Question

1. The accountant for the Mobe Company made an adjusting entry to record depreciation for the current year twice by mistake. The effect of this error would be:

A. An overstatement of assets offset by an understatement of owner’s equity.

B. An understatement of assets, net income, and owner’s equity.

C. An overstatement of assets and of net income, and an understatement of owner’s equity.

D. An overstatement of net income and an understatement of assets.

E. None of the above.

2. The Sweeney Theater offered books of theater tickets to its patrons at $30 per book. Each book contained a certain number of tickets to future performances. During the current period 1,000 books were sold for $30,000, and this amount was credited to a temporary account. At the end of the period it was determined that $17,000 worth of book tickets had been used by customers attending performances. The appropriate adjusting entry at the end of the period would be:

A. Debit Ticket Revenue $17,000 and credit Unearned Ticket Revenue $17,000.

B. Debit Unearned Ticket Revenue $13,000 and credit Ticket Revenue $13,000.

C. Debit Unearned Ticket Revenue $17,000 and credit Ticket Revenue $17,000.

D. Debit Ticket Revenue $13,000 and credit Unearned Ticket Revenue $13,000.

E. None of the above.

3. A transaction caused a $14,000 increase in both total assets and total liabilities. This transaction could have been:

A. Purchase of office equipment of $14,000 for cash.

B. Purchase of office equipment for $24,000, paying $10,000 cash and issuing a note payable for the balance.

C. Repayment of a $14,000 bank loan.

D. Investment of $14,000 cash in the business by selling additional shares of common stock.

E. None of the above.

4. Joseph Company Retained Earnings increased by $20,000 during 2012. Total Revenues for 2012 were $200,000, the ending balance in Cash was $16,000, and Total Expenses were $172,000. Dividends declared and paid during 2012 were:

A. $18,000.

B. $12,000.

C. $8,000

D. $20,000.

E. None of the above.

5. A balance sheet is designed to show:

A. How much a business is worth.

B. The profitability of the business during the current year.

C. The amount of Dividends paid to shareholders since the business started operations.

D. The cost of replacing the assets and of paying off the liabilities at December 31.

E. None of the above.

6. The accountant for the Thomas Company forgot to make an adjusting entry to record accrued interest payable for the current year. The effect of this error would be:

A. An overstatement of net income and an understatement of liabilities.

B. An overstatement of assets offset by an understatement of owner’s equity.

C. An overstatement of assets, net income, and owner’s equity.

D. An overstatement of assets and of net income and an understatement of owner’s equity.

E. None of the above.

7. All the following accounts normally have credit balances except:

A. Fees Revenue

B. Common Stock

C. Prepaid Rent

D. Common Stock

E. None of the above

8. Closing entries never involve posting a credit to the:

A. Income Summary account.

B. Unearned Revenue account.

C. Retained Earnings account

D. Depreciation Expense account.

E. None of the above.

Answer 1

Solution:

1)

The correct option is B. An understatement of assets, net income, and owner’s equity.

Since the Depreciation is an expense and booked twice (it means higher than the actual) resulting the Asset, Net Income and Owner’s Equity will be understated.

2)

At the end of the period it was determined that $17,000 worth of book tickets had been used by customers attending performances. Hence this amount needs to be recognized as Revenue at the year end.

The following entry is to be made:

Debit Unearned Ticket Revenue $17,000 and

Credit Ticket Revenue $17,000

Hence, the correct option is C. Debit Unearned Ticket Revenue $17,000 and credit Ticket Revenue $17,000.

3)

The correct option is B. Purchase of office equipment for $24,000, paying $10,000 cash and issuing a note payable for the balance.

Purchase of Equipment for $24,000 --- It involves payment of $10,000 Cash, so the effect is Equipment increase by $24,000 and Cash reduced by $10,000. Both items are the part of Assets hence the net effect on Asset is the Increase in Asset by $14,000

Note Payable for $14,000 is a liability which will increase the total liability by $14,000

Hence Option B is correct.

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