Past Midterms - MTGB05 Accounting

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University of Toronto Scarborough
Financial Accounting
Daga Sandra

MGTB05H3 FINANCIAL ACCOUNTING I – 2011 Fall Session True or False Questions 1. Debits are used to record increases in assets, dividends and expenses. 2. The process of recording transactions in a journal is called posting. 3. In double entry accounting, all errors are avoided by being sure that debits and credits equal when transactions are recorded. 4. The cost of renting an office during the current period is an expense, however the cost of renting an office six periods in advance is an asset. 5. Liability accounts include Accounts Payable, Unearned Revenues and Notes Payable. 6. The effect of a debit to an Unearned Revenue account and a corresponding credit to a revenue account is to transfer the earned portion of the fee from the liability account to the revenue account. 7. If the accountant failed to make the end of period adjustment to remove from the Prepaid Expense account the amount of expenses incurred, the omission would cause an overstatement of Net Income. 8. If accrued interest is not recorded, the result is that interest expense is understated and interest payable is overstated. 9. Under the accrual basis of accounting, revenues are recognized when they are earned and expenses are matched with revenues. 10. Amortizing capital assets causes the expense to be recorded when the asset is purchased. 11. If a business follows the practice of debiting prepayments of expenses to expense accounts, the adjusting entries for prepaid expenses requires a debit to prepaid expense accounts. 12. If a business records receipts of unearned revenues with debits to cash and credits to revenue accounts, no adjusting entries are required at the end of the period. Page 1 of 9 MGTB05H3 FINANCIAL ACCOUNTING I – 2011 Fall Session Multiple Choice Questions 1. Joe Boxling’s company had a Retained Earnings balance of $33,400 on June 30 and $46,700 on July 31. Withdrawals for the month of July were $5,200. How much was the Net Income for the business during July? a. ($8,100) b. $5,200 c. $8,100 d. $13,300 e. $18,500 2. Which of the following transactions does not affect the Shareholders’/Owners’ Equity in a proprietorship? a. Investments by the owner. b. Withdrawals of cash by the owner. c. Cash receipts for earned revenues. d. Cash receipts for unearned revenues. e. Cash payments for incurred expenses. 3. A ledger is: a. A book of original entry in which the effects of transactions are first recorded. b. The collection of all accounts used by a business. c. A book of original entry in which any type of transaction can be recorded. d. A book of special journals. e. An account with debit and credit columns and a third column for showing the balance of the account. 4. The following transactions occurred during the month of October: 1) Paid $1,500 cash for store equipment. 2) Paid $1,000 in partial payment for supplies purchased 30 days previously. 3) Paid October’s utility bill of $600. 4) Paid $1,200 to owner of business for his personal use. 5) Paid $1,400 salary of office employee for October. What is the total amount of expenses during October? a. $3,000 b. $4,500 c. $2,000 d. $3,500 e. $5,700 5. Time periods covered by Financial Statements are called: a. Seasonal periods b. Fiscal Years c. Operating Cycles d. Accounting Periods e. Natural Business Years Page 2 of 9 MGTB05H3 FINANCIAL ACCOUNTING I – 2011 Fall Session 6. The journal entry to record the completion of legal work for a client on credit and billing the client $1,700 for the services rendered would be: a. Accounts Receivable 1,700 Unearned Legal Fees 1,700 b. Legal Fees Earned 1,700 Accounts Receivable 1,700 c. Accounts Payable 1,700 Legal Fees Earned 1,700 d. Legal Fees Earned 1,700 Sales 1,700 e. Accounts Receivable 1,700 Legal Fees Earned 1,700 7. J Company paid in advance $300 for six months of insurance on the business. At the end of the first month, the journal entry to record the expense would be: a. Insurance Expense 300 Cash 300 b. Prepaid Insurance 300 Cash 300 c. Insurance Expense 50 Prepaid Insurance 50 d. Prepaid Insurance 50 Insurance Expense 50 e. No entry should be made until the salaries are actually paid. 8. By the end of the current year, Kurt’s business had recorded $32,000 of consulting revenues. In addition to this, consulting work for $540 had been completed but not recorded. The adjusting entry at year-end would be: a. Cash 540 Consulting Revenue 540 b. Accounts Receivable 540 Consulting Revenue 540 c. Consulting Revenue 540 Accounts Payable 540 d. Accounts Receivable 32,540 Consulting Revenue 32,540 e. No entry should be made until the cash is received. 9. On December 1, B&B Security Service collected three months worth of fees of $6,000 in advance of providing services. The amount was recorded as a credit to Unearned Security Service Fees. They provided the monthly service from that date forward. The December 31 adjustment will require Unearned Service Fees be: a. Credited for $2,000 b. Debited for $6,000 c. Credited for $6,000 d. Debited for $4,000 e. Debited for $2,000 Page 3 of 9 MGTB05H3 FINANCIAL ACCOUNTING I – 2011 Fall Session 10. Bud’s Restaurant prepares monthly Financial Statements. On January 31, the balance in the Supplies account was $1,600. During February, $2,960 of supplies were purchased and debited to Supplies. What is the adjusting entry on February 28 to account for the supplies assuming a February 28 inventory showed that $1,300 of supplies were on hand? a. Supplies Expense 300 Supplies 300 b. Supplies 300 Supplies Expense 300 c. Supplies 3,260 Cash 3,260 d. Supplies Expense 3,260 Supplies 3,260 e. Some other entry. 11. Jay’s Delivery Services purchased equipment costing $15,000. The equipment was expected to have a useful life of 6 years. At the end of the 6 years, the equipment was expected to be sold for $3,000. Using straight-line depreciation, the adjusting entry to depreciate the equipment at the end of the first year would be: a. Depreciation Expense 2,500 Accumulated Amortization 2,500 b. Depreciation Expense 2,500 Equipment 2,500 c. Depreciation Expense 2,000 Accumulated Amortization 2,000 d. Depreciation Expense 2,000 Equipment 2,000 e. Some other entry. 12. Richley Company prepares monthly Financial Statements and follows the procedure of crediting revenue accounts when it records cash receipts of unearned revenues. During April, the business received for $4,800 for services to be rendered during April and May. On April 30, $2,000 of the amounts received had been earned. What is the
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