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Ch05 TestAns01

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Test 5-1 Answers
Chapter 5 — Test 1 Answers
K/U
1. For each of the following, choose the most appropriate response.
1) H. Hyland, the owner of Sparkling Dry Cleaners, submitted an invoice received from Speedy Auto
Service for repairs to his wife’s car; he has instructed you to issue a cheque in full payment of the
account. The correct entry is:
a. debit Automobile; credit Bank.
b. debit Car Expense; credit Bank.
c. debit Car Expense; credit H. Hyland, Drawings.
d. debit Car Expense: credit Accounts Payable.
e. debit H. Hyland, Drawings; credit Bank.
2) Which of the following would not be correct in the heading of an income statement?
a. December 31, 20—
b.
c.
d.
e.
Al’s Tireland Ltd.
Income Statement
Year Ended June 30, 20—
All of the above are correct.
3) The fiscal period is usually:
a. measured in weeks.
b. twenty-four months.
c. a length of time that is less than one year.
d. one year long.
e. Two of the above are true.
4) The income statement will:
a. indicate to the owner the cash position of the business.
b. be used to determine the amount of income tax the business must pay.
c. tell bankers if the business is in a good position to pay its bills.
d. reveal the amount of money withdrawn by the owner.
e. Two of the above are true.
5) The Fees Earned figure could include:
a. sale of the owner’s personal assets.
b. sale of company’s office furniture.
c. sale of company’s automobile.
d. all of the above.
e. none of the above.
6) The fiscal year-end for a business is December 31, 20-1. On December 28, 20-1, the business pays the
rent for January 20-2, and the accounting clerk debits Rent Expense and credits Bank. The GAAP that
has been violated is:
a. the time period concept.
b. the principle of conservatism.
c. the matching principle.
d. the business entity concept.
e. No GAAP has been violated.
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
1
Test 5-1 Answers
1. (cont.)
7) When cash services are performed:
a. Accounts Receivable is debited, Fees Earned is credited.
b. Cash is debited, Fees Earned is credited.
c. Cash is debited, Accounts Receivable is credited.
d. Fees Earned is debited, Cash is credited.
e. none of the above occurs.
8) During the lifetime of a business, accountants produce financial statements at specific points in time in
accordance with which basic accounting concept?
a. the time period concept.
b.
c.
d.
e.
the principle of conservatism.
the matching principle.
the business entity concept.
none of the above.
2. What type of balance do the following accounts usually have?
a) A revenue account
Credit
b) An expense account
Debit
c) A Drawings account
Debit
d) A Capital account
Credit
K/U
3. Indicate which accounts you would debit and credit for the following transactions for Splinters
Building Supplies. Write complete account titles; use Fees Earned for revenue transactions.
T/I
September
1 Issued Cheque No. 1 to M. Goulet for the
September rent.
3 Received a bill from Comeau Hardware for
the purchase of supplies on account.
6 Issued a bill to R. Mancini for services
performed during the previous week.
9 Received cash from a customer for services
performed.
11 Issued Cheque No. 2 to J. Varcoe, the owner,
for personal use.
12 Issued Cheque No. 3 to Comeau Hardware
on account.
15 Received a bill from Imperial Garage for
gasoline and oil used in the truck.
16 Issued Cheque No. 4 to Woo Bros. for supplies
purchased.
18 Received a cheque from R. Mancini in full
payment of his account balance.
2
Debit Account
Credit Account
Rent Expense
Bank
Supplies
A/P—Comeau
Hardware
A/R—R. Mancini
Fees Earned
Bank
Fees Earned
J. Varcoe, Drawings
Bank
A/P—Comeau
Hardware
Bank
Truck Expense
A/P—Imperial
Garage
Supplies
Bank
Bank
A/R—R. Mancini
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
Test 5-1 Answers
A
4. T.J. Chan, an engineering consultant, decided to begin a business of his own. Chan has set up the
following chart of accounts to be used in his business:
101 Bank
110 A/R—M. Armota
111 A/R—F. Morsi
120 Supplies
125 Equipment
130 Automobile
210 A/P—Eustace Bros.
211 A/P—Regal Oil
301
302
401
505
510
515
520
525
530
T.J. Chan, Capital
T.J. Chan, Drawings
Fees Earned
Bank Charges
Car Expense
Miscellaneous Expense
Rent Expense
Telephone Expense
Wages Expense
a) For each of the transactions listed below, work out the changes for the transaction and record
these changes in the T-accounts. After finishing the transactions, calculate and record the
account balances.
Transactions
1. On March 1, 20—, when T.J. began his business, he invested in the business a bank balance
of $8 000, an automobile worth $14 000, and equipment costing $6 000.
2. Issued cheque for $465 to Royalty Trust Co. in payment of the monthly rent.
3. Issued cheque for $200 to the owner for personal use.
4. Received a bill in the amount of $900 from Eustace Bros. for office supplies purchased on account.
5. Issued cheque for $350 to West End Garage as payment for repairs to the owner’s personal car.
6. Issued bill to F. Morsi for services performed, $500.
7. Issued cheque for $400 to pay the office secretary’s weekly wage.
8. Received an invoice for $90 from Regal Oil for gasoline and oil used in the business automobile,
due in 30 days.
9. Received a memorandum stating that $50 had been deducted by the bank from the business’s
account to cover bank charges for the month.
10. Issued cheque for $150 to the City Telephone Company in payment of the telephone bill that
arrived today.
11. Issued bill to M. Armota for services performed, $800.
12. Received $250 cash from C. Fuda to pay for services performed.
13. Purchased a magazine subscription for the office for $75, paid by cheque.
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
3
Test 5-1 Answers
4. (cont.)
4
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
Test 5-1 Answers
ASSETS
Bank
1
12
101
8 000
250
2 11
3
5
7
9
10
13
465
200
350
400
50
150
75
A/R—M. Armota
800
110
6
800
A/R—F. Morsi
500
111
500
6 560
Supplies
4
120
1
900
900
Equipment
6 000
125
1
6 000
Automobile
14 000
130
14 000
LIABILITIES AND EQUITY
A/P—Eustace Bros.
A/P—Regal Oil
210
4
900
900
T.J. Chan, Capital
28 000
Bank Charges
75
301
1
3
5
Rent Expense
400
400
T.J. Chan, Drawings
200
350
302
Fees Earned
550
505
9
75
7
8
301
28 000
13
211
90
Car Expense
50
1 951
510
8
50
520
2
Telephone Expense
465
465
401
6
500
11
800
12
250
Miscellaneous Expense
90
515
90
525
10
Wages Expense
150
530
150
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
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Test 5-1 Answers
6
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
Test 5-1 Answers
4. (cont.)
b) Balance the ledger of T.J. Chan by means of a trial balance dated March 31, 20—.
T.J. Chan
Trial Balance
March 31, 20—
Accounts
Bank
Debits
Credits
6 560
A/R—M. Armota
800
A/R—F. Morsi
500
Supplies
900
Equipment
6 000
Automobile
14 000
A/P—Eustace Bros.
900
A/P—Regal Oil
90
T. J. Chan, Capital
T. J. Chan, Drawings
28 000
550
Fees Earned
1 550
Miscellaneous Expense
75
Bank Charges
50
Car Expense
90
Wages Expense
400
Rent Expense
465
Telephone Expense
150
30 540
30 540
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
7
Test 5-1 Answers
4. (cont.)
c) Prepare an income statement for T.J. Chan as of March 31, 20—.
T.J. Chan
Income Statement
Month Ended March 31, 20—
REVENUE
Fees Earned
$1 550.00
EXPENSES
Bank Charges
$ 50.00
Car Expense
90.00
Miscellaneous Expense
75.00
Rent Expense
465.00
Telephone Expense
150.00
Wages Expense
400.00
Total Expenses
1 230.00
NET INCOME
$ 320.00
d) Prepare the equity section of the balance sheet for T.J. Chan as of March 31, 20—
T.J. Chan, Capital
Balance March 1
Net Income
Drawings
Decrease in Capital
Balance March 31
8
$28 000.00
$ 320.00
550.00
( 230.00)
$27 770.00
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
Test 5-1 Answers
5. A partially completed summary of financial data is given below. The data pertain to the
fundamental accounting equation for Duncan Goodwin over a period of two years:
T/I
A
Assets
Liabilities
Equity
End of 20-1
$52 800
$32 800
$20 000
End of 20-2
$58 800
$26 800
$32 000
a) Fill in the missing figures, given that
1. revenues for 20-2 are $62 000;
2. expenses for 20-2 are $34 000;
3. drawings for 20-2 are $16 000; and
4. the liabilities decreased by $6 000 from the end of 20-1 to the end of 20-2.
b) Show how you calculated the missing figures for 20-1.
$62 000 – $34 000 = $28 000 – $16 000 = $12 000 (increase in equity);
$32 000 – $12 000 = $20 000;
$52 800 – $20 000 = $32 800.
C
6. A.R. Smith began business on January 1 by investing $20 000 cash in his company. During the year,
the business had revenue of $60 000 and expenses of $44 500. He withdrew $8 000 during the year
for his personal use. He turned over to the business, for use by the business, his personal automobile
valued at $9 000.
a) What was the net income of the business for the year? Show your calculations.
Net Income was $15 500 ($60 000 – $44 500)
b) What was the amount in the Capital account on January 1st? On December 31st?
January 1st = $20 000
December 31st = $36 500 ($20 000 + $15 500 – $8 000 + $9 000)
c) What caused the increase or decrease in capital during the year?
Capital increased because net income was greater than drawings; also, there was an additional
investment of $9 000 (automobile).
Copyright © 2003 Pearson Education Canada Inc., Toronto, Ontario
Permission to reproduce and use this material is restricted to classrooms in which Accounting 1 is the adopted text.
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