Question

Multiple Choice.

1) Adjusting entries:

•Affect cash accounts.

•Affect both income statement and balance sheet accounts.

•Affect only income statement accounts.

•Affect only equity accounts.

•Affect only balance sheet accounts.

2) Adjusting entries made at the end of an accounting period accomplish all of the following except:

• Updating liability and asset accounts to their proper balances.

• Assigning expenses to the periods in which they are incurred.

• Assuring that external transaction amounts remain unchanged.

• Assuring that financial statements reflect the revenues earned and the expenses incurred.

• Assigning revenues to the periods in which they are earned.

3) Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all

examples of:

• ltems that require adjusting entries.

• ltems that require contra accounts.

• Asset accounts.

• Income statement accounts.

• Asset and equity accounts.

4) Prior to recording adjusting entries, the Office Supplies account had a $380 debit balance. A physical

count of the supplies showed $103 of unused supplies available. The required adjusting entry is

• Debit Office Supplies $103 and credit Supplies Expense $277.

• Debit Office Supplies $277 and credit Offhce Supplies Expense $277

• Debit Office Supplies $103 and credit Office Supplies Expense $103

• Debit Office Supplies Expense $277 and credit Office Supplies $277.

• Debit Office Supplies Expense $103 and credit Office Supplies $103

5) The credit terms 2/10, n/30 are interpreted as:

• 30% discount if paid within 2 days.

• 30% discount if paidwithin 10 days.

• 2% discount if paid within 30 days.

• 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.

• 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

6) Which of the following accounts would be closed at the end of the accounting period with a debit?

• Cost of Goods Sold.

• Sales Discounts.

• Sales.

• Sales Returns and Allowances.

• Operating Expenses.

7) A company purchased $3300 worth of merchandise. Transportation costs were an additional $290. The

company returned $230 worth of merchandise and then paid the invoice within the 3% cash discount

period. The total cost of this merchandise is:

• $3093.00

• $3261.00

• $3267.90

• $3240.00

• $3360.00

8) A company has sales of $718,800 and cost of goods sold of $287,800. Its gross profit equals:

• $718,800

• $431,000

• $1,006,600

• $287,800

• $(431,000)

9) Cost of goods sold:

• Is a term only used by service firms.

• Is also called gross margin.

• Is the term used for the expense of buying and preparing merchandise for sale.

• Is another term for merchandise sales.

• ls another term for revenue.

10) Which of the following statements regarding gross profit is not true?

• Gross profit is not calculated on the multiple-step income statement.

• Gross profit must cover al operating expenses to yield a return for the owner(s) of the business.

• Gross profit equals net sales less cost of goods sold.

• Gross profit less other operating expenses equals income from operations.

• Gross profit is also called gross margin.

11) Which of the following statements regarding merchandise inventory is not true?

• Purchasing merchandise inventory is part of the operating cycle for a business.

• Merchandise inventory may include the costs of freight-in and making them ready for sale.

• Merchandise inventory refers to products a company owns and intends to sell.

• Merchandise inventory appears on the balance sheet of a service company.

• Merchandise inventory is reported on the balance sheet as a current asset.

Answer 1

1) Affect both income statement and balance sheet accounts.

Reason:- Adjusting entries are made at the end of the period. So they can effect both balance sheet and income statement.

2) Assuring that external transaction amounts remain unchanged.

Reason:- External transaction amounts donot effect the balance sheet on balance sheet date.

3) ltems that require adjusting entries.

Reason:- These entries are all made on year end

4) Debit Office Supplies Expense $277 and credit Office Supplies $277.

Reason:- Office supplies unused is only $103, which means the balance $277 (ie. $380 - $103) has been used. So they need to be expensed.

5) 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.

Reason:- I dont think I can give a reason for this. It is such terms are read.

6) Sales.

Reason:- Sales have credit balance so will be closed with a debit.

7)$3360.00

Reason:- Cost of merchandise = Purchase + Transport - Returns. (PS. cash discounts are received for earlier payments they do not effect cost of merchandise)

8)$431,000

Reason:- Gross profit = Sales - Cost of goods sold

9)Is the term used for the expense of buying and preparing merchandise for sale.

Reason:- Cost of goods sold = Cost of goods available for sales -closing stock

10) Gross profit must cover al operating expenses to yield a return for the owner(s) of the business.

Reasons:- Gross profit only covers cost of goods sold.

11) Merchandise inventory appears on the balance sheet of a service company.

Reason:- Service company do not sell goods and thus will not have merchandise inventory balance.