Grade 12 Accounting exam review

Which principle supports the need for adjusting entries before financial statements are prepared?

a the revenue recognition principle

b) the matching principle

c) the cost principle

d) the full disclosure principle

The matching principle.

What adjusting entry is required on December 31 for a company that paid $6,000 for six months of rent in advance?

Debit Rent Expense $1,000, Credit Prepaid Rent $1,000.

What type of account is Prepaid Insurance?

a) A liability account

2) An expense account

3An asset account

4) A revenue account

An asset account.

What adjusting entry is necessary when a company receives cash for services to be provided in the future and some services have been completed?

A. Debit Unearned Revenue, credit Cash

B. Debit Cash, credit Service Revenue

C. Debit Unearned Revenue, credit Service Revenue

D. Debit Service Revenue, credit Unearned Revenue

Debit Unearned Revenue, credit Service Revenue.

How did the bank balance change from the beginning of the year with cash sales of $100,000, purchases of supplies for $30,000, a building for $50,000, repayment of a bank loan of $10,000, and sale of a computer for $2,000?

a)increased

b) Decreased

c) No change

d) Unable to determine from the information given.

Decreased.

Which account is most likely to be debited when preparing adjusting entries?

A. Depreciation Expense

B. Service Revenue

C. Accumulated Depreciation

D. Unearned Revenue

Depreciation Expense.

Which of the following is a permanent account?

A. Rent Expense -

B. Drawings

C. Equipment

D. Service Revenue

Equipment.

What is the purpose of closing entries?

A)Prepare revenue and expense accounts for the next accounting period

B)lose the permanent accounts to zero

C) Adjust the trial balance

D) Update the cash account

Prepare revenue and expense accounts for the next accounting period.

What is Accumulated Depreciation classified as?

a an expense account

b) an owner's equity account

c) a liability account

d) a contra asset account

A contra asset account.

Which of the following is a temporary account that is closed to the Income Summary at the end of the period?

A. Capital

B. Accumulated Depreciation

C. Sales Revenue

D. Notes Payable

Sales Revenue.

Which of the following is NOT considered part of the cost of inventory purchased?

a. Purchase Price

b. Freight

C. Advertising cost

d. Import duties

Advertising cost.

Which company would not be considered a merchandising company?

a. Whole Foods

b. Wal-Mart

C Air Canada

D Canadian Tire

Air Canada.

In a periodic inventory system, when is the inventory adjusted?

A. each time inventory is purchased. b.

B each time inventory is sold.

C when inventory is counted at the end of the accounting period.

D The inventory is never adjusted under a periodic inventory system.

When inventory is counted at the end of the accounting period.

Which inventory system provides real-time inventory control?

a. Periodic

b. FIFO

c. Perpetual

d. Average Cost

Perpetual.

When is cost of goods sold recorded in a perpetual inventory system?

a. on a daily basis.

b. on a monthly basis.

C. on an annual basis.

with each sale of merchandise

With each sale of merchandise.

What entry is made to record the purchase of inventory on account under a perpetual inventory system?

a. Dr. Merchandise Inventory

Cr. Accounts Payable

b.Dr. Purchases

Cr. Accounts Payable

C.Dr. Cost of Goods Sold

Cr. Accounts Payable

d. Dr. Merchandise Inventory

Cr. Cost of Goods Sold

Dr. Merchandise Inventory, Cr. Accounts Payable.

What entry is made to record the return of merchandise purchased on account under a perpetual inventory system?

a. Dr. Accounts Payable

Cr. Purchases

b. Dr. Accounts Payable

Cr. Merchandise Inventory

C. Dr. Accounts Payable

Cr. Purchase Returns and Allowances

d. Dr. Accounts Payable

Cr. Cost of Goods Sold

Dr. Accounts Payable, Cr. Merchandise Inventory.

What is the average unit cost for inventory if a company purchased 200 units at $9 and 300 units at $10?

The average unit cost for inventory is

A. $9.00.

B $9.50.

C $9.60

D $10.00

$9.60.

What should be done if a perpetual inventory system shows an ending inventory balance of $25,000 but a physical count shows $23,000?

a. debit your inventory records.

b. purchase additional inventory.

C. remove the nonexistent inventory from your records by crediting inventory.

d. credit Cost of Goods Sold.

Remove the nonexistent inventory from records by crediting inventory.

How should Wright Company record a purchase of $10,000 with shipping costs of $200 under perpetual system?

a.Merchandise Inventory account for $10,000.

b. Cost of Goods Sold account for $200.

c. Merchandise Inventory account for $10,200.

d. Cost of Goods Sold account for $10,200.

Debit Merchandise Inventory account for $10,200.

What indicates that a company is managing its inventory efficiently?

a. A low inventory turnover ratio

b. A high inventory turnover ratio

c. A high days sales in inventory ratio

d. A low gross profit margin

A high inventory turnover ratio.

What journal entry would be made when a company pays an account after returning defective merchandise?

a. credit Cash $776

b. credit Inventory $30

c. debit Accounts Payable $1,000

d. credit Inventory $770

Credit Cash $776.

Which inventory cost flow assumption results in an ending inventory valued at the most recent cost?

a. FIFO

b.LIFO

C. Average Cost

d. Perpetual

FIFO.

Which inventory method closely matches actual physical flow of goods in many retail businesses?

a. FIFO

b. LIFO

c. Average Cost

d. Perpetual

FIFO.

What is the gross profit for a company that sold two units for $1,100 using FIFO costing?

a. $220.

b. $180.

C. $245.

d. $155.

$180.

What adjustment is required if Allowance for Doubtful Accounts has a $1,100 credit balance and $4,000 are estimated uncollectible?

a) debit to Bad Debts Expense for $4,000.

b) debit to Allowance for Doubtful Accounts for $2,900.

c) credit to Bad Debts Expense for $5,100.

d) debit to Bad Debts Expense for $2,900.

Debit to Bad Debts Expense for $2,900.

How is Allowance for Doubtful Accounts presented on the balance sheet?

a) is offset against total current assets.

b) increases the net realizable value of accounts receivable.

c) appears under the heading "Current Liabilities".

d) is offset against accounts receivable.

Offset against accounts receivable.

Where is bad debt expense reported?

a) Balance sheet as a liability

b) Income statement as an expense

c)Cash flow statement as an operating activity

d) Balance sheet as an asset

Income statement as an expense.

Which account is debited when recording a write-off under the allowance method?

a) Bad Debt Expense

b) Allowance for Doubtful Accounts

c) Accounts Receivable

d) Sales Revenue

Allowance for Doubtful Accounts.

Which method is typically used to estimate the Allowance for Doubtful Accounts?

1)Straight-line depreciation

2)Percentage of sales method

3)Units of production method

4) FIFO method

Percentage of sales method.

What is the annual depreciation expense for machinery acquired for $30,000 with a residual value of $6,000 and a useful life of six years using straight-line method?

a $4,000

b) $5,000

c) $6,000

d) $3,000

$4,000.

What is the depreciation expense for equipment bought for $25,000 using the declining balance method at a rate of 25%?

A)$6,250

b) $5,000

c) $4,000

d) $3,750

$6,250.

Which costs are included in the cost of acquiring land?|

a) Demolition of an old structure

b) Surveying fees

c) Legal costs

d) All of the above

All of the above (demolition, surveying fees, legal costs).

What is correct about intangible assets?

a) A patent is the right to publish and sell an artistic or published work for the life of the creator plus 50 years.

b) A copyright is the right to reproduce and sell an artistic or published work for the life of the creator plus 50 years.

c) An intangible asset has a physical substance (can be touched)

d) All of the above

A copyright is the right to reproduce and sell an artistic work for the life of the creator plus 50 years.

What best describes long-lived assets?

a) Assets used for more than one accounting cycle to generate income

b) Inventory held for resale

c) Cash equivalents

d) Prepaid insurance

Assets used for more than one accounting cycle to generate income.

What is the purpose of depreciation?

a) Increase the resale value of an asset

(b) Allocate the cost of an asset over its useful life

c) Record the purchase of an asset

d) Eliminate the need for repairs

Allocate the cost of an asset over its useful life.

Which of the following is considered an intangible asset?

a) Land

D Equipment

c) Trademark

d) Inventory

Trademark.

If a building's estimated life is revised from 20 years to 30 years after 8 years, over how many years should the remaining cost be amortized?

a) 12 years

b) 22 years

c) 30 years

d) 18 years

22 years.

How is accumulated depreciation classified?

a) A liability

b) An expense

c) A contra asset

d) Owner's equity

A contra asset.

Closing entries( purpose, what does it mean when income summary has a debit balance)

Purpose: to reset accounts

A debit balance in the Income Summary means that expenses were greater than revenues.

What are the 3 types of Business ownership

1. Sole Proprietorship

2. Partnership

3. Corporation

What is a sole proprietorship? (adv and Dis)

Definition: A business owned and operated by one person.

Advantage: Owner keeps all the profits.

Disadvantage: Unlimited liability

What is a Partnership? (adv and Dis)

Definition: A business owned by two or more people who share profits and responsibilities.

Advantage: Shared workload and responsibilities.

Disadvantage: Possible conflicts between partners.

What is a Corporation? (adv and Dis)

Definition: A business that is a separate legal entity from its owners (shareholders).

Advantage: Indefinite life

Disadvantage: More government regulations.

What are the type of depreciation methods

straight line, declining balance, units of activity

What is depreciation?

Depreciation is when you buy an asset and it loses value over time

Advantage and disadvantages of straight line

Advantage: easy to calculate

Disadvantage: Doesn't match the actual depreciation of the asset

Advantage and disadvantages of declining balance

Advantage: Offers early tax savings due to higher upfront expense

Disadvantage: Larger depreciation in the early years of an asset's life.

Advantage and disadvantages of units of activity

Advantages: Matches depreciation to actual usage or output.

Disadvantages: Requires detailed tracking of usage.

What is a contra account and an example

A contra account is an account that is linked to another account but has the opposite balance

What is the formula for the current ratio, and what is considered a good current ratio?

Current ratio= current asset /current liabilities You want it to be 2