TUTORIAL TEST 11

REVISION

I. MCQs
1) Landon Jewelers uses the perpetual inventory system. On April 2, Landon sold merchandise
with a cost of $2,500 for $7,000 to a customer on account with terms of 3/15, n/30. The journal
entry to record the cost of goods sold would be:

A)
Cost of Goods Sold 2,500
Accounts Receivable 2,500
B)
Sales Revenue 7,000
Cost of Goods Sold 2,500
Accounts Receivable 4,500
C)
Cost of Goods Sold 2,500
Merchandise Inventory 2,500
D)
Merchandise Inventory 2,500
Cost of Goods Sold 2,500

2) For expenses, the category of account and its normal balance is ________.

A) equity and a credit balance

B) assets and a debit balance

C) assets and a credit balance

D) equity and a debit balance

3) On June 30, 2018, Clooney Printers purchased a printer for $60,000. It expects the printer to
last for four years and has a residual value of $9000. Compute the depreciation expense on the
printer for the year ended December 31, 2018, using the straight-line method. (Round any
intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

A) $12,750

B) $6,375
C) $15,000

D) $7,438

4) Which of the following is TRUE of the owner's capital account?

A) The owner's capital account decreases with the owner's withdrawals.

B) The owner's capital account increases with the purchase of a plant asset.

C) The owner's capital account decreases with the collection of revenue.

D) The owner's capital account increases with the payment on account.

5) The following Office Supplies account information is available for Nabors Company.

Beginning balance $2,000

Office Supplies expensed 8,000
Ending balance 1,000
From the above information, calculate the amount of office supplies purchased.

A) $7,000

B) $8,000

C) $2,000

D) $1,000

6) Which of the following statements is TRUE of expenses?

A) Expenses increase equity, so an expense account's normal balance is a credit balance.

B) Expenses decrease equity, so an expense account's normal balance is a credit balance.

C) Expenses increase equity, so an expense account's normal balance is a debit balance.

D) Expenses decrease equity, so an expense account's normal balance is a debit balance.

7) Jackson Electric Services Company incurred $800 as a repair expense and paid for it in cash.
The company is a sole proprietorship. This transaction will ________.

A) decrease the owner's equity

B) increase the assets of the business

C) increase the liabilities of the business

D) decrease the liabilities of the business

8) A merchandiser reports sales revenue of $25,000 and sales discounts forfeited of $1,500. The
merchandiser uses a perpetual inventory system. The first entry in the closing process would
include ________.

A) a credit to Income Summary for $26,500

B) a credit to Income Summary for $25,000

C) a debit to Income Summary for $26,500

D) a debit to Income Summary for $25,000

9) Brooks Landscaping Company performs lawn mowing services for its customers in May.
Payments for May's services are expected to be received in June. How does the transaction for
performing services in May affect the accounting equation of Brooks Landscaping?

A) liabilities increase and equity decreases

B) assets and equity increase

C) assets and equity decrease

D) liabilities and equity increase

10) Which of the following entries is necessary to close the appropriate depreciation account at
the end of the year?

A) debit Accumulated Depreciation and credit Income Summary

B) debit Depreciation Expense and credit Income Summary

C) debit Income Summary and credit Accumulated Depreciation

D) debit Income Summary and credit Depreciation Expense

11) The following is the adjusted trial balance for Baker Services.

Accounts Debit Credit

Cash $31,100
Accounts Receivable 30,000
Prepaid Insurance 3,500
Office Supplies 3,200
Land 49,000
Building 150,000
Accumulated Depreciation—Building $14,500
Equipment 77,000
Accumulated Depreciation—Equipment 7,000
Accounts Payable 25,000
Salaries Payable 2,000
Unearned Revenue 26,000
Mortgage Payable 106,000
Baker, Capital 24,500
Baker, Withdrawals 23,000
Service Revenue 275,000
Salaries Expense 64,000
Depreciation Expense—Building and
Equipment 5,600
Supplies Expense 11,000
Insurance Expense 14,600
Utilities Expense 18,000
Total $480,000 $480,000

There were no new capital contributions during the year. After the closing entries are posted,
what is the balance in Baker, Capital?

A) $1,500

B) $209,300

C) $24,500

D) $163,300

12) Which of the following statements regarding the allowance method of accounting for
uncollectible receivables is incorrect?

A) Bad debt expense is not estimated.

B) The Allowance for Bad Debts is used to hold the pool of "unknown" uncollectible accounts.

C) The business does not wait to see which customers will not pay when estimating the
allowance for bad debts.

D) The allowance method is based on the matching principle.

13) Samson Company had the following balances and transactions during 2019:

Beginning Merchandise Inventory 20 units at $94

March 10 Sold 17 units
June 10 Purchased 60 units at $100
October 30 Sold 54 units

What is the balance of the company's Merchandise Inventory, as disclosed in the December 31,
2019 balance sheet as per the perpetual FIFO inventory costing method?

A) $564

B) $600

C) $1,880

D) $900

14) Which is not a contra account in accounting?

A) Allowance for doubtful accounts

B) Accumulated depreciation

C) Sales discounts, or returns

D) Retained Earnings

15) Rotan Company purchased a van on January 1, 2018, for $810,000. The estimated life of the
van was five years, and its estimated residual value was $98,000. Rotan uses the straight-line
method of depreciation. At the beginning of 2020, the company revised the total estimated life of
the asset from five years to six years. The estimated residual value remained the same as
estimated earlier. Calculate the depreciation expense for 2020.

A) $142,400

B) $131,300

C) $106,800

D) $71,200

16) Rosewood Company purchased land for $140,000 by making a cash payment of $36,000 and
promising to pay the remaining amount in a later accounting period. What is the net effect of this
transaction on Rosewood's accounting equation?

A) Assets increase by $140,000 and liabilities decrease by $36,000

B) Assets increase by $140,000 and liabilities decrease by $104,000

C) Assets and equity increase by $104,000

D) Assets and liabilities increase by $104,000

17) Which of the following is an example of a period cost for a manufacturing company?

A) advertising expense

B) depreciation on factory equipment

C) indirect materials

D) property taxes for the factory

18) Llywelyn, Inc. reports the following information for July:

Sales Revenue $950,000

Variable Costs $150,000
Operating Income $410,000
What is the total fixed cost using variable costing?

A) $800,000
B) $390,000

C) $260,000

D) $560,000

19) Chocolate Co. reports the following information from its sales budget:

Expected sales: July $ 90,000

August 104,000
September 120,000

Cash sales are normally 25% of total sales and all credit sales are expected to be collected in the
month following the date of sale. The total amount of cash expected to be received from
customers in September is:

A) $30,000.

B) $78,000.

C) $108,000.

D) $120,000.

20) Woods Company earned revenues of $12,000 and incurred expenses of $9,500. The owner,
Woods, withdrew $3,000. What is the balance in the Income Summary account after closing net
income or loss to the Woods, Capital account?

A) debit balance of $12,000

B) credit balance of $9,500

C) credit balance of $2,500

D) balance of $0

21) On September 1, 2018, Real Estate Professionals Company paid $5,000 in advance for an
eight-month rental space covering the period of September 1, 2018 through April 30, 2019. The
deferred expense was initially recorded as an asset. The company makes adjusting entries once a
year at year-end. The adjusting entry on December 31, 2018 would include a ________.
A) debit of $5,000 to Cash

B) credit of $5,000 to Prepaid Rent

C) debit of $2,500 to Rent Expense

D) credit of $2,500 to Rent Expense

22) The matching principle ________.

A) guides accounting for revenues and expenses

B) results in the matching of expenses incurred during the period to the cash paid for expenses

C) ensures that all expenses are recorded when they are incurred during the period

D) results from a natural link between all expenses and revenues

23) Llywelyn, Inc. reports the following information for July, 20X1:

Sales Revenue $950,000

Variable Costs $150,000
Fixed costs for 20X1 $3,600,000
What is the operating income in July, 20X1 using variable costing? Assuming that each month’s
fixed costs are the same.

A) The company suffered a loss this month.

B) $500,000

C) $800,000

D) $440,000

24) Which of the following will be included in manufacturing overhead costs?

A) indirect labor and indirect materials used

B) salaries of salesmen

C) direct materials and direct labor

D) delivery costs to ship goods to customers

25) Prepaid Rent in the worksheet's unadjusted trial balance column is $6,000. Prepaid Rent in
the balance sheet column is $4,000. Which of the following entries would have caused this
difference?

A) a $2,000 debit entry to Prepaid Rent in the worksheet's adjustments column

B) a $2,000 credit entry to Rent Expense in the worksheet's adjustments column

C) a $2,000 credit entry to Prepaid Rent in the worksheet's adjustments column

D) a $2,000 credit entry to Rental Revenue in the worksheet's adjustments column

26) Western Company is preparing a cash budget for June. The company has $12,000 in cash at
the beginning of June and anticipates $30,000 in cash receipts and $34,500 in cash payments
during June. Western Company has an agreement with its bank to maintain a minimum cash
balance of $10,000. As of May 31, the company has no loans outstanding. To maintain the
$10,000 required balance, during June the company must:

A) Borrow $4,500.

B) Borrow $2,500.

C) Borrow $10,000.

D) Repay $7,500.

27) Llywelyn, Inc. reports the following information for July:

Sales Revenue (100 units) $950,000

Variable Costs (100 units) $150,000
Operating Income $410,000
What is the contribution margin per unit using variable costing?

A) $390,000

B) $8,000

C) $3,900
D) $800,000

28) Murphy Company prepaid $8,400 on October 1, 2018 for a one-year insurance premium.
Coverage begins October 1. On January 1, 2019 (after December 31 adjustments), the Prepaid
Insurance account will have a debit balance of ________. (Round any intermediate calculations
to two decimal places, and your final answer to the nearest whole number.)

A) $7,000

B) $9,100

C) $8,400

D) $6,300

29) Brandy Enterprises discarded a computer that was fully depreciated and had no residual
value. As a result of this transaction, Brandy will ________.

A) report a loss equal to the historical cost of the computer

B) Debit the Computer account and credit the Accumulated Depreciation - Computer account

C) Debit the Accumulated Depreciation - Computer account; debit Loss on Disposal of the
Computer account, and credit the Computer account

D) zero out the Computer and Accumulated Depreciation - Computer accounts

30) Rios Corporation reports costs for the year as follows:

Direct Materials Used $780,000

Wages to Line Workers 245,000
Office Rent 33,000
Indirect Materials Used 800,000
How much is the total product costs for the year?

A) $800,000

B) $1,825,000

C) $1,858,000
D) $1,025,000

31) Fedor, Inc. has prepared the following direct materials purchases budget:

Month Budgeted DM Purchases

June $67,000
July 77,000
August 76,300
September 78,000
October 70,200
All purchases are paid for as follows: 5% in the month of purchase, 10% in the following month,
and 15% two months after purchase. Calculate the total budgeted cash payments made in
October for purchases.

A) $22,680

B) $22,860

C) $22,145

D) $22,755

32) Which of the following statements is TRUE of revenues?

A) Revenues decrease equity, so a revenue account's normal balance is a credit balance.

B) Revenues decrease equity, so a revenue account's normal balance is a debit balance.

C) Revenues increase equity, so a revenue account's normal balance is a debit balance.

D) Revenues increase equity, so a revenue account's normal balance is a credit balance.

33) Accounts Receivable has a balance of $33,000, and the Allowance for Bad Debts has a credit
balance of $3300. The allowance method is used. What is the net realizable value of Accounts
Receivable before and after a $2300 account receivable is written off?

A) $29,700; $29,700

B) $27,400; $27,400

C) $29,700; $27,400
D) $27,400; $32,000

34) Aqua Primavera, Inc. has provided the following information for the year.

Units produced 11,000 units

Sales price $400 per unit
Direct materials $20 per unit
Direct labor $35 per unit
Variable manufacturing overhead $70 per unit
Fixed manufacturing overhead $440,000 per year
Variable selling and administration costs $90 per unit
Fixed selling and administration costs $240,000 per year
What is the unit product cost using variable costing?

A) $55

B) $166

C) $125

D) $215

35) Jacob Company had the following balances and transactions during 2019:

Beginning Merchandise Inventory 13 units at $93

March 10 Sold 11 units
June 10 Purchased 26 units at $89
October 30 Sold 20 units
What is the amount of the company's ending Merchandise Inventory, as disclosed in the
December 31, 2019 balance sheet, using the perpetual weighted-average inventory costing
method? (Round the unit costs to two decimal places and total costs to the nearest dollar.)

A) $730

B) $792

C) $720

D) $723
36) Which of the following statements is TRUE?

A) Accounts receivable are more liquid than cash.

B) Notes receivable are always classified as current assets.

C) Notes receivable usually have longer collection terms than accounts receivable.

D) Accounts receivable are liabilities.

37) Castillo Corporation, a manufacturer, reports costs for the year as follows:

Direct Materials Used $735,000

Wages to Line Workers 510,000
Office Rent 26,000
Indirect Materials Used 700,000
How much is the total period costs for Castillo?

A) $735,000

B) $510,000

C) $26,000

D) $700,000

38) Tulip Company purchased equipment for $58,000 on January 1, 2017. On December 31,
2019, the equipment was sold for $23,000. Accumulated Depreciation as of December 31, 2019
was $32,000.

Calculate gain or loss on the sale.

A) $3,000 gain

B) $2,000 loss

C) $35,000 loss

D) none of the answers is correct

39) Customer G. Smith owed Stonehollow Electronics $125. On April 27, 2018, Stonehollow
determined this account receivable to be uncollectible and wrote off the account. The company
uses the direct write-off method. On July 15, 2018, Stonehollow received a check for $125 from
the customer. How should the July 15, 2018 transaction be recorded?

A)
July 15 Cash 125
Accounts Receivable - G. Smith 125
B)
July 15 Accounts Receivable - G. Smith 125
Bad Debt Revenue 125
July 15 Cash 125
Accounts Receivable - G. Smith 125
C)
July 15 Cash 125
Bad Debt Expense 125
D)
July 15 Accounts Receivable - G. Smith 125
Bad Debt Expense 125
July 15 Cash 125
Accounts Receivable - G. Smith 125

40) Bioclean Co., a merchandiser, sells a biodegradable cleaning product and has predicted the
following unit sales for the first four months of the current year:

Jan. Feb. March April

Sales in units 1,800 2,000 2,100 1,600

Ending inventory for each month should be 20% of the next month's sales, and the December 31
inventory is consistent with that policy. How many units should be purchased in February?

A) 2,000.

B) 2,420.

C) 2,020.

D) 1,600.
II. SAQs
Question 1: Determine whether the statements below are true or false. If a statement is false,
kindly correct it.

1.1) If the volume of activity doubles in the relevant range, total variable costs will also
double.

1.2) Fixed costs per unit is inversely proportional to the volume of units produced.

1.3) Fixed cost per unit is assumed to be constant within a particular relevant range of activity.

1.4) The high-low method requires the identification of the lowest and highest levels of total
costs, not activity, over a period of time.

1.5) Contribution margin is the amount that contributes to covering the fixed costs and then to
providing operating income.

1.6) The terms unit contribution and contribution margin are used interchangeably.

1.7) A contribution margin income statement classifies costs by function; that is, costs are
classified as either product costs or period costs.

1.8) Fixed costs divided by the contribution margin ratio equals the breakeven point in sales
dollars.

1.9) The breakeven point is the point where the sales revenues are equal to the total variable
costs plus the total fixed costs.

1.10) In a cost-volume-profit (CVP) graph, the breakeven point is where the sales revenue line
intersects the fixed cost line.

Question 2:

Ellie Johnson Associates surveys American eating habits. The company’s accounts include Land,
Buildings, Office Equipment, and Communication Equipment, with a separate Accumulated
Depreciation account for each depreciable asset. During 2018, Ellie Johnson Associates
completed the following transactions:

Jan. 1 Purchased office equipment, $113,000. Paid $80,000 cash and financed the
remainder with a note payable.
 Apr. 1 Acquired land and communication equipment in a lump-sum purchase.
Total cost was $310,000 paid in cash. An independent appraisal valued the
land at $244,125 and the communication equipment at $81,375.

Sep. 1 Sold a building that cost $520,000 (accumulated depreciation of $285,000

through December 31 of the preceding year). Ellie Johnson Associates
received $420,000 cash from the sale of the building. Depreciation is
computed on a straight-line basis. The building has a 40-year useful life and
a residual value of $25,000.

Dec. Recorded depreciation as follows:

31
Communication equipment is depreciated by the straight-line method over a
five-year life with zero residual value.

Office equipment is depreciated using the double-declining-balance method

over five years with a $1,000 residual value.

Record the transactions in the journal of Ellie Johnson Associates.

Question 3:

Assume that Toys Galore store bought and sold a line of dolls during December as follows:

Dec. 1 Beginning merchandise inventory 13 units - $ 9 each

8 Sale 8 units - $ 22 each

14 Purchase 16 units - $ 14 each

21 Sale 14 units - $ 22 each

Requirements

1. Compute the cost of goods sold, cost of ending merchandise inventory, and gross profit using
the FIFO inventory costing method.

2. Compute the cost of goods sold, cost of ending merchandise inventory, and gross profit using
the LIFO inventory costing method.

3. Which method results in a higher cost of goods sold?

4. Which method results in a higher cost of ending merchandise inventory?

5. Which method results in a higher gross profit?

Question 4:

a. What is the difference between accounts receivable and notes receivable?

b. List some common examples of other receivables, besides accounts receivable and notes
receivable.

Question 5:

Paradise Travel's adjusted trial balance as of the end of its annual accounting period is shown
below:

Paradise Travel

Adjusted Trial Balance

December 31

Dr. Cr.

Cash $ 25,000

Accounts receivable 15,000

Office supplies 4,300

Office equipment 29,600

Accumulated depreciation–Office equipment $5,000

Long-term notes payable 25,000

D. Chambers, Capital 30,260

D. Chambers, Withdrawals 1,000

Fees earned 75,000

Salaries expense 32,800

Rent expense 16,800

Depreciation expense–Office equipment 3,960

Advertising expense 4,000

Office supplies expense 2,800

Totals $135,260 $135,260

(a) Prepare the necessary closing entries.

(b) Prepare a post-closing trial balance.