Revision Accounting Principle I

Part 1: Direct Questions.

1. Can a business record a transaction having one affect? If yes, give an example.
2. What is the monetary unit assumption?
3. Accounting is important to our economic system.” Do you agree? Explain.
4. What is the economic entity assumption?
5. What are the three basic forms of business organizations for profit-oriented enterprises?
6. Describe the parts of a T account.
7. What is the basic accounting equation?
8. What are the basic steps in the recording process?
9. Describe a compound entry, and provide an example.
10. What are the advantages of using a journal in the recording process?
11. What is the debit/credit effect of a prepaid expense adjusting entry?
12. Explain the purpose of the worksheet.
13. Explain the meaning of the credit terms 2/10, n/30.
14. Differentiate between Cash & Accrual basis of accounting.
15. Explain the difference between the terms FOB shipping point and FOB destination.

Part 2: Multiple Choice Questions (M C Q)

1. Which of the following is not a step in the accounting process?
a. Identification.
b. Recording.
c. Communication.
d. Verification.
2. All of the following are required steps in the accounting cycle except:
a. Journalizing and posting closing entries.
b. Preparing financial statements.
c. Journalizing the transactions.
d. Preparing a worksheet.

3. The three types of business entities are:

a. Proprietorships, small businesses, and partnerships.
b. Proprietorships, partnerships, and large businesses.
c. Financial, manufacturing, and service companies.
d. Proprietorships, partnerships, and corporations.

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 4. Which of the following events is not recorded in the accounting records?
a. Equipment is purchased on account.
b. An employee is terminated.
c. A cash investment is made into the business.
d. The owner withdraws cash for personal use.
5. Net income will result during a time period when:
a. Assets exceed liabilities.
b. Assets exceed revenues.
c. Expenses exceed revenues.
d. Revenues exceed expenses.
6. Debits:
a. Increase both assets and liabilities.
b. Decrease both assets and liabilities.
c. Decrease assets and increase liabilities.
d. Increase assets and decrease liabilities.
7. A revenue account:
a. Is increased by debits.
b. Is decreased by credits.
c. Has a normal balance of a debit.
d. Is increased by credits.
8. Which of the following is not part of the recording process?
a. Financial Statements.
b. Entering transactions in a journal.
c. Posting Transactions
d. Analyzing transactions.
9. Accounts that normally have debit balances are:
a. Assets, expenses, and revenues.
b. Assets, expenses, and owner’s capital.
c. Assets, liabilities, and owner’s drawings.
d. Assets, owner’s drawings, and expenses.
10. When a net loss has occurred, Income Summary is:
a. Debited and Owner’s Capital is credited.
b. Credited and Owner’s Capital is debited.
c. Debited and Owner’s Drawings is credited.
d. Credited and Owner’s Drawings is debited.

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11. Adjustments for prepaid expenses:
a. Decrease assets and increase revenues.
b. Decrease expenses and increase assets.
c. Decrease revenues and increase assets.
d. Decrease assets and increase expenses.
12. An account that will have a zero balance after closing entries have been journalized and
posted is:
a. Service Revenue.
b. Supplies.
c. Prepaid Insurance.
d. Accumulated Depreciation—Equipment.
13. Adjustments for accrued revenues:
a. Have a liabilities and revenues account relationship.
b. Have an assets and revenues account relationship.
c. Decrease assets and revenues.
d. Decrease liabilities and increase revenues.
14. A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted
on June 16. The amount received as payment in full on June 23 is:
a. $700.
b. $686.
c. $685.
d. $650.
15. Which of the following should not be included in the physical inventory of a company?
a. Goods held on consignment from another company.
b. Goods shipped on consignment to another company.
c. Goods in transit from another company shipped FOB shipping point.
d. None of the above.
16. Cost of goods available for sale consist of two elements: beginning inventory and
a. Ending inventory.
b. Cost of goods purchased.
c. Cost of goods sold.
d. All of the above.

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17. Under a perpetual inventory system, when goods are purchased for resale by a
company:
a. Purchases on account are debited to Inventory.
b. Purchases on account are debited to Purchases.
c. Purchase returns are debited to Purchase Returns and Allowances.
d. Freight costs are debited to Freight-out.

18. A sales journal will be used for:

Credit Sales Cash Sales Sales Discounts
a. No Yes Yes
b. Yes No Yes
c. Yes No No
d. Yes Yes No

19. In a worksheet, net income is entered in the following columns:

a. Income statement (Dr) and balance sheet (Dr).
b. Income statement (Cr) and balance sheet (Dr).
c. Income statement (Dr) and balance sheet (Cr).
d. Income statement (Cr) and balance sheet (Cr).
20. The multiple-step income statement for a merchandising company shows each of the
following features except:
a. Gross profit.
b. Cost of goods sold.
c. A sales revenue section.
d. Investing activities section.
21. Two common subsidiary ledgers are:
a. Accounts receivable and cash receipts.
b. Accounts payable and cash payments.
c. Accounts receivable and accounts payable.
d. Sales and cost of goods sold.
22. Which of these would cause the inventory turnover ratio to increase the most?
a. Increasing the amount of inventory on hand.
b. Keeping the amount of inventory on hand constant but increasing sales.
c. Keeping the amount of inventory on hand constant but decreasing sales.
d. Decreasing the amount of inventory on hand and increasing sales.

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 23. Using the data in Question 4 above, the cost of the ending inventory under LIFO is:
a. $113,000.
b. $99,000.
c. $108,000.
d. $100,000.
24. A purchase of equipment on account is recorded in the:
a. Cash receipts journal.
b. Purchases journal.
c. Cash payments journal.
d. General journal.

Part 3: Problems
1. Mr. Hassan was started on July 01 by WEEDHSAME COMPANY. The following
selected events and transactions occurred during July 2022.
July. 1 WEEDHSAME invested $35,000 cash in the business.
4 Purchased land costing $27,000 for cash.
8 Incurred advertising expense of $1,800 on account.
11 Paid salaries to employees $1,500.
12 Hired park manager at a salary of $4,000 per month, effective Aug 1.
13 Paid $1,650 cash for a one-year insurance policy.
17 Withdrew $1,000 cash for personal use.
20 Received $6,800 in cash for admission fees.
25 Sold 100 coupon books for $25 each. Each book contains 10 coupons that entitle the holder
to one admission to the park.
30 Received $8,900 in cash admission fees.
31 Paid $900 on balance owed for advertising incurred on Sept 8.

Instructions
Journalize the Sept transactions.

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 2. H M W Company ended its fiscal year on July 31, 2022. The company’s adjusted trial
balance as of the end of its fiscal year is as shown below.

H M W COMPANY
Adjusted Trial Balance
July 31, 2022
No. Account Titles Debits Credits
101 Cash $ 9,840
112 Accounts Receivable 8,780
157 Equipment 15,900
167 Accumulated Depreciation—Equip. $ 7,400
201 Accounts Payable 4,220
208 Unearned Rent Revenue 1,800
301 Owner’s Capital 45,200
306 Owner’s Drawings 16,000
404 Service Revenue 64,000
429 Rent Revenue 6,500
711 Depreciation Expense 8,000
720 Salaries and Wages Expense 55,700
732 Utilities Expense 14,900

$129,120 $129,120

Instructions
(a) Prepare the closing entries using page.
(b) Post to Owner’s Capital and Income Summary accounts.
(c) Prepare a post-closing trial balance at July 31.

3. Mr. Weedhsame started his own consulting firm, Business Care Consulting, on Aug 1,
2022. The trial balance at May 31 is as follows.

BUSINESS CARE CONSULTING

Trial Balance
Aug 31, 2022
Account Number Debit Credit
101 Cash $ 4,500
112 Accounts Receivable 6,000
126 Supplies 1,900
130 Prepaid Insurance 3,600
149 Equipment 11,400
201 Accounts Payable $ 4,500
209 Unearned Service Revenue 2,000
301 Owner’s Capital 17,700
400 Service Revenue 7,500
726 Salaries and Wages Expense 3,400
729 Rent Expense 900

$31,700 $31,700

a) $900 of supplies have been used during the month.

b) Utilities expense incurred but not paid on Aug 31, 2022, $250.
c) The insurance policy is for 2 years.
d) $400 of the balance in the unearned service revenue account remains unearned at the end
of the month.
e) Aug 31 is a Tuesday, and employees are paid on Fridays. Business Care Consulting has
two employees, who are paid $900 each for a 5-day work week.

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 f) The office furniture has a 5-year life with no salvage value. It is being depreciated at
$190 per month for 60 months.
g) Invoices representing $1,700 of services performed during the month have not been
recorded as of Aug 31.
Instructions
a) Prepare the adjusting entries for the month of Aug. Use J4 as the page number for your
journal.
b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as
beginning account balances and place a check mark in the posting reference column.
c) Prepare an adjusted trial balance at Aug 31, 2022.

4. Information related to WEEDHSAME CO. is presented below

1. On April 5, purchased merchandise from Morris Company for $23,000, terms 2/10, net/30,
FOB shipping point.
2. On April 6, paid freight costs of $900 on merchandise purchased from Morris.
3. On April 7, purchased equipment on account for $26,000.
4. On April 8, returned damaged merchandise to Morris Company and was granted a $3,000 credit for returned
merchandise.
5. On April 15, paid the amount due to Morris Company in full.

5. HASSAN Electronics began operations on May 1. It uses a perpetual inventory system.

During May, the company had the following purchases and sales for its Model 25 Sureshot
camera.
Purchases
Date Units Unit Cost Sales Units
May 1 7 $150
4 4
8 8 $170
12 5
15 6 185
20 3
25 4

Instructions
a. Determine the ending inventory under a Perpetual Inventory System using:
 1. FIFO, 2. LIFO. 3. AVERAGE COST (MOVING AVERAGE COST)
b. Which Costing Method Produces (1) the highest ending inventory valuation and (2) the
lowest ending inventory valuation?

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 6. River Company’s chart of accounts includes the following selected accounts.

101 Cash, 401 Sales Revenue, 112 Accounts Receivable, 414 Sales Discounts, 120
Inventory, 505 Cost of Goods Sold, 301 Owner’s Capital
On April 1 the accounts receivable ledger of River Company showed the following
balances: Summer $1,550, Glav $1,200, Sheppard Co. $2,900, and Book $1,800. The
April transactions involving the receipt of cash were as follows.
Apr. 1 The owner, T. River, invested additional cash in the business $7,200.
4 Received check for payment of account from Book less 2% cash discount.
5 Received check for $920 in payment of invoice no. 307 from Sheppard Co.
8 Made cash sales of merchandise totaling $7,245.
The cost of the merchandise sold was $4,347.
10 Received check for $600 in payment of invoice no. 309 from Summer.
11 Received cash refund from a supplier for damaged merchandise $740.
23 Received check for $1,500 in payment of invoice no. 310 from Sheppard Co.
29 Received check for payment of account from Glav.

Instructions
(a) Journalize the transactions above in a six-column cash receipts journal with columns
for Cash Dr., Sales Discounts Dr., Accounts Receivable Cr., Sales Revenue Cr.,
Other Accounts Cr., and Cost of Goods Sold Dr./Inventory Cr. Foot and cross foot
the journal.
(b) Insert the beginning balances in the Accounts Receivable control and subsidiary
accounts, and post the April transactions to these accounts.
(c) Prove the agreement of the control account and subsidiary account balances.

7. Dirie Company has a balance in its Accounts Receivable control account of $11,000 on January
1, 2022. The subsidiary ledger contains three accounts: Nathan Company, balance $4,000;
Fillion Company, balance $2,500; and Lassak Company. During January, the following
receivable-related transactions occurred.
Credit Sales Collections Returns
Nathan Company $9,000 $8,000 $ -0-
Fillion Company 7,000 2,500 3,000
Lassak Company 8,500 9,000 -0-

Instructions
(a) What is the January 1 balance in the Lassak Company subsidiary account?
(b) What is the January 31 balance in the control account?
(c) Compute the balances in the subsidiary accounts at the end of the month.

Have a nice Work

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END