Solutions to Exam 1
Multiple Choice
1. a
2. d
3. c
4. d
5. e
6. b
7. c
8. d
9. a
10. a
11. c
12. a
13. b
14. c
15. a
Problem 1:
1.
Cash
Common Stock
2.
Supplies
A/P
3.
Equipment
Cash
Note Payable
35000
35000
400
400
6000
2500
3500
4.
A/R
Revenue
4400
5.
Rent Expense
Cash
700
6.
A/P
Cash
200
4400
700
200
7.
Advertising Expense
A/P
1500
8.
Salaries Expense
Cash
2200
9.
Dividends
Cash
1200
10.
Cash
A/R
3000
1500
2200
1200
3000
Problem 2
The errors are as follows:
1. On the statement of earnings the date should be “for the period ending”
2. On the statement of earnings, Unearned Sales Revenue should just be Revenue
3. Prepaid expenses is an asset and should not be on the statement of earnings
4. The beginning date of the retained earnings should be Dec. 31, 03
5. The ending date of the retained earnings should be Dec 31, 04
6. Patent is not a current asset. It should be in the long term asset or intangible
category
7. Accumulated amortization should be subtracted from the equipment
8. Accounts Receivable is a current asset and it should be in the current category
9. the balance sheet does not balance
10. the ending Retained earnings balance has not been put on the balance sheet in the
equity section
Problem 3
1.
A/R
Revenue
2.
Property Tax Expense
A/P
3.
Unearned Revenue
Revenue
4.
Insurance Expense
Prepaid insurance
270
270
700
700
600
600
240
240
5.
Salaries Expense
Salaries Payable
950
950
Short Essay
Revenue recognition is the principle in accounting that states that revenue can only be
recorded when it has been earned…the service performed or the goods delivered.
Matching principle in accounting states that the expenses must be recorded in the
same period that the related revenue is earned. You must record the expenses
incurred to generate revenue in the same period.
These concepts are important to accrual accounting because using both of these
concepts ensures that the net earnings or net income stated for a certain accounting
period are a fair and accurate representation of the operations of the business.