CHAPTER 3

THE ACCOUNTING INFORMATION SYSTEM

CHAPTER LEARNING OBJECTIVES

1. 2. 3. 4. ". #. %. &'. &). &1+. Understand basic accounting terminology. Explain double-entry rules. Identify steps in the accounting cycle. Record transactions in ournals! post to ledger accounts! and prepare a trial balance. Explain the reasons for preparing ad usting entries. $repare financial statements from the ad usted trial balance. $repare closing entries. (ifferentiate the cash basis of accounting from the accrual basis of accounting. Identify ad usting entries that may be re*ersed. $repare a 1+-column ,or-sheet.

3()

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

TRUE'FALSE
1. 2. 3. 4. ". #. %. '. ). 1+. 11. 12. 13. . 14. 1". 1#. 1%. 6he trial balance unco*ers any errors in ournali;ing and posting prior to preparation of the statement of financial position. 6he trial balance ,ill not balance ,hen a company debits t,o statement of financial position accounts and no income statement accounts. $osting is done for income statement acti*ity< acti*ity related to statement of financial position does not re:uire posting. 6he trial balance is a listing of all the accounts and thier balances in the order the accounts appear on the statement of financial position. . ledger is ,here the company initially records transactions and selected other e*ents. /ominal 0temporary1 accounts are re*enue! expense! and di*idend accounts and are periodically closed. Real 0permanent1 accounts are re*enue! expense! and di*idend accounts and are periodically closed. Under International 2inancial Reporting 3tandards 0I2R31 the di*idends account is considered a real account. Under International 2inancial Reporting 3tandards 0I2R31 the 4boo- of original entry4 is also -no,n as the ournal. 5n the income statement! debits are used to increase account balances! ,hereas on the statement of financial position! credits are used to increase account balances. 6he rules for debit and credit and the normal balance of 3hare 7apital85rdinary are the same as for liabilities. 5n the income statement! re*enues are increased by a debit ,hereas on the statement of financial position retained earnings is increased by a credit. 9oth a corporation and a proprietorship commonly use the share capital account. .ll liability and e:uity accounts are increased on the credit side and decreased on the debit side. In general! debits refer to increases in account balances! and credits refer to decreases. 6he first step in the accounting cycle is the ournali;ing of transactions and selected other e*ents. 9asic steps in the recording process include transferring the ournal information to the appropriate account in the statement of financial position.

6he .ccounting Information 3ystem 1'. 1). 2+. 21. 22. 23. 24. 2". 2#. 2%. 2'. 2). 3+. 31.

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6he trail balance is used to prepare statement of financial position ,hile the general ledger is used to prepare the income statement. 5ne purpose of a trial balance is to pro*e that debits and credits of an e:ual amount are in the general ledger. . general ournal chronologically lists transactions and other e*ents! expressed in terms of debits and credits to accounts. If a company fails to post one of its ournal entries to its general ledger! the trial balance ,ill not sho, an e:ual amount of debit and credit balance accounts. .d usting entries for prepayments record the portion of the prepayment that represents the expense incurred or the re*enue earned in the current accounting period. .n ad ustment for ,age expense! earned but unpaid at year end! is an example of an accrued expense. 6he boo- *alue of any depreciable asset is the difference bet,een its cost and its sal*age *alue. . company must ma-e ad usting entries each time it prepares an income statement and a statement of financial position. .d usting entries are often prepared after the statement of financial position date! but dated as of the statement of financial position date. .d usting entries are necessary to enable the financial statements to conform to International 2inancial Reporting 3tanadard 0I2R31. Each ad usting entry affects one statement of financial position account and one income statement account. . document prepared to pro*e the e:uality of debits and credits after all ad ustments ha*e been prepared is the ad usted statement of financial position. 7ompanies can prepare the income statement and the statement of financial position directly from the ad usted trial balance. (ebra! Inc. is preparing its annual financial statements based on its ad usted trial balance and ,ill prepare its statement of financial position first follo,ed by its income statement. 6he ending retained earnings balance is reported on both the retained earnings statement and the statement of financial position. 6he post-closing trial balance consists of asset! liability! e:uity! re*enue and expense accounts. .ll re*enues! expenses! and the di*idends account are closed through the Income 3ummary account.

32. 33. 34.

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Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on It is not necessary to post the closing entries to the ledger accounts because ne, re*enue and expense accounts ,ill be opened in the subse:uent accounting period. 6he closing process transfers all income statement items to their related statement of financial position accounts 0for example! salaries expense transfers to salaries payable1. Under International 2inancial Reporting 3tandards 0I2R31 the cash-basis method of accounting is accepted. 6he accrual basis recogni;es re*enue ,hen earned and expenses in the period ,hen cash is paid. Re*ersing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions. .n ad usted trial balance that sho,s e:ual debit and credit columnar totals pro*es the accuracy of the ad usting entries.

Tr$e ' Fa*se Ans+ers , Con#e-t$a*

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MULTIPLE CHOICE,Con#e-t$a*
41. 2actors that shape an accounting information system include the a. nature of the business. b. si;e of the firm. c. *olume of data to be handled. d. all of these. .n accounting record ,here a company initially records transactions and selected other e*ents is called the a. ledger. b. account. c. trial balance. d. ournal.

42.

6he .ccounting Information 3ystem 43. =hich of the follo,ing is a real 0permanent1 account> a. ?ood,ill b. 3ales c. .ccounts Recei*able d. 9oth ?ood,ill and .ccounts Recei*able =hich of the follo,ing is a nominal 0temporary1 account> a. Unearned Re*enue b. 3alary Expense c. In*entory d. Retained Earnings /ominal accounts are also called a. temporary accounts. b. permanent accounts. c. real accounts. d. none of these.

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Under International 2inancial Reporting 3tandards 0I2R31 real accounts include all of the follo,ing e0#e-t a. (i*idends b. .ssets c. @iabilities d. E:uity Under International 2inancial Reporting 3tandards 0I2R31 the 4boo- of original entry4 is also -no,n as the a. 3ubsidiary ledger b. 6rial balance c. ?eneral ledger d. Aournal =hich of the follo,ing statement is true regarding debits and credits> a. 5n the income statement! debits are used to increase account balances! ,hereas on the statement of financial position! credits are used to increase account balances. b. 9efore ad ustments! debits ,ill not e:ual credits in the trial balance. c. 6he rules for debit and credit and the normal balance of 3hare 7apital85rdinary are the same as for liabilities. d. 5n the income statement! re*enues are increased by debit ,hereas on the statement of financial position retained earnings is increased by a credit. =hich of the follo,ing accounts is reported in the E:uity section statement of financial postion> a. (i*idends. b. 3hare capital8ordinary. c. Re*enues. d. .ll of the choices are reported in the E:uity section of the statement of financial position.

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Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on Re*enues are a. Impacted by debits and credits in the same ,ay that expenses are impacted by debits and credits. b. . subdi*ision of e:uity! pro*iding information about ,hy e:uity increased. c. Reported on the statement of financial position as a current item. d. .ll of the choices are correct regarding re*enues. (ebit al,ays means a. right side of an account. b. increase. c. decrease. d. none of these. 6he double-entry accounting system means a. Each transaction is recorded ,ith t,o ournal entries. b. Each item is recorded in a ournal entry! then in a general ledger account. c. 6he dual effect of each transaction is recorded ,ith a debit and a credit. d. Bore than one of the abo*e. =hen a corporation pays a note payable and interest! a. the account /otes $ayable ,ill be increased. b. the account Interest Expense ,ill be decreased. c. they ,ill debit /otes $ayable and interest expense. d. they ,ill debit 7ash. E:uity is not affected by all a. cash receipts. b. di*idends. c. re*enues. d. expenses. 6he debit and credit analysis of a transaction normally ta-es place a. before an entry is recorded in a ournal. b. ,hen the entry is posted to the ledger. c. ,hen the trial balance is prepared. d. at some other point in the accounting cycle. 6he accounting e:uation must remain in balance a. throughout each step in the accounting cycle. b. only ,hen ournal entries are recorded. c. only at the time the trial balance is prepared. d. only ,hen formal financial statements are prepared. .n optional step in the accounting cycle is the preparation of a. ad usting entries. b. closing entries. c. a statement of cash flo,s. d. a post-closing trial balance.

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6he .ccounting Information 3ystem "'.

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9asic steps in the recording process include all of the follo,ing e0#e-t a. 6ransfer the ournal information to the appropriate account in the statement of financial postion. b. .naly;e each transaction for its effect on the accounts. c. Enter the transaction information in a ournal. d. .ll of the choices are corrrect regarding the basic steps in the recording process. 6he trial balance a. $ro*es that debits are greater than credits ,hen the company has net income. b. Unco*ers any errors in ournali;ing and posting prior to preparation of the statement of financial position. c. Is useful in preparing the statement of financial position. d. .ll of the choices are correct. 6he trial balance ,ill not balance ,hen a company a. 2ails to ournali;e a transaction. b. 5mits posting a correct ournal entry. c. $osts a ournal entry t,ice. d. (ebits t,o statement of financial position accounts and no income statement accounts. .ccounts maintained ,ithin the ledger that appear on the statement of financial position include all of the follo,ing e0#e-t a. 3alaries expense. b. Interest payable. c. 3upplies. d. 3hare capital8ordinary. $osting a. .ccumulates the effects of ledger entries and transfers them to the general ournal. b. Is done only for income statement acti*ity< acti*ity related to the statement of financial position does not re:uire posting. c. Is done once per year. d. 6ransfers ournal entries to the ledger accounts. 6he trial balance a. Is a listing of all the accounts and their balances in the order the accounts appear on the statement of financial position. b. Cas as its primary purpose to pro*e 0chec-1 that all ournal entries ,ere made for the period. c. 7an be used to unco*er errors in ournali;ing and posting. d. Is used to prepare the statement of financial position ,hile the general ledger is used to prepare the income statement. /umerous errors may exist e*en though the trial balance columns agree. =hich of the follo,ing is not one of these types of errors> a. . transaction is not ournali;ed. b. 6ransposition error related to the statement of financial position. c. . ournal entry is posted t,ice. d. . ournal entry to purchase D1++ ,orth of e:uipment is posted as a D1!+++ purchase.

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Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on . trial balance may pro*e that debits and credits are e:ual! but a. an amount could be entered in the ,rong account. b. a transaction could ha*e been entered t,ice. c. a transaction could ha*e been omitted. d. all of these. . general ournal a. chronologically lists transactions and other e*ents! expressed in terms of debits and credits. b. contains one record for each of the asset! liability! e:uity! re*enue! and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only ad usting entries. . a. b. c. d. . a. b. c. d. . a. b. c. d. ournal entry to record the sale of in*entory on account ,ill include a debit to inventory. debit to accounts receivable. debit to sales. credit to cost of goods sold. ournal entry to record a payment on account ,ill include a debit to accounts receivable. credit to accounts receivable. debit to accounts payable. credit to accounts payable. ournal entry to record a receipt of rent re*enue in ad*ance ,ill include a debit to rent revenue. credit to rent revenue. credit to cash. credit to unearned rent.

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=hich of the follo,ing errors ,ill cause an imbalance in the trial balance> a. 5mission of a transaction in the ournal. b. $osting an entire ournal entry t,ice to the ledger. c. $osting a credit of D%2+ to .ccounts $ayable as a credit of D%2+ to .ccounts Recei*able. d. @isting the balance of an account ,ith a debit balance in the credit column of the trial balance. =hich of the follo,ing is not a principal purpose of an unad usted trial balance> a. It pro*es that debits and credits of e:ual amounts are in the ledger. b. It is the basis for any ad ustments to the account balances. c. It supplies a listing of open accounts and their balances. d. It pro*es that debits and credits ,ere properly entered in the ledger accounts. .n ad usting entry should ne4er include a. a debit to an expense account and a credit to a liability account. b. a debit to an expense account and a credit to a re*enue account. c. a debit to a liability account and a credit to re*enue account. d. a debit to a re*enue account and a credit to a liability account.

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6he .ccounting Information 3ystem %3.

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=hich of the follo,ing is an example of an accrued expense> a. 5ffice supplies purchased at the beginning of the year and debited to an expense account. b. $roperty taxes incurred during the year! to be paid in the first :uarter of the subse:uent year. c. (epreciation expense. d. Rent earned during the period! to be recei*ed at the end of the year. .n ad usting entry to record an accrued expense in*ol*es a debit to a0an1E a. expense account and a credit to a prepaid account. b. expense account and a credit to 7ash. c. expense account and a credit to a liability account. d. liability account and a credit to an expense account. 6he failure to properly record an ad usting entry to accrue an expense ,ill result in anE a. understatement of expenses and an understatement of liabilities. b. understatement of expenses and an o*erstatement of liabilities. c. understatement of expenses and an o*erstatement of assets. d. o*erstatement of expenses and an understatement of assets. =hich of the follo,ing properly describes a deferral> a. 7ash is recei*ed after re*enue is earned. b. 7ash is recei*ed before re*enue is earned. c. 7ash is paid after expense is incurred. d. 7ash is paid in the same time period that an expense is incurred. 6he failure to properly record an ad usting entry to accrue a re*enue item ,ill result in anE a. understatement of re*enues and an understatement of liabilities. b. o*erstatement of re*enues and an o*erstatement of liabilities. c. o*erstatement of re*enues and an o*erstatement of assets. d. understatement of re*enues and an understatement of assets. 6he omission of the ad usting entry to record depreciation expense ,ill result in anE a. o*erstatement of assets and an o*erstatement of e:uity. b. understatement of assets and an understatement of e:uity. c. o*erstatement of assets and an o*erstatement of liabilities. d. o*erstatement of liabilities and an understatement of e:uity. .d ustments are often prepared a. after the statement of financial position date! but dated as of that date. b. after the statement of financial position date! and dated after that date. c. before the statement of financial position date! but dated as of that date. d. before the statement of financial position date! and dated after that date. .t the time a company prepays a cost a. it debits an asset account to sho, the ser*ice or benefit it ,ill recei*e in the future. b. it debits an expense account to match the expense against re*enues earned. c. its credits a liability account to sho, the obligation to pay for the ser*ice in the future. d. more than one of the abo*e.

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Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on Co, do these prepaid expenses expire> Rent a. =ith the passage of time b. =ith the passage of time c. 6hrough use and consumption d. 6hrough use and consumption Supplies 6hrough use and consumption =ith the passage of time 6hrough use and consumption =ith the passage of time

'2.

Recording the ad usting entry for depreciation has the same effect as recording the ad usting entry for a. an unearned re*enue. b. a prepaid expense. c. an accrued re*enue. d. an accrued expense. Unearned re*enue on the boo-s of one company is li-ely to be a. a prepaid expense on the boo-s of the company that made the ad*ance payment. b. an unearned re*enue on the boo-s of the company that made the ad*ance payment. c. an accrued expense on the boo-s of the company that made the ad*ance payment. d. an accrued re*enue on the boo-s of the company that made the ad*ance payment. 6o compute interest expense for an ad usting entry! the formula is 0principal F annual rate F a fraction1. 6he numerator and denominator of the fraction areE Numerator Denominator a. @ength of time note has been outstanding 12 months b. @ength of note 12 months c. @ength of time until note matures @ength of note d. @ength of time note has been outstanding @ength of note .d usting entries are necessary to 1. obtain a proper matching of expense to re*enue. 2. achie*e an accurate statement of assets and e:uities. 3. ad ust assets and liabilities to their fair *alue. a. 1 b. 2 c. 3 d. 1 and 2 =hen an item of expense is paid and recorded in ad*ance! it is normally called a0n1 a. prepaid expense. b. accrued expense. c. estimated expense. d. cash expense.

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6he .ccounting Information 3ystem '%.

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=hen an item of re*enue or expense has been earned or incurred but not yet collected or paid! it is normally called a0n1 GGGGGGGGGGGG re*enue or expense. a. prepaid b. ad usted c. estimated d. none of these =hen an item of re*enue is collected and recorded in ad*ance! it is normally called a0n1 GGGGGGGGGGG re*enue. a. accrued b. prepaid c. unearned d. cash .n accrued expense can best be described as an amount a. paid and currently matched ,ith earnings. b. paid and not currently matched ,ith earnings. c. not paid and not currently matched ,ith earnings. d. not paid and currently matched ,ith earnings. If! during an accounting period! an expense item has been incurred and consumed but not yet paid for or recorded! then the end-of-period ad usting entry ,ould in*ol*e a. a liability account and an asset account. b. an asset or contra asset account and an expense account. c. a liability account and an expense account. d. a recei*able account and a re*enue account. =hich of the follo,ing must be considered in estimating depreciation on an asset for an accounting period> a. 6he original cost of the asset b. Its useful life c. 6he decline of its fair *alue d. 9oth the original cost of the asset and its useful life. =hich of the follo,ing ,ould not be a correct form for an ad usting entry> a. . debit to a re*enue and a credit to a liability b. . debit to an expense and a credit to a liability c. . debit to a liability and a credit to a re*enue d. . debit to an asset and a credit to a liability Hear-end net assets ,ould be o*erstated and current expenses ,ould be understated as a result of failure to record ,hich of the follo,ing ad usting entries> a. Expiration of prepaid insurance b. (epreciation of fixed assets c. .ccrued ,ages payable d. .ll of these . prepaid expense can best be described as an amount a. paid and currently matched ,ith re*enues. b. paid and not currently matched ,ith re*enues. c. not paid and currently matched ,ith re*enues. d. not paid and not currently matched ,ith re*enues.

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Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on .n accrued re*enue can best be described as an amount a. collected and reported on the income statement. b. collected and not reported on the income statement. c. not collected and reported on the income statement. d. not collected and not reported on the income statement. .n unearned re*enue can best be described as an amount a. collected and reported on the income statement. b. collected and not reported on the income statement. c. not collected and reported on the income statement. d. not collected and not reported on the income statement. . company must ma-e ad usting entries a. 6o ensure that the re*enue recognition and expense recognition principles are follo,ed. b. Each time it prepares an income statement and a statement of financial position. c. 6o account for accurals or deferrals. d. .ll of the choices are correct regarding ad usting entries. =hich of the follo,ing ad ustments ,ould re:uire decreasing the liabilities reported on the statement of financial position> a. . company uses D4++ ,orth of supplies during the year. b. . company records D4++ ,orth of depreciation on e:uipment. c. . company has earned D4++ of re*enue collected at the beginning of the year. d. . company records D4++ of ,ages earned by employees that ,ill be paid next year. .d usting entries a. .re often prepared after the statement of financial position date! but dated as of the statement of financial position date. b. .re necessary to enable the financial statements to conform to International 2inancial Reporting 3tandard 0I2R31. c. Include both accruals and deferrals. d. .ll of the choices are correct regarding ad usting entries. =hich of the follo,ing statements is fa*se regarding ad usting enries> a. 7ash is neither debited nor credited as a result of ad usting entries. b. Each ad usting entry affects one statement of financial position account and one income statement account. c. Each ad usting entry affects one re*enue account and one expense account. d. .d usting entries in*ol*e accruals or deferrals. . document prepared to pro*e the e:uality of debits and credits after all ad ustments ha*e been prepared is the a. .d usted statement of fianancial position. b. .d usted trial balance. c. .d usted financial statements. d. $ost-closing trial balance.

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6he .ccounting Information 3ystem 1+2.

3 ( 73

=hich of the follo,ing statements is fa*se> a. 7ompanies can prepare the income statement and the statement of financial position directly from the ad usted trial balance. b. 7ompanies can prepare the statement of cash flo,s directly from the ad usted trial balance. c. 6he ad usted trial balance pro*es the e:uality of total debits and total credits after all ad ustments. d. Each ad usting entry affects one statement of financial position account and one income statement account. (ebra! Inc. is preparing its annual financial statements based on its ad usted trial balance. =hich financial statement ,ill (ebra! Inc. prepare first> a. 3tatement of financial position. b. Income statement. c. Retained earnings statement. d. 6here is no particular order! any financial statement may be prepared first once the ad usted trial balance is prepared. .n ad usted trial balance a. is prepared after the financial statements are completed. b. pro*es the e:uality of the total debit balances and total credit balances of ledger accounts after all ad ustments ha*e been made. c. is a re:uired financial statement under international financial reporting standards. d. cannot be used to prepare financial statements. =hich type of account is al,ays debited during the closing process> a. (i*idends. b. Expense. c. Re*enue. d. Retained earnings. =hich of the follo,ing statements best describes the purpose of closing entries> a. 6o faciliate posting and ta-ing a trial balance. b. 6o determine the amount of net income or net loss for the period. c. 6o reduce the balances of temporary accounts to ;ero so that they may be used to accumulate the re*enues! expenses and di*idends of the next period. d. 6o complete the record of *arious transactions that ,ere started in a prior period. 6he closing process a. Is done each time a transaction ta-es place and is ournali;ed. b. 6ransfers all income statement items to their related statement of financial position account 0for example! salaries expense transfers to salaries payable1. c. $osts all closing entries to the appropriate general ledger account. d. .ll of the choices are correct regarding the closing process. 6he closing entries a. Bust debit or credit one income statement account and one statement of financial position account. b. Include closing the di*idends account to income summary. c. .re posted to the appropriate general ledger accounts. d. .ll of the choices are correct regarding closing entries.

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Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on 6he post-closing trial balance a. 7onsists of statement of financial position accounts only. b. =ill balance if a transaction is not ournali;ed and posted! or if a transaction is ournali;ed and posted t,ice. c. 3ho,s that the accounting e:uation is in balance at the end of the accounting period. d. .ll of the choices are correct regarding the post-closing trial balance. Under International 2inancial Reporting 3tandards 0I2R31 a. 6he cash-basis method of accounting is accepted. b. E*ents are recorded in the period in ,hich the e*ent occurs. c. /et income ,ill be lo,er under the cash-basis than accural-basis accounting. d. .ll of the choices are correct. If ending accounts recei*able exceeds the beginning accounts recei*ableE a. cash collections during the period exceed the amount of re*enue earned. b. net income for the period is less than the amount of cash basis income. c. no cash ,as collected during the period. d. cash collections during the year are less than the amount of re*enue earned.

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&112. Under the cash basis of accounting! re*enues are recorded a. ,hen they are earned and reali;ed. b. ,hen they are earned and reali;able. c. ,hen they are earned. d. ,hen they are reali;ed. &113. =hen con*erting from cash basis to accrual basis accounting! ,hich of the follo,ing ad ustments should be made to cash receipts from customers to determine accrual basis ser*ice re*enue> a. 3ubtract ending accounts recei*able. b. 3ubtract beginning unearned ser*ice re*enue. c. .dd ending accounts recei*able. d. .dd cash sales. &114. =hen con*erting from cash basis to accrual basis accounting! ,hich of the follo,ing ad ustments should be made to cash paid for operating expenses to determine accrual basis operating expenses> a. .dd beginning accrued liabilities. b. 3ubtract beginning prepaid expense. c. 3ubtract ending prepaid expense. d. 3ubtract interest expense. &11". Re*ersing entries are 1. normally prepared for prepaid! accrued! and estimated items. 2. necessary to achie*e a proper matching of re*enue and expense. 3. desirable to exercise consistency and establish standardi;ed procedures. a. 1 b. 2 c. 3 d. 1 and 2

6he .ccounting Information 3ystem &11#. Re*ersing entries do not apply to ,hich of the follo,ing items> a. Unearned re*enue. b. .ccrued ,ages. c. $repaid insurance. d. (epreciation. &11%. .d usting entries that should be re*ersed include a. all accrued re*enues. b. all accrued expenses. c. those that debit an asset or credit a liability. d. all of these. &11'. . re*ersing entry should ne4er be made for an ad usting entry that a. accrues unrecorded re*enue. b. ad usts expired costs from an asset account to an expense account. c. accrues unrecorded expenses. d. ad usts unexpired costs from an expense account to an asset account. 11). Re*ersing entries a. Impact the income statement only. b. Impact the statement of financial position and the income statement. c. .re not allo,ed under International 2inancial Reporting 3tandards0I2R31. d. 7hange amounts reported in the financial statements of the preceding peroid.

3 ( 71

12+.

=hich of the follo,ing statements regarding re*ersing entries is "n#orre#t> a. (eferrals are generally entered in statement of financial position accounts! thus ma-ing re*ersing entries unnecessary. b. .ll accruals should be re*ersed. c. .d usting entries for depreciation and bad debts are ne*er re*ersed. d. Re*ersing entries change amounts reported in the statement of financial position for the pre*ious period.

&121. 6he ,or-sheet for 3har-o 7o. consisted of fi*e pairs of debit and credit columns. 6he dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. 6hat item is a. net income for the period. b. beginning in*entory. c. cost of goods sold. d. /et loss for the period.

3 ( 72

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

M$*t"-*e C9o"#e Ans+ers,Con#e-t$a*

Ite Ans. Ite Ans. Ite Ans. Ite Ans. Ite Ans. Ite

41. 42. 43. 44. 4". 4#. 4%. 4'. 4). "+. "1. "2. "3. "4.

d d d b a a d c b b d c c a

"". "#. "%. "'. "). #+. #1. #2. #3. #4. #". ##. #%. #'.

a a d a c d a d c b d a b c

#). %+. %1. %2. %3. %4. %". %#. %%. %'. %). '+. '1. '2.

d d d b b c a b d a a a a b

'3. '4. '". '#. '%. ''. '). )+. )1. )2. )3. )4. )". )#.

a a d a d c d c d d d b c b

)%. )'. )). 1++. 1+1. 1+2. 1+3. 1+4. 1+". 1+#. 1+%. 1+'. 1+). 11+.

d c d c b b b b c c c c d b

111. &112. &113. &114. &11". &11#. &11%. &11'. &11). &12+. &121.

Ans . d

d c c c d d b b d d

3olutions to those Bultiple 7hoice :uestions for ,hich the ans,er is Inone of these.J "1. left or left-side. '%. accrued.

MULTIPLE CHOICE,Co -$tat"ona*

122. Baso 7ompany recorded ournal entries for the issuance of ordinary shares for D4+!+++! the payment of D13!+++ on accounts payable! and the payment of salaries expense of D21!+++. =hat net effect do these entries ha*e on e:uity> a. Increase of D4+!+++. b. Increase of D2%!+++. c. Increase of D1)!+++. d. Increase of D#!+++. Bune 7ompany recorded ournal entries for the declaration of RD"+!+++ of di*idends! the RD32!+++ increase in accounts recei*able for ser*ices rendered! and the purchase of e:uipment for RD21!+++. =hat net effect do these entries ha*e on e:uity> a. (ecrease of RD%1!+++. b. (ecrease of RD3)!+++. c. (ecrease of RD1'!+++. d. Increase of RD11!+++. $appy 7orporation recei*ed cash of CKD13!"++ on 3eptember 1! 2+1+ for one yearLs rent in ad*ance and recorded the transaction ,ith a credit to Unearned Rent. 6he (ecember 31! 2+1+ ad usting entry is a. debit Rent Re*enue and credit Unearned Rent! CKD4!"++. b. debit Rent Re*enue and credit Unearned Rent! CKD)!+++. c. debit Unearned Rent and credit Rent Re*enue! CKD4!"++. d. debit 7ash and credit Unearned Rent! CKD)!+++.

123.

124.

6he .ccounting Information 3ystem 12".

3 ( 73

$anda 7orporation paid cash of Rp1'!+++ on Aune 1! 2+1+ for one yearLs rent in ad*ance and recorded the transaction ,ith a debit to $repaid Rent. 6he (ecember 31! 2+1+ ad usting entry is a. debit $repaid Rent and credit Rent Expense! Rp%!"++. b. debit $repaid Rent and credit Rent Expense! Rp1+!"++. c. debit Rent Expense and credit $repaid Rent! Rp1+!"++. d. debit $repaid Rent and credit 7ash! Rp%!"++. 6ate 7ompany purchased e:uipment on /o*ember 1! 2+1+ and ga*e a 3-month! )M note ,ith a face *alue of D2+!+++. 6he (ecember 31! 2+1+ ad usting entry is a. debit Interest Expense and credit Interest $ayable! D1!'++. b. debit Interest Expense and credit Interest $ayable! D4"+. c. debit Interest Expense and credit 7ash! D3++. d. debit Interest Expense and credit Interest $ayable! D3++. 7hen 7ompanyNs account balances at (ecember 31! 2+1+ for .ccounts Recei*able and the .llo,ance for (oubtful .ccounts are O32+!+++ debit and D#++ credit. 3ales during 2+1+ ,ere O)++!+++. It is estimated that 1M of sales ,ill be uncollectible. 6he ad usting entry ,ould include a credit to the allo,ance account for a. O)!#++. b. O)!+++. c. O'!4++. d. O3!2++. 3tarr 7orporation loaned =)+!+++ to another corporation on (ecember 1! 2+1+ and recei*ed a 3-month! 'M interest-bearing note ,ith a face *alue of =)+!+++. =hat ad usting entry should 3tarr ma-e on (ecember 31! 2+1+> a. (ebit Interest Recei*able and credit Interest Re*enue! =1!'++. b. (ebit 7ash and credit Interest Re*enue! =#++. c. (ebit Interest Recei*able and credit Interest Re*enue! =#++. d. (ebit 7ash and credit Interest Recei*able! =1!'++.

12#.

12%.

12'.

Use the follo,ing information for :uestions 12) and 13+E . company recei*es interest on a O3+!+++!+++! 'M! "-year note recei*able each .pril 1. .t (ecember 31! 2+1+! the follo,ing ad usting entry ,as made to accrue interest recei*ableE Interest Recei*able ............................................................. 1!'++!+++ Interest Re*enue ..................................................... 1!'++!+++ 12). .ssuming that the company does not use re*ersing entries! ,hat entry should be made on .pril 1! 2+11 ,hen the annual interest payment is recei*ed> a. 7ash ................................................................................... #++!+++ Interest Re*enue ..................................................... #++!+++ b. 7ash ................................................................................... 1!'++!+++ Interest Recei*able ................................................. 1!'++!+++ c. 7ash ................................................................................... 2!4++!+++ Interest Recei*able ................................................. 1!'++!+++ Interest Re*enue ..................................................... #++!+++ d. 7ash ................................................................................... 2!4++!+++ Interest Re*enue ..................................................... 2!4++!+++

3 ( 75

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

&13+. .ssuming that the company uses re*ersing entries! ,hat entry should be made on .pril 1! 2+11 ,hen the annual interest payment is recei*ed> a. 7ash ................................................................................... #++!+++ Interest Re*enue ..................................................... #++!+++ b. 7ash ................................................................................... 1!'++!+++ Interest Recei*able ................................................. 1!'++!+++ c. 7ash .................................................................................. 2!4++!+++ Interest Recei*able ................................................. 1!'++!+++ Interest Re*enue ..................................................... #++!+++ d. 7ash ................................................................................... 2!4++!+++ Interest Re*enue...................................................... 2!4++!+++ 131. Burphy 7ompany sublet a portion of its ,arehouse for fi*e years at an annual rental of D24!+++! beginning on Bay 1! 2+1+. 6he tenant! 3heri 7harter! paid one yearNs rent in ad*ance! ,hich Burphy recorded as a credit to Unearned Rental Re*enue. Burphy reports on a calendar-year basis. 6he ad ustment on (ecember 31! 2+1+ for Burphy should be a. /o entry b. Unearned Rent Re*enue .................................................... '!+++ Rent Re*enue ......................................................... '!+++ c. Rent Re*enue ..................................................................... '!+++ Unearned Rent Re*enue ......................................... '!+++ d. Unearned Rent Re*enue .................................................... 1#!+++ Re*enue Re*enue................................................... 1#!+++ (uring the first year of =il-inson 7o.Ns operations! all purchases ,ere recorded as assets. 3tore supplies in the amount of D1)!3"+ ,ere purchased. .ctual year-end store supplies amounted to D#!4"+. 6he ad usting entry for store supplies ,ill a. increase net income by D12!)++. b. increase expenses by D12!)++. c. decrease store supplies by D#!4"+. d. debit .ccounts $ayable for D#!4"+. 7ara! Inc. purchased supplies costing 6@2!"++ on Aanuary 1! 2+11 and recorded the transaction by increasing assets. .t the end of the year 6@1!3++ of the supplies are still on hand. Co, ,ill the ad usting entry impact 7ara! Inc.Ls statement of financial position at (ecember 31! 2+11> a. (ecrease .ssets 6@1!3++. b. Increase E:uity 6@1!3++. c. Increase @iabilities 6@1!2++. d. (ecrease .ssets 6@1!2++. 7ara! Inc. purchased supplies costing 6@2!"++ on Aanuary 1! 2+11 and recorded the transaction by increasing assets. .t the end of the year 6@1!3++ of the supplies are still on hand. If 7ara! Inc. does not ma-e the appropriate ad usting entry! ,hat is the impact on its statement of financial position at (ecember 31! 2+11> a. .ssets o*erstated by 6@1!2++. b. E:uity understated by 6@1!2++. c. E:uity o*erstated by 6@1!3++. d. .ssets o*erstated by 6@1!3++.

132.

133.

134.

6he .ccounting Information 3ystem 13".

3 ( 76

7ara! Inc. purchased a building on Aanuary 1! 2+11 for 7C2"++!+++. 6he useful life of the building is 1+ years. =hat impact ,ill the approriate ad usting entry at (ecember 31! 2+11 ha*e on its statement of financial position at (ecember 31! 2+11> a. Increase E:uity 7C2"+!+++. b. Increase @iabilities 7C2"+!+++. c. (ecrease .ssets 7C2"+!+++. d. 3ince the ad usting entry has offsetting debits and credits! there is no impact on the statement of financial position. 7ara! Inc. purchased a building on Aanuary 1! 2+11 for 7C2"++!+++. 6he useful life of the building is 1+ years. 6he asset is reported on the (ecember 31! 2+11 statement of financial position at 7C24"+!+++. =hat ,as the impact of the ad usting entry recorded by 7ara! Inc.> a. (ecrease E:uity 7C2"+!+++. b. Increase @iabilities 7C2"+!+++. c. Increase .ssets 7C2"+!+++. d. .ll of the choices are correct regarding the impact of 7ara! Inc.Ls ad usting entry at (ecember 31! 2+11. =a*e Inn is a resort located in 7anada. =a*e Inn collects cash ,hen guest ma-e a reser*ation. (uring (ecember 2+11! =a*e Inn collected D#+!+++ of cash and recorded the receipt by recogni;ing unearned re*enue. 9y the end of the month =a*e Inn had earned one third of this amount! the other t,o thirds ,ill be earned during Aanuary 2+12. 6he ad usting entry re:uired at (ecember 31! 2+11 ,ould impact the statement of financial position by a. Increasing E:uity D4+!+++. b. (ecreasing @iabilities D2+!+++. c. Increasing .ssets D#+!+++. d. (ecreasing E:uity D2+!+++. =a*e Inn is a resort located in 7anada. (uring (ecember 2+11!3pin Aammers held its annual conference at the resort. 6he charges related to the conference total D34+!+++! of ,hich 2"M has been paid by 3pin Aammers. .ssuming =a*e Inn fails to ma-e the appropriate ad usting entry! ,hich of the follo,ing is true regarding =a*e InnLs (ecember 31! 2+11 ,ould impact the statement of financial position> a. E:uity is o*erstated by D2""!+++. b. E:uity is understated by D'"!+++. c. .ssets are understated by D2""!+++. d. .ssets are o*erstated by D'"!+++. =a*e Inn is a resort located in 7anada. (uring (ecember 2+11! 3pin Aammers held its annual conference at the resort. 6he charges related to the conference total D34+!+++! of ,hich 2"M has been paid by 3pin Aammers. .ssuming 3pin Aammers fails to ma-e the appropriate ad usting entry! ,hich of the follo,ing is true regarding its (ecember 31! 2+11 statement of financial position> a. E:uity is o*erstated by D2""!+++. b. E:uity is understated by D'"!+++. c. @iabilities are o*erstated by D2""!+++. d. @iabilities are o*erstated by D'"!+++.

13#.

13%.

13'.

13)

3 ( )8 14+

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on 9read 9as-et pro*ides ba-ing supplies to restaurants and grocery stores. (uring (ecember 2+11! 9read 9as-etLs employees ,or-ed 1!2++ hours at an a*erage rate of R2+ per hour. .t (ecember 31! 2+11! 9read 9as-et has paid R11!+++ of salary expense. If 9read 9as-et fails to ma-e the appropriate ad usting entry! ,hich of the follo,ing is true regarding its (ecember 31! 2+11 statement of financial position> a. E:uity is o*erstated by R11!+++. b. E:uity is o*erstated by R13!+++. c. @iabilities are o*erstated by R13!+++. d. @iabilities are o*erstated by R11!+++. 9read 9as-et pro*ides ba-ing supplies to restuarants and grocery stores. 5n /o*ember 1! 2+11! 9read 9as-et signed a R"++!+++! #-month note payable. 6he note re:uires 9read 9as-et to pay interest at an annual rate of 12M. .ssuming 9read 9as-et ma-es the appropriate ad usting entry! ,hat is the impact on its (ecember 31! 2+11 statement of financial position> a. .n expense of R3+!+++. b. .n expense of R1+!+++. c. . @iability of R1+!+++. d. 6,o of the choices are correct. =a*e Inn is a resort located in 7anada. (uring (ecember 2+11! 3pin Aammers held its annual conference at the resort. 6he charges related to the conference total D34+!+++! of ,hich 2"M has been paid by 3pin Aammers. =hen =a*e Inn ma-es the appropriate ad usting entry! ,hich of the follo,ing is part of ad ustment made to its (ecember 31! 2+11 statement of financial position> a. (ebit cash D2""!+++. b. 7redit re*enue D2""!+++. c. 7redit cash D2""!+++. d. 6,o of the choices are correct. 9ig-Bouth 2rog 7orporation had re*enues of D2++!+++! expenses of D12+!+++! and di*idends of D3+!+++. =hen Income 3ummary is closed to Retained Earnings! the amount of the debit or credit to Retained Earnings is a a. debit of D"+!+++. b. debit of D'+!+++. c. credit of D"+!+++. d. credit of D'+!+++.

141

142.

143.

6he .ccounting Information 3ystem Use the follo,ing information for :uestions 144 through 14#E 6he income statement of (olan 7orporation for 2+11 included the follo,ing itemsE Interest re*enue P#"!"++ 3alaries expense '"!+++ Insurance expense %!#++

3 ( )7

6he follo,ing balances ha*e been excerpted from (olan 7orporationNs statement of financial positionE (ecember 31! 2+11 (ecember 31! 2+1+ .ccrued interest recei*able P)!1++ P%!"++ .ccrued salaries payable '!)++ 4!2++ $repaid insurance 1!1++ 1!"++ &144. 6he cash recei*ed for interest during 2+11 ,as a. P"#!4++. b. P#3!)++. c. P#"!"++. d. P#%!1++. &14". 6he cash paid for salaries during 2+11 ,as a. P')!%++. b. P'+!3++. c. P'+!'++. d. P)3!)++. &14#. 6he cash paid for insurance premiums during 2+11 ,as a. P#!"++. b. P#!1++. c. P'!+++. d. P%!2++. Use the follo,ing information for :uestions 14% through 14)E 5lsen 7ompany paid or collected during 2+11 the follo,ing itemsE Insurance premiums paid Interest collected 3alaries paid D 1+!4++ 33!)++ 12+!2++

6he follo,ing balances ha*e been excerpted from 5lsenNs statement of financial positionE (ecember 31! 2+11 (ecember 31! 2+1+ $repaid insurance D 1!2++ D 1!"++ Interest recei*able 3!%++ 2!)++ 3alaries payable 12!3++ 1+!#++ &14%. 6he insurance expense on the income statement for 2+11 ,as a. D%!%++. b. D1+!1++. c. D1+!%++. d. D13!1++.

3 ( ))

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

&14'. 6he interest re*enue on the income statement for 2+11 ,as a. D2%!3++. b. D33!1++. c. D34!%++. d. D4+!"++. &14). 6he salary expense on the income statement for 2+11 ,as a. D)%!3++. b. D11'!"++. c. D121!)++. d. D143!1++. &1"+. 6he 5ffice 3upplies account had a balance at the beginning of year 3 of Q4!+++ 0before the re*ersing entry1. $ayments for purchases of office supplies during year 3 amounted to Q2"!+++ and ,ere recorded as expense. . physical count at the end of year 3 re*ealed supplies costing Q4!%"+ ,ere on hand. Re*ersing entries are used by this company. 6he re:uired ad usting entry at the end of year 3 ,ill include a debit toE a. 5ffice 3upplies Expense for Q%"+. b. 5ffice 3upplies for Q%"+. c. 5ffice 3upplies Expense for Q24!2"+. d. 5ffice 3upplies for Q4!%"+. &1"1. .t the end of 2+11! (iego 7ompany made four ad usting entries for the follo,ing itemsE 1. (epreciation expense! RD2"!+++. 2. Expired insurance! RD2!2++ 0originally recorded as prepaid insurance.1 3. Interest payable! RD#!+++. 4. Rental re*enue recei*able! RD1+!+++. In the normal situation! to facilitate subse:uent entries! the ad usting entry or entries that may be re*ersed is 0are1 a. Entry /o. 3. b. Entry /o. 4. c. Entry /o. 3 and /o. 4. d. Entry /o. 2! /o. 3 and /o. 4. &1"2. ?arcia 7orporation recei*ed cash of RD1'!+++ on .ugust 1! 2+11 for one yearNs rent in ad*ance and recorded the transaction ,ith a credit to Rent Re*enue. 6he (ecember 31! 2+11 ad usting entry is a. debit Rent Re*enue and credit Unearned Rent! RD%!"++. b. debit Rent Re*enue and credit Unearned Rent! RD1+!"++. c. debit Unearned Rent and credit Rent Re*enue! RD%!"++. d. debit 7ash and credit Unearned Rent! RD1+!"++. &1"3. @o, 7ompany recei*ed CKD#!4++ on .pril 1! 2+11 for one yearNs rent in ad*ance and recorded the transaction ,ith a credit to a nominal account. 6he (ecember 31! 2+11 ad usting entry is a. debit Rent Re*enue and credit Unearned Rent! CKD1!#++. b. debit Rent Re*enue and credit Unearned Rent! CKD4!'++. c. debit Unearned Rent and credit Rent Re*enue! CKD1!#++. d. debit Unearned Rent and credit Rent Re*enue! CKD4!'++.

6he .ccounting Information 3ystem

3 ( )3

&1"4. ?hiou 7ompany paid P3!#++ on Aune 1! 2+11 for a t,o-year insurance policy and recorded the entire amount as Insurance Expense. 6he (ecember 31! 2+11 ad usting entry is a. debit Insurance Expense and credit $repaid Insurance! P1!+"+. b. debit Insurance Expense and credit $repaid Insurance! P2!""+. c. debit $repaid Insurance and credit Insurance Expense! P1!+"+ d. debit $repaid Insurance and credit Insurance Expense! P2!""+. 1"". 5n 3eptember 1! 2+1+! @oo 7o. issued a note payable to /ational 9an- in the amount of CKD#++!+++! bearing interest at 12M! and payable in three e:ual annual principal payments of CKD2++!+++. 5n this date! the ban-Ns prime rate ,as 11M. 6he first payment for interest and principal ,as made on 3eptember 1! 2+11. .t (ecember 31! 2+11! @o,e should record accrued interest payable of a. CKD24!+++. b. CKD22!+++. c. CKD1#!+++. d. CKD14!##%. Eaton 7o. sells ma or household appliance ser*ice contracts for cash. 6he ser*ice contracts are for a one-year! t,o-year! or three-year period. 7ash receipts from contracts are credited to Unearned 3er*ice Re*enues. 6his account had a balance of P1!'++!+++ at (ecember 31! 2+1+ before year-end ad ustment. 3er*ice contract costs are charged as incurred to the 3er*ice 7ontract Expense account! ,hich had a balance of P4"+!+++ at (ecember 31! 2+1+. 3er*ice contracts still outstanding at (ecember 31! 2+1+ expire as follo,sE (uring 2+11 P3'+!+++ (uring 2+12 "%+!+++ (uring 2+13 3"+!+++ =hat amount should be reported as Unearned 3er*ice Re*enues in EatonNs (ecember 31! 2+1+ statement of financial position> a. P1!3"+!+++. b. P1!3++!+++. c. P'"+!+++. d. P"++!+++.

1"#.

3 ( )/ 1"%.

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on In /o*ember and (ecember 2+1+! @ane 7o.! a ne,ly organi;ed maga;ine publisher! recei*ed P)+!+++ for 1!+++ three-year subscriptions at P3+ per year! starting ,ith the Aanuary 2+11 issue. @ane included the entire P)+!+++ in its 2+1+ income tax return. =hat amount should @ane report in its 2+1+ income statement for subscriptions re*enue> a. P+. b. P"!+++. c. P3+!+++. d. P)+!+++. 5n Aune 1! 2+1+! /ott 7orp. loaned Corn Q4++!+++ on a 12M note! payable in fi*e annual installments of Q'+!+++ beginning Aanuary 2! 2+11. In connection ,ith this loan! Corn ,as re:uired to deposit Q"!+++ in a noninterest-bearing escro, account. 6he amount held in escro, is to be returned to Corn after all principal and interest payments ha*e been made. Interest on the note is payable on the first day of each month beginning Auly 1! 2+1+. Corn made timely payments through /o*ember 1! 2+1+. 5n Aanuary 2! 2+11! /ott recei*ed payment of the first principal installment plus all interest due. .t (ecember 31! 2+1+! /ottNs interest recei*able on the loan to Corn should be a. Q+. b. Q4!+++. c. Q'!+++. d. Q12!+++. .llen 7orp.Ns liability account balances at Aune 3+! 2+11 included a 1+M note payable. 6he Q2!4++!+++ note ,as dated 5ctober 1! 2++) and is payable in three e:ual annual payments of Q'++!+++ plus interest. 6he first interest and principal payment ,as made on 5ctober 1! 2+1+. In .llenNs Aune 3+! 2+11 statement of financial position! ,hat amount should be reported as accrued interest payable for this note> a. Q1'+!+++. b. Q12+!+++. c. Q#+!+++. d. Q4+!+++. 7ola, 7o. pays all salaried employees on a bi,ee-ly basis. 5*ertime pay! ho,e*er! is paid in the next bi,ee-ly period. 7ola, accrues salaries expense only at its (ecember 31 year end. (ata relating to salaries earned in (ecember 2+1+ are as follo,sE @ast payroll ,as paid on 12R2#R1+! for the 2-,ee- period ended 12R2#R1+. 5*ertime pay earned in the 2-,ee- period ended 12R2#R1+ ,as RD1+!+++. Remaining ,or- days in 2+1+ ,ere (ecember 2)! 3+! 31! on ,hich days there ,as no o*ertime. 6he recurring bi,ee-ly salaries total RD1'+!+++. .ssuming a fi*e-day ,or- ,ee-! 7ola, should record a liability at (ecember 31! 2+1+ for accrued salaries of a. RD"4!+++. b. RD#4!+++. c. RD1+'!+++. d. RD11'!+++.

1"'.

1").

1#+.

6he .ccounting Information 3ystem 1#1.

3 ( )1

6olan 7orp.Ns trademar- ,as licensed to Eddy 7o. for royalties of 1"M of sales of the trademar-ed items. Royalties are payable semiannually on Barch 1" for sales in Auly through (ecember of the prior year! and on 3eptember 1" for sales in Aanuary through Aune of the same year. 6olan recei*ed the follo,ing royalties from EddyE Barch 1" 3eptember 1" 2+1+ RD"!+++ RD%!"++ 2+11 #!+++ '!"++ Eddy estimated that sales of the trademar-ed items ,ould total R D4+!+++ for Auly through (ecember 2+11. In 6olanNs 2+11 income statement! the royalty re*enue should be a. RD14!"++. b. RD1#!+++. c. RD2+!"++. d. RD22!+++. .t (ecember 31! 2+1+! 3uoLs 9outi:ue had 1!+++ gift certificates outstanding! ,hich had been sold to customers during 2+1+ for P"+ each. 3ueLs operates on a gross margin of #+M of its sales. =hat amount of re*enue pertaining to the 1!+++ outstanding gift certificates should be deferred at (ecember 31! 2+1+> a. P+. b. P2+!+++. c. P3+!+++. d. P"+!+++.

1#2.

&1#3. 7ompared to the accrual basis of accounting! the cash basis of accounting o*erstates income by the net increase during the accounting period of the a. b. c. d. .ccounts Recei*able /o /o Hes Hes .ccrued Expenses $ayable /o Hes /o Hes

&1#4. ?regg 7orp. reported re*enue of Rp1!1++!+++ in its accrual basis income statement for the year ended Aune 3+! 2+11. .dditional information ,as as follo,sE .ccounts recei*able Aune 3+! 2+1+ Rp 3"+!+++ .ccounts recei*able Aune 3+! 2+11 "3+!+++ Uncollectible accounts ,ritten off during the fiscal year 13!+++ Under the cash basis! ?regg should report re*enue of a. Rp #'%!+++. b. Rp %++!+++. c. Rp )+%!+++. d. Rp )33!+++. &1#". Aim Hount! B.(.! -eeps his accounting records on the cash basis. (uring 2+11! (r. Hount collected Rp 3#+!+++ from his patients. .t (ecember 31! 2+1+! (r. Hount had accounts recei*able of Rp "+!+++. .t (ecember 31! 2+11! (r. Hount had accounts recei*able of Rp %+!+++ and unearned re*enue of Rp 1+!+++. 5n the accrual basis! ho, much ,as (r. HountNs patient ser*ice re*enue for 2+11> a. Rp 31+!+++. b. Rp 3%+!+++. c. Rp 3'+!+++. d. Rp 3)+!+++.

3 ( )2

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

&1##. 6he follo,ing information is a*ailable for .ce 7ompany for 2+1+E (isbursements for purchases Increase in trade accounts payable (ecrease in merchandise in*entory 7osts of goods sold for 2+1+ ,as a. D1!1""!+++. b. D1!+)"!+++. c. D1!++"!+++. d. D)4"!+++. D1!+"+!+++ %"!+++ 3+!+++

M$*t"-*e C9o"#e Ans+ers,Co -$tat"ona*

Ite Ans. Ite Ans. Ite

122. 123. 124. 12". 12#. 12%. 12'. 12).

c c c c d b c c

13+. 131. 132. 133. 134. 13". 13#. 13%.

d d b d a c a b

13'. 13). 14+. 141. 142. 143. &144. &14".

Ans . c

Ite

a b c b d b b

&14#. &14%. &14'. &14). &1"+. &1"1. &1"2.

Ans . d

Ite

c c c d c b

&1"3. &1"4. 1"". 1"#. 1"%. 1"'. 1").

Ans . a

Ite

Ans.

d c b a c b

1#+. 1#1. 1#2. &1#3. &1#4. &1#". &1##.

b a d b c b a

6he .ccounting Information 3ystem

3 ( )3

E:ERCISES
E0. 3(723S(efinitions. $ro*ide clear! concise ans,ers for the follo,ing. 1. =hat is the accrual basis of accounting> 2. =hat is an accrued expense> 3. =hat is accrued re*enue> 4. =hat is a prepaid expense> ". =hat is unearned re*enue> &#. 3tate the rule that indicates ,hich ad usting entries for prepaid and unearned items should be re*ersed. So*$t"on 3(723 1. 6he accrual basis of accounting recogni;es re*enue ,hen earned and recogni;es expenses in the period incurred. 2. .n accrued expense is incurred! but ,ill be paid in the future. 3. .ccrued re*enue is earned! but ,ill be collected in the future. 4. . prepaid expense is paid! but ,ill be incurred in the future. ". Unearned re*enue is collected! but ,ill be earned in the future. &#. .d usting entries that create an asset or a liability account should be re*ersed. 6his ,ould include prepaid and unearned items originally recorded in a re*enue or expense account.

E0. 3(725S6erminology. In the space pro*ided at the right! ,rite the ,ord or phrase that is defined or indicated. 1. Re*enue!expense and di*idend accounts. 2. .n optional step in the accounting cycle. 3. . re*enue collected! but not earned. 4. . re*enue earned! but not collected. ". .sset! liability! and e:uity accounts. #. .n expense paid! but not incurred. %. .n expense incurred! but not paid. 1. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG 2. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG 3. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG 4. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG ". GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG #. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG %. GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG

3 ( )5

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

So*$t"on 3(725 1. 2. 3. 4. /ominal 0temporary1 accounts. Re*ersing entries. Unearned re*enue. .ccrued re*enue. ". Real 0permanent1 accounts. #. $repaid expense. %. .ccrued expense.

E0. 3(726S.ccrued items and deferred 0unearned or prepaid1 items. International financial reporting standards re:uire the use of accruals and deferrals in the determination of income. Co, is income determined under the accrual basis of accounting> Include in your ans,er ,hat constitutes an accrued item and a deferred 0prepaid1 item! and gi*e appropriate examples of each. So*$t"on 3(726 .ccrual accounting recogni;es and reports the effects of transactions and other e*ents in the time periods to ,hich they relate rather than only ,hen cash is recei*ed or paid. .ccrual accounting attempts to match re*enues and the expenses associated ,ith those re*enues in order to determine net income for an accounting period. .n accrued item is an item of re*enue or expense that has been earned or incurred during the period! but has not yet been collected or paid in cash. .n example of an accrued re*enue is rent for the last month of an accounting period that has been earned by a landlord but not yet paid by the tenant. .n example of an accrued expense is salaries incurred for the last ,ee- of an accounting period that are not payable until the subse:uent accounting period. . deferred 0unearned or prepaid1 item is an item of re*enue or expense that has been recei*ed or paid in cash! but has not yet been earned or consumed. .n example of a deferred re*enue is unearned subscription re*enue collected in ad*ance of being earned. .n example of a deferred expense is an insurance premium paid at the end of an accounting period ,hich ,ill pro*ide insurance co*erage for the first six months of the subse:uent period.

E0. 3(738S.d usting entries. $resent! in ournal form! the ad ustments that ,ould be made on Auly 31! 2+11! the end of the fiscal year! for each of the follo,ing. 1. 6he supplies in*entory on .ugust 1! 2+1+ ,as P%!3"+. 3upplies costing P2+!1"+ ,ere ac:uired during the year and charged to the supplies in*entory. . count on Auly 31! 2+11 indicated supplies on hand of P'!'1+. 2. 5n .pril 3+! a ten-month! )M note for P2+!+++ ,as recei*ed from a customer. &3. 5n Barch 1! P12!+++ ,as collected as rent for one year and a nominal account ,as credited.

6he .ccounting Information 3ystem

3 ( )6

So*$t"on 3(738 1. 3upplies Expense .................................................................... 3upplies ........................................................................ 2. Interest Recei*able .................................................................. Interest Re*enue ........................................................... &3. Rent Re*enue .......................................................................... Unearned Re*enue .................................................................. 1'!#)+ 1'!#)+ 4"+ 4"+ %!+++ %!+++

E0. 3(737S.d usting entries. Reed 7o. ,ishes to enter receipts and payments in such a manner that ad ustments at the end of the period ,ill not re:uire re*ersing entries at the beginning of the next period. Record the follo,ing transactions in the desired manner and gi*e the ad usting entry on (ecember 31! 2+1+. 06,o entries for each part.1 1. .n insurance policy for t,o years ,as ac:uired on .pril 1! 2+1+ for D'!+++. 2. Rent of D12!+++ for six months for a portion of the building ,as recei*ed on /o*ember 1! 2+1+.

So*$t"on 3(737 1. $repaid Insurance .................................................................... 7ash ............................................................................. Insurance Expense ................................................................... $repaid Insurance ......................................................... 2. 7ash ....................................................................................... Unearned Rent .............................................................. Unearned Rent ......................................................................... Rent Re*enue ............................................................... '!+++ '!+++ 3!+++ 3!+++ 12!+++ 12!+++ 4!+++ 4!+++

E0. 3(73)

3 ( 38

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

6he ad usted trial balance of Ryan 2inancial $lanners appears belo,. Using the information from the ad usted trial balance! you are to prepare for the month ending (ecember 31E 1. 2. 3. an income statement. a retained earnings statement. a statement of financial position. RH./ 2I/./7I.@ $@.//ER3 .d usted 6rial 9alance (ecember 31! 2+12 7ash ............................................................................................... .ccounts Recei*able....................................................................... 5ffice 3upplies................................................................................ 5ffice E:uipment............................................................................. .ccumulated (epreciationS5ffice E:uipment................................ .ccounts $ayable............................................................................ Unearned Re*enue......................................................................... 3hare 7apital85rdinary................................................................... Retained Earnings........................................................................... (i*idends ....................................................................................... 3er*ice Re*enue............................................................................. 5ffice 3upplies Expense................................................................. (epreciation Expense..................................................................... Rent Expense.................................................................................. (ebit P 4!4++ 2!2++ 1!'++ 1"!+++ 7redit

P 4!+++ 3!'++ "!+++ 1+!+++ 4!4++ 2!"++ 3!%++ #++ 2!"++ 1!)++ P3+!)++ GGGGGG P3+!)++

6he .ccounting Information 3ystem So*$t"on 3(73) 1. 02+ min1 RH./ 2I/./7I.@ $@.//ER3 Income 3tatement 2or the Bonth Ended (ecember 31! 2+12

3 ( 37

Re*enues 3er*ice re*enue......................................................................... Expenses (epreciation expense................................................................ Rent expense............................................................................ 5ffice supplies expense............................................................. 6otal expenses....................................................................... /et loss...........................................................................................

P 3!%++ P2!"++ 1!)++ #++ "!+++ P 01!3++1

2.

RH./ 2I/./7I.@ $@.//ER3 Retained Earnings 3tatement 2or the Bonth Ended (ecember 31! 2+12 P 4!4++ P1!3++ 2!"++ 3!'++ D#++

Retained earnings! (ecember 1...................................................... @essE /et loss.................................................................................. (i*idends............................................................................... Retained earnings! (ecember 31....................................................

3.

RH./ 2I/./7I.@ $@.//ER3 3tatement of 2inancial $osition (ecember 31! 2+12 .ssets

5ffice e:uipment............................................................................. @essE .ccumulated depreciationSoffice e:uipment........................ 5ffice supplies................................................................................. .ccounts recei*able........................................................................ 7ash................................................................................................ 6otal assets.............................................................................. E:uity and @iabilities E:uity 3hare capital8ordinary............................................................... Retained earnings..................................................................... @iabilities .ccounts payable...................................................................... Unearned re*enue..................................................................... 6otal liabilities................................................................ 6otal e:uity and liabilities...............................................

P 1"!+++ 4!+++

11!+++ 1!'++ 2!2++ P 4!4++ P1)!4++

P 1+!+++ #++ 3!'++ "!+++

P 1+!#++

'!'++ P1)!4++

3 ( 3)

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

;E0. 3(733S7ash basis *s. accrual basis of accounting. 7ontrast the cash basis of accounting ,ith the accrual basis of accounting. ;So*$t"on 3(733 6he essential difference bet,een the cash basis and the accrual basis of accounting relates to the timing of the recognition of re*enues and expenses. Under the cash basis of accounting! the effects of transactions and other e*ents are recogni;ed and reported only ,hen cash is recei*ed or paid. Under the accrual basis of accounting! these effects are recogni;ed and reported in the time periods to ,hich they relate! regardless of the time of the receipt or payment of cash. 9ecause no attempt is made under the cash basis of accounting to match re*enues and the expenses associated ,ith those re*enues! cash basis financial statements are not in accordance ,ith international financial reporting standards. ;E0. 3(73/S.ccrual basis. 3ales salaries paid during 2+1+ ,ere P#+!+++. .d*ances to salesmen ,ere P1!1++ on Aanuary 1! 2+1+! and P'++ on (ecember 31! 2+1+. 3ales salaries accrued ,ere P1!3#+ on Aanuary 1! 2+1+! and P1!3'+ on (ecember 31! 2+1+. 3ho, the computation of sales salaries on an accrual basis for 2+1+. ;So*$t"on 3(73/ P#+!+++ T P1!1++ 8 P'++ 8 P1!3#+ T P1!3'+ U P#+!32+.

;E0. 3(731S.ccrual basis. 6he records for 6odd Inc. sho,ed the follo,ing for 2+1+E Aan. 1 .ccrued expenses RD1!'++ $repaid expenses %2+ 7ash paid during the year for expenses! RD42!"++ (ec. 31 RD2!1"+ '%+

3ho, the computation of the amount of expense that should be reported on the income statement. ;So*$t"on 3(731 RD42!"++ 8 RD1!'++ T RD2!1"+ T RD%2+ 8 RD'%+ U RD42!%++.

6he .ccounting Information 3ystem ;E0. 3(732S.ccrual basis. 6he records for Kiley 7ompany sho,ed the follo,ing for 2+1+E Aan. 1 Unearned re*enue CKD1!#++ .ccrued re*enue 1!2#+ 7ash collected during the year for re*enue! CKD%+!+++

3 ( 33

(ec. 31 CKD2!1#+ )2+

3ho, the computation of the amount of re*enue that should be reported on the income statement. ;So*$t"on 3(732 CKD%+!+++ T CKD1!#++ 8 CKD2!1#+ 8 CKD1!2#+ T CKD)2+ U CKD#)!1++. ;E0. 3(733S7ash basis. Re*enue on the income statement ,as D12"!'++. .ccounts recei*able ,ere D4!"++ on Aanuary 1 and D3!"4+ on (ecember 31. Unearned re*enue ,as D1!+"+ on Aanuary 1 and D1!#%+ on (ecember 31. 3ho, the computation of re*enue for the year on a cash basis. ;So*$t"on 3(733 D12"!'++ T D4!"++ 8 D3!"4+ 8 D1!+"+ T D1!#%+ U D12%!3'+.

PROBLEMS
Pr. 3(735S.d usting entries and account classification. 3elected amounts from 6rent 7ompanyNs trial balance of 12R31R1+ appear belo,E 1. .ccounts $ayable P 1#+!+++ 2. .ccounts Recei*able 1"+!+++ 3. .ccumulated (epreciationSE:uipment 2++!+++ 4. .llo,ance for (oubtful .ccounts 2+!+++ ". 9onds $ayable "++!+++ #. 7ash 1"+!+++ %. E:uipment '4+!+++ '. Insurance Expense 3+!+++ ). Interest Expense 1+!+++ 1+. Berchandise In*entory 3++!+++ 11. /otes $ayable 0due #R1R111 2++!+++ 12. $repaid Rent 1"+!+++ 13. Retained Earnings '1'!+++ 14. 3alaries and =ages Expense 32'!+++ 1". 3hare 7apital85rdinary #+!+++ 0.ll of the abo*e accounts ha*e their standard or normal debit or credit balance.1

3 ( 3/ $art ..

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on $repare ad usting ournal entries at year end! (ecember 31! 2+1+! based on the follo,ing supplemental information.

a. 6he e:uipment has a useful life of 1" years ,ith no sal*age *alue. 03traight-line method being used.1 b. Interest accrued on the bonds payable is P1"!+++ as of 12R31R1+. c. Expired insurance at 12R31R1+ is P2+!+++. d. 6he rent payment of P1"+!+++ co*ered the six months from /o*ember 3+! 2+1+ through Bay 31! 2+11. e. 3alaries and ,ages earned but unpaid at 12R31R1+! P22!+++.

$art 9.

Indicate the proper statement of financial position classification of each of the 1" numbered accounts in the 12R31R1+ trial balance before adjustments by placing appropriate numbers after each of the follo,ing classifications. If the account title ,ould appear on the income statement! do not put the number in any of the classifications.

a. b. c. d. e.

$roperty! plant! and e:uipment 7urrent assets E:uity /on-current liabilities 7urrent liabilities

So*$t"on 3(735 $art .. a. (epreciation ExpenseSE:uipment 0P'4+!+++ 8 +1 1" ................ .ccumulated (epreciationSE:uipment ............................. b. Interest Expense ............................................................................ Interest $ayable .................................................................. c. $repaid Insurance .......................................................................... Insurance Expense 0P3+!+++ - P2+!+++1 ............................. d. Rent Expense 0P1"+!+++ #1.......................................................... $repaid Rent ....................................................................... e. 3alaries and =ages Expense ........................................................ 3alaries and =ages $ayable .............................................. $art 9. a. $roperty! plant! and e:uipmentS3! % b. 7urrent assetsS2! 4! #! 1+! 12 c. E:uityS13! 1" d. /on-current liabilitiesS" e. 7urrent liabilitiesS1! 11 "#!+++ "#!+++ 1"!+++ 1"!+++ 1+!+++ 1+!+++ 2"!+++ 2"!+++ 22!+++ 22!+++

6he .ccounting Information 3ystem Pr. 3(736S.d usting entries.

3 ( 31

(ata relating to the balances of *arious accounts affected by ad usting or closing entries appear belo,. 06he entries ,hich caused the changes in the balances are not gi*en.1 Hou are as-ed to supply the missing ournal entries ,hich ,ould logically account for the changes in the account balances. 1. Interest recei*able at 1R1R1+ ,as Q1!+++. (uring 2+1+ cash recei*ed from debtors for interest on outstanding notes recei*able amounted to Q"!+++. 6he 2+1+ income statement sho,ed interest re*enue in the amount of Q"!4++. Hou are to pro*ide the missing ad usting entry that must ha*e been made! assuming re*ersing entries are not made. 2. Unearned rent at 1R1R1+ ,as Q"!3++ and at 12R31R1+ ,as Q'!+++. 6he records indicate cash receipts from rental sources during 2+1+ amounted to Q4+!+++! all of ,hich ,as credited to the Unearned Rent .ccount. Hou are to prepare the missing ad usting entry. 3. .ccumulated depreciationSe:uipment at 1R1R1+ ,as Q23+!+++. .t 12R31R1+ the balance of the account ,as Q2%+!+++. (uring 2+1+! one piece of e:uipment ,as sold. 6he e:uipment had an original cost of Q4+!+++ and ,as 3R4 depreciated ,hen sold. Hou are to prepare the missing ad usting entry. 4. .llo,ance for doubtful accounts on 1R1R1+ ,as Q"+!+++. 6he balance in the allo,ance account on 12R31R1+ after ma-ing the annual ad usting entry ,as Q#"!+++ and during 2+1+ bad debts ,ritten off amounted to Q3+!+++. Hou are to pro*ide the missing ad usting entry. ". $repaid rent at 1R1R1+ ,as Q)!+++. (uring 2+1+ rent payments of Q12+!+++ ,ere made and charged to 4rent expense.4 6he 2+1+ income statement sho,s as a general expense the item 4rent expense4 in the amount of Q12"!+++. Hou are to prepare the missing ad usting entry that must ha*e been made! assuming re*ersing entries are not made. #. Retained earnings at 1R1R1+ ,as Q1"+!+++ and at 12R31R1+ it ,as Q21+!+++. (uring 2+1+! cash di*idends of Q"+!+++ ,ere paid and a share di*idend of Q4+!+++ ,as issued. 9oth di*idends ,ere properly charged to retained earnings. Hou are to pro*ide the missing closing entry. So*$t"on 3(736 1. Interest Recei*able ................................................................... Interest Re*enue ........................................................... Interest re*enue per boo-s Q"!4++ Interest re*enue recei*ed related to 2+1+ 0Q"!+++ 8 Q1!+++1 4!+++ Interest accrued Q1!4++ 2. Unearned Rent Re*enue .......................................................... Rent Re*enue ............................................................... 7ash receipts Q4+!+++ 9eginning balance "!3++ Ending balance 0'!+++1 Rent re*enue Q3%!3++ 1!4++ 1!4++

3%!3++ 3%!3++

3 ( 32

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

So*$t"on 3(736 0cont.1 3. (epreciation Expense .............................................................. .ccumulated (epreciationSE:uipment ........................ Ending balance Q2%+!+++ 9eginning balance 23+!+++ (ifference 4+!+++ =rite-off at time of sale 3R4 V D4+!+++ 3+!+++ Q %+!+++ %+!+++ %+!+++

4. 9ad (ebt Expense .................................................................... .llo,ance for (oubtful .ccounts ................................... Ending balance Q#"!+++ 9eginning balance "+!+++ (ifference 1"!+++ =ritten off 3+!+++ Q4"!+++ ". Rent Expense ........................................................................... $repaid Rent ................................................................. Rent expense Q12"!+++ @ess cash paid 12+!+++ Reduction in prepaid rent account Q "!+++ #. Income 3ummary ..................................................................... Retained Earnings ........................................................ Ending balance Q21+!+++ 9eginning balance 1"+!+++ (ifference #+!+++ 7ash di*idends Q"+!+++ 3hare di*idends 4+!+++ )+!+++ Q1"+!+++ Pr. 3(758S.d usting and closing entries.

4"!+++ 4"!+++

"!+++ "!+++

1"+!+++ 1"+!+++

6he follo,ing trial balance ,as ta-en from the boo-s of 2is- 7orporation on (ecember 31! 2+1+. .ccount 7ash .ccounts Recei*able /ote Recei*able .llo,ance for (oubtful .ccounts Berchandise In*entory $repaid Insurance 2urniture and E:uipment .ccumulated (epreciation--2. W E. .ccounts $ayable 3hare 7apital85rdinary Retained Earnings 3ales 7ost of ?oods 3old 3alaries Expense Rent Expense 6otals (ebit D 12!+++ 4+!+++ %!+++ 44!+++ 4!'++ 12"!+++ 1"!+++ 1+!'++ 44!+++ ""!+++ 2'+!+++ 111!+++ "+!+++ 12!'++ D4+#!#++ 7redit

D 1!'++

D4+#!#++

6he .ccounting Information 3ystem Pr. 3(758 0cont.1 .t year end! the follo,ing items ha*e not yet been recorded. a. Insurance expired during the year! D2!+++. b. Estimated bad debts! 1M of gross sales. c. (epreciation on furniture and e:uipment! 1+M per year. d. Interest at #M is recei*able on the note for one full year. &e. Rent paid in ad*ance at (ecember 31! D"!4++ 0originally charged to expense1. f. .ccrued salaries at (ecember 31! D"!'++. Instr$#t"ons 0a1 $repare the necessary ad usting entries. 0b1 $repare the necessary closing entries. So*$t"on 3(758 0a1 .d usting Entries a. Insurance Expense ................................................................ $repaid Insurance ......................................................... b. 9ad (ebt Expense ................................................................. .llo,ance for (oubtful .ccounts ................................... c. (epreciation Expense ............................................................ .ccumulated (epreciation--2. W E. ............................... d. Interest Recei*able ................................................................ Interest Re*enue ........................................................... &e. $repaid Rent .......................................................................... Rent Expense ............................................................... f. 3alaries Expense ................................................................... 3alaries $ayable ........................................................... 0b1 7losing Entries 3ales ............................................................................................ Interest Re*enue ........................................................................... Income 3ummary ................................................................ Income 3ummary .......................................................................... 3alaries Expense ................................................................ Rent Expense ..................................................................... (epreciation Expense ......................................................... 9ad (ebt Expense .............................................................. Insurance Expense ............................................................. 7ost of ?oods 3old ............................................................. Income 3ummary .......................................................................... Retained Earnings .............................................................. 2!+++

3 ( 33

2!+++ 2!'++ 2!'++ 12!"++ 12!"++ 42+ 42+ "!4++ "!4++ "!'++ "!'++

2'+!+++ 42+ 2'+!42+ 1)1!"++ ""!'++ %!4++ 12!"++ 2!'++ 2!+++ 111!+++ ''!)2+ ''!)2+

3 ( 35

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

;Pr. 3(757S7ash to accrual accounting. 6he follo,ing information is a*ailable for Renn 7orporationNs first year of operationsE $ayment for merchandise purchases P2"+!+++ Ending merchandise in*entory 11+!+++ .ccounts payable 0balance at end of year1 #+!+++ 7ollections from customers 21+!+++ 6he balance in accounts payable relates only to merchandise purchases. .ll merchandise items ,ere mar-ed to sell at 4+M abo*e cost. =hat should be the ending balance in accounts recei*able! assuming all accounts are deemed collectible> ;So*$t"on 3(757 3ince this is the first year of operations and there ,ere P21+!+++ of accounts recei*able collected! one must compute total sales to determine the ending balance in accounts recei*able. 7ost of goods sold is P2++!+++ assuming the accounts payable are for in*entory 0the P2"+!+++ constitutes only payments made for purchases1. 3ince the mar-up is 4+M on cost! the sales are P2'+!+++ 0P2++!+++ V 14+M1. 3ales of P2'+!+++ less collections of P21+!+++ results in an ending accounts recei*able balance of P%+!+++ as calculated belo,. 7ash purchases .R$ balance 6otal purchases Ending in*entory 7ost of goods sold 3ales @ess collections Ending .RR ;Pr. 3(75)S.ccrual accounting. Hates 7ompanyNs records pro*ide the follo,ing information concerning certain account balances and changes in these account balances during the current year. 6ransaction information is missing from each item belo,. Instr$#t"ons $repare the entry to record the missing information for each account. 07onsider each independently.1 1. .ccounts Recei*ableE Aan. 1! balance O41!+++! (ec. 31! balance O""!+++! uncollectible accounts ,ritten off during the year! O#!+++< accounts recei*able collected during the year! O134!+++. $repare the entry to record sales. 2. .llo,ance for (oubtful .ccountsE Aan. 1! balance O4!+++! (ec. 31! balance O%!"++! uncollectible accounts ,ritten off during the year! O2"!+++. $repare the entry to record bad debt expense. 3. .ccounts $ayableE Aan. 1! balance O2"!+++! (ec. 31! balance O44!+++! purchases on account for the year! O11+!+++. $repare the entry to record payments on account. 4. Interest Recei*ableE Aan. 1 accrued! O3!+++! (ec. 31 accrued! O2!1++! earned for the year! O3+!+++. $repare the entry to record cash interest recei*ed. P2"+!+++ #+!+++ 31+!+++ 11+!+++ 2++!+++ V 14+M 2'+!+++ 21+!+++ P%+!+++

6he .ccounting Information 3ystem ;So*$t"on 3(75) 1. Ending balance 9eginning balance (ifference Uncollectible accounts Recei*ables collected 3ales for period O ""!+++ 41!+++ 14!+++ #!+++ 134!+++ O1"4!+++ Ending balance $lusE Rec. collected =rite-offs 5R @essE 9eginning balance 3ales for period 1"4!+++

3 ( 36

O ""!+++ 134!+++ #!+++ 1)"!+++ 41!+++ O1"4!+++ 1"4!+++ O %!"++ 2"!+++ 32!"++ 4!+++ O2'!"++

.ccounts Recei*able ...................................................................... 3ales ................................................................................... 2. Ending balance 9eginning balance (ifference =rite-off .d usting entry O %!"++ 4!+++ 3!"++ 2"!+++ O2'!"++ Ending balance =rite-off 5R 9eginning balance .d usting entry

9ad (ebt Expense ......................................................................... .llo,ance for (oubtful .ccounts ........................................ 3. Ending balance 9eginning balance (ifference $urchases $ayments O 44!+++ 2"!+++ 1)!+++ 11+!+++ O )1!+++ 9eginning balance $lus purchases 5R @ess ending balance $ayments

2'!"++ 2'!"++ O 2"!+++ 11+!+++ 13"!+++ 44!+++ O )1!+++ )1!+++ )1!+++ O 3!+++ 3+!+++ 33!+++ 2!1++ O3+!)++ 3+!)++ 3+!)++

.ccounts $ayable............................................................................ 7ash ................................................................................... 4. Re*enue Earned @essE (ec. 31 accrual $lusE Aan. 1 accrual 7ash recei*ed O3+!+++ 02!1++1 3!+++ O3+!)++ 9eginning balance $lus re*enue earned 5R @ess ending balance 7ash recei*ed

7ash ............................................................................................... Interest Recei*able............................................................. 06his entry assumes that the O3+!+++ interest earned ,as first recorded as a recei*able.1

3 ( /8

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

;Pr. 3(753S.ccrual basis. ?rier W .ssociates maintains its records on the cash basis. Hou ha*e been engaged to con*ert its cash basis income statement to the accrual basis. 6he cash basis income statement! along ,ith additional information! follo,sE ?rier W .ssociates Income 3tatement 07ash 9asis1 2or the Hear Ended (ecember 31! 2+11 7ash receipts from customers 7ash paymentsE =ages 6axes Insurance Interest /et income .dditional informationE .ccounts recei*able =ages payable 6axes payable $repaid insurance .ccumulated depreciation Interest payable /o plant assets ,ere sold during 2+11. ;So*$t"on 3(753 ?rier W .ssociates Income 3tatement 0.ccrual 9asis1 2or the Hear Ended (ecember 31! 2+11 Re*enue 0CKD4"+!+++ T CKD"+!+++ 8 CKD3+!+++1 Expenses =ages 0CKD1"+!+++ T CKD1+!+++ 8 CKD2+!+++1 6axes 0CKD#"!+++ T CKD14!+++ 8 CKD1)!+++1 Insurance 0CKD4+!+++ T CKD4!+++ 8 CKD'!+++1 (epreciation 0CKD)+!+++ 8 CKD%"!+++1 Interest 0CKD2"!+++ T CKD3!+++ 8 CKD)!+++1 6otal expenses /et Income CKD4%+!+++ CKD14+!+++ #+!+++ 3#!+++ 1"!+++ 1)!+++ 2%+!+++ CKD2++!+++ 9alances at 12R31 2+11 2+1+ CKD"+!+++ CKD3+!+++ 1+!+++ 2+!+++ 14!+++ 1)!+++ '!+++ 4!+++ )+!+++ %"!+++ 3!+++ )!+++ CKD4"+!+++ CKD1"+!+++ #"!+++ 4+!+++ 2"!+++

2'+!+++ CKD1%+!+++

6he .ccounting Information 3ystem ;Pr. 3(75/SEight-column ,or-sheet.

3 ( /7

6he trial balance of =insor 7orporation is reproduced belo,. 6he information belo, is rele*ant to the preparation of ad usting entries needed to both properly match re*enues and expenses for the period and reflect the proper balances in the real and nominal accounts. Instr$#t"ons .s the accountant for =insor 7orporation! you are to prepare ad usting entries based on the follo,ing data! entering the ad ustments on the ,or-sheet and completing the additional columns ,ith respect to the income statement and statement of financial position. 7arefully -ey your ad ustments and label all items. 0(ue to time constraints! an ad usted trial balance is not re:uired.1 Round all computations to the nearest dollar. 0a1 =insor determined that one percent of sales ,ill become uncollectible. 0b1 (epreciation is computed using the straight-line method! ,ith an eight year life and X1!+++ sal*age *alue. 0c1 3alesmen are paid commissions of 1+M of sales. 7ommissions on sales for the last ,ee- of (ecember ha*e not been paid. 0d1 6he note ,as issued on 5ctober 1! bearing interest at 'M! due 2eb. 1! 2+11. 0e1 . physical in*entory of supplies indicated X44+ of supplies currently in stoc-. 0f1 $ro*isions of a lease contract specify payments must be made one month in ad*ance! ,ith monthly payments at X'++Rmo. 6his pro*ision has been complied ,ith as of (ec. 31! 2+1+. =insor 7orporation =or-sheet 2or the Hear Ended (ecember 31! 2+1+ Accounts Cash Tradin! Sec. Accounts #ec. Allo$. for D. A. %dse. In&entor' Su**lies +,ui*ment Accum. De*r.-+,. Accounts Pa'a/le 0otes Pa'a/le Share Ca*ital81rd. #et. +arnin!s Cost of 3oods Sold 1ffice Salaries +4*. Sales Comm. +4*. #ent +4*ense %isc. +4*ense Sales Totals Trial Balance Dr. Cr. 12,4 4, " " , 42 1(,) 1, 4 4", .," 4,4 ", 4 , 24,(. 22","2 2 ,) 2., 5,2 2,2 22 , 414, 1 414, 1 Adjustments Dr. Cr. Income Statement Dr. Cr. Statement of Financial Position Dr. Cr.

3 ( /)

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on =insor 7orporation =or-sheet 2or the Hear Ended (ecember 31! 2+1+

So*$t"on 3(75/

Accounts Cash Tradin! Sec. Accounts #ec. Allo$. for D. A. %dse. In&entor' Su**lies +,ui*ment Accum. De*r.-+,. Accounts Pa'a/le 0otes Pa'a/le Share Ca*ital81rd. #et. +arnin!s Cost of 3oods Sold 1ffice Salaries +4*. Sales Comm. +4*. #ent +4*ense %isc. +4*ense Sales Totals Bad De/t +4*. De*r. +4*. Sales Com. Pa'. Interest +4*ense Interest Pa'a/le Su**lies +4*ense Pre*aid #ent Totals 0et Income Totals

Trial Balance Dr. Cr. 12,4 4, " " , 42 1(,) 1, 4 4", .," 4,4 ", 4 , 24,(. 22","2 2 ,) 2., 5,2 2,2 22 , 414, 1 414, 1

Adjustments Dr. Cr.

Income Statement Dr. Cr.

6a7 2,2 6e7 (

6/7 ","

Statement of Financial Position Dr. Cr. 12,4 4, " " , 2,(2 1(,) 44 4", 1", 4,4 ", 4 , 24,(.

6c7 2, 6f7 )

22","2 2 ,) 22, (,4 2,2 22 ,

6a7 2,2 6/7 "," 6c7 2, 6d7 6e7 6f7 1 6d7 ( ) 12,2 1

2,2 "," 2, 1 1 ( 12,2 2.(,22 22,() 22 , 22 , 22 , ) 12.,4. 12.,4. 1 ",)1 22,() 12.,4.

.d usting entries and explanations 0a1 9ad (ebt Expense 0X32+!+++ x 1M1 .............................................. .llo,ance for (oubtful .ccounts ........................................ 0b1 (epreciation Expense .................................................................... .ccumulated (epreciationSE:uipment ............................. 0X4"!+++ 8 X1!+++ is X44!+++. 5ne-eighth of X44!+++ is X"!"++.1 3!2++ 3!2++ "!"++ "!"++

6he .ccounting Information 3ystem So*$t"on 3(75/ 0cont.1 0c1 3ales 7ommission Expense ........................................................... 3ales 7ommissions $ayable .............................................. 01+M of sales is 1+M V X32+!+++! ,hich is X32!+++. 6he balance in the 3ales 7ommission Expense account is X2)!+++ before ad ustment! indicating that X3!+++ of 7ommissions are accrued but unpaid.1 0d1 Interest Expense ............................................................................ Interest $ayable .................................................................. 0X"!+++ V .+' V 3R12 U X1++1 0e1 3upplies Expense ........................................................................... 3upplies .............................................................................. 06he balance of X1!+4+ in the 3upplies account before ad ustment less the correct ending balance of X44+ is X#++.1 0f1 $repaid Rent .................................................................................. Rent Expense ..................................................................... 03ince the trial balance contains no account for prepaid rent! the X'++ lease payment has apparently been debited to Rent Expense. .n account must be set up for the $repaid Rent.1 3!+++

3 ( /3

3!+++

1++ 1++ #++ #++

'++ '++

3 ( //

Test Bank for Inter e!"ate A##o$nt"n%& IFRS E!"t"on

SHORT ANS<ER =UESTIONS

1. .re all international companies sub ect to the same internal control standards> Explain. 1. /o! all international companies are not sub ect to the same internal control standards. .ll public companies that list their securitites on U.3. stoc- exchanges are sub ect to the internal control testing and assurance pro*isions of the 3arbanes-5xley .ct of 2++2. International companies that list their securities on non-U.3. exchanges are not sub ect to these rules and there is debate as to ,hether they should ha*e to comply. 2. =hat are some of the conse:uences of international differences in internal control standards> 2. 6here is concern that the cost of complying ,ith higher internal control pro*isions is ma-ing U.3. mar-ets less competiti*e as a place to list securities. 6his in turn could gi*e U.3. in*estors less in*estment opportunties. 5n the other hand! some argue that the enhanced internal control re:uirements in the U.3. increase the percei*ed reliability of companiesL financial statements and helps reduce their cost of capital. 2urthermore! the decline in public listings in the U.3. are more li-ely due to other factors! such as gro,th in non-U.3. mar-ets and general globali;ation. 6hus! the ury is still out on the net costRbenefit of 3arbanes-5xley and its impact on international competiti*eness.