TEST BANK ACCOUNTING PRINCIPLES 11TH EDITION WEYGANDT ch02WeyAP 11e TB CE a

COMPREHENSIVE EXAMINATION A
(CHAPTERS 1 - 5)

Topic

A-I

Multiple Choice..............................................

20

10

A - II

Matching ........................................................

10

10

A - III

Adjusting Entries ...........................................

15

20

A - IV

Closing Entries ..............................................

10

10

A-V

Journal Entries...............................................

18

12

A - VI

Multiple-Step Income Statement...................

15

10

A - VII

Correcting Entries..........................................

12

15

100

87

Checking Work ..............................................

Points

Approximate
Minutes

Problem

5
92


A-2

Test Bank for Accounting Principles, Eleventh Edition

Problem A - I — Multiple Choice (20 points)
Instructions: Designate the best answer for each of the following questions.
1.

The ACER Company has five plants nationwide that cost $60 million. The current market
value of the plants is $190 million. The plants will be recorded and reported as assets at:
a. $60 million.
b. $250 million.
c. $190 million.

d. $130 million.

2.

An increase in an expense:
a. increases revenues.
b. increases assets.
c. decreases liabilities.
d. decreases owner's equity.

3.

A proprietorship business with total owner's equity of $90,000 paid a $12,000 business
debt. As a result of this transaction, total owner's equity:
a. increased to $90,000.
b. increased by $12,000.
c. decreased by $12,000.
d. did not change.

4.

The left side of an account is always:
a. the balance of that account.
b. the credit side.
c. the debit side.
d. carried forward to the next accounting period.

5.

In a service-type business, revenue is recognized:

a. when the service is performed.
b. at the end of the year.
c. at the end of the month.
d. when cash is received.

6.

The purpose of recording depreciation on productive assets is to:
a. reflect the decline in the market value of the assets each period.
b. allocate the original cost of productive assets to expense over its useful life.
c. reduce income when the company has an exceptionally profitable year.
d. be in conformity with the revenue recognition principle.

7.

Trans Company debited Prepaid Insurance for $1,320 on July 1, 2014, for a one-year
fire insurance policy. If the company prepares monthly financial statements, failure to
make an adjusting entry on July 31 for the amount of insurance that has expired would
cause:
a. assets to be overstated by $1,320 and expenses to be understated by $1,320.
b. expenses to be overstated by $110 and assets to be understated by $110.
c. assets to be overstated by $110 and expenses to be understated by $110.
d. expenses to be overstated by $1,320 and assets to be understated by $1,320.


Comprehensive Examination A

A-3

8.

Which one of the following accounts is not closed at the end of an accounting period?
a. Owner's Capital account.
b. Service Revenue account.
c. Owner's Drawing account.
d. Insurance Expense account.

9.

Sullivan Bike Company received a $450 check from a customer for the balance due. The
transaction was erroneously recorded as a debit to Cash $540 and a credit to Service
Revenue $540. The correcting entry is:
a. debit Accounts Receivable, $450; credit Cash, $450.
b. debit Service Revenue, $540; credit Accounts Receivable, $90; credit Cash, $450.
c. debit Service Revenue, $540; credit Cash $90; credit Accounts Receivable, $450.
d. debit Cash, $90; debit Service Revenue, $450; credit Accounts Receivable, $540.

10.

During the year, Sally’s Pet Shop’s inventory account balance decreased by $29,000. If
the company’s cost of goods sold for the year was $245,000, purchases must have
been:
a. $187,000.
b. $216,000.
c. $274,000.
d. Unable to determine.

Problem A - II — Matching (10 points)
Match the items below by entering the appropriate letter in the space.
______ 1. Partnership

______ 2. Liabilities
______ 3. Revenues
______ 4. General ledger
______ 5. Expense Recognition Principle
______ 6. Unearned service revenue
______ 7. Income summary
______ 8. Intangible assets
______ 9. Freight-out
______ 10. Sales returns and allowances

A. A contra-revenue account.
B. Creditorship claims on total assets.
C. Noncurrent resources that do not have a
physical substance.
D. Gross increases in owner's equity
resulting from business activities
entered into for the purpose of earning
income.
E. The matching of efforts (expenses) with
accomplishments (revenues).
F. Freight costs incurred by the seller.
G. An economic entity which is not a
separate legal entity.
H. A temporary account used in closing
revenue and expense accounts.
I. Contains all assets, liabilities, and
owner's equity accounts.
J. A liability created when cash is received
in advance of performing a service for a
customer.

A - 12

Test Bank for Accounting Principles, Eleventh Edition

Problem A - III — Adjusting Entries (15 points)
The following information for Mountaintop Company is available on June 30, 2014, the end of a
monthly accounting period. You are to prepare the necessary adjusting journal entries for
Mountaintop Company for the month of June for each situation given. Appropriate adjusting
entries had been recorded in previous months. You may omit journal entry explanations.
1. Mountaintop Company purchased a 2-year insurance policy on March 1, 2014 and debited
Prepaid Insurance for $5,280.

2. On January 1, 2014, a tenant in an apartment building owned by Mountaintop Company paid
$4,140 which represents six months' rent in advance. The amount received was credited to
the Unearned Rent account.

3. On June 1, 2014, the balance in the Supplies account was $600. During June, supplies
costing $1,200 were purchased. A physical count of supplies at June 30 revealed that there
was $420 still on hand.

4. On March 31, 2014, Mountaintop Company purchased a delivery van for $36,000. It is
estimated that the annual depreciation will be $7,200.

5. Mountaintop Company has two employees who earn $65 and $70 per day, respectively. They
are paid each Friday for a five-day work week that begins each Monday. Assume June 30 is a
Thursday in 2014.

Comprehensive Examination A A - 11

Problem A - IV — Closing Entries (10 points)
The end of the period account balances after adjustments of Hernandez Shoe Repair are as
follows:
Account Balances
(After Adjustments)
Cash
Supplies
Prepaid Rent
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
Owner’s Capital
Owner’s Drawing
Service Revenues
Supplies Expense
Depreciation Expense
Rent Expense
Salaries and Wages Expense
Utilities Expense

$ 36,000
2,700
9,600
94,000
22,000
14,500
54,600

7,500
41,000
2,000
3,000
900
1,200
1,800

Instructions: Prepare the end of the period closing entries for Hernandez Shoe Repair. You may
omit journal entry explanations.


A - 12

Test Bank for Accounting Principles, Eleventh Edition

Problem A - V — Journal Entries (18 points)
Prepare the necessary general journal entries for the month of March for Dogwood Company for
each situation given below. Dogwood uses a perpetual inventory system.
1.

Mar. 5

Paid cash of $6,000 for operating expenses that were incurred and properly
recorded in the previous period.

2.

Mar. 8

Purchased merchandise for $28,000 on account. Credit terms: 1/10, n/30; Freight
term: FOB Destination.

3.

Mar. 12 Borrowed $10,000 from Citizen’s Bank signing a 6%, 6-month note.

4.

Mar. 15 Paid for merchandise purchased on March 8. The company takes all discounts to
which it is entitled.

5.

Mar. 20 Sold merchandise for $25,000 to Chris Martin on account. The cost of the
merchandise sold was $16,000. Credit terms: 1/10, n/30.

6.

Mar. 21 Freight term on sale made on March 20th was FOB destination. Cash paid for
shipping was $600.


Comprehensive Examination A A - 11

7.

Mar. 22 Purchased a 2-year insurance policy for $4,100 cash.

8.

Mar. 25 Credited Chris Martin’s account for $400 for merchandise returned by him from the
sale on March 20. The cost of the merchandise returned was $225.

9.

Mar. 29 Purchased equipment for $34,000 paying $8,000 in cash and signing a 12-month,
6% note for the remainder.


A - 12

Test Bank for Accounting Principles, Eleventh Edition

Problem A - VI — Multiple-Step Income Statement (15 points)
Below is a partial listing of the adjusted account balances of Pacific Department Store at year end
on December 31, 2014.
Accounts Receivable
Cost of Goods Sold
Selling Expenses (includes depreciation)
Interest Expense
Accumulated Depreciation—Building
Sales Discounts
Unearned Service Revenue
Inventory
Administrative Expenses (includes depreciation)
Sales Revenue
Accounts Payable
Interest Revenue

$ 10,500
107,500
13,500
400
16,500
6,500
14,000
18,500
9,000
165,000
4,500
300

Instructions: Using the data provided as appropriate, prepare a multiple-step income statement
for Pacific Department Store for the year ended December 31, 2014.


Comprehensive Examination A A - 11

Problem A - VII — Correcting Entries (12 points)
The following errors were made in journalizing and posting transactions in September in the
Marburg Company.
Instructions: Prepare the correcting entries at September 30 assuming the incorrect entry is not
reversed. (Omit explanations.)
1. The receipt of $9,000 from a customer for future service was recorded as a debit to Cash
$900 and a credit to Service Revenue $900.

2. A bill for $8,000 for new office equipment was debited to Supplies $8,000 and credited to
Accounts Payable $8,000.

3. A $1,000 payment for freight charges incurred on inventory purchased in September was
debited to Inventory $1,000 and credited to Cash $1,000.

4. A collection of $8,500 on account from a customer was recorded as a debit to Cash $8,500
and a credit to Service Revenue $8,500.


A - 12

Test Bank for Accounting Principles, Eleventh Edition

Solutions — Comprehensive Examination A
Problem A - I — Multiple Choice (20 points)
1. a
2. d
3. d

4. c
5. a
6. b

7. c
8. a
9. c

10. b

Problem A - II — Matching (10 points)
1.
2.

3.
4.
5.

G
B
D
I
E

6.
7.
8.
9.
10.

J
H
C
F
A

Problem A - III — Adjusting Entries (15 points)
1. Insurance Expense ...........................................................................
Prepaid Insurance ....................................................................

220
220

2. Unearned Rent ..................................................................................

Rent Revenue ..........................................................................

690

3. Supplies Expense .............................................................................
Supplies ...................................................................................

1,380

4. Depreciation Expense .......................................................................
Accumulated Depreciation—Delivery Van ...............................

600

5. Salaries and Wages Expense ...........................................................
Salaries and Wages Payable ...................................................

540

Problem A - IV — Closing Entries (10 points)
Service Revenues ...................................................................................
Income Summary ...........................................................................

690
1,380
600
540

41,000
41,000

Income Summary ....................................................................................
Supplies Expense ..........................................................................
Depreciation Expense ....................................................................
Rent Expense ................................................................................
Salaries and Wages Expense ........................................................
Utilities Expense ............................................................................

8,900

Income Summary ....................................................................................
Owner’s Capital ..............................................................................

32,100

Owner’s Capital .......................................................................................
Owner’s Drawing ............................................................................

7,500

2,000
3,000
900
1,200
1,800
32,100
7,500


Comprehensive Examination A A - 11

Problem A - V — Journal Entries (18 points)
1.
2.
3.
4.

5.

6.
7.
8.

9.

Mar. 5

Accounts Payable ...........................................................
Cash .......................................................................

6,000

Inventory .........................................................................
Accounts Payable ..................................................

28,000

Mar. 12 Cash ................................................................................
Notes Payable ........................................................

10,000

Mar. 15 Accounts Payable ...........................................................
Inventory ................................................................
Cash .......................................................................

28,000

Mar. 20 Accounts Receivable ......................................................
Sales Revenue........................................................
Cost of Goods Sold .........................................................
Inventory ................................................................

25,000

Mar. 21 Freight-out .......................................................................
Cash .......................................................................

600

Mar. 22 Prepaid Insurance ...........................................................
Cash .......................................................................

4,100

Mar. 25 Sales Returns and Allowances .......................................
Accounts Receivable .............................................
Inventory .........................................................................
Cost of Goods Sold ................................................

400

Mar. 29 Equipment .......................................................................
Cash .......................................................................
Notes Payable ........................................................

34,000

Mar. 8

6,000
28,000
10,000
280
27,720
25,000
16,000
16,000
600
4,100
400
225
225
8,000
26,000


A - 12

Test Bank for Accounting Principles, Eleventh Edition

Problem A - VI — Multiple-Step Income Statement (15 points)
PACIFIC DEPARTMENT STORE
Income Statement
For Year Ended December 31, 2014
Sales revenues
Sales Revenue ......................................................................
Less: Sales discounts ...........................................................
Net sales ........................................................................................
Cost of goods sold .........................................................................
Gross profit .....................................................................................
Operating expenses
Selling expenses ...................................................................
Administrative expenses .......................................................
Total operating expenses ................................................
Income from operations .................................................................
Other revenues and gains
Interest revenue ....................................................................
Other expenses and losses
Interest expense ...................................................................
Net Income......................................................................................

$165,000
6,500
$158,500
107,500
51,000
13,500
9,000
22,500

28,500
300
400

Problem A - VII — Correcting Entries (12 points)
1. May 31 Cash ................................................................................
Service Revenue..............................................................
Unearned Service Revenue ..................................

8,100
900

2. May 31

8,000

Equipment .......................................................................
Supplies .................................................................

3. May 31

No correction needed

4. May 31

Service Revenue .............................................................
Accounts Receivable .............................................

Note: No explanations either before or after entries.

(100)
$ 28,400

9,000
8,000

8,500
8,500