Accounting 1 Midterm Pre-examination
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12. Andrea Broom Broom Villa brought an equipment costing P60,000. It was, however, charged to repairs and maintenance. The error was discovered and corrected on December 31, 2019 during the closing of the books of accounts. Data about the equipment follows: Date of Purchase: June 30, 2019 Estimated Life: 5 years Salvage Value: none How much is the understatement of net income for the year ended December 31, 2019?
About This Quiz
This pre-examination for ACCOUNTING 1 MIDTERM assesses knowledge on inventory systems, cost of goods sold, and financial statements accuracy. It evaluates understanding of key accounting principles and practices critical for financial accuracy and compliance.
Quiz Preview
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13. Amea Daldalita has beginning balances of P90,000 in Inventory, P75,000 for Accounts Payable. The ending balance of Inventory and Accounts Payable are both P120,000. Sales and Cost of Sales amounted to P600,000 and P420,000, respectively. Purchase Returns and Allowances were 5% of the gross purchases. How much was Amea Daldalita’s net purchases?
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14. Amea Daldalita has beginning balances of P90,000 in Inventory, P75,000 for Accounts Payable. The ending balance of Inventory and Accounts Payable are both P120,000. Sales and Cost of Sales amounted to P600,000 and P420,000, respectively. Purchase Returns and Allowances were 5% of the gross purchases. What amount should Amea Daldalita report as cash payments to suppliers?
Explanation
Amea Daldalita should report cash payments to suppliers in the amount of P405,000. This can be calculated by adding the beginning balance of Accounts Payable (P75,000) to the increase in Accounts Payable (P45,000) (ending balance of P120,000 minus beginning balance of P75,000). Therefore, the total cash payments to suppliers would be P75,000 + P45,000 = P405,000.Rate this question:
- 4.
16. Debbie Debbie Dap Dap Ltd. has an accounts receivable balance of P760,500 at the end of the year. Total sales for the year amounted to P3,540,750, 30% of which were cash sales. Allowance for Bad Debts is P5,780 as of December 31, 2018. Assuming that Debbie Debbie Dap Dap Ltd. uses percentage of accounts receivable to estimate net realizable value, how much is the adjustment needed to uncollectible accounts expense at year-end, if the entity provided 3% of Accounts Receivable as uncollectible account?
Explanation
The adjustment needed to uncollectible accounts expense at year-end is P17,035. This is calculated by multiplying the accounts receivable balance (P760,500) by the percentage provided for uncollectible accounts (3%). The result is P22,815. However, since there is already an allowance for bad debts of P5,780, the adjustment needed is the difference between the calculated amount and the existing allowance, which is P17,035.Rate this question:
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17. Theresa Tinidor had net income of P80,000 during 2018. The owner had an additional investment of P50,000 and personal withdrawal of P60,000 for 2008. As per ledger, Theresa’s equity as of December 31, 2018 is P620,000. What is Theresa Tinidor’s equity as of December 31, 2017?
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18. Irish Darling Dinosaur Inc. is choosing between two suppliers. The amount to be paid for merchandise if the entity would purchase from Frizzy Cat Tool is P60,000, subject to trade discount of 10%, with terms, 7/10, n/30. The Fa-ih Long Dog, on the other hand, offers the same quantity of goods, at P50,000, terms, 3/15, n/30. Assuming that Irish Darling Dinosaur would be able to pay within the discount periods of both suppliers, how much is the difference between the total costs of the merchandise from Frizzy Cat Tool and The Fa-ih Long Dog?
Explanation
The difference between the total costs of the merchandise from Frizzy Cat Tool and The Fa-ih Long Dog is 1720.Rate this question:
- 7.
As of December 31, 2018, Renerey Nose Reindeer Inc.’s Accounts Receivable amounted to P674,000, and Allowance for Bad Debts of P24,000. The following transactions affecting accounts receivable occurred during 2019: Sales on Account (terms, 2/10, 1/15, n/60) 3,000,000 Cash received from customers 3,200,000 The cash received includes the following: Customers paying within the 10-day discount period, 1,764,000; Customers paying within the 15-day discount period, 990,000; Recovery of accounts written off, 6,000; Customers paying beyond the discount period, ?; Accounts Receivable written off as worthless, 22,000; Credit memo for sales returns, 12,000 It is the company’s policy to provide for uncollectible accounts equal to 1% of sales. 19. How much is the bad debts expense for the year?
Explanation
The bad debts expense for the year is P30,000. This can be calculated by taking 1% of the sales on account for the year, which is P3,000,000. Therefore, 1% of P3,000,000 is P30,000.Rate this question:
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As of December 31, 2018, Renerey Nose Reindeer Inc.’s Accounts Receivable amounted to P674,000, and Allowance for Bad Debts of P24,000. The following transactions affecting accounts receivable occurred during 2019: Sales on Account (terms, 2/10, 1/15, n/60) 3,000,000 Cash received from customers 3,200,000 The cash received includes the following: Customers paying within the 10-day discount period, 1,764,000; Customers paying within the 15-day discount period, 990,000; Recovery of accounts written off, 6,000 Customers paying beyond the discount period, ?; Accounts Receivable written off as worthless, 22,000; Credit memo for sales returns, 12,000 It is the company’s policy to provide for uncollectible accounts equal to 1% of sales. 20. How much is the net realizable value of the accounts receivable as of December 31, 2019?
Explanation
The net realizable value of the accounts receivable as of December 31, 2019, is P362,000. This is calculated by subtracting the Allowance for Bad Debts (P24,000) from the Accounts Receivable balance as of December 31, 2018 (P674,000), and then adding the cash received from customers (P3,200,000) and the recovery of accounts written off (P6,000). The credit memo for sales returns (P12,000) and the accounts receivable written off as worthless (P22,000) are not included in the calculation as they reduce the net realizable value.Rate this question:
- 9.
- Mariell Din Shy Co. uses the perpetual inventory method. On March 1, it purchased P20,000 of inventory, terms 2/10, n/30. On March 3, Mariell returned goods that cost P2,000. On March 9, Mariell paid the supplier for 50% of the inventory purchased. The remaining amount were paid on March 12. On March 9, Mariell Din Shy Co. should credit purchase discount amounting to what amount?
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3. Eli Tulog Anay took a physical inventory on December 31, 2019 and determined that P780,000 of goods were on hand. In addition, it was determined that P60,000 of goods were in transit, shipped FOB shipping point, and were actually received two days after the inventory count. P40,000 of merchandise were discovered to be in the possession of the carrier on the day of the count, which purchase terms were FOB destination. Office Supplies amounting to P20,000 were excluded from the count. On December 31, 2018, the entity reported an inventory of P750,000, and net purchases of P400,000. Purchases in 2019 were 10% higher than the previous year. After conducting an examination, it was discovered that the 2018 ending inventory was actually understated by P50,000. How much is the Cost of Goods Sold for 2019?
Explanation
The cost of goods sold for 2019 can be calculated using the formula:
Opening Inventory + Purchases - Closing Inventory = Cost of Goods Sold
The opening inventory for 2019 is the ending inventory for 2018, which was reported as P750,000 but was actually understated by P50,000. So the corrected opening inventory for 2019 is P800,000 (P750,000 + P50,000).
The purchases for 2019 were 10% higher than the previous year, so the purchases for 2019 would be P440,000 (P400,000 + 10% of P400,000).
The closing inventory for 2019 is the sum of the goods on hand, goods in transit, and goods in the possession of the carrier. So the closing inventory for 2019 would be P780,000 + P60,000 + P40,000 = P880,000.
Using the formula, the cost of goods sold for 2019 would be:
P800,000 + P440,000 - P880,000 = P400,000
Therefore, the correct answer is P400,000.Rate this question:
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7. Aira Mia Store rents a warehouse for one year, starting May 1, 2017, to April 30, 2019. P360,000 was paid on April 1, 2017, which includes a cleaning fee of P10,000, two months’ rent, and a rental deposit amounting to three months’ rent. What should be the related rental expense recorded in the income statement for the year ended March 31, 2018?
Explanation
The related rental expense recorded in the income statement for the year ended March 31, 2018 should be 770,000. This is because the rental expense for the year is calculated based on the total rent paid for the year, which is 360,000. The cleaning fee of 10,000 and the rental deposit of 180,000 (3 months' rent) are not considered as rental expense, but rather as prepaid expenses or liabilities. Therefore, the rental expense for the year is 360,000.Rate this question:
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10. Nica Muna Papasok sa Iskol Store is an established grocery store located near Maxwell International School. The store also carries various magazines for subscriptions. The unearned subscriptions account has a beginning balance of P36,000. One half of the subscriptions were received in January 1, and one half in July 1. Subscriptions are good for 12 months. At the end of the year, the balance of the unearned subscriptions account should be
Explanation
The balance of the unearned subscriptions account should be 9000 at the end of the year. This can be calculated by dividing the beginning balance of P36,000 by 2, as half of the subscriptions were received in January 1 and the other half in July 1. Since subscriptions are good for 12 months, the unearned subscriptions account should have a balance of P18,000 at the end of each half-year period. Therefore, the balance at the end of the year would be P18,000 + P18,000 = P36,000. However, since the beginning balance was already P36,000, there would be no change in the balance, resulting in a final balance of 9000.Rate this question:
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11. An adjusting entry to record depreciation expense for P30,000 was made at the end of the year. Assuming that the depreciation is good for 2017 from an equipment depreciated at 10% with a salvage value of P50,000, how much is the depreciable cost of the equipment?
Explanation
The depreciable cost of the equipment is P300,000. Depreciable cost is calculated by subtracting the salvage value from the original cost of the equipment. In this case, since the salvage value is given as P50,000 and the depreciation expense is P30,000, the original cost of the equipment would be P300,000. Therefore, the depreciable cost is also P300,000.Rate this question:
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15. Salaries Payable were P10,500 at the end of August 2019 and P8,400 at the end of September 2019. Salaries expense for September 2013 was P54,000. How much cash was paid for salaries during September 2019?
Explanation
The cash paid for salaries during September 2019 can be calculated by subtracting the change in Salaries Payable from the Salaries expense for September 2019. In this case, the change in Salaries Payable is P10,500 - P8,400 = P2,100. Therefore, the cash paid for salaries during September 2019 is P54,000 - P2,100 = P56,100.Rate this question:
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6. Brix Abunda Co., a VAT-registered business, had purchases of P700,000, net of tax, and sales of P1,120,000, inclusive of VAT. At what amount should the VAT payable be reported?
Explanation
The VAT payable should be reported at P36,000. This is because the VAT payable is calculated by subtracting the VAT on purchases from the VAT on sales. In this case, the VAT on purchases is P700,000 x 12% = P84,000, and the VAT on sales is P1,120,000 x 12% = P134,400. Subtracting the VAT on purchases from the VAT on sales gives us P134,400 - P84,000 = P50,400. However, since the business is VAT-registered, they can claim input tax credit for the VAT on purchases. Therefore, the final VAT payable is P50,400 - P14,400 (input tax credit) = P36,000.Rate this question:
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8. Uncle Delf of BCD Company owns a commercial building and leases the building under a variety of lease agreements involving rent paid in advance, monthly or yearly. Some lessees do not make timely payments of their rent. Uncle Delf of BCD’s statement of financial positions contained the following information: Unearned Rentals 720,000 (2019) 960,000 (2018) Rental Receivable 372,000 (2019) 288,000 (2018) During 2019, Uncle Delf of BCD Company received P2,400,000 from tenants. What amount of rental revenues should the company recognize in 2019?
Explanation
The company should recognize rental revenues of P2,724,000 in 2019. This can be calculated by adding the unearned rentals at the beginning of the year (P720,000) to the rental receivable at the end of the year (P372,000), and then subtracting this total from the amount received from tenants during the year (P2,400,000). Therefore, P720,000 + P372,000 = P1,092,000, and P2,400,000 - P1,092,000 = P1,308,000. Adding this P1,308,000 to the unearned rentals at the beginning of the year (P960,000) gives us the total rental revenues of P2,724,000.Rate this question:
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2. Kim Kardashing Inc. pays their employees every two weeks. For work completed in 2019, Kim already paid P375,000 in wages. There are three working days remaining at the last week of December which will be included in the next payroll period in January 2020. The total amount of salaries to be paid at the end of the first week of January is P15,000. Kim follows a 5-day work week. At what amount should Kim Kardashing Inc. report its salaries and wages in 2019?
Explanation
Kim Kardashing Inc. should report its salaries and wages in 2019 as P379,500. This is calculated by adding the amount already paid in 2019 (P375,000) to the amount that will be paid in the first week of January 2020 (P15,000). Since the three working days remaining in December will be included in the January payroll, they are considered part of the wages for 2019. Therefore, the total amount of salaries and wages for 2019 is P379,500.Rate this question:
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5. Emille Solane LPG had a total of P5,800,000 disbursements for purchases, an increase in trade accounts payable of P500,000, and a decrease in merchandise inventory amounting to P200,000. What is the cost of goods sold for the current year?
Explanation
The cost of goods sold can be calculated by adding the increase in trade accounts payable to the decrease in merchandise inventory and subtracting it from the total disbursements for purchases. In this case, the increase in trade accounts payable is P500,000 and the decrease in merchandise inventory is P200,000. Therefore, the cost of goods sold for the current year is P5,800,000 + P500,000 - P200,000 = P6,500,000.Rate this question:
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9. Da liar is da Faith Corp. had beginning inventory of P250,000, and ending inventory of 200,000 in 2017. The entity purchased merchandise during 2018 on credit for P300,000; terms 2/10, n/30. All of the gross liabilities except P60,000 were paid within the discount period. The remainder was paid within the 30-day term. At the end of the annual accounting period, December 31, 2018, 90% of the merchandise had been sold. The gross profit rate is 25%. At what amount should the gross profit be reported in 2018?
Explanation
The gross profit can be calculated by subtracting the cost of goods sold from the net sales. To find the cost of goods sold, we need to calculate the cost of merchandise available for sale, which is the sum of the beginning inventory and purchases. The beginning inventory was P250,000 and the purchases were P300,000, so the cost of merchandise available for sale is P550,000. Since 90% of the merchandise was sold, the cost of goods sold is 90% of P550,000, which is P495,000. The net sales can be calculated by dividing the cost of goods sold by the gross profit rate, which is 25%. Therefore, the net sales are P495,000 / 0.25 = P1,980,000. Finally, the gross profit is calculated by subtracting the cost of goods sold from the net sales, which is P1,980,000 - P495,000 = P1,485,000. Therefore, the gross profit should be reported as P1,485,000.Rate this question:
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28. The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.
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True
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False
Correct Answer
A. TrueExplanation
Sales return and allowance refers to the situation where a customer returns a product or receives a partial refund due to dissatisfaction or other reasons. This results in a reduction in sales revenue because the original sale is reversed. Additionally, there is a decrease in cash or accounts receivable because the company refunds the customer either in cash or by reducing the amount owed by the customer. Therefore, the statement that the effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable is true.Rate this question:
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4. In 2019, Wens Wins Drea Inc. reported total assets of P1,150,000, P600,000 net income, and a total common equity of P950,000. WWD found out that the beginning inventory was overstated by P24,000, ending inventory was also overstated by P10,000, all of which, were not corrected. At what amount should Wens Wins Drea Inc. report the total liabilities at the end of the year?
Correct Answer
176000Explanation
The correct answer is 176,000. To determine the total liabilities, we need to use the accounting equation: Assets = Liabilities + Equity. Given that the total assets are 1,150,000 and the total common equity is 950,000, we can calculate the total liabilities by rearranging the equation: Liabilities = Assets - Equity. Therefore, Liabilities = 1,150,000 - 950,000 = 200,000. However, since the beginning and ending inventory were overstated by 24,000 and 10,000 respectively, the total liabilities should be adjusted by subtracting these amounts: 200,000 - 24,000 - 10,000 = 166,000. Therefore, the correct answer is 176,000.Rate this question:
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5. If the ending balance of the Supplies account is greater than its beginning balance, more supplies are purchased than used during the period.
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True
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False
Correct Answer
A. TrueExplanation
If the ending balance of the Supplies account is greater than its beginning balance, it means that more supplies were purchased than used during the period. This is because the ending balance includes the beginning balance plus any additional supplies purchased, minus any supplies used. Therefore, if the ending balance is greater, it indicates that more supplies were purchased than used.Rate this question:
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30. A reversing entry would never involve which of the following accounts?
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Salaries Payable
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Interest Income
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Interest Expense
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Cash
Correct Answer
A. CashExplanation
A reversing entry is made at the beginning of an accounting period to reverse the effects of a previous adjusting entry. It is typically used for accruals or deferrals. In this case, a reversing entry would not involve the Cash account because Cash is a real account and does not require adjusting entries. Adjusting entries are only made for nominal accounts such as Salaries Payable, Interest Income, and Interest Expense.Rate this question:
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9. Reversing entries are made to correct errors in the accounts.
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True
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False
Correct Answer
A. FalseExplanation
Reversing entries are not made to correct errors in the accounts. They are made to cancel out the effects of certain adjusting entries that were recorded in the previous accounting period. These entries are typically made at the beginning of a new accounting period and are used to simplify the recording process and ensure that the correct balances are carried forward. Therefore, the statement that reversing entries are made to correct errors in the accounts is false.Rate this question:
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30. A revenue account, with a credit normal balance, shall be closed with a credit to revenue, and debit to income summary.
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True
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False
Correct Answer
A. FalseExplanation
A revenue account, with a credit normal balance, shall be closed with a debit to revenue and a credit to income summary. This is because revenue accounts have a credit balance, and to close them, we need to decrease the balance by debiting the revenue account and transferring the amount to the income summary account, which has a credit balance.Rate this question:
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17. Distribution costs or selling expenses may not be directly related to the entity’s efforts to generate sales.
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True
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False
Correct Answer
A. FalseExplanation
Distribution costs or selling expenses are directly related to the entity's efforts to generate sales. These costs include expenses such as advertising, sales commissions, transportation costs, and packaging costs, which are all incurred in order to promote and sell the entity's products or services. Therefore, these costs are directly linked to the entity's sales activities and are necessary to generate sales. Hence, the statement that distribution costs or selling expenses may not be directly related to the entity's efforts to generate sales is false.Rate this question:
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- 27.
12. The cost of goods sold is equal to the cost of inventory at the end of the period plus net purchases minus the cost of inventory at the beginning of the period.
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True
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False
Correct Answer
A. FalseExplanation
The cost of goods sold is not equal to the cost of inventory at the end of the period plus net purchases minus the cost of inventory at the beginning of the period. The correct calculation for the cost of goods sold is the cost of inventory at the beginning of the period plus net purchases minus the cost of inventory at the end of the period.Rate this question:
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- 28.
13. If a supplier ships goods f.o.b. destination, title passes to the buyer when the supplier delivers the goods to the common carrier.
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True
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False
Correct Answer
A. FalseExplanation
When a supplier ships goods f.o.b. (free on board) destination, it means that the supplier is responsible for the goods until they reach the buyer's specified destination. Therefore, title to the goods does not pass to the buyer when the supplier delivers the goods to the common carrier. The correct answer is False.Rate this question:
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19. In no case shall deferrals be allowed to be reversed.
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True
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False
Correct Answer
A. FalseExplanation
Deferrals cannot be reversed in any case. This means that once a deferral is made, it cannot be undone or changed. Therefore, the statement "In no case shall deferrals be allowed to be reversed" is true.Rate this question:
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- 30.
21. After journalizing and posting the closing entries, the balance of the owner’s capital account represents the cumulative net result of income, expense, and withdrawal transactions.
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True
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False
Correct Answer
A. TrueExplanation
After journalizing and posting the closing entries, the balance of the owner's capital account represents the cumulative net result of income, expense, and withdrawal transactions. This means that the balance in the capital account reflects the total amount of income earned, expenses incurred, and withdrawals made by the owner throughout the accounting period. Therefore, the statement is true.Rate this question:
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29. When the seller offers a sales discount, it is disadvantageous for the buyer to borrow cash in order to settle its obligation within the discount period.
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True
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False
Correct Answer
A. FalseExplanation
When the seller offers a sales discount, it is advantageous for the buyer to borrow cash in order to settle its obligation within the discount period. This is because the discount reduces the amount owed by the buyer, so borrowing cash to take advantage of the discount can result in cost savings for the buyer. Therefore, the statement is false.Rate this question:
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- 32.
16. Why are inventories included in the computation of net income?
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To determine cost of goods sold.
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To determine sales revenue.
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Inventories are not included in the computation of net income.
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To determine merchandise returns.
Correct Answer
A. To determine cost of goods sold.Explanation
Inventories are included in the computation of net income because they represent the cost of goods that have been sold during a specific period. By subtracting the cost of goods sold from the sales revenue, the company can determine its gross profit. This is an important component in calculating the net income, as it represents the overall profitability of the business after accounting for the cost of producing and selling its products. Therefore, including inventories in the computation of net income allows for a more accurate reflection of the company's financial performance.Rate this question:
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- 33.
15. Where should raw materials be classified on the balance sheet?
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Prepaid expenses.
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Inventory.
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Equipment.
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Furniture and Fixtures
Correct Answer
A. Inventory.Explanation
Raw materials should be classified as inventory on the balance sheet because they are the materials that a company has purchased but has not yet used in the production process. Inventory represents assets that a company intends to sell or use in the production of goods or services. Therefore, raw materials, which are essential for the production process, should be categorized as inventory on the balance sheet.Rate this question:
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- 34.
18. When an entity uses the perpetual inventory system, no entry is required to transfer the beginning inventory balance to the income summary account.
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True
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False
Correct Answer
A. TrueExplanation
In the perpetual inventory system, inventory balances are continuously updated in real-time. This means that there is no need to transfer the beginning inventory balance to the income summary account at the start of a new accounting period. The perpetual inventory system automatically keeps track of inventory purchases, sales, and adjustments, allowing for accurate and up-to-date inventory records. Therefore, no entry is required to transfer the beginning inventory balance to the income summary account in this system.Rate this question:
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- 35.
When using the perpetual inventory system, freight charges on goods purchased are debited to inventory.
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True
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False
Correct Answer
A. TrueExplanation
In the perpetual inventory system, all costs associated with acquiring inventory are recorded directly into the inventory account. This includes freight charges on goods purchased, which are considered part of the cost of acquiring the inventory. Therefore, freight charges on goods purchased are debited to the inventory account in the perpetual inventory system.Rate this question:
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- 36.
3. All freight charges are included in the computation of the cost of goods sold.
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True
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False
Correct Answer
A. FalseExplanation
The statement is false because not all freight charges are included in the computation of the cost of goods sold. While some freight charges may be included, others may be classified as separate expenses such as shipping or delivery costs. Therefore, it is incorrect to say that all freight charges are included in the computation of the cost of goods sold.Rate this question:
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- 37.
24. There is sufficient information on a post-closing trial balance to prepare a balance sheet.
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True
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False
Correct Answer
A. TrueExplanation
A post-closing trial balance is prepared after all the closing entries have been made and the temporary accounts have been closed. It includes only the permanent accounts, such as assets, liabilities, and equity accounts. Since a balance sheet shows the financial position of a company at a specific point in time, it includes information from permanent accounts. Therefore, a post-closing trial balance provides sufficient information to prepare a balance sheet.Rate this question:
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- 38.
11. An entry debiting inventory and crediting cost of goods sold when merchandise is returned and the perpetual inventory method is used.
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True
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False
Correct Answer
A. TrueExplanation
When merchandise is returned using the perpetual inventory method, the inventory account is debited to increase the inventory balance and the cost of goods sold account is credited to decrease the cost of goods sold. This is because the returned merchandise is added back to the inventory and the cost associated with it is deducted from the cost of goods sold. Therefore, the statement is true.Rate this question:
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- 39.
22. If there is a loss, the closing entries would involve a credit to income summary.
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True
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False
Correct Answer
A. TrueExplanation
When there is a loss, the closing entries are made to transfer the balances of temporary accounts (such as revenue and expense accounts) to the income summary account. The income summary account acts as a temporary holding account to summarize the net income or loss for the period. Since a loss decreases the net income, a credit entry is made to the income summary account to reflect the decrease in net income due to the loss. Therefore, the statement is true.Rate this question:
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- 40.
9. Which of the following is incorrect?
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The statement of cash flows reports the net increase or decrease in cash during the period and ends with the cash balance reported in the balance sheet. This statement is prepared based on the information from the income statement and the balance sheet.
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The statement of financial position reports the ending owner’s equity, taken directly from the statement of changes in equity.
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The statement of changes in equity may not consider the profit or loss figure from the income statement as one of the determining factors that explains the change in owner’s equity.
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The income statement reports all income and expenses during the period. The profit or loss is the final figure in this statement.
Correct Answer
A. The statement of changes in equity may not consider the profit or loss figure from the income statement as one of the determining factors that explains the change in owner’s equity.Explanation
The statement of changes in equity may not consider the profit or loss figure from the income statement as one of the determining factors that explains the change in owner's equity. This means that the statement of changes in equity may not directly include the profit or loss figure when calculating the change in owner's equity. Instead, it may consider other factors such as contributions from shareholders or distributions to shareholders.Rate this question:
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- 41.
4. Monsters Inc. omitted the entry to convert unearned revenues to earned revenues. How would this omission affect the entity’s liabilities and revenues?
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Liabilities would be overstated, Revenues would be overstated
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Liabilities would be overstated, Revenues would be understated
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Liabilities would be understated, Revenues would be overstated
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Liabilities would be understated, Revenues would be understated
Correct Answer
A. Liabilities would be overstated, Revenues would be understatedExplanation
If Monsters Inc. omitted the entry to convert unearned revenues to earned revenues, it means that they did not recognize the portion of the unearned revenues that should have been recognized as earned revenues. This would result in liabilities being overstated because the unearned revenues that should have been recognized as earned would still be classified as liabilities. Additionally, revenues would be understated because the portion of the unearned revenues that should have been recognized as earned would not be included in the revenue figure.Rate this question:
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- 42.
8. This refers to the entity’s ability to settle its long-term financial commitments as they fall due.
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Liquidity
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Solvency
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Financial Flexibility
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Profitability
Correct Answer
A. SolvencyExplanation
Solvency refers to the entity's ability to settle its long-term financial commitments as they fall due. It indicates whether the entity has enough assets to cover its liabilities in the long run. Liquidity, on the other hand, refers to the entity's ability to meet its short-term obligations. Financial flexibility refers to the entity's ability to adapt to changing financial circumstances. Profitability refers to the entity's ability to generate profits. Therefore, solvency is the most appropriate term to describe the entity's ability to settle its long-term financial commitments.Rate this question:
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- 43.
27. A deduction allowed to wholesalers and retailers from the price of the merchandise listed in catalogues is called cash discounts.
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True
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False
Correct Answer
A. FalseExplanation
Cash discounts are not deductions allowed to wholesalers and retailers from the price of merchandise listed in catalogues. Cash discounts are reductions in price given to customers who pay their bills within a specified time period. The correct term for deductions allowed to wholesalers and retailers from the price of merchandise listed in catalogues is trade discounts.Rate this question:
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- 44.
26. The terms FOB destination and FOB shipping point indicate who paid the transaction cost.
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True
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False
Correct Answer
A. FalseExplanation
The terms FOB destination and FOB shipping point do not indicate who paid the transaction cost. Instead, they refer to the point at which the ownership and responsibility for the goods transfer from the seller to the buyer. FOB destination means that the seller is responsible for the goods until they reach the buyer's specified destination, while FOB shipping point means that the buyer assumes responsibility once the goods are shipped from the seller's location.Rate this question:
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- 45.
10. When profit or loss is zero, one of the usual closing entries will be avoided.
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True
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False
Correct Answer
A. TrueExplanation
When profit or loss is zero, it means that the company's revenue is equal to its expenses, resulting in neither profit nor loss. In this scenario, there is no need to make any closing entries related to profit or loss because there is no amount to be transferred to the retained earnings account. Therefore, one of the usual closing entries will be avoided when profit or loss is zero.Rate this question:
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- 46.
4. The amount of profit will appear on the credit side of the Income Statement column on a worksheet if total revenues exceed total expenses for the period.
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True
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False
Correct Answer
A. FalseExplanation
The amount of profit will appear on the credit side of the Income Statement column on a worksheet if total revenues exceed total expenses for the period. This statement is false. In accounting, profit is calculated by subtracting total expenses from total revenues. If total revenues exceed total expenses, there will be a net profit, which will appear on the debit side of the Income Statement column on a worksheet, not the credit side.Rate this question:
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- 47.
10. If total credits exceed total debits in the balance sheet columns of a worksheet,
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A mistake has been made
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There is profit
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There is a loss
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Assets exceed liabilities
Correct Answer
A. There is a lossExplanation
If the total credits exceed the total debits in the balance sheet columns of a worksheet, it indicates that there is a loss. This is because credits represent income or gains, while debits represent expenses or losses. When the total credits are higher than the total debits, it means that the company has incurred more expenses or losses than it has gained in income or profits. Therefore, there is a loss.Rate this question:
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- 48.
27. When there is a loss, the entry to close the Income Summary account is
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Debit owner’s capital and credit income summary
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Debit loss and credit income summary
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Debit income summary and credit loss
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Debit income summary and credit owner’s capital
Correct Answer
A. Debit owner’s capital and credit income summaryExplanation
When there is a loss, the entry to close the Income Summary account is to debit owner's capital and credit income summary. This is because the loss represents a decrease in the owner's equity, which is reflected by debiting the owner's capital account. The income summary account is used to summarize the revenue and expense accounts before closing them to the owner's capital account. Since the loss is a decrease in revenue, it is closed by crediting the income summary account.Rate this question:
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- 49.
17. Which of the following is a characteristic of a perpetual inventory system?
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Inventory purchases are debited to a Purchases account.
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Inventory records are not kept for every item.
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Cost of goods sold is recorded with each sale.
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Cost of goods sold is determined as the amount of purchases less the change in inventory.
Correct Answer
A. Cost of goods sold is recorded with each sale.Explanation
A perpetual inventory system is a method of tracking inventory in real-time, where inventory records are constantly updated with each purchase and sale. In this system, the cost of goods sold is recorded with each sale, meaning that the cost of the items sold is immediately deducted from the inventory account. This allows for accurate and up-to-date tracking of inventory levels and cost of goods sold.Rate this question:
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Mar 22, 2023Quiz Edited by
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Aug 14, 2019Quiz Created by
Chian Tayupon
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