Principles of Accounting Asst Prof Dr Panchat Akarak

Principles of Accounting Asst. Prof. Dr. Panchat Akarak p. thipnew 1@hotmail. com School of Accounting Chaingrai Rajabhat University Accounting I 1

Exercises Vocabulary Matching True-False questions Multiple choice questions Demonstration Problem

Vocabulary • Put (/) in the appropriate column. Items Accumulated depreciation Depreciation Prepaid advertising Prepaid insurance Prepaid rent Unearned consulting fees Unearned revenue Prepaid Expense Advertising revenue Office Supplies on hand Assets Liabilities Revenue Expense

Vocabulary • Put (/) in the appropriate column. Items Doubtful accounts Allowance for doubtful accounts Bad debt Office supplies expense Accrued Expense Accrued Revenue Unearned Revenue Deferred Income Assets Liabilities Revenue Expense

Vocabulary • Put (/) in the appropriate column. Assets Items Interest expense Accrued interest payable Bad debts Expense Accounts Receivable Accounts Payable Doubtful debt Unexpired insurance Liabilities Revenue Expense

Vocabulary • Put (/) in the appropriate column. Assets Items Liabilities Revenue Expense Payroll Expense Miscellaneous Expenses Salaries and wages expense Accrued salaries and wages payable

Matching • Referring to the terms listed in the left and right column, place the appropriate letter next to the corresponding description. A. Accrued asset I. B. Accrual basis of accounting J. Depreciation Expense C. Earned Revenue K. Prepaid expense D. Book value L. Salvage Value/Residual value E. Useful life M. Accounting period F. Unearned Revenue N. Fiscal year G. Calendar year O. Adjusting entries H. Accumulated Depreciation Cash basis of accounting

Matching 1. Recognized revenues when cash is received and recognized expenses 2. An asset which exists at the end of an accounting period, but which has not yet been recorded. 3. The expense resulting from a plant equipment’s expiration of usefulness. 4. The estimated number of time periods that a company expects to make use of a plant asset. 5. A period of any twelve consecutive months used as an accounting period.

Matching 6. Made at the end of an accounting period to reflect economic activity which has taken place but has not yet been recorded. 7. Cash received in advance for goods and service to be delivered at a later date. 8. A plant asset’s cost less its accumulated depreciation 9. An accounting period which begins on January 1 and ends on December 31. 10. Contra fixed asset account.

Matching 11. An asset which will be assigned to expense at a later date. 12. A time period into which an entity’s life is arbitrarily divided for financial reporting purposes.

Solutions-Matching 1 2 3 4 5 6 7 8 9 10 11 12

True-False Questions • Indicate whether the following statements are true or false by inserting in the blank space provided a capital “T” for True or “F” for false. 1. When office supplies are used in business operations, they are classified as assets. 2. The prepaid insurance account shows a debit of $450 representing the cost of a three-year fire insurance policy dated September 1. The adjusting entry on December 31 of the first year of insurance coverage is a debit to insurance Expense and a credit to Prepaid Insurance for $100

True-False Questions 3. Adjusting entries are first entered in the journal and then are posted to the general ledger. 4. An accrued liability results from a transaction in which a cash payment has been made but the expense has not been incurred. 5. The maximum length of an accounting period is usually one month.

True-False Questions 6. Adjusting entries may be the result of a transaction that occurred many years ago. 7. Every adjusting entry affects both a balance sheet and an income statement account 8. Wages paid in advance to an employee would be classified by the employer as an accrued expense.

True-False Questions 9. Using an accrual system, expenses for which cash expenditures have not yet been made are not reported as expenses on the income statement until the cash payment is made. 10. Transactions often overlap accounting periods. 11. Adjusting entries divide amounts in mixed accounts such as supplies and prepaid insurance into their proper balance sheet and income statement components.

True-False Questions 12. The proper adjusting entry to recognize the expiration of rent paid in advance is to debit Rent Expense and to credit Prepaid Rent. 13. To prepare the adjusting entry for an accrued liability, an expense account is debited and a liability account is credited. 14. The purpose of adjusting entries is to compile all elements required to compute income or loss in one ledger account.

True-False Questions 15. The effect on the income statement if the adjusting entry for depreciation was omitted would be to understate net income. 16. Adjusting entries are needed when the cost, expense or revenue components of a transaction relate to more than one accounting period. 17. Continuing transactions such as rent and utilities are usually only documented at the end of “billing periods. ”

True-False Questions 18. Some assets represent services which will be used up over many accounting periods. 19. Under the accrual basis of accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. 20. The following are all examples of expenses recognized in adjusting entries: salaries expense, depreciation, insurance expense, and owner’s withdrawals.

True-False Questions 21. An expense may only be recognized and recorded if cash has been paid. 22. Adjusting entries usually must be prepared every time prior to the preparation of financial statements. 23. The balances of any unearned revenue accounts appear as credits in the trial balance statement.

True-False Questions 24. The financial statement classification of “Prepaid Rent” is Liability. 25. The balances of any accrued expense accounts appear as debits in the trial balance statement.

Solutions-True-False Questions 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Multiple Choice Questions For each of the following questions, indicate the single, best answer by circling the appropriate letter. 1. Which one of the following entries would be made to record rent expired during the current accounting period, but paid in the prior period? a. Debit Prepaid Rent xx Credit Cash xx b. Debit Rent Expense xx Credit Rent Accrued xx c. Debit Rent Expense xx Credit Rent Expense xx d. Debit Rent Expense xx Credit Prepaid Rent xx

Multiple Choice Questions 2. Depreciation is: a. Expired utility of a plant asset. b. Caused by wear and tear from use. c. Obsolescence due to technological change. d. A fund of cash available for replacing the asset when it is no longer useful. e. Items A, B, and C, above

Multiple Choice Questions 3. A company acquired supplies and, expecting to use them all in the current year, debited the full amount to the office Supplies Expense account. At the end of the period, part of the supplies remained on hand. If no adjusting entry is made, the effect on the balance sheet and the income statement is: a. Assets, net income and owner’s equity will all be understated. b. Revenue of the company will be overstated. c. Net income and owner’s equity will be overstated, while assets are understated. d. Net income and owner’s equity will not be affected. e. None of the above are correct.

Multiple Choice Questions 4. There was no adjustment made for accrued wages on December 31, 2015. The amount of wages earned but not payable until the second week in January, 2016, was $600. If this omission is not discovered before statements are prepared: a. Net income will be overstated by $600 b. Net income will be understated by $600 c. Assets will not be affected. d. (a), and (c), and (d) are correct.

Multiple Choice Questions 5. Accrued salaries would be classified on a financial statement as: a. Current Assets. b. Current Liability. c. Revenue. d. Expenses. e. Other Assets.

Multiple Choice Questions 6. An example of a contra account is: a. Prepaid Rent. b. Insurance expense. c. Accumulated Depreciation. d. Store Supplies Expense. e. None of these.

Multiple Choice Questions 7. A magazine company received cash for subscriptions in August for magazines to be mailed in August 2015 through September 2018. It originally recorded the amount as revenue, After mailing five magazines in 2015, the correct adjusting entry will be: a. Subscriptions Revenue Subscriptions Receivable b. Unearned advertising Revenue Subscriptions Revenue c. Unearned Subscriptions Revenue d. Subscriptions Revenue Unearned Subscriptions Revenue e. None of the above

Multiple Choice Questions 8. The proper entry to recognize periodic depreciation of equipment is: a. Depreciation Expense-Equipment xx b. Accumulated Depreciation-Equipment xx Depreciation Expense- Equipment xx c. Accumulated Depreciation-Equipment xx d. Equipment xx Depreciation Expense-Equipment xx e. None of these.

Multiple Choice Questions 9. The financial statement classification of “Prepaid Rent” is a. Liability. b. Owner’s equity c. Asset. d. Revenue. e. Expense.

Multiple Choice Questions 10. Insurance premiums received by an insurance company would be classified by the Insurance Company as: a. Prepaid expense. b. Unearned revenue. c. An accrued asset. d. An accrued Liability.

Multiple Choice Questions 11. An advertising agency received an $800 check on December 2, for services which it was to perform during December, January, and February. The agency recorded the check as a liability, One fourth of the services were performed in December. The adjusting entry required for the advertising agency is: a. Advertising Expense 200 Unearned Advertising Revenue 200 b. Advertising expense 600 Advertising Revenue 600 c. Unearned Advertising Revenue 200 d. Unearned advertising revenue 600 Advertising Revenue 600 e. None of these.

Multiple Choice Questions 12. On an income statement, which one(s) of the following groups of accounts would all be classified as expense? a. Office Supplies Expense, Rent Expense, Depreciation Expense b. Prepaid Insurance, Office Supplies Expense, Salaries Expense. c. Fees Earned, Sales, Salaries Expense d. Depreciation Expense, Allowance for Doubtful Accounts, Accumulated depreciation

Multiple Choice Questions 13. The accrued salaries payable account will normally have what type of balance? a. Debit balance b. A negative balance c. A balance equal to salary expense d. Credit balance e. None of these

Multiple Choice Questions 14. Make an adjusting entry to record the office supplies used; an asset account was originally debited for office supplies purchased. a. Debit Owner’s Capital; credit Office Supplies expense b. Debit Office Supplies on Hand; credit Owner’s equity c. Debit office Supplies expense; credit Office Supplies on Hand d. Debit Office supplies expense; credit Cash

Multiple Choice Questions 15. The accrual basis of accounting operates on which of the following assumption(s)? a. Expenses are recorded only when they are paid for. Revenues are recorded only when cash is received for them. b. Expenses are recorded when they are incurred, regardless of the time of payment. c. Revenues are recorded when they are earned, regardless of the time when payment is received. d. C and D are correct

SOLUTIONS • Multiple Choice Questions 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Demonstration Problem 1. Using the following information, prepare the adjusting entries in general journal form for the Emmy Company as of December 31, 2016. The Emmy Company adjusts its books annually on December 31. Following are some of the accounts which appeared in the trial balance on December 31, 2016, before adjusting entries were made:

Demonstration Problem Building Accumulated depreciation-Building Office supplies on hand Prepaid advertising Prepaid insurance Utilities expense Prepaid rent Advertising expense Revenue from Services Unearned consulting fees 75, 000 12, 500 445 960 1, 600 60 900 1, 080 20, 400 450

Demonstration Problem The following additional information is available: 1. The building was purchased for $ 75, 000. It has an estimated useful life of 15 years with no salvage value (Residual value). Straight-line depreciation is used. 2. Office supplies on hand amount to $140. 3. The Emmy Company purchased a 4 -year fire insurance policy on July 1, 2016, paying the full 4 -year premium of $1, 600 in advance. 4. The Emmy Company rented a warehouse on October 1, 2016, at a monthly rental of $300, paying 3 months’ rent in advance.

Demonstration Problem 5. On December 1, 2016, the Emmy Company purchased advertising in the Daily News. For 3 months for$960. Paying for the space in advance. 6. Since the last pay day, employees have earned an additional $600. 7. Two-thirds of the unearned consulting fees have been earned by December 31. Required: Prepare the adjustment needed on December 31, and recorded in general journal.

Demonstration Problem 2. Jam Company purchased $450 store supplies during the quarter which were charged to an asset account. Its beginning inventory of Store supplies was $150. The end of quarter balance sheet showed store supplies on hand of $75. The amount charged to Store Supplies Expense and credited to store Supplies on Hand was? Required: Prepare the adjustment needed on Store supplies.

Demonstration Problem 3. A Theater offered theater ticket books for use at future performances to its customer at $ 50 per book for 5 tickets per book. During the year, 1, 200 books were sold and this amount was erroneously credited to Theater Revenue. At the end of the period it was determined that 2, 400 tickets of the book sales had been turned in at the book office. The appropriate adjusting entry at the end of the period would be: ? Required: Prepare the adjustment needed on Theater Revenue.

Demonstration Problem 4. Stamford Company Operations on December 1, 2016. Employees earn $85 per day and work a six-day week. There are twenty-seven work days in December. By the last pay day in December (December 27), the employees had been paid $1, 955. Required: Prepare the adjustment needed on December 31.

Demonstration Problem 5. State the effect that each of the following would have on the amount of net income reported for 2016 and 2017 and assets and liabilities as of 12 -13, 2016. The firm’s accounting period ends on December 31. a. A collection in 2016 of $ 700 for services rendered in 2015 was credited to a revenue account in 2016. b. The collection of $400 for services not yet performed as of December 31, 2016, is credited to a revenue account and not adjusted, the services are to be performed nest year in 2017. c. No adjustment is made for accrued salaries of $ 1, 000 as of December 31, 2016. Required: Prepare the adjustment needed on December 31.

Demonstration Problem 6. The rich Company needed supporting data to adjusted entries : (1) Supplies used from inventory, $600 (2) Insurance expired, $750. (3) Depreciation in equipment acquired on July 1 amounted to $3, 600. (4) Accrued salaries were $ 1, 800 at December 31.

Demonstration Problem 6 (Cont. ) (5) Assume that 2 percent of the $50, 000 of accounts receivable is estimated to be uncollectible. There is a credit balance of $400 in Allowance for Doubtful Accounts. (6) The rich Company borrows $20, 000 on October 1 for 4 months with interest payable at the maturity of the loan at the rate of 12% per year. Required: Prepare the adjusting entry on December 31.

The End