2,200 in the Cash Cr. column of the cash payments journal.
7) At the end of the year, the total accounts receivable ledger for a company equals $74,000 and the total accounts payable ledger equals $34,500. If there are no errors for this company, one would expect that: A) The Accounts Payable account will equal the total of all balances owed from its customer accounts. B) The total credit sales for the period equal $39,500. C) The Accounts Receivable account will equal the total of all balances owed to its supplier accounts. D) The Accounts Receivable account will equal the total of all balances owed from its customer accounts. E) The cash received by the company during the period equals $39,500.
8) Rosenow Equipment sold merchandise to a customer on credit for $15,000, terms 2/10, n/30. The cost of the merchandise to Rosenow was $8,500. If the customer pays25 days after the sale occurred, what amount would be entered into the Accounts Receivable Cr. column in its cash receipts journal?
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A) $6,500. B) $8,330. C) $8,500. D) $14,700. E) $15,000.
9) Gupta Accessories sold merchandise to a customer on credit for $5,000, terms 2/10, n/30. The cost of the merchandise to Gupta was originally $2,800. If the customer pays8 days after the sale occurred, what amount would be entered into the Sales Discount Dr. column in its cash receipts journal? A) $44. B) $56. C) $100. D) $2,200. E) $5,000.
10) Rosenow Equipment sold merchandise to a customer on credit for $29,000, terms 2/10, n/30. The cost of the merchandise to Rosenow was $15,500. If the customer pays7 days after the sale occurred, what amount would be entered into the Accounts Receivable Cr. column in its cash receipts journal? A) $13,500. B) $15,190. C) $15,500. D) $28,420. E) $29,000.
11) Harry’s Home & Garden originally purchased merchandise from a supplier at a cost of $2,700. Harry’s sold that same merchandise to a customer on credit for $5,200, terms 1/10, n/30. If the customer makes payment to Harry’s9 days after the sale occurred, what amount would be entered into the Cash Dr. column in Harry’s cash receipts journal?
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A) $52. B) $2,673. C) $2,700. D) $5,148. E) $5,200.
12) Harry’s Home & Garden originally purchased merchandise from a supplier at a cost of $3,300. Harry’s sold that same merchandise to a customer on credit on March 1 for $6,400, terms 1/10, n/30. If the customer makes payment to Harry’s on March 18th, what amount would be entered into the Cash Dr. column in Harry’s cash receipts journal? A) $64. B) $3,267. C) $3,300. D) $6,336. E) $6,400.
13) Harry’s Home & Garden originally purchased merchandise from a supplier at a cost of $3,200. Harry’s sold that same merchandise to a customer for $6,200 cash. What amount would be entered into the Cost of Good Sold Dr. / Inventory Cr. column in Harry’s cash receipts journal for the sale? A) $64. B) $3,136. C) $3,200. D) $6,076. E) $6,200.
14) Dave’s Digital sold merchandise to a customer on credit for $1,500, terms 2/10, n/30. Dave’s had originally purchased the merchandise from a supplier at a cost of $700. When recording the sales transaction in its sales journal, Dave’s would enter what amount into its Accounts Receivable Dr. / Sales Cr. column?
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A) $686. B) $700. C) $800. D) $1,470. E) $1,500.
15) Dave’s Digital sold merchandise to a customer on credit for $1,500, terms 2/10, n/30. Dave’s had originally purchased the merchandise from a supplier at a cost of $700. When recording the sales transaction in its sales journal, Dave’s would enter what amount into its Cost of Goods Sold Dr. / Inventory Cr. column? A) $686. B) $700. C) $800. D) $1,470. E) $1,500.
16) Arctic Adventures purchases merchandise from a supplier on credit, terms 1/10, n/30 for an amount of $6,150. Artic hopes to eventually sell the merchandise to a customer at a price of $11,300. When recording the purchase transaction in its purchases journal, what amount would Arctic enter into its Inventory Dr. column? A) $0. B) $5,150. C) $6,150. D) $11,187. E) $11,300.
17) Retail World purchases inventory of $490 and office supplies of $190 from a supplier on credit, terms 1/10, n/30. When recording the purchase transaction in its purchases journal, what amount would the company enter into its Accounts Payable Cr. column?
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A) $0. B) $200. C) $188. D) $500. E) $680.
18) Retail World purchases inventory of $450 and office supplies of $150 from a supplier on credit, terms 2/10, n/30. When recording the purchase transaction in its purchases journal, what amount would the company enter into its Inventory Dr. column? A) $0. B) $438. C) $450. D) $588. E) $600.
19) McNeil Music purchases merchandise from a supplier on credit, terms 2/10, n/30 for $18,640. When recording the payment of the invoice within the discount period in its cash payments journal, how much would McNeil enter into the Cash Cr. column? A) $0. B) $17,894. C) $18,267. D) $18,610. E) $18,640.
20) McNeil Music purchases merchandise from a supplier on credit, terms 1/10, n/30 for $18,700. When recording the payment of the invoice within the discount period in its cash payments journal, how much would McNeil enter into the Accounts Payable Dr. column?
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A) $0. B) $18,326. C) $18,513. D) $18,670. E) $18,700.
21) Joy’s Fabrics purchases merchandise from a supplier on December 1st on credit, terms 2/10, n/30 for $2,100. Joy’s hopes to eventually sell that merchandise to a customer at a sales price of $3,800. When recording the payment of the invoice on December 9th in its cash payments journal, how much would Joy’s enter in the Accounts Payable Dr. column? A) $1,700. B) $2,058. C) $2,100. D) $3,724. E) $3,800.
22) Joy’s Fabrics purchases merchandise from a supplier on December 1st on credit, terms 2/10, n/30 for $1,600. Joy’s hopes to eventually sell that merchandise to a customer at a sales price of $2,800. When recording the payment of the invoice on December 10th in its cash payments journal, how much would Joy’s enter in the Cash Cr. column? A) $1,200. B) $1,568. C) $1,600. D) $2,744. E) $2,800.
23) Crystal Cutlery purchases merchandise from a supplier on March 1st on credit, terms 1/10, n/30 for $1,100. Their plan is to eventually sell that merchandise to a customer at a sales price of $2,100. When recording the payment of the invoice on March 21st in its cash payments journal, how much would Crystal enter in the Cash Cr. column?
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A) $1,000. B) $1,089. C) $1,100. D) $2,079. E) $2,100.
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Answer Key Test name: Appendix II_Algo 1) D 2) C 3) E 4) A 5) E 6) B 7) D 8) E 9) C 10) E 11) D 12) E 13) C 14) E 15) B 16) C 17) E 18) C 19) C 20) E 21) C 22) B 23) C
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APPENDIX 2 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Accounting information systems collect and process data about transactions and events, organize them in useful forms, and communicate results to decision makers. ⊚ ⊚
true false
2) The relevance principle prescribes that an accounting information system report all information gathered, even if it is not useful for decision making ⊚ ⊚
true false
3) Control, competency, compatibility, flexibility and cost-benefit are the five basic principles of accounting information systems. ⊚ ⊚
true false
4) Internal controls include policies to protect company assets and ensure compliance with laws and regulations. ⊚ ⊚
true false
5) The flexibility principle prescribes that an accounting information system be able to adapt to changes in the company, business environment, and needs of decision makers. ⊚ ⊚
true false
6) The compatibility principle prescribes that an accounting information system report useful, understandable, and timely information for decision making.
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⊚ ⊚
true false
7) The cost-benefit principle prescribes that the benefits from an activity in an accounting information system should outweigh the costs of that activity. ⊚ ⊚
true false
8) A management information system (MIS) is designed to collect and process data within an organization for the purpose of providing users with information. ⊚ ⊚
true false
9) Source documents are a group of components that collect and process raw financial data into timely, accurate, relevant, and cost-effective information to meet the purposes of internal and external users. ⊚ ⊚
10)
true false
Computer hardware is the programs that direct the operations of computer hardware. ⊚ ⊚
true false
11) The accounting components used for operating and financial controls are developed based on the journal and general ledger systems of a company. ⊚ ⊚
12)
true false
Enterprise-application software is used primarily for journal entries.
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⊚ ⊚
13) type.
A special journal is any journal used for recording and posting transactions of a similar ⊚ ⊚
14)
true false
true false
A sales journal is used for recording cash sales. ⊚ ⊚
true false
15) Input devices convert data on source documents to a form usable by the accounting system. ⊚ ⊚
16)
true false
Data analytics is the process of analyzing data to identify meaningful relations and trends ⊚ ⊚
true false
17) The purchases journal is used to record all credit purchases, including those for inventory. ⊚ ⊚
true false
18) Most transactions for merchandising businesses fall into four groups: sales on credit, purchases on credit, cash receipts, and cash disbursements. ⊚ ⊚
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19) The general journal is used for transactions not covered by special journals and for adjusting, closing, and correcting entries ⊚ ⊚
20)
true false
Purchases using cash are recorded in the cash payments journal ⊚ ⊚
true false
21) The sales journal is called a columnar journal, which is any journal with more than one column. ⊚ ⊚
true false
22) An information processor includes journals, ledgers, working papers, and posting procedures. ⊚ ⊚
23)
A subsidiary ledger is a listing of individual accounts with a common characteristic. ⊚ ⊚
24)
true false
true false
Two common subsidiary ledgers are cash receipts and cash disbursements. ⊚ ⊚
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25) The Accounts Payable ledger is used for storing transaction data regarding individual customers. ⊚ ⊚
true false
26) The controlling account Accounts Payable in the general ledger has a separate subsidiary account for each supplier in the accounts payable ledger ⊚ ⊚
27)
true false
Equipment can include detailed information in a subsidiary ledger. ⊚ ⊚
true false
28) Subsidiary ledgers are not needed for a merchandiser because inventory analysis is the main focus of decision makers ⊚ ⊚
true false
29) A schedule of accounts receivable is a listing of all creditor accounts and account balances. ⊚ ⊚
true false
30) If the total balance of the Accounts Receivable Ledger equals the total of the controlling Accounts Receivable account, then the individual accounts are presumed to be correct. ⊚ ⊚
31)
true false
A Sales Journal is used to record sales of merchandise on credit.
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⊚ ⊚
32)
true false
A columnar journal is a journal with only one column. ⊚ ⊚
true false
33) Individual transactions in the Sales Journal are regularly posted to customer accounts in the Accounts Payable ledger. ⊚ ⊚
true false
34) Each transaction recorded in the Sales Journal includes a debit to Accounts Receivable and a credit to Sales Revenue. ⊚ ⊚
true false
35) The general rule for posting is that the controlling account is debited periodically for an amount equal to the sum of the debits to the subsidiary ledger, and is credited periodically for an amount equal to the sum of the credits to the subsidiary ledger. ⊚ ⊚
36)
true false
Items posted from the General Journal carry the initial P. ⊚ ⊚
true false
37) Posting debits from the Sales journal to Accounts Receivable twice—once to the general ledger account Accounts Receivable and once to the customer's subsidiary account—violates the accounting equation of debits equal credits.
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⊚ ⊚
38)
true false
Cash receipts journal is used to record cash sales ⊚ ⊚
true false
39) Account balances in the General Ledger and the subsidiary ledgers are tested for accuracy after posting is complete. ⊚ ⊚
true false
40) To check for accuracy after posting: first a trial balance is completed, then the subsidiary ledgers are tested by preparing a schedule of the controlling account. ⊚ ⊚
41)
true false
The general journal records credit sales of non-inventory assets. ⊚ ⊚
true false
42) A cash receipts journal is used to record all receipts of cash, except for cash sales which are recorded in the sales journal. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 43) Accounting information systems
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A) Collect and process data from events and transactions B) Organize data in useful forms C) Communicate information to decision makers D) Both collect and process data from events and transactions and organize data in useful forms E) All of these
44)
Accounting information system components include A) People B) Input data C) Software D) Hardware E) All of these
45)
The basic components of an accounting system include A) Source documents B) Input devices C) Information processors D) Information storage E) All of these
46)
An MIS is designed to A) Ensure reliable financial reports B) Safeguard company assets C) Ensure full disclosure D) Both ensure reliable financial reports and safeguard company assets E) Collect and process data
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47)
The sale of inventory may A) decrease inventory B) impact the Sales Journal C) create accounts receivable D) initiate billing E) All of these
48)
An example of a specialty component of an AIS is A) Subsidiary ledger B) Sales Journal C) Property, plant and equipment D) Cheque Register E) Voucher
49)
The three primary components of accounting information systems are A) Relevance, compatibility, and flexibility B) Compatibility, flexibility, and cost-benefit C) Compatibility, flexibility, and safety D) Compatibility, timeliness, and cost-benefit E) Accounts payable, accounts receivable, and payroll
50)
Source documents
A) Are input devices B) Provide basic information processed by an accounting system C) Can be electronic files D) Both provide basic information processed by an accounting system and can be electronic files E) All of these
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51) An accounting information system uses __________ to provide internal and external users with ________. A) data; information B) data; transactions C) data; costs D) information; benefits E) costs; benefits
52)
Special journals include A) Sales journal B) Cash receipts journal C) Purchases journal D) Cash disbursements journal E) All of these
53)
Source documents: A) Are input devices. B) Provide the information processed by an accounting system. C) Summarize information for use in analysis and reporting. D) Keeps data accessible to information processors. E) Make accounting information available to users.
54)
The Sales Journal is used for
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A) Recording credit purchases B) Recording credit sales C) Recording cash sales D) Recording cash purchases E) Recording both credit sales and cash sales
55)
The Purchases Journal is used for A) Recording credit purchases B) Recording credit sales C) Recording cash sales D) Recording cash purchases E) Recording both credit purchases and credit sales
56)
The General Journal is used for A) Recording adjusting entries B) Posting transactions to special journals C) Accumulating debits and credits D) Collecting detailed listings of amounts E) Recording both adjusting entries and posting transactions to special journals
57) A book of original entry that is designed and used for recording only a specified type of transaction is called a A) Schedule B) Columnar ledger C) Special journal D) General journal E) Subsidiary ledger
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58) Most of the transactions of a merchandising company fall into four groups, including all of the following except A) Sales on credit B) Sales returns and allowances C) Purchases on credit D) Cash receipts E) Cash disbursements
59) A company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, and a General Journal. A sales return for credit on account would be recorded in the A) Sales Journal B) General Journal C) Cash Receipts Journal D) Accounts Receivable Ledger E) Cash Disbursements Journal
60)
Which of the following isnot a component of an accounting information system? A) Source documents. B) Warehouses C) Information processors D) Information storage E) Output devices.
61)
Which of the following statements regarding accounting information systems is false?
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A) Accounting information systems collect and process data from transactions and events, organize them into reports, and communicate results to decision makers. B) Accounting information systems help users make more informed decisions. C) Accounting information systems cannot improve on a company's competitive edge. D) Accounting information systems have five principles related to control, relevance, compatibility, flexibility, and cost-benefit. E) Accounting information systems have five components: source documents, input devices, information processors, information storage, and output devices.
62)
A subsidiary ledger A) Includes transactions not covered by special journals B) Is a listing of all of the accounts of a business C) Is a listing of individual accounts with a common characteristic D) Is a listing of all accounts with balances E) Is a listing of all special journals
63) A subsidiary ledger that contains a separate account for each party, that grants credit on account to the business is called a(n) A) Controlling account B) Accounts Receivable Ledger C) Accounts Payable Ledger D) Merchandise Inventory Ledger E) Accounts Payable
64)
An Accounts Receivable ledger is
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A) A subsidiary ledger that contains an account for each credit customer B) A list of the balances of all the accounts in the Accounts Receivable ledger that is added to show the total amount of accounts receivable outstanding C) A book of original entry that is designed and used for recording only a specified type of transaction D) The ledger that contains the financial statement accounts of a business E) A subsidiary ledger that contains a separate account for each party that grants credit on account to the entity
65)
The use of an Accounts Payable controlling account A) Reduces the number of accounts in the subsidiary ledger B) Reduces the total number of accounts maintained C) Reduces the number of entries in the general journal D) Reduces the number of accounts in the general ledger E) Increases the number of columns in the journals
66)
The Accounts Receivable ledger is A) Used for recording credit sales B) Used for storing transaction data for individual customers C) Used for storing transaction data for individual creditors D) Used for recording cash receipts from customers E) Also the controlling account
67)
The five principles of accounting information systems are: A) Control, accountability, relevance, compatibility, and flexibility. B) Historical cost, relevance, compatibility, flexibility, and cost-benefit C) Control, relevance, compatibility, flexibility, and safety. D) Historical cost, relevance, compatibility, timeliness, and cost-benefit. E) Control, relevance, compatibility, flexibility, and cost-benefit.
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68)
The Accounts Payable account in the General Ledger is A) The account that controls the subsidiary accounts payable ledger B) The account that controls the purchases journal C) The subsidiary account to the purchases journal D) Part of a special journal E) Part of a subsidiary ledger
69) is
When a Sales Journal's sales amount column is totalled at the end of the month, the total
A) Debited to Sales and credited to Accounts Receivable B) Debited to Accounts Receivable and credited to Cash C) Debited to Cash and credited to Accounts Receivable D) Debited to Accounts Receivable and credited to Sales E) Debited to Cash and credited to Sales
70) Which of the following accounting principles prescribes that an accounting information system report useful, understandable, and timely information for decision making? A) Control principle. B) Compatibility principle C) Relevance principle. D) Flexibility principle. E) Cost-Benefit principle.
71)
The general rule for posting to a subsidiary ledger and its controlling account is
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A) The controlling account is debited periodically for an amount or amounts equal to the sum of the debits to the subsidiary ledger B) The controlling account is credited periodically for an amount or amounts equal to the sum of the credits to the subsidiary ledger C) A trial balance ledger D) The controlling account is both debited and credited periodically for an amount or amounts equal to the sum of the debits or credits to the subsidiary ledger E) All of the choices are correct
72) A list of the balances of all the accounts in the Accounts Receivable Ledger that is added to show the total of accounts receivable outstanding is called a A) Schedule of accounts payable B) Controlling account C) Schedule of accounts receivable D) Subsidiary ledger E) Special journal
73)
An Accounts Payable subledger is
A) A subsidiary ledger that contains an account for each supplier that grants credit to the company B) A list of the balances of all the accounts in the Accounts Receivable ledger that is added to show the total amount of accounts receivable outstanding C) A book of original entry that is designed and used for recording only a specified type of transaction D) The ledger that contains the financial statement accounts of a business E) A subsidiary ledger that contains a separate account for each customer that grants credit to the company
74)
After posting is completed, there may be an error if
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A) The sum of the customer account balances does not equal the total in the sales journal B) The sum of the accounts receivable ledger does not equal the balance in the sales account C) The sum of the customer account balances does not equal the accounts receivable controlling account balance D) The balance in the sales journal does not equal the accounts receivable controlling account balance E) The sum of the accounts receivable ledger does not equal the balance in the sales journal
75) A bookkeeper using a Purchases Journal recorded new store supplies purchased on account. The subledger that would be impacted as a result of this transaction is the A) Accounts payable subledger B) Accounts receivable subledger C) Merchandise inventory subledger D) Sales subledger E) Cash receipts journal
76)
The flexibility principle of accounting information systems prescribes that the:
A) Benefits from an activity in the system outweigh the costs of the activity. B) System report useful, understandable, and timely information for effective decision making. C) System helps managers in controlling and monitoring business activities. D) System is able to adapt to changes in the company, business environment, and needs of decision makers. E) System conform to a company's activities, personnel, and structure.
77)
Which of the following statements regarding accounting information systems is false?
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A) Accounting information systems collect and process data from transactions and events. B) Accounting information systems help users make more informed decisions. C) Accounting information systems should not have internal control policies D) Accounting information systems should report useful, understandable, and timely information for decision making. E) Accounting information systems should conform with a company's activities, personnel, and structure.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 78) List the five subsystems within a management information system (MIS).
79)
Explain the goals and uses of special journals.
80)
What are the primary components within an accounting information system?
81) Wilchand Unlimited has the following transactions. Match each transaction with the appropriate journal. (a) Sales Journal (b) Purchases Journal (c) Cash Receipts Journal (d) Cash Disbursements Journal (e) General Journal Version 1
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(1) Sold $5,000 worth of inventory on account. (2) A customer returned a $250 item purchased on account. (3) Paid $45,000 in wages and salaries. (4) Purchased equipment on account for $24,700. (5) Purchased merchandise on account, $2,700. (6) Paid a utility bill for $3,400. (7) Purchased $1,590 of supplies on account. (8) Recorded an adjustment to unearned revenue, $4,000. (9) Accrued wages, $2,900. (10) Recorded cash sales of $14,700.
82) Outdoors Unlimited has the following transactions. For each transaction, indicate the appropriate journal. (a) Sales Journal (b) Purchases Journal (c) Cash Receipts Journal (d) Cash Disbursements Journal (e) General Journal (1) Purchased $15,000 worth of inventory on account. (2) Sold $2,300 worth of inventory on account. (3) Purchased $5,000 of inventory with cash. (4) Sold $3,200 worth of inventory on account. (5) Paid $500 for telus bill. (6) Owner invested $3,000 into the company.
83)
Explain what is meant by footing and cross footing.
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84)
Explain the goals and uses of special journals.
85) Identify the accounting information system principle that applies to each of the situations below by entering the appropriate number next to the statement. 1. International Company's accounting information system can be improved markedly for a cost of about $10,000,000 and the company intends to complete the upgrade because the benefits outweigh this cost. 2. International Company has world-wide operations that must handle thousands of different products, so the accounting information system is fairly complex to conform to its activities, personnel, and structure. 3. International Company has designed its accounting information system so that key managers can obtain the information they need in a timely manner to make decisions relating to new products, sales, and controlling costs. 4. International Company's accounting information system has policies to ensure assets are safeguarded and relevant laws and regulations are complied with. 5. International Company has designed its accounting information system to be adaptable to changes in the business environment and the needs of decision makers.
86)
Explain the use of controlling accounts and subsidiary ledgers.
87)
Describe the posting process for special journals.
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88) Why do we use invoice date rather than the purchase date when recording transactions in the purchase journal.
89)
Define controlling accounts. In what ledger do they appear?
90) Sky Waller Company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, a General Journal and a perpetual inventory system. The following transactions were completed by Princess Company during the month of July 3-Jul
Sold merchandise for $10,500 (cost 8,200) to the Whistler Corp. on credit, Invoice No. 125.
6-Jul
Sold a truck for $23,000 cash. The truck was originally purchased for $52,600.
11-Jul
Purchased supplies for $920 cash.
15-Jul
Issued a credit memo for $2,550 to Whistler Corp. for returned merchandise. Cost of the merchandise was $1,100
21-Jul
Returned $1,330 of merchandise purchased from Fernie Corp. for credit.
24-Jul
Paid monthly salaries of $25,400.
31-Jul
Recorded depreciation on buildings of $4,000.
Required: (a) Record the appropriate transactions in the General Journal. (b) For the transactions not recorded in the General Journal, indicate the correct special journal that would be used.
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91) Elk Lake Adventure Co. uses special journals to record its transactions and a perpetual inventory system. Shown below are the purchasing and cash disbursement transactions for May May-01
Purchased merchandise for cash from Glenora Co. $2,000. Cheque No. 133.
May-02
Purchased building from Crestwood Co. on credit, $105,000, terms net 60. Invoice dates May 1.
May-06
Paid River City, Inc., $4,900, which is net of a 2% discount, Cheque No. 134.
May-09
Purchased merchandise from Laurier Inc. on credit, t erms 1/15, n/30, $30,500. Invoice dated May 8.
May-10
Paid Crestwood Co. for May 2 purchase, Cheque No. 135.
May-18
Purchased supplies on credit $600, terms net 30 from Valley
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View, Inc. Invoice dated May 17. 31-Jul
Recorded depreciation on buildings of $4,000.
Elk Lake Adventure Co. Purchases Journal
Page I
Date
Account Credited
Elk Lake Adventure Co. Cash Disbursement Journal
Page I
Date
Ch No.
Date of Terms PR Accounts Merchandise Supplies Other Invoice Payable Inventory Debt Accounts Credit Debit Debit
Payee Account PR Cash Merchandise Supplies Other Accounts Debited Credit Inventory Debt Accounts Payable Debit Debit Debit
Record the above transactions in the following journals.
92)
(1) What is the name of the journal illustrated below
Date Account Explanation PR Cash Sales Accounts Sales Other Cost of Goods Credited Dr. Discount Receivable Cr. Accounts Sold/Dr Dr. Cr. Cr. Merchandise Inventory/Cr. 2020 Mar. 12 L.T. Notes Payable
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Note to bank 452 13,000
13,000
23
14 Invoice, Mar. ⩗ 16,660 William 4 Nielson
340
17,000
16 Invoice, Mar. ⩗ 10,890 Daninee 6 Rinner
110
11,000
31 Sales 31 Totals
Cash sales
41,000 ______
______
41,000
______
22,000
81,550
450
28,000
41,000
13,000
22,000
(101)
(415)
(106)
(413)
(X)
(502/119)
(2) Write an explanation for each entry.
93) May
The following transactions were completed by Augsburg Company during the month of
May 2
Purchased merchandise for $5,400 on credit from the East Corp., terms n/30.
May 5
Sold merchandise for $1,200 cash to Far Corp. Cost of merchandise was $200.
May 10
Sold merchandise on credit for $2,500 to New Corp., Invoice No. 591, terms 2/10, n/30.
May 13
Purchased merchandise for $3,400 on credit from West Corp., terms 1/10, n/30.
May 19
Paid balance owed to East Corp. for May 2 sale.
May 20
Collected amount due from New Corp. for May 10 sale.
May 24
Purchased supplies on credit for $450 from Bonny Corp., terms n/30.
May 28
Purchased merchandise for $3,900 from North Corp. on credit, terms 2/10, n/60.
May 30
Received $130 from the bank for interest earned.
Prepare a Cash Receipts Journal for Augsburg and record the appropriate transactions, assuming a perpetual inventory system is used.
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94) Trekking Company uses a perpetual inventory system and special journals. The following transactions were incurred during August Aug
1
Purchased merchandise from Able Co. for $2,000, terms 2/10, n/30.
4
Sold merchandise on credit to Coe Co. for $4,000, terms 2/10, n/30,
Invoice No. 245. Cost of merchandise was $1,200. 5
Sold merchandise on credit to Delta Corp. for $3,000, terms, 2/10, n/30,
Invoice No. 246. Cost of merchandise was $900. 7
Paid salaries accrued on July 31, $2,100 to manager Ms. Krenz, Cheque No. 756
9
Returned merchandise costing $200 to Able Co. from August 1 purchase.
11
Paid Able Co. for the August 1 purchase, Cheque No. 758.
11
Accepted merchandise returned by Coe Co. from August 4 sale.
Issued credit memorandum for $500. 13
Received payment from Coe Co. for August 4 sale, less the return.
19
Received payment in full from Delta Corp. for the August 5 sale.
28
Recorded cash sales for the month, $9,000. Cost of merchandise was $4,000.
29
Paid monthly telephone bill $250, Cheque No. 762.
Record the above transactions in the appropriate journals (sales journal or cash receipts journal) that follow. Ignore any transactions that should not be posted to the journals provided.
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95) Enter the number of the following terms on the line next to the appropriate definition of each. 1. The component of an accounting system that makes accounting information available to users. 2. The means of collecting and processing data from transactions and events, organizing them into reports, and communicating results to decision makers. 3. A record of the separate accounts of each supplier that supports its general ledger controlling account. 4. The component of an accounting system that keeps data accessible to information processors. 5. The special journal used to record all receipts of cash. 6. The special journal that is used to record all cash payments. The component of an accounting system that takes information from source documents and transfers it to information processing. 8. An information system principle that prescribes that an accounting system have methods and procedures allowing managers to control and monitor business activities. 9. The special journal used to record all credit purchases. An information system principle that prescribes that an accounting information system report useful, understandable, and timely information for decision making.
96)
Explain how the balances in the subsidiary accounts are tested for accuracy.
97) Alex Reagent, owner of Delectable Candy Company, understands that accounting systems are important for success. Explain how Alex can use the accounting system to assess business operations.
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98) Match the following accounting system components a-e with their related items 1-10 by placing the correct letter next to each item. a. Source documents b. Input devices c. Information processor d. Information storage e. Output devices ____ 1. Computer keyboard ____ 2. Computer hard drive ____ 3. Journal entries ____ 4. Journals ____ 5. Printer ____ 6. Invoice from suppliers ____ 7. Smartphones ____ 8. Computer monitor ____ 9. Software ____ 10. Billings to customers
99) Outdoors Unlimited uses special journals to record its daily transactions. Shown below is a Cash Receipts Journal and selected ledger accounts. Post the Cash Receipts Journal to the appropriate accounts. Cash Receipts Journal
Page 11
Date
Account Credited
July 4
Able Co.
Inv. 303
3,200
7
Sales
Cash Sales
700
9
Bell Co.
Inv. 304
950
10
Notes Pay.
Bank loan
5,400
5,400
20
Notes Rec.
Delta Co.
2,200
2,200
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Explanation PR Cash Debit
Sales Accts Sales Other Disc. Rec. Credit Accts. Debit Credit Credit 34
3,234 700 950
27
20
Int. Earned
110 12,560
110 34
4,184
700
7,710
General Ledger Cash
Notes Payable
Accounts Receivable
Sales
Notes Receivable
Sales Discounts
Accounts Payable
Interest Earned
Accounts Receivable Ledger Able Co.
Bell Co.
Bal. 4,750
Bal. 1,950
100) Heidi Company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, and a General Journal. The following are the totals from the special journals for the month ended July 31 Journal
Total
Sales
$62,600
Purchases:
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Total Purchases column
$28,100
Total office Supplies column
1,700
Total Account Payable column
$29,800
28
Cash Receipts: Total Accounts Receivable column
$44,000
Total Sales column
12,000
Total Sales Discounts column
450
Total Cash column
$55,550
Cash Disbursements: Total Accounts Payable column
$22,700
Total Purchase Discounts column
370
Total Cash column
$22,330
Required: Post the appropriate amounts to the Accounts Receivable and Accounts Payable controlling Taccounts.
101) Your neighbour runs a retail business and needs some advice. Her business is improving and she has several more financial transactions happening in the company. She discussed this situation with her accountant and he advised her to adopt special journals to make transaction recording more efficient. She is concerned that this creates a new learning curve for her bookkeeper who is already very busy. Your neighbour knows you are studying accounting and asks you what you know about the benefits of using special journals. How would you respond?
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102) A company entered into the following transactions. For each transaction, indicate the appropriate journal in which it should be recorded. a. Sales Journal b. Purchases Journal c. Cash Receipts Journal d. Cash Payments Journal e. General Journal ____ 1. Purchased merchandise on credit. ____ 2. Sold merchandise on credit. ____ 3. Purchased merchandise for cash. ____ 4. Sold merchandise for cash. ____ 5. Paid cash to settle the utility bill. ____ 6. Owner invested more cash in the business. ____ 7. Recorded depreciation for the period. ____ 8. Borrowed cash from the bank. ____ 9. Bought office supplies on credit. ____ 10. Received cash from a customer to settle an account receivable.
SECTION BREAK. Answer all the part questions. 103) Dina Company uses a Sales Journal, a Purchases Journal, a Cash Receipts Journal, a Cash Disbursements Journal, and a General Journal, and a perpetual inventory system. The following transactions occurred during the month of December Dec 4
Sold merchandise on credit for $3,300 to the A & B Co., Invoice No. 313. The cost of the merchandise was $1,000.
Dec 8
Purchased merchandise on credit for $1,800 from the Dexter Corp, terms 2/10, n/30.
Dec 10
Sold merchandise for $500 cash to RAC Corp, Invoice No. 314.
Dec 13
Collected $3,300 from the A & B Co. for merchandise sold on December 4.
Dec 17
Paid amount owed to Dexter Corp. from December 8 purchase, Cheque No. 1011.
Dec 24
Sold merchandise on credit for $4,500 to Dunn Corp, Invoice No. 315. The cost of the inventory was $1,500.
Dec 27
Paid $400 cash for monthly rent to Dayton Properties, Cheque No. 1012.
Dec
Purchased equipment for $3,055 from Fort Corp, Cheque No. 1013.
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31
103.1) Prepare a Sales Journal for Dina Company and journalize the appropriate transactions.
103.2) Prepare a Cash Disbursements Journal for Dina Company and journalize the appropriate transactions.
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Answer Key Test name: Appendix II 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) FALSE 13) TRUE 14) FALSE 15) TRUE 16) TRUE 17) TRUE 18) TRUE 19) TRUE 20) TRUE 21) TRUE 22) TRUE 23) TRUE 24) FALSE 25) FALSE 26) TRUE Version 1
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27) TRUE 28) FALSE 29) FALSE 30) TRUE 31) TRUE 32) FALSE 33) FALSE 34) TRUE 35) TRUE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) FALSE 41) FALSE 42) FALSE 43) E 44) E 45) E 46) E 47) E 48) C 49) E 50) D 51) A 52) E 53) B 54) B 55) A 56) A Version 1
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57) C 58) B 59) B 60) B 61) C 62) C 63) C 64) A 65) C 66) B 67) E 68) A 69) D 70) C 71) D 72) C 73) A 74) C 75) A 76) D 77) C 78) 1. Sales and marketing 2. Production 3. Finance 4. Human resources 5. Accounting 79) Special journals are used for recording and posting transactions of similar type, with each meant to cover one kind of transaction. Four of the most common special journals are the sales journal, cash receipts journal, purchases journal, and cash disbursements journal. 80) 1. Accounts payable 2. Accounts receivable 3. Payroll 4. Other, specialty components as required (e.g. Property, plant and equipment) Version 1
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81) (1) a (2) e (3) d (4) b (5) b (6) d (7) b (8) e (9) e (10) c 82) (1) b (2) a (3) d (4) a (5) d (6) c 83) Footing is adding a column of numbers. Cross footing is adding debit and credit column totals and comparing the sums for equality. 84) Special journals are used for recording and posting similar types of transactions. The most common special journals are cash receipts, cash disbursements, purchases, and sales. Special journals provide a structure for more efficient data entry and posting. In addition, the separation of transactions, and usually, duties, adds an effective internal control procedure to the accounting system. 85) 1. International Company's accounting information system can be improved markedly for a cost of about $10,000,000 and the company intends to complete the upgrade because the benefits outweigh this cost. Cost-benefit 2. International Company has world-wide operations that must handle thousands of different products, so the accounting information system is fairly complex to conform to its activities, personnel, and structure. Compatibility 3. International Company has designed its accounting information system so that key managers can obtain the information they need in a timely manner to make decisions relating to new products, sales, and controlling costs. Relevance 4. International Company's accounting information system has policies to ensure assets are safeguarded and relevant laws and regulations are complied with. Control 5. International Company has designed its accounting information system to be adaptable to changes in the business environment and the needs of decision makers. Flexibility Version 1
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86) The controlling accounts are part of the general ledger. Details on individual accounts such as accounts receivable are kept in a specific subsidiary ledger. The balance in the controlling account must match the sum of the balances in the matching subsidiary ledger accounts. 87) Posting to special journals is a three-step process: (1) individual amounts in the Other Accounts column are posted to their general ledger accounts on a regular (daily) basis, (2) individual amounts in a column that are posted in total to a controlling account at the end of a period are posted regularly (daily) to the appropriate account in the subsidiary ledger, and (3) total amounts for all columns except the Other Accounts column are posted at the end of a period to the appropriate account for each column. 88) The terms of payment extend from the invoice date not the date of purchase, This allows us to calculate when our purchase discount terms end. 89) A controlling account is a single ledger account that equals the sum of the subsidiary ledger accounts to which it is related. Controlling accounts appear in the general ledger 90) (a) General Journal Jul-15 Sales Returns and Allowances
2,550
Accounts Receivable, Whistler Corp. Merchandise Inventory
2,550 1,100
Cost of Goods Sold Jul-21 Accounts Payable-Fernie Corp.
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1,100 1,330
36
Merchandise Inventory
1,330
Jul-31 Depreciation Expense, Building
4,000
Accumulated Depreciation, Building
4,000
(b) Jul-03 Sales Journal Jul-06 Cash Receipts Journal Jul-11 Cash Disbursements Journal Jul-24 Cash Disbursements Journal
91) Elk Lake Adventure Co. Purchases Journal
Page I
Date
Account Credited
2-May
Building Crestwood Co.
May-01
n 60
105,000
9
Laurier Inc.
May-08 1/15, n30
18
Valley May-17 View Inc.
Date of Invoice
Terms PR Accounts Merchandise Supplies Other Payable Inventory Debit Accounts Credit Debit Debit
n30
105,000 30,500 600
30,500 600
Elk Lake Page I Adventure Co. Cash Disbursement Journal Date
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Ch No.
Payee
Account PR Cash Merchandise Supplies Other Accounts Debited Credit Inventory Debt Accounts Payable Debit Debit Debit
37
May-01
133
Glenora Inventory Co.
2,000
2,000
6
134
River City River City Co. Co.
4,900
100
10
135
Crestwood Crestwood Co. Co.
105,000
5,000 105,000
92) (1) This is a cash receipts journal. (2) Explanation for each entry (a) March 12:
Recorded receipt of proceeds on a note payable.
(b) March 14:
Recorded receipt of a payment from William Nielson on a credit sale with a 2% discount. Payment was received within the discount period.
(c) March 16:
Recorded receipt of a payment from Daninee Rinner on a credit sale with a 1% discount. Payment was received within the discount period.
(d) March 31:
Recorded receipt of proceeds from cash sales.
93) Cash Receipts Journal Date
Account Credited
Explanation
PR Cash Debit
5/5
Sales
Cash sales
1,200
20
New Corp.
Inv. 591
Interest Revenue
Interest earned
Sales Disc. Debit
Accts. Rec. Credit
Sales Credit
Other Accts. Credit
1,200
COGS Dr.Inv. Cr. 200
2,450 50 2,500 30
130
130
94) Sales Journal Date
Account Debited
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Page 10 Invoice Number
PR
Accts. Rec. COGS Dr. Dr. Sales Cr. Inv. Cr.
38
Cash Receipts Journal Date
Account Credited
Explanation
Sales Journal
Page 18 PR
Cash Debit Sales Disc. Accts. Sales Other COGS Debit Rec. Credit Accts. Dr. Inv. Credit Credit Cr.
Page 10
Date
Account Debited
Invoice Number
PR
Aug 4
Coe Co.
245
4,000
1,200
5
Delta Corp.
246
3,000
900
Cash Receipts Journal
Page 18
Date
Account Credited
Explanation
8/13
Coe Co.
Inv. 245
3,430
70
19
Delta Corp.
Inv. 246
3,000
3,000
28
Sales
Cash Sales
9,000
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PR
Accts. Rec. COGS Dr. Dr. Sales Cr. Inv. Cr.
Cash Debit Sales Disc. Accts. Sales Other COGS Debit Rec. Credit Accts. Dr. Inv. Credit Credit Cr. 3,500
9,000
4,000
39
95) 1. The component of an accounting system that makes accounting information available to users. Output devices 2. The means of collecting and processing data from transactions and events, organizing them into reports, and communicating results to decision makers. Accounting information system 3. A record of the separate accounts of each supplier that supports its general ledger controlling account. Accounts payable ledger 4. The component of an accounting system that keeps data accessible to information processors. Information storage 5. The special journal used to record all receipts of cash. Cash receipts journal 6. The special journal that is used to record all cash payments. Cash payments journal 7. The component of an accounting system that takes information from source documents and transfers it to information processing. Input devices 8. An information system principle that prescribes that an accounting system have methods and procedures allowing managers to control and monitor business activities. Control principle 9. The special journal used to record all credit purchases. Purchases journal 10. An information system principle that prescribes that an accounting information system report useful, understandable, and timely information for decision making. Relevance principle 96) The two-step procedure begins after the posting process is complete. First, a trial balance of the general ledger is prepared to confirm the equality of debits and credits. Second, schedules are prepared for each subsidiary ledger in order to verify that the controlling account balances equal the balances in the matching subsidiary ledgers.
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97) The accounting system can be used to measure, track, and report on operations. It collects and processes data from transactions and events and organizes them in useful reports to be used in decision making. Knowledge gained through the system can give Alex a competitive edge and enable him to make more informed decisions and to better balance the risks and returns of different strategies. 98) 1. B; 2. D; 3. B; 4. C; 5. E; 6. A; 7. E; 8. E; 9. C; 10. A 99) General Ledger Cash
Notes Payable
7/31 12,560
7/10 5,400
Accounts Receivable
Sales 7/31 4,184
Notes Receivable
7/31 700
Sales Discounts 7/20 2,200
Accounts Payable
7/31 34
Interest Earned 7/20 110
Accounts Receivable Ledger Able Co.
Bell Co.
Bal. 4,750
7/4 3,234
Bal. 1,950
7/9 950
100) Accounts Receivable July 31
62,600
July 31
44,000
July 31
29,800
Accounts Payable July 31
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22,700
41
101) Respond to your neighbour with the following benefits of using special journals: Special journals record like transactions all together (eg. sales transactions are together yet separate from credit purchase transactions); this creates efficiency since there is less repetitive recording that is otherwise needed if you used only the general journal. This keeps the general journal for recording adjusting, correcting and closing entries Posting is simplified since you only post the column totals as opposed to each transaction More than one employee can record transactions at the same time (eg: someone can be responsible for sales journal and someone else responsible for purchases journal) 102) 1. B; 2. A; 3. D; 4. C; 5. D; 6. C; 7. E; 8. C; 9. B; 10. C 103) Section Break 103.1) Date
Account Debited
Invoice Number
PR
Accounts Receivable Dr. Sales Cr.
Cost of Goods Sold Dr. Merchandise Inventory Cr.
Dec-04
A&B Co.
313
X
3,300
1,000
Dec-24 Dunn Corp.
315
X
4,500
1,500
103.2) Date
Cheque No.
Payee
Dec-17
1011
Dexter Dexter Corp. X Corp. Accounts Payable
1,764
Dec-27
1012
Dayton Prop.
Rent Expense
X
400
400
Dec-31
1013
Fort Corp.
Equipment
X
3,055
3,055
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Account Debited PR Cash Cr.
Merchandise Inventory Cr.
Other Accounts Account Payable Dr. Dr.
36
1,800
42
APPENDIX 1 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) According to law, a T-4 form showing wages earned and taxes withheld must be given to each employee within two months after the calendar year-end. ⊚ ⊚
true false
2) The Employment Insurance fund from which benefits are paid is jointly financed by employees and their employers. ⊚ ⊚
true false
3) Withholding for the Canada Pension Plan is deducted from wages earned, but it stops each year once the employee has earned the maximum pensionable earnings for that year. ⊚ ⊚
true false
4) An employer incurs a Canada Pension Plan expense equal to the sum of the CPP withheld from the wages of all its employees. ⊚ ⊚
5)
Canada Pension Plan deductions are social security taxes. ⊚ ⊚
6)
true false
true false
Canada Pension Plan is levied equally on the employee and the employer. ⊚ ⊚
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true false
1
7)
Employment Insurance is levied equally on the employee and the employer. ⊚ ⊚
true false
8) Employment Insurance is withheld from wages earned, and continues for the calendar year as long as the employee is earning wages. ⊚ ⊚
true false
9) The same form is used to report both the employer share of payroll taxes and employee income taxes withheld. ⊚ ⊚
true false
10) Since payroll taxes are levied on wages actually paid, there is no legal liability for payroll taxes associated with the accrual of wages. ⊚ ⊚
true false
11) Employee income taxes are paid solely by employers based on a percentage of total wages earned by the employee. ⊚ ⊚
true false
12) Employers and employees both must pay Employment Insurance based on a percentage of the employees' total wages, up to a yearly maximum. ⊚ ⊚
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true false
2
13)
Payroll taxes levied on employers include Canada Pension and Employment Insurance. ⊚ ⊚
true false
14) The amount of income taxes to be withheld from an employee's wages is determined by their wages and the amount of personal tax credits. ⊚ ⊚
true false
15) The same form is used to report both Canada Pension and employee income taxes withheld. ⊚ ⊚
true false
16) Since federal income taxes withheld from an employee's wages are expenses of the employee, not the employer, they should not be treated as liabilities of the employer. ⊚ ⊚
17)
true false
Overtime premium pay is not subject to income tax deductions. ⊚ ⊚
true false
18) In accounting for payrolls, the Payroll Register is a book of original entry which is used for journalizing payroll information. ⊚ ⊚
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true false
3
19) The Employee's Individual Earnings Record serves as a subsidiary ledger to the Payroll Register account in the General Ledger. ⊚ ⊚
true false
20) The amount of federal income tax to be withheld from each employee's wages is determined solely by the amount of wages earned. ⊚ ⊚
true false
21) After posting the entries to record salary expenses and payroll expenses, Alpha Company's Employment Insurance Payable account has a $9,000 credit balance. This means that the payroll tax expense of Alpha Company included a $9,000 expense resulting from Employment Insurance. ⊚ ⊚
true false
22) On the Payroll Register, the amount of gross pay plus overtime premium pay is the employee's regular pay. ⊚ ⊚
23)
true false
The Payroll Register provides the information needed to pay employees. ⊚ ⊚
true false
24) A Payroll Register is a record for a pay period that shows the pay period dates and the hours worked, gross pay, deductions, and net pay of each employee. ⊚ ⊚
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true false
4
25) The payroll tax liabilities arising from a given pay period are likely to be larger than the payroll tax expenses. ⊚ ⊚
true false
26) The payroll tax liabilities arising from a given pay period are likely to be smaller than the payroll tax expenses. ⊚ ⊚
true false
27) Each time a payroll is recorded, a General Journal entry should also be made to record the employer's CPP and EI amounts payable. ⊚ ⊚
true false
28) The liability for both the employees' and employer's portions of CPP (or QPP) is normally recorded in the same liability account, the CPP (or QPP) Payable account. ⊚ ⊚
true false
29) Since Red River Company experienced very few on the job accidents, the company has received a very favourable rating. As a result, it should expect to pay substantially smaller amounts of employment insurance premiums than normal. ⊚ ⊚
30)
true false
Accrued wages are subject to payroll taxes before they are paid. ⊚ ⊚
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true false
5
31)
The entry to record payroll includes a debit to salaries payable. ⊚ ⊚
true false
32) Employee (fringe) benefit costs represent expenses to the employer in addition to the direct costs of salaries and wages. ⊚ ⊚
33)
true false
Most employers promise and grant their employees an annual paid vacation. ⊚ ⊚
true false
34) To account for vacation pay, employers should record the vacation pay expense in the accounting period when it is paid. ⊚ ⊚
35)
true false
In some jurisdictions, paid annual vacation pay is mandatory and required by law. ⊚ ⊚
true false
36) To account for vacation pay, an employer should wait until an employee has completed one full year of service. ⊚ ⊚
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true false
6
37) Payroll taxes and employee fringe benefits sometimes amount to more than 25 percent of the wages earned by employees. ⊚ ⊚
true false
38) To account for vacation pay, an employer should estimate the amount to be paid and record it as an expense of the weeks during which the employees are working and earning the vacation time. ⊚ ⊚
39)
true false
Payroll taxes are levied on wages actually paid, not on accrued wages. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 40) A payroll deduction required by the federal government and used to pay the cost of the employment insurance programs is called A) Periodic employment tax B) Employment insurance C) Provincial employment tax D) Joint employment tax E) Contribution employment tax
41) The statute that requires an employer to complete a record of employment due to termination, illness, injury or pregnancy is called the
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A) Income Tax Act B) Employment Insurance Act C) Canada Pension Plan Act D) R&R Act E) Workers' Compensation Act
42) The amount an employee earns before any deductions such as EI, CPP, and income tax withholdings is the A) Deductible pay B) Taxable income C) Net pay D) Gross pay E) Take home pay
43)
Net pay is A) The amount of an employee's pay due for income taxes B) Gross pay minus source deductions C) The amount of an employee's pay before any deductions D) Gross pay plus employer's taxes E) None of the choices are correct.
44) a(n)
A tax levied on the amount of a payroll or on the amount of an employee's gross pay is
A) Federal program B) Excess profits tax C) Employer tax D) Payroll tax E) Employee tax
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45) A tax levied by a province, the proceeds of which are used to pay benefits to workers who have been injured on the job, is called A) Management tax B) Benefits tax C) Workers' Compensation D) Owner's equity tax E) Provincial employment tax
46)
An amount of an employee's annual earnings not subject to income tax is the A) Employment insurance allowance B) Canada Pension Plan allowance C) Workers' allowance D) Basic personal amount E) Workers' compensation allowance
47) A company has 10 employees who earned a total of $30,000 in January ($3,000 each). CPP taxes are 5.45% paid by employees and 5.45% paid by the employer. Income tax withholdings amount to $4,500. The employee EI rate is 1.58% of the total, and the employer EI contribution is 1.4 times the employee portion. The gross pay of the 10 employees during January is A) $33,209 B) $33,113 C) $30,000 D) $29,190 E) $28,230
48) Stellar Company employees had the following earnings records at the close of the April 30 payroll period: Salary
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S. Khali
1,000.00
J. Frank
2,000.00
S. Stewart
3,000.00
L. Gros
4,000.00
T. Talbet
5,000.00
Total
15,000.00
Stellar Company's payroll benefits expense for each employee includes: 5.45% CPP and 1.58% EI on the amount earned. What is the total payroll benefits expense for the April 30 pay period? A) $1054.5 B) $817.5 C) $331.8 D) $1149.3 E) $919.25
49) Valentina company has 9 employees who earned a total of $27,000 in June ($3,000 each). CPP deductions are 5.45% paid by the employees and 5.45% paid by the employer. Income tax withholdings amount to $4,500. The employee EI rate is 1.58%. The take-home pay of the 9 employees for June is A) $27,000.00 B) $20,431.26 C) $23,459.76 D) $25,101.9 E) $20,601.9
50) A company's sales personnel earned salaries of $15,000 during the pay period December 5-10, all of which were subject to 1.58% EI withholdings. All employees had reached the annual maximum earnings for the Canada Pension Plan. In addition, the company has agreed with its employees to withhold the following amounts: $900 for hospital insurance, $2,600 for federal and provincial income taxes, and $180 for union dues. Calculate the general journal entry credit amount on December 10 to "Salaries Payable."
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A) $15,000.00 B) $11,083.00 C) $10,751.20 D) $10,846 E) Some other amount
51) A record of an employee's hours worked, gross pay, deductions, net pay, and certain personal information about the employee is an employee's A) Time card B) Federal tax record C) Canada Revenue Agency record D) Individual earnings record E) T-4 earnings record
52)
Most employers engaged in employing workers must pay A) Workers' Compensation B) Employment Insurance C) Canada Pension Plan D) Vacation pay E) All of the choices are correct
53) Tru Company's 8 sales employees earned salaries of $30,000 during the week of May 16, all of which were subject to 5.45% CPP and 2 weeks' annual vacation. In addition, Tru Company has agreed with its employees to withhold the following amounts: $474 for EI, $5,200 for federal and provincial income taxes, and $500 for union dues. Which of the following entries should be prepared to record the payroll? If necessary, round all amounts to the nearest dollar. A) Sales Salaries Expense
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30,000
11
Salaries Payable
30,000
B) Sales Salaries Expense
22,191
Salaries Payable
22,191
C) Sales Salaries Expense
24,800
Payroll Taxes Expense
5,200
CPP Payable
1,635
Employees’ Income Taxes Payable
5,200
EI Payable
474
Union Dues Payable
500
Salaries Payable
22,191
D) Sales Salaries Expense
30,000
CPP Payable
1,635
Employees’ Income Taxes Payable
5,200
EI Payable
474
Union Dues Payable
500
Salaries Payable
22,191
E) Sales Salaries Expense
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80,000
12
CPP Payable
1,635
Employees’ Income Taxes Payable
5,200
EI Payable
474
Union Dues Payable
500
Salaries Payable
12,191
Accrued Vacation Pay
60,000
54) Grater Co. sales employees earned salaries of $30,000 during the week of July 1-6, all of which were subject to 5.45% CPP, and 3 weeks' annual vacation. The salaries are also subject to federal and provincial income tax withholdings of $4,500. Grater Company's employees also pay EI at the rate of 1.58%, and Grater Company's share is 1.4 times the employees' contributions. Which one of the following entries should be prepared to record Grater Company's payroll benefits expense? A) Sales Salaries Expense
30,000.00
CPP Payable
1,635
Employees’ Income Taxes Payable
4,500
Accrued Payroll Payable
23,865
B) Benefits Expense
1,635
Payroll Taxes Payable
1,635
C) Benefits Expense CPP and EI Payable
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2,298.6 2,298.6
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D) CPP Expense
1,635
EI Expense
663.6
CPP Payable
1,635
EI Payable
663.6
E) Benefits Payable
55)
6,798.6
CPP Payable
1,170
EI Payable
1,128.6
Employees’ Income Taxes Payable
4,500
Employers never make deductions from employees' wages for A) Canada Pension Plan B) Federal income taxes C) Union dues D) Employment Insurance E) Workers' Compensation
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 56) A company's 18 sales personnel earned salaries of $22,000 during the period March 5-10, all of which were subject to 4.95% CPP and 1.66% EI. All personnel are entitled to 2 weeks' paid annual vacation. In addition, the company has agreed with its employees to withhold the following amounts: $900 for hospital insurance, $4,400 for federal and provincial income taxes, and $180 for union dues. Prepare the March 10 general journal entry to record the payroll.
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57) Small Company's 16 sales personnel earned total salaries of $18,000 during the period April 5-10, all of which were subject to 4.95% CPP, 1.66% EI. The employees were also entitled to 6% annual vacation pay. Prepare the general journal entries on April 10 to accrue the payroll benefits arising from this payroll. Round all calculations to the nearest dollar.
58) Spieth Company employees had the following earnings records at the close of the November 30 payroll period Earnings Through Last Pay Period
Earnings for Nov 30 Pay Period (one week of service)
R. Scott
54,900
800.00
J. Quageber
24,000
700.00
F. Flint
19,200
600.00
O. Okonkwo
4,800
200.00
L. Linea
10,800
410.00
Assume Spieth Company's payroll taxes expense for each employee include: 4.95% CPP on the annual pensionable earnings 50,100 ($55,900 maximum with the first $3,500 exempt), and 1.4 times the employees EI rate of 1.66% paid to a maximum of $51,700 annually. As well, $300 in federal and provincial income taxes in total will be deducted from the employees' gross pay for the week. Based on the summary of the CPP and EI deductions below, prepare the journal entries to record:(a) The payroll accrual.(b) The employer payroll tax expense (Salary x 0.0495)
(Salary x 0.0166)
Salary
CPP
EI Deduction
R. Scott
800.00
Exempt
Exempt
J. Quageber
700.00
34.65
11.62
F. Flint
600.00
29.70
9.96
O. Okonkwo
200.00
9.90
3.32
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L. Linea
410.00
20.30
6.81
Total
2,710.00
94.55
31.71
Note that R.Scott would have already paid the maximum CPP and EI for the year
59)
Williams Inc. has collected payroll data for the most recent weekly pay period
Employee
Reg. Hours
Overtime Hours
Pay Rate
Plan Contribution
Tax Cumulative Earning to Withheld End of Prior Period
R. Doll
35
4
22.40
50.00
186.25
9,500.00
F. Fillip
Salary
-
2,200.00
125.00
400.00
39,000.00
J. Sweeny
40
5
13.00
23.00
90.00
17,250.00
K. Frank
30
6
16.00
50.00
180.00
53,000.00
S. Wong
35
9
11.00
31.00
130.00
14,120.00
Assume CPP is 4.95% on the annual pensionable earnings of $50,100 ($55,900 maximum with the first $3,500 exempt), matched by the employer, and EI is 1.66% to a maximum of $51,700 annually, with the employer paying 1.4 times the employees' contributions. Williams' pension plan allows the employee to make designated contributions which are matched by the company. F.Fillip is an administrative employee, and the other employees are shop workers. Employees are paid time and a half for any overtime work. Based on the CPP and EI deduction calculations provided below, prepare the journal entries to record:(a) The payroll accrual.(b) The employer payroll tax expense.(c) The employees' fringe benefits (Salary x 0.0495)
(Salary x 0.0166)
Salary
CPP
EI Deduction
R. Doll
918.40
45.46
15.25
F. Filip
2,200.00
108.90
36.52
J. Sweeny
617.50
30.57
10.25
K. Frank
624.00
Exempt
Exempt
S. Wong
533.50
26.41
8.86
Total
4,893.40
211.34
70.88
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*Note that K.Frank would have already paid the maximum CPP and EI for the year.
60) Welch Company has 7 sales employees, each of whom earns $2,500 per month and is paid the last working day of the month. Assume CPP is 4.95% and EI is 1.66% of the monthly salary for each employee. Withholdings for the employees also include federal and provincial income tax of $2,800 (total for all seven and medical insurance premiums of $210 for each employee. 1) Prepare the general journal entry to accrue the payroll for March. 2) Prepare the general journal entry to record Welch Company's payroll tax expense for March.
61) The payroll records of Jasper Co. provide the following data for the weekly pay period ended March 7 Employee
Gross Pay
Gross Pay To Date
Income Taxes
Medical Insurance Deduction
Union Dues
United Way
A
$500
$6,000
$100
$30
$15
$10
B
600
6,500
120
30
15
20
C
700
5,500
202
50
0
30
Assume CPP is 4.95% and EI is 1.66%. 1) Prepare the general journal entry to accrue the payroll on March 7. 2) Prepare the general journal entry to record the payroll tax expense for March 7.
62)
Haines Company prepared the following payroll summary for the current month Administrative salaries
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$10,000 17
Sales salaries
15,000
Shop wages
21,000
Employee deductions: Federal and provincial income taxes withheld
11,500
Hospital insurance premiums
1,430
Union dues
1,190
Assume CPP is 4.95% and EI is 1.66%, and that none of the current month's salaries and wages exceed the CPP or EI limits. Haines makes a pension contribution equal to 9% of each employee's gross earnings. A vacation pay accrual is also made at 3.6% of the gross earnings. Haines has 10 employees. Prepare the journal entries to record: (A) The month's payroll accrual. (B) The month's employer payroll tax expense. (C) The employer's pension contribution and vacation pay accrual.
63) Jack Slack is CEO of Slack Industries. The bank declined to give Slack Industries the needed funds to finance the business expansion plans. Jack is now looking for ways to secure cash hoping he can get sufficient cash to finance the expansion. Jack approaches you as the company's accountant. He knows that you are due to make government remittances for source deductions the company withheld from employees for CPP, EI, and personal income taxes. Jack asks you to delay the remittance until he feels more confident about getting other financing. Jack believes it is fine to delay payments because Slack will definitely remit the withholdings before the T4s are produced at year end. Required: a) Describe the duty that Slack Industries has to remit employee deductions withheld at source? b) Is withholding the remittances ethical? Why?
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Answer Key Test name: Appendix I 1) TRUE 2) TRUE 3) TRUE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) TRUE 15) TRUE 16) FALSE 17) FALSE 18) FALSE 19) FALSE 20) FALSE 21) FALSE 22) FALSE 23) TRUE 24) TRUE 25) TRUE 26) FALSE Version 1
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27) TRUE 28) TRUE 29) FALSE 30) FALSE 31) FALSE 32) TRUE 33) TRUE 34) FALSE 35) TRUE 36) FALSE 37) TRUE 38) TRUE 39) TRUE 40) B 41) B 42) D 43) B 44) D 45) C 46) D 47) C 48) D 49) E
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Total Taxes: Income Tax (given in question) $4,500 total for all 9 employees CPP = 163.5 (based on the CPP monthly tax tables) x 9 employees = 1,471.5 Employee portion of EI =$3,000X 1.58% = 47.4 x 9 employees = 426.6 = 4,500 + 1,471.5 + 426.6 = 6,398.1 Total employee taxes: = 27,000 - 6,398.1 = $20,601.9 of total employee after tax earnings using the monthly CPP taxation tables 50) B 51) D 52) E 53) D 54) D 55) E 56) 10-Mar
Sales Salaries Expense
22,000.00
CPP Payable
1,089.00
Employee Income Taxes Payable
4,400.00
Employee Hospital Insurance Payable
900
Employee Union Dues Payable
180
EI Payable
365.2
Salaries Payable
15,065.80
CPP = 22,000 x 0.495 EI = 22,000 x.0166
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57) April 10 Benefits Expense
1,309
CPP Payable (18,000 × 4.95%)
891
EI Payable (18,000 × 1.66% × 1.4)
418
April 10 Benefits Expense
1,080
Estimated Vacation Payable
1,080
58) (a) Sales Salaries Expense
2,710.00
CPP Payable
94.55
EI Payable
31.71
Income Tax Payable
300.00
Salaries Payable
2,283.74
(b) Benefits Expense
138.94
CPP Payable
94.55
EI Payable (31.71× 1.4)
44.39
59) (a) Shop Salaries Expense
2,693.40
Administrative Salaries Expense
2,200.00
CPP Payable
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211.34
22
EI Payable
70.88
Income Tax Payable
986.25
Employees Pension Fund Payable
279.00
Payroll Payable
3,345.93
(b) Benefits Expense
310.57
CPP Payable
211.34
EI Payable (70.88× 1.4)
99.23
(c) Benefits Expense
279.00
Employee’s Pension Fund Payable
279.00
60) Mar-31 Sales Salaries Expense(7 × $2,500)
17,500.00
CPP Payable
866.25
EI Payable
290.50
Income Tax Payable
2,800.00
Employees Medical insurance premiums payable
1,470.00
Payroll Payable
12,073.25
CPP = (17,500 × 4.95%) EI = (17,500 × 1.66%) Medical = 7 × $210 Mar-31 Benefits Expense CPP Payable
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1,272.95 866.25
23
EI Payable (17,500 × 1.66% × 1.4)
406.70
61) Mar-07 Salaries Expense
1,800.00
CPP Payable
89.10
EI Payable
29.88
Income Tax Payable
422.00
Medical Insurance Payable
110.00
Union Dues Payable
30.00
United Way Payable
60.00
Payroll payable
$1,059.02
CPP = (1,800 × 4.95%) EI = (1,800 × 1.66%) Mar-07 Benefits Expense
130.93
CPP Payable
89.10
EI Payable(1,800 × 1.66% × 1.4)
41.83
62) (A)
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Administrative Salaries Expense
10,000.00
Sales Salaries Expense
15,000.00
Shop Wages Expense
21,000.00
CPP Payable
2,277.00
EI Payable
763.60
Income Tax Payable
11,500.00
24
Hospital Insurance Premiums Payable
1,430.00
Union Dues Payable
1,190.00
Accrued Payroll Payable
28,839.40
CPP = (46,000 × 4.95%) EI = (46,000 × 1.66%) (B)
(C)
Benefits Expense
3,346.04
CPP Payable
2,277.00
EI Payable(46,000 × 1.66% × 1.4)
1,069.04
Benefits Expense
5,796.00
Employee’s Pension Fund Payable
4,140.00
Estimated Vacation Payable Liability
1,656.00
63) a) Slack has a duty to remit employee withholdings on a predetermine schedule set by Canada Revenue Agency (CRA). Employers have until the end of February after the end of the previous tax year to send T4s to their local federal tax office. That is the only time at which the CRA knows what has been withheld for each employee for remittance. Failure to remit withholdings on a regular basis can mean interest penalties for Slack. b) Withholding remittances is payroll fraud on several levels. If entries are not made to record withholdings, the financial statement liabilities can be understated and will overstate the current ratio. Further, employees would be unaware that withholdings are not being remitted on their behalf when there is an expectation the company is executing their duties in compliance with CRA rules.
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CHAPTER 1: ALGO MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 1) If a company is considering the purchase of a parcel of land that was originally acquired by the seller for $98,000, is currently offered for sale at $176,000, is considered by the purchaser as easily being worth $166,000, and is finally purchased for $163,000, the land should be recorded in the purchaser’s books at: A) $108,000. B) $163,000. C) $164,500. D) $166,000. E) $176,000.
2) If a company uses $1,410 of its cash to purchase supplies, the effect on the accounting equation would be: A) Assets increase $1,410 and liabilities decrease $1,410. B) One asset increases $1,410 and another asset decreases $1,410, causing no effect. C) Assets decrease $1,410 and equity decreases $1,410. D) Assets decrease $1,410 and equity increases $1,410. E) Assets increase $1,410 and liabilities increase $1,410.
3) If a company receives $10,200 from the owner to establish a proprietorship, the effect on the accounting equation would be: A) Assets decrease $10,200 and equity decreases $10,200. B) Assets increase $10,200 and liabilities decrease $10,200. C) Assets increase $10,200 and liabilities increase $10,200. D) Liabilities increase $10,200 and equity decreases $10,200. E) Assets increase $10,200 and equity increases $10,200.
4) If a company purchases equipment costing $5,700 on credit, the effect on the accounting equation would be:
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A) Assets increase $5,700 and liabilities decrease $5,700. B) Equity decreases $5,700 and liabilities increase $5,700. C) One asset increases $5,700 and another asset decreases $5,700. D) Assets increase $5,700 and liabilities increase $5,700. E) Equity increases $5,700 and liabilities decrease $5,700.
5)
If equity is $349,000 and liabilities are $187,000, then assets equal: A) $162,000. B) $187,000. C) $349,000. D) $536,000. E) $885,000.
6)
If assets are $388,000 and liabilities are $185,000, then equity equals: A) $203,000. B) $185,000. C) $388,000. D) $573,000. E) $961,000.
7)
If assets are $103,000 and liabilities are $34,500, then equity equals: A) $34,500. B) $68,500. C) 103,000. D) $137,500. E) $240,500.
8) The assets of a company total $716,000; the liabilities, $208,000. What is the amount of equity?
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A) $924,000. B) $716,000. C) $508,000. D) $208,000. E) It is impossible to determine unless the amount of the owners' investment is known.
9) On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $13,800; Accounts Receivable, $6,900; Supplies, $650; Equipment, $11,450; Accounts Payable, $8,800. What is the amount of equity as of May 31 of the current year? A) $41,600. B) $12,350. C) $13,800. D) $24,000. E) $32,800.
10) On August 31 of the current year, the assets and liabilities of Gladstone, Inc. are as follows: Cash $28,800; Supplies, $820; Equipment, $9,200; Accounts Payable, $8,000. What is the amount of equity as of August 31 of the current year? A) $30,000. B) $30,820. C) $29,180. D) $10,780. E) $12,420.
11) Saddleback Company paid off $31,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation? A) Assets increase $31,000; equity increases $31,000. B) Assets decrease $31,000; liabilities decrease $31,000. C) Assets decrease $31,000; liabilities increase $31,000. D) Liabilities decrease $31,000; equity increases $31,000. E) Assets decrease $31,000; equity decreases $31,000.
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12) If Houston Company billed a client for $18,000 of consulting work completed, the accounts receivable asset increases by $18,000 and: A) Accounts payable decreases $18,000. B) Accounts payable increases $18,000. C) Cash increases $18,000. D) Revenue increases $18,000. E) Revenue decreases $18,000.
13) Alpha Company has assets of $608,000, liabilities of $254,000, and equity of $354,000. It buys office equipment on credit for $79,000. What would be the effects of this transaction on the accounting equation? A) Assets increase by $79,000 and expenses increase by $79,000. B) Assets increase by $79,000 and expenses decrease by $79,000. C) Liabilities increase by $79,000 and expenses decrease by $79,000. D) Assets decrease by $79,000 and expenses decrease by $79,000. E) Assets increase by $79,000 and liabilities increase by $79,000.
14) If the liabilities of a business increased $89,000 during a period of time and the owner's equity in the business decreased $37,000 during the same period, the assets of the business must have: A) Decreased $126,000. B) Decreased $52,000. C) Increased $37,000. D) Increased $52,000. E) Increased $126,000.
15) If the assets of a business increased $97,000 during a period of time and its liabilities increased $71,000 during the same period, equity in the business must have:
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A) Increased $26,000. B) Decreased $26,000. C) Increased $97,000. D) Decreased $168,000. E) Increased $168,000.
16) If the liabilities of a company increased $100,000 during a period of time and equity in the company decreased $32,000 during the same period, what was the effect on the assets? A) Assets would have increased $68,000. B) Assets would have decreased $68,000. C) Assets would have increased $132,000. D) Assets would have decreased $132,000. E) None of the above.
17)
If assets are $373,000 and equity is $124,000, then liabilities are: A) $124,000. B) $249,000. C) $373,000. D) $497,000. E) $622,000.
18)
Use the following information as of December 31 to determine equity.
Cash Buildings Equipment Liabilities
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$ 73,000 191,000 222,000 157,000
5
A) $73,000. B) $157,000. C) $329,000. D) $486,000. E) $643,000.
19) Use the following information for Meeker Corporation to determine the amount of equity to report. Cash Buildings Land Liabilities
$ 81,000 131,000 220,600 137,000
A) $569,600. B) $307,600. C) $432,600. D) $33,600. E) $295,600.
20) Determine the net income of a company for which the following information is available for the month of July. Employee salaries expense Interest expense Rent expense Consulting revenue
$ 194,000 24,000 34,000 456,000
A) $204,000. B) $252,000. C) $272,000. D) $456,000. E) $708,000.
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21) Determine the net income of a company for which the following information is available for the month of September. Service revenue Rent expense Utilities expense Salaries expense
$ 330,000 63,000 4,700 96,000
A) $292,300. B) $493,700. C) $171,000. D) $166,300. E) $267,000.
22) Zapper has beginning equity of $295,000, net income of $70,000, withdrawals of $59,000 and investments by owners of $25,000. Its ending equity is: A) $261,000. B) $259,000. C) $306,000. D) $331,000. E) $217,500.
23) Cragmont has beginning equity of $285,000, net income of $71,000, withdrawals of $33,000 and no additional investments by owners during the period. Its ending equity is: A) $389,000. B) $247,000. C) $181,000. D) $323,000. E) $285,000.
24) A company's balance sheet shows: cash $48,000, accounts receivable $29,000, office equipment $63,000, and accounts payable $30,000. What is the amount of owner's equity?
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A) $30,000. B) $42,000. C) $110,000. D) $140,000. E) $170,000.
25) A company reported total equity of $181,000 at the beginning of the year. The company reported $246,000 in revenues and $183,000 in expenses for the year. Liabilities at the end of the year totaled $110,000. What are the total assets of the company at the end of the year? A) $63,000. B) $110,000. C) $134,000. D) $246,000. E) $354,000.
26) Charlie's Chocolates' owner made investments of $74,000 and withdrawals of $32,000. The company has revenues of $107,000 and expenses of $76,000. Calculate its net income. A) $42,000. B) $107,000. C) $76,000. D) $31,000. E) $73,000.
27) Savvy Sightseeing had beginning equity of $87,000; revenues of $135,000, expenses of $80,000, and withdrawals by owners of $10,500. Calculate the ending equity. A) $131,500. B) $55,000. C) $142,000. D) $21,500. E) $32,000.
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28) Doc’s Ribhouse had beginning equity of $80,500; net income of $44,500, and withdrawals by the owner of $21,500. The owner made no investments during the year. Calculate the ending equity. A) $(14,500). B) $57,500. C) $14,500. D) $146,500. E) $103,500.
29) A company's balance sheet shows: cash $26,000, accounts receivable $32,000, equipment $54,000, and equity $74,000. What is the amount of liabilities? A) $112,000. B) $86,000. C) $38,000. D) $70,000. E) $186,000.
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Answer Key Test name: Chap 01_17ce_Test Bank_Algo 1) B 2) B 3) E 4) D 5) D Assets = Liabilities + Owner's Equity Assets = $187,000 + $349,000 = $536,000. 6) A Assets = Liabilities + Owner’s Equity Equity = $388,000 − $185,000 = $203,000. 7) B Assets = Liabilities + Owner's Equity $103,000 = $34,500 + Owner's Equity; Owner's Equity = $68,500 8) C Assets = Liabilities + Owner's Equity $716,000 = $208,000 + Owner's Equity (or Claims of the Owners); Owner's Equity = $508,000 9) D Assets = Liabilities + Equity Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Equity $13,800 + $6,900 + $650 + $11,450 = $8,800 + Equity $32,800 = $8,800 + Equity; Equity = $24,000 10) B
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Assets − Liabilities = Equity Cash + Supplies + Equipment − Accounts Payable = Equity $28,800 + $820 + $9,200 − $8,000 = $30,820 11) B Assets = Liabilities + Owner's Equity Assets would decrease by $31,000 in Cash due to the payment of the accounts payable. Liabilities would also decrease by $31,000 in Accounts Payable due to the payment of an obligation. There is no effect on Owner's Equity. 12) D 13) E Assets = Liabilities + Owner's Equity $608,000 = $254,000 + $354,000 Assets increase by $79,000 (Equipment) due to the purchase. Liabilities also increase by $79,000 (Accounts Payable) due to the purchase on credit. 14) D Assets = Liabilities + Owner's Equity Change in Assets = Change in Liabilities + Change in Owner's Equity Change in Assets = +$89,000 – $37,000 Change in Assets = Increase of $52,000 15) A Assets = Liabilities + Owner's Equity Change in Assets = Change in Liabilities + Change in Owner's Equity Increase of $97,000 = Increase of $71,000 + Change in Owner's Equity Change in Owner's Equity = Increase of $26,000 16) A
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Assets = Liabilities + Owner's Equity Change in Assets = Change in Liabilities + Change in Owner's Equity Change in Assets = +$100,000 – $32,000 Change in Assets = +$68,000 17) B Assets = Liabilities + Owner's Equity $373,000 = Liabilities + $124,000 Liabilities = $249,000 18) C Assets = Liabilities + Owner's Equity Cash + Equipment + Buildings = Liabilities + Owner's Equity $73,000 + $222,000 + $191,000 = $157,000 + Owner's Equity $486,000 = $157,000 + Owner's Equity; Owner's Equity = $329,000 19) E Assets – Liabilities = Owner’s Equity Cash + Buildings + Land – Liabilities = Owner’s Equity $81,000 + $131,000 + $220,600 – $137,000 = $295,600 20) A Net Income = Revenues − Expenses Net Income = Consulting Revenue − Employee Salaries Expense − Interest Expense − Rent Expense Net Income = $456,000 − $194,000 − $24,000 − $34,000; Net Income = $204,000 21) D Revenues − Expenses = Net Income Service Revenue − Rent Expense − Utilities Expense − Salaries Expense $330,000 − $63,000 − $4,700 − $96,000 = $166,300 22) D
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Ending Equity = Beginning Equity + Investments by Owners + Net Income − Withdrawals Ending Equity = $295,000 + $25,000 + $70,000 − $59,000; Ending Equity = $331,000 23) D Beginning Equity + Investments by Owners + Net Income − Withdrawals = Ending Equity $285,000 + $0 + $71,000 − $33,000 = $323,000 24) C Assets = Liabilities + Owner's Equity Cash + Accounts Receivable + Office Equipment = Accounts Payable + Owner's Equity $48,000 + $29,000 + $63,000 = $30,000 + Owner's Equity $140,000 = $30,000 + Owner's Equity; Owner's Equity = $110,000 25) E Assets = Liabilities + Owner's Equity Assets = $110,000 + (Beginning Equity + Revenues - Expenses) Assets = $110,000 + ($181,000 + $246,000 - $183,000) Assets = $110,000 + $244,000; Assets = $354,000 26) D Net Income = Revenues - Expenses Net Income = $107,000 - $76,000; Net Income = $31,000 27) A Ending Equity = Beginning Equity + Revenues - Expenses Withdrawals by Owners Ending Equity = $87,000 + $135,000 - $80,000 - $10,500 Ending Equity = $131,500 28) E Ending Equity = Beginning Equity + Net Income − Withdrawals Ending Equity = $80,500 + $44,500 − $21,500 = $103,500 Version 1
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29) C Assets − Equity = Liabilities Cash + Accounts Receivable + Equipment − Equity = Liabilities $26,000 + $32,000 + $54,000 − $74,000 = $38,000
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CHAPTER 1 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Accounting is an information system that identifies, measures, records and communicates relevant information that objectively and correctly represents an organization's economic activities. ⊚ ⊚
true false
2) Accounting information helps people make better decisions about the performance of a business. ⊚ ⊚
true false
3) The main objective of accounting is to help people to invest in new products and businesses. ⊚ ⊚
4)
Recordkeeping" is another term for "accounting". ⊚ ⊚
5)
true false
true false
A sole proprietorship is a business owned by one or more persons. ⊚ ⊚
true false
6) A partnership requires no special legal requirements to start, other than to register the business name and obtain a business license. ⊚ ⊚
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true false
1
7)
Ownership of a corporation is divided into units called shares. ⊚ ⊚
8)
In the partnership form of business, the owners of a business are called shareholders. ⊚ ⊚
9)
true false
Unlimited liability is an advantage for both a proprietorship and a partnership. ⊚ ⊚
10)
true false
true false
Although a proprietorship is not a separate legal entity, a partnership is. ⊚ ⊚
true false
11) A corporation is responsible for its actions and any debts incurred. It can enter into its own contracts, and it can buy, own, and sell property. ⊚ ⊚
12)
Non-business organizations often operate educational and religious services for profit. ⊚ ⊚
13)
true false
true false
Sole proprietorships and partnerships are not subject to income tax in Canada. ⊚ ⊚
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true false 2
14) External users include lenders such as banks, and other creditors such as suppliers and bondholders. ⊚ ⊚
15)
true false
Internal users include creditors, shareholders, internal auditors, and managers. ⊚ ⊚
true false
16) Managerial accounting provides special-purpose reports customized to meet the information needs of internal users. ⊚ ⊚
true false
17) Internal operating functions include research and development, distribution, and human resources. ⊚ ⊚
18)
true false
Internal controls include procedures to protect assets and prevent fraud. ⊚ ⊚
true false
19) Career opportunities in accounting include auditing, forensic accounting, and tax planning. ⊚ ⊚
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true false
3
20) Budgeting is the process of developing formal plans for an organization's future activities. ⊚ ⊚
true false
21) At the request of the Board of Directors, internal auditors perform the audit function to protect shareholder interests. ⊚ ⊚
22)
The purpose of an audit is to add credibility to the financial statements. ⊚ ⊚
23)
true false
true false
Private accountants work for several employers. ⊚ ⊚
true false
24) In Canada, Chartered Professional Accountants of Canada is the national organization that has been established to train and monitor its highly qualified professionals. ⊚ ⊚
true false
25) External auditors perform an audit at the request of the board of directors to protect investor interests. ⊚ ⊚
true false
26) The preferred ethical path is to take a course of action that avoids casting doubt on one's decisions.
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⊚ ⊚
27)
Ethics and laws often differ. ⊚ ⊚
28)
true false
true false
Ethics and social responsibility are incidental to the primary functions of accounting. ⊚ ⊚
true false
29) Ethical practices are not necessary to build trust and long-term relationships with customers. ⊚ ⊚
30)
true false
Social responsibility is a concern for the impact of our actions on society as a whole. ⊚ ⊚
true false
31) The underlying concepts that make up acceptable accounting practices are referred to as generally accepted accounting principles (GAAP). ⊚ ⊚
32)
true false
Verifiability ensures that information is complete, neutral, and free from error. ⊚ ⊚
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true false
5
33) The Accounting Standards Board (AcSB), is the body that developed the International Financial Reporting Standards. ⊚ ⊚
true false
34) The Accounting Standards Board (AcSB), is the body that developed accounting standards for private enterprises (ASPE). ⊚ ⊚
true false
35) International Accounting Standards have been created to improve comparability of accounting information across countries. ⊚ ⊚
true false
36) Private enterprises are all required to report using International Financial Reporting Standards (IFRS). ⊚ ⊚
true false
37) The primary purpose of Generally Accepted Accounting Principles is to ensure the usefulness of financial information. ⊚ ⊚
true false
38) The Historical cost principle states that if no cash is involved in a transaction the cashequivalent value must be used. ⊚ ⊚
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true false
6
39) The currency principle means that transactions are expressed using units of money as the common denominator. ⊚ ⊚
true false
40) The assumption that a business will continue to operate until it can sell its assets to pay its creditors underlies the going concern principle. ⊚ ⊚
true false
41) According to the historical cost principle, it is acceptable for managers to use their own estimate of an asset's value when recording the purchase. ⊚ ⊚
true false
42) The reporting entity principle requires that an owner keep accounting records separate from personal records or records of any other businesses owned. ⊚ ⊚
true false
43) As a rule, revenues should not be recognized in the accounting records until received in cash. ⊚ ⊚
true false
44) The primary qualitative characteristics of financial information are relevance and faithful representation. ⊚ ⊚
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true false
7
45) A company that is currently in the process of liquidating is considered to be a going concern. ⊚ ⊚
true false
46) The conceptual framework summarizes the qualitative characteristics and supportive building blocks that are required to prepare financial information. ⊚ ⊚
true false
47) Financial statements are an organization's primary means of financial communication and are the end result of a process, or a cycle, which begins with a business transaction like a sale. ⊚ ⊚
48)
true false
A balance sheet covers a period of time such as a month or year. ⊚ ⊚
true false
49) The legitimate claims of a business's creditors take precedence over the claims of the business owner or owners. ⊚ ⊚
true false
50) The income statement is a financial statement that shows revenues earned and expenses incurred by a business over a specified period of time. ⊚ ⊚
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true false
8
51) Profit is the excess of expenses over revenues, whereas net loss is the excess of revenues over expenses. ⊚ ⊚
52)
true false
The natural business year for businesses is always the same as the calendar year. ⊚ ⊚
true false
53) The balance sheet shows whether or not the firm achieved its primary objective of earning a profit. ⊚ ⊚
54)
true false
Expenses are costs incurred or the using up of assets from generating revenue. ⊚ ⊚
true false
55) Liabilities are defined as "the residual interest in the assets of an entity that remains after deducting its equity". ⊚ ⊚
56)
true false
A characteristic of assets is their ability to provide current benefits to the business. ⊚ ⊚
true false
57) The statement of cash flows measures the net effect of revenues and expenses for a specified period.
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⊚ ⊚
true false
58) A liability expressed by a written promise to make a future payment is usually called an account payable. ⊚ ⊚
true false
59) The balance sheet is also called the statement of financial position because it shows the financial position of the business on a particular date. ⊚ ⊚
true false
60) Revenues are the value of assets received or receivable as a result of selling goods or services to customers. ⊚ ⊚
true false
61) The balance sheet can be used in order to assess the creditworthiness of potential customers. ⊚ ⊚
62)
Withdrawals represent distributions from a corporation to its owners. ⊚ ⊚
63)
true false
true false
Dividends represent distributions of profits to the partners of a business. ⊚ ⊚
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true false
10
64)
Equity is increased by owner investments, profit, and withdrawals. ⊚ ⊚
true false
65) Although, in a sole proprietorship, owner investments are not recorded as revenue, any withdrawals are recorded as expenses. ⊚ ⊚
true false
66) An owner's cash investment in a business creates an asset (cash), a liability (note payable), and equity (owner investments). ⊚ ⊚
67)
true false
The first section of the income statement reports cash from operating activities. ⊚ ⊚
true false
68) Individuals and organizations who own the right to receive payments from a business are called its debtors. ⊚ ⊚
true false
69) A loss arises when there is a distribution of cash or other assets from a proprietorship to its owner. ⊚ ⊚
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true false
11
70)
A characteristic of liabilities is their capacity to reduce future assets. ⊚ ⊚
true false
71) Profit on the income statement results in an increase in equity on the balance sheet due to profitable operating activities over a period of time. ⊚ ⊚
72)
true false
The equity in a partnership belongs to one owner. ⊚ ⊚
true false
73) Chuck Taylor invested $8,000 in cash in FastForward. This amount would be reported in the statement of cash flows under financing. ⊚ ⊚
true false
74) Chuck Taylor withdrew $6,000 in cash for his personal use from his business. This amount should be included as an expense on the income statement. ⊚ ⊚
true false
75) Equity is increased when cash is received from customers in payment of a previously recorded accounts receivable. ⊚ ⊚
true false
76) Transactions that impact only assets do not require the accounting equation to stay in balance.
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⊚ ⊚
77)
true false
The financing side of the accounting equation describes where the assets came from. ⊚ ⊚
true false
78) The accounting equation describes the relationship between a company's assets, liabilities, and equity. ⊚ ⊚
79)
The accounting equation can be restated as assets - equity = liabilities. ⊚ ⊚
80)
true false
Business transactions are exchanges of economic consideration between two parties. ⊚ ⊚
82)
true false
Liabilities represent non-owner financing. ⊚ ⊚
81)
true false
true false
Business events do not affect the accounting equation. ⊚ ⊚
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true false
13
83) The purchase of supplies for cash impacts both the investing and financing sides of the accounting equation. ⊚ ⊚
true false
84) Items such as sales slips, invoices, cheques, purchase orders, and employee earnings records are also called source documents. ⊚ ⊚
85)
true false
Payment of accounts payable decreases both liabilities and assets. ⊚ ⊚
true false
MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 86) Joe Bob has prepared the following analysis of September transactions for his business, Joe Bob's Spareribs. Unfortunately, he has lost some information. Calculate the missing information. Date
Cash
A/R
Inventory
A/P
Notes Pay
Equity
Sep 2
4,000
2,100
1,000
?
500
4,000
Sep 6
-1,000
-0-
4,000
?
-0-
-0-
Sep 10
500
300
-300
-0-
-0-
?
A) Sept 2
Sept 6
Sept 10
2,600
3,000
2,000
Sept 2
Sept 6
Sept 10
1,000
4,000
200
B)
C)
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Sept 2
Sept 6
Sept 10
300
2,000
600
Sept 2
Sept 6
Sept 10
1,500
1,000
400
Sept 2
Sept 6
Sept 10
2,600
3,000
500
D)
E)
87) At the end of its first year of operations, Lockerbie and Role Company have total assets of $3,000,000 and total liabilities of $1,200,000. The owner originally invested $200,000 in the business, but has not made any further investments or taken any withdrawals. What is the first year's profit for Lockerbie and Role Company? A) $1,600,000 B) $1,800,000 C) $1,000,000 D) $3,000,000 E) $3,200,000
88)
If assets are $144,000 and liabilities are $37,000, then equity equals A) $37,000 B) $74,000 C) $107,000 D) $144,000 E) $181,000
89) are
The assets of a business total $20,000; the liabilities, $8,000. The claims of the owners
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A) $0 B) $8,000 C) $12,000 D) $20,000 E) $28,000
90) The FastForward Company balance sheet shows cash $5,000, accounts receivable $7,000, office equipment $3,000, and accounts payable $4,000. What is the amount of equity? A) $1,00 B) $11,000. C) $12,000 D) $15,000 E) $19,000
91)
If assets are $175,000 and equity is $47,000, then liabilities equal A) $47,000 B) $128,000 C) $175,000 D) $204,000 E) $222,000
92) The following information is available for Isla Company for the month of May. How much is the profit for the month?
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Employee salaries
$15,000
Interest paid on bank loan
2,500
Rent paid to landlord
12,500
Service Revenue
50,000
16
A) $0 B) $10,000 C) $20,000 D) $30,000 E) $35,000
93) Reese's Company reported equity of $22,000 on its December 31, 2019, balance sheet. The following information is available for the year ended December 31, 2020 Revenues
$73,000
Expenses
59,000
Liabilities
11,000
What are the total assets of Reese's Company on December 31, 2020? A) $14,000 B) $25,000 C) $35,000 D) $47,000 E) $57,000
94) A parcel of land is offered for sale at $45,000 and is assessed for tax purposes at $20,000. The purchaser assesses the land to be worth $36,000, and purchased it for $34,000. The land should be recorded in the purchaser's books at A) $20,000 B) $34,000 C) $36,000 D) $45,000 E) $54,000
95)
If equity is $30,000 and liabilities are $73,000, then assets equal
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A) $30,000 B) $40,000 C) $60,000 D) $73,000 E) $103,000
96) From the following information taken from the records of Peach Company on December 31 of this year, calculate equity. Liabilities
$1,000
Cash
3,000
Accounts Receivable
2,000
Buildings
3,500
Equity
?
A) $1,500 B) $2,500 C) $7,500 D) $3,500 E) $6,000
97)
Willie's Attic has the following account balances for the dates given Cash, Sept 1
$40,000
Cash, Sept 30
60,000
Accounts receivable, Sept 1
10,000
Accounts receivable, Sept 30
14,000
Capital, Sept 1
?
Capital, Sept 30
?
Supplies, Sept 1
30,000
Supplies, Sept 30
24,000
Accounts payable, Sept 1
6,000
Accounts payable, Sept 30
?
Profit for September
20,000
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A) $86,000; $4,000 B) $86,000; $106,000 C) $74,000; $106,000 D) $74,000; $94,000 E) None of the choices are correct.
98) An exchange between two parties of economic consideration such as goods, services, money, or rights to collect money is called A) the accounting equation. B) bookkeeping. C) a business transaction. D) an audit. E) a gift.
99) Under which situation can a company recognize revenue under the Generally Accepted Accounting Principles? A) A customer signs a contract to purchase goods to be delivered in two weeks. B) A company completes production of a customer order to be delivered in two weeks. C) A company ships the goods for which it received a deposit two weeks ago. D) A company receives a cash deposit from a customer to deliver goods in two weeks. E) A company purchased raw materials to complete production of a customer order.
100)
Which of the following is true as it relates to the conceptual framework?
A) Timeliness ensures that information is complete, neutral, and free from error B) Information that has faithful representation is complete, neutral, and free from error C) Verifiability ensures that information is available to decision makers in time to influence their decisions D) None of the choices are correct. E) All of the choices are correct.
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101)
Which of the following business transactions would increase the equity of ABC Limited? A) ABC received a $1,200 cash payment on account from a customer. B) ABC Limited's owner withdrew $900 cash to cover personal living expenses. C) ABC purchased a new machine for $45,000 on account. D) ABC billed a customer $14,800 for consulting services provided during the month. E) ABC purchased a building for $100,000 on account.
102)
Something of value, such as products, services, and money, is called a(n) A) business transaction B) business event C) accounting equation D) economic consideration E) source document
103) How would the accounting equation of Lenore Turner's consulting business be affected by the billing of a client for $2,000 for consulting work completed? A) Accounts receivable, $2,000 increase, liabilities, $2,000 decrease. B) Accounts receivable, $2,000 increase, liabilities, $2,000 increase. C) Accounts receivable, $2,000 increase, cash, $2,000 increase. D) Accounts receivable, $2,000 increase, equity, $2,000 increase. E) Accounts receivable, $2,000 increase, cash, $2,000 decrease.
104)
Which of the following items does not appear on the balance sheet?
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A) Cash B) Notes payable C) Accounts receivable D) Withdrawals E) Accounts payable
105)
Social responsibility A) is a code that helps accountants when dealing with confidential information B) is a concern for the impact of our actions on society as a whole C) allows Canada Revenue Agency to regulate businesses D) requires that all businesses conduct social audits E) requires analysts to report information favourable to their companies
106)
Ethical behaviour requires A) accountants to keep business information confidential B) auditors to invest in businesses they audit C) analysts to report information favourable to their companies D) purchasing agents to favour certain suppliers E) the government to regulate businesses
107)
Generally accepted accounting principles are
A) not used in the real world B) are required to make financial statement information relevant and faithfully represented C) are only used for internal reporting D) are only used by auditors E) are only used for reporting to Canada Revenue Agency
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108)
The accounting equation can be stated as A) Assets = Non-owner Equity + equity B) Liabilities = Assets + Equity C) Assets = Liabilities - Equity D) Equity = Assets + Liabilities E) All of the choices are correct.
109) Today, Cedar Park Company paid $600 of its accounts payable in cash. What is the effect on the accounting equation? A) Assets, $600 increase; liabilities, no effect; equity, $600 increase. B) Assets, $600 decrease; liabilities, $600 decrease; equity, no effect. C) Assets, $600 decrease; liabilities, $400 increase; equity, $200 decrease. D) Assets, no effect; liabilities, $600 decrease; equity, $400 increase. E) There is no effect.
110)
The area of accounting aimed at serving the decision-making needs of internal users is A) financial accounting B) managerial accounting C) auditing D) internal control E) marketing
111) The financial statement that describes where a company's cash came from and where it went during the period is the
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A) statement of financial position B) statement of cash flows C) balance sheet D) income statement E) statement of changes in equity
112) The financial statement that shows the beginning balance of equity, the changes in equity that resulted from new investments by the owner, Profit (or net loss), withdrawals, and the ending balance of equity is the A) statement of financial position B) statement of cash flows C) balance sheet D) income statement E) statement of changes in equity
113)
Which of the following is an example of a source document? A) Invoice B) Cheque C) Bank statement D) Employee earnings records E) All of the choices are correct.
114) To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the A) currency B) historical cost principle C) reporting entity principle D) going concern principle E) revenue recognition principle
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115)
In the accounting equation, the financing side would include which of the following? A) Liabilities only B) Liabilities and equity C) Equity only D) Assets, liabilities, and equity E) Assets and liabilities
116)
Revenues are A) profits B) the amount a business earns after subtracting all expenses from sales C) business events D) net assets E) the value of assets exchanged for goods or services provided to the customer
117)
Exchanges between the entity and some other person or organization are A) internal transactions B) external transactions C) business papers D) source documents E) investments
118) A business activity that does not involve an exchange of economic consideration between two parties is called a(n)
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A) withdrawal B) account receivable C) business transaction D) business event E) equity transaction
119)
Which of the following statements is correct regarding sales invoices? A) A sales invoice is a type of source document. B) Sellers use them for recording purchases. C) Buyers use them for recording sales. D) None of the choices are correct. E) All of the choices are correct.
120)
A business
A) is one or more individuals selling products or services for profit B) can only have one legal form of organization C) can have adequate financial records without a formal accounting system D) has to issue shares before it opens E) is one or more individuals selling products or services for profit and has to issue shares before it open
121)
Source documents A) do not provide objective evidence about transaction B) are a source of accounting information C) can only be in electronic form D) are only used for audit purposes E) are acceptable as a substitute for financial statements
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122) In Canada, the national organization that has been established to train and monitor its highly qualified professionals to navigate through today's complex and dynamic business climate while demonstrating a commitment to its core values is called A) general accountant. B) management accountant. C) certified management accountants. D) chartered professional accountants. E) all of the choices are correct.
123)
Which of the following is correct as it relates to business activities?
A) Business events involve an exchange of economic consideration between two parties that causes a change in assets, liabilities, or equity B) Business events do not involve an exchange of economic consideration and as such are not captured in the accounting records C) Business transactions do not involve an exchange of economic consideration and as such are not captured in the accounting records D) Business transactions involve an exchange of economic consideration between two parties but causes no change in assets, liabilities or equity E) All of the choices are correct
124)
Accounting is an information and measurement system that A) identifies and records business events B) only records economic activities C) primarily develops formal plans for future activities D) identifies and records economic activities E) All of the choices are correct.
125) An individual or organization entitled to receive payments from a business is known to the business as a
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A) debtor B) shareholder C) controller D) creditor E) bookkeeper
126) as a
An individual or organization that owes an amount to a business is known to the business
A) debtor B) shareholder C) controller D) creditor E) bookkeeper
127)
Career opportunities in accounting include A) budgeting B) auditing C) cost accounting D) management consulting E) All of the choices are correct.
128) Which of the following accounting principles would require that all goods and services purchased is recorded at cost? A) Going concern principle B) Currency principle C) Historical cost principle D) Reporting entity principle E) Revenue recognition principle
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129) Users of accounting information include internal and external users. Which of the following is correct? A) bank lender and a controller are external users B) A marketing manager and a shareholder are internal users C) A Chief Executive Officer (CEO) and a shareholder are external users D) A shareholder and a budget officer are internal users E) Government and a consumer group are external users
130) A primary operating objective of a business is to increase the equity of its owner or owners by A) acquiring assets B) incurring liabilities C) earning a profit D) incurring expenses E) increasing retained earnings
131) The difference between a company's assets and its liabilities, or the residual interest in the assets of an entity that remains after deducting its liabilities, is called A) profit B) shares C) equity D) revenue E) net loss
132)
Profit is another name for
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A) the income statement B) income C) equity D) a business transaction E) assets
133)
A payment from a proprietorship or partnership to its owner or owners is called a(n) A) dividend B) withdrawal C) expense D) equity E) cheque
134)
Information that is representationally faithful is A) complete B) neutral C) free from Error D) All of the choices are correct. E) None of these answers is correct.
135) The accounting principle that requires that transactions are to be expressed using units of money in the currency of the country in which the company primarily operates as the common denominator is the A) reporting entity principle B) currency C) going concern principle D) historical cost principle E) revenue recognition principle
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136) The accounting principle that states that revenue is recorded at the time that it is earned regardless of whether cash or another asset has been exchanged is the A) currency principle B) reporting entity principle C) going concern principle D) revenue recognition principle E) historical cost principle
137) The accounting principle that requires financial statements to be prepared on the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the A) historical cost principle B) reporting entity principle C) going concern principle. D) currency principle E) revenue recognition principle
138) The measurement method that requires all transactions to be recorded based on actual amount of cash received or paid, or cash-equivalent amount given in exchange, is the A) current cost method B) historical cost principle C) fair value method D) value in use method E) fulfilment method
139)
A corporation
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A) is a legal entity separate and distinct from its owners B) is regulated by Canada revenue agency C) has shareholders who have unlimited liability for the acts of the corporation D) can only have two owners E) is not a legal entity
140)
A partnership A) is also called a sole proprietorship B) has unlimited liability. C) has to have a written agreement in order to be legal D) is a legal organization separate from its owners E) is a non-business organization
141)
Ethics A) are beliefs that separate right from wrong B) and law often coincide C) help to prevent conflicts of interest D) are very important considerations for accountants E) All of the choices are correct.
142) If the liabilities of a business increased $8,000 during a period of time and equity in the business decreased $4,000 during the same period, the assets of the business must have A) Decreased $12,000 B) Decreased $4,000 C) Increased $12,000 D) Increased $4,000 E) Increased $6,000
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143) If the assets of a business increased $9,000 during a period of time and its liabilities increased $5,000 during the same period, equity in the business must have A) Increased $14,000 B) Decreased $14,000 C) Increased $4,000 D) Decreased $4,00 E) Decreased $6,000.
144) The organization established to try to achieve global agreement on the use of a common set of accounting principles is called A) Accounting Standards Board B) Abbreviated as IFRS C) International Accounting Standards Board D) Generally accepted accounting principles E) All of the choices are correct.
145)
An audit
A) is required for every business B) is an independent review of an organization's accounting systems and records C) is performed to add credibility to the financial statements D) is only performed for companies with computerized accounting system E) is an independent review of an organization's accounting systems and records and is performed to add credibility to the financial statements
146)
Accounting information is considered to be relevant when it
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A) can be depended on to represent the economic conditions and events that it is intended to represent B) is capable of making a difference in a decision C) is understandable by reasonably informed users of accounting information D) is verifiable and neutral E) is free from bias
147) Celery Company has assets of $150,000, liabilities of $90,000, and equity of $60,000. It buys supplies for cash $5,000. What effect would this transaction have on the accounting equation? A) Assets, $5,000 increase, equity, $5,000 increase. B) Assets, $5,000 increase, equity, $5,000 decrease. C) Liabilities, $5,000 increase, equity, $5,000 decrease. D) Assets, $5,000 decrease, equity, $5,000 decrease. E) Assets, no effect; liabilities, no effect
148) Properties or economic resources owned by a business, also described as probable future economic benefits, are called A) assets B) revenues C) liabilities D) equity E) expenses
149) The value of assets exchanged for goods or services provided to customers as part of the main operations of a business are called
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A) assets B) revenues C) liabilities D) equity E) expenses
150)
Assets created by selling products or services on credit are A) accounts payable B) accounts receivable. C) liabilities D) expenses E) equity
151)
The internal functions of a business include A) research and development B) purchasing C) marketing D) servicing E) All of the choices are correct.
152)
The reporting entity principle A) requires that sole proprietors have unlimited liability B) requires that partnership income be taxed at the partnership level C) means that business records should be kept separate from the owner's personal records D) requires that partnerships have written agreements E) requires that corporations have shareholders
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153) The question of when revenue should be recognized on the income statement (according to GAAP) is answered by the A) revenue recognition principle B) going concern principle C) currency principle D) reporting entity principle E) historical cost principle
154)
Equity is also known a A) profit B) expenses C) net assets D) revenue E) net loss
155)
The excess of expenses over revenues for a period depict A) net assets B) equity C) loss D) profit E) a liability
156)
Revenue is recognized in most businesses
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A) when the customer's order is received B) only if the transaction creates an account receivable C) only if paid in cash D) upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price E) when cash from a sale is received
157)
Businesses can take the following form(s) A) sole proprietorship B) not-for-profit C) partnership D) sole proprietorship and partnership E) All of the choices are correct.
158)
The recording of financial transactions either manually or electronically is called A) accounting B) bookkeeping C) preparing financial statements D) auditing E) systems design
159)
Internal controls are procedures set up to A) protect assets B) ensure accounting reports are free from error, neutral and complete C) promote efficiency D) ensure company policies are followed E) All of the choices are correct.
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160) If a business is not being sold or closed, the amounts reported in the accounts for assets used in operations are based on costs. This practice is justified by the A) historical cost principle B) going concern principle C) revenue recognition principle D) reporting entity principle E) currency principle
161) The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures revenue as the amount of cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services is called the A) going concern principle B) historical cost principle C) revenue recognition principle D) currency principle E) reporting entity principle
162) An obligation of a business that represents the claims of others against the assets of the business is called a(n) A) asset B) expense C) revenue D) equity E) liability
163) Costs incurred or the using up of assets as a result of the main operations of a business are called
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A) liabilities B) equity C) revenues D) expenses E) net losses
164)
Payments of cash by a corporation to its shareholders are called A) dividends B) cheques C) shareholder's equity D) withdrawals E) expenses
165) An exchange of economic consideration between two parties that causes a change in assets, liabilities or equity is called A) business transaction B) liabilities C) source documents D) external transactions E) prepaid expenses
166) Which of the financial statement provides the profit or loss the business earned, and also lists the types and amounts of the revenues and expenses? A) Balance sheet B) Statement of changes in equity C) Statement of cash flow D) Income statement. E) Statement of financial position
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167) A financial statement providing information that helps users understand a company's financial status at a specific date, is called a(n) A) balance sheet B) income statement C) statement of cash flows D) statement of changes in equity E) bank statement
168)
Cash investments by owners are listed on which of the following statement(s)? A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flows E) Both a statement of changes in equity and statement of cash flows
169)
Profit appears on which of the following statement(s)? A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flows E) Both an income statement and statement of changes in equity
170)
Salaries paid with cash appear on which of the following statement(s)?
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A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flow E) Both an income statement and statement of cash flows
171) Fees earned by a business in exchange for services provided by the business appear on which of the following statements? A) Balance sheet B) Income statement C) Statement of changes in equity D) Statement of cash flows E) Statement of financial position
172)
The balance sheet equation is A) revenues minus expenses equals profit B) debits equal credits C) the bookkeeping phase of accounting D) another name for the accounting equation E) assets minus liabilities
173) According to generally accepted accounting principles, a company's balance sheet should show the company's assets at
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A) the cash equivalent value of what was given up or the asset received, whichever is more clearly evident B) the market value of the asset received in all cases C) the cash outlay only, even if part of the consideration given was something other than cash D) the best estimate of a certified internal auditor E) current replacement cost
174)
Profit is A) assets minus liabilities B) the excess of revenues over expenses C) the excess of expenses over revenues D) a revenue E) the same as equity
175)
If financial information is relevant, this means that
A) decision makers can depend on it B) it can affect the types of decisions made by users C) the information is prepared using the same accounting procedures from one accounting period to the next D) users are able to compare different companies, if all the companies use similar accounting practices E) the financial statements have not been prepared according to GAAP
176)
Financial information that is verifiable means that
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A) information is clear and concise B) knowledgeable users agree that the financial information is faithfully represented C) the information is useful to users with reasonable knowledge of accounting as well as business and economic activities D) users are able to compare different companies, if all the companies use similar accounting practices E) the financial statements have not been prepared according to GAAP
177)
A statement of financial position is another name for A) the income statement B) the balance sheet C) the statement of cash flows D) the statement of changes in equity E) the accounting equation
178)
A statement of profit and loss is another name for A) the income statement B) the balance sheet C) the statement of cash flows D) the statement of changes in equity E) the accounting equation
179)
A balance sheet lists A) the types and amounts of the revenues and expenses of a business B) only the information about what happened to equity during a specific time period C) the types and amounts of assets, liabilities, and equity of a business at a specific date D) the inflows and outflows of cash during a specific time period E) the assets and liabilities of a business but not the equity
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180)
Which of the following statements is true about assets? A) They are the properties or economic resources that always have a matching liability. B) They are available to provide only immediate benefits to the business. C) They cannot include intangible rights. D) Ownership is shared between creditors and owners. E) All of the choices are correct.
181)
The primary objective of GAAP is to provide accounting information that is A) usefulness for decision making B) free from bias C) timeliness D) comparability E) neutral
182) The adoption of international accounting standards is an application of which of the following quality enhancing characteristics of financial information A) verifiability B) understandability C) timeliness D) comparability E) completeness
183)
The primary objective of financial accounting is
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A) to help organizations keep track of financing activities B) to provide external reports to help users analyze an organization's activities C) to help an organization define its ideas, goals, and action D) to help an organization to keep track of its buying and selling of resources E) to prepare budgets
184) Blue Company received $2,000 cash for work completed. The effects on the accounting equation are A) total assets decrease, and equity increases B) both total assets and total liabilities decrease C) total assets, total liabilities, and equity are unchanged D) both total assets and equity are unchanged E) total assets increase and equity increases
185)
Which of the following is not reported on the income statement? A) revenues earned by a business B) expenses incurred by a business C) withdrawals D) profit E) All of the choices are correct.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 186) Describe the purpose and importance of accounting.
187)
Identify the three forms of business organizations.
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188) Identify three advantages to setting up a corporation as an owner's legal business structure.
189) Identify the form of business organization(s) to which the following characteristics apply. (a) Is a separate reporting entity. (b) Can be owned by one person. (c) Owner or owners are personally liable for debts of the business. (d) Is a taxable entity. (e) Is created by a charter from a provincial or the federal government. (f) Keeps the accounting of its transactions separate from the owner's(s') personal transactions. (g) May have a contract specifying the division of profits among the owners. (h) Owner or owners are not personally liable for debts of the business. Use the following format to indicate whether or not a characteristic applies to each type of business organization. Proprietorship
Partnership
Corporation
A. B. C. D. E. F. G. H.
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190) The following is a list of users of accounting information. Match the appropriate user groups to the following information needs. NOTE: Some needs may apply to more than one user group. (a) Employees, (b) Lenders, (c) External auditors, (d) Managers, (e) Suppliers, (f) Regulators, (g) Shareholders _______(1) The level of sales necessary to break even. _______(2) Verification that external reports are accurate. _______(3) Computation of taxes. _______(4) The ability of a company to repay its loans. _______(5) The amount of current income. _______(6) Fairness of wages. _______(7) Promptness of customer payment of bills. _______(8) Profit outlook.
191)
Describe the main user groups, their members, and their uses of accounting information.
192)
Explain why ethics and social responsibility are an integral part of accounting.
193)
Identify several opportunities in accounting and its related fields.
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194) Explain the difference between the functions of an internal auditor and an external auditor.
195) Select the appropriate financial statement for each of the following accounts. (a) Income statement, (b) Statement of changes in equity, (c) Balance sheet, (d) Statement of cash flows ____ (1) Cash ____ (2) Withdrawals ____ (3) Notes payable ____ (4) Service revenue ____ (5) John Jay, capital ____ (6) Accounts receivable ____ (7) Prepaid Rent ____ (8) Supplies Expense
196) Select the appropriate financial statement for each of the following items. (a) Income statement, (b) Statement of changes in equity, (c) Balance sheet, (d) Statement of cash flows _____ (1) Supplies _____ (2) Profit _____ (3) Ahmad Khan, Capital _____ (4) Advertising Expense _____ (5) Cash paid to employees _____ (6) Withdrawals _____ (7) Fees earned _____ (8) Cash paid for supplies
197) List the three main differences between the sole proprietorship and the corporate form of business. Version 1
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198)
What is the statement of financial position? What is its purpose?
199)
What distinguishes liabilities from equity?
200)
List the three types of activities reported on the statement of cash flows.
201)
Describe the revenue recognition principle.
202)
Describe three measurement methods based on current values.
203)
Why should assets be recorded at historical cost?
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204)
How does the going concern principle affect reporting asset values of a business?
205) A parcel of land is offered for sale at $135,000, is assessed for tax purposes at $60,000, is recognized by its purchasers as easily being worth $108,000, and is purchased for $106,000. At what amount should the land be recorded in the purchaser's books if the company employs the measurement method of historical cost?
206) Before purchasing a parcel of land, Ming's Boutique had the land appraised at $90,000. The management of Ming's Boutique purchased the land for $85,000. At what amount should the land be recorded on Ming's Boutique's books? What accounting principle supports your answer?
207) You are reviewing the accounting records of April's Attic, owned by April Lapierre. You have uncovered the following situations. Compose a memo to Ms. Lapierre. Cite the appropriate accounting principle and suggest an action for each separate item. 1) April wrote a cheque for $350 to Wee Care Day Care Centre. The amount paid for day care for Justin Lapierre, April's son. 2) April plans a Going Out of Business Sale for May, since she will be closing her business for a monthlong vacation in June. She plans to reopen July 1 and will continue operating April's Attic indefinitely. 3) April received a shipment of pine furniture from Maine, U.S.A. The invoice was stated in U.S. dollars. 4) Martinique Gresham paid $1,000 for a dining table. The amount was recorded as revenue. The table will be delivered to Ms. Gresham in six weeks.
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208)
Explain the accounting equation, also called the balance sheet equation.
209) Lionel's Laundry has assets of $90,000 and liabilities of $20,000. Calculate the amount of equity.
210) Caps Lock has liabilities of $100,000 and $150,000 in equity. What is the value of its assets?
211) Sheila's Attic has $660,000 in assets and equity of $250,000. What is the amount of its liabilities?
212) If the liabilities of a business increased $65,000 during a period of time and equity in the business decreased $21,000 during the same period, would the assets of the business have increased or decreased? By what amount?
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213)
214)
Select from the following list items that are likely to serve as source documents. (a) Credit card
(e) Balance sheet
(b) Credit card receipt
(f) Bank statement
(c) Purchase order
(g) Journal entry
(d) Invoice
(h) Electric power bill
Explain the difference between a business transaction and a business event.
215) At the beginning of this year, Tong Company had $160,000 in liabilities and $200,000 in assets. During this year, assets increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000 during this year. Calculate the beginning and ending values of equity.
216) If the liabilities of a business increased $60,000 during a period of time and equity in the business decreased $18,000 during the same period, would the assets of the business have increased or decreased? By what amount?
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