1.The expense recognition (matching) principle is best described as:
January and February rent. On December 31, after all adjusting entries, Optima
Inc. will report Prepaid Rent of:
3. On November 1, Smith & Sons purchased communication equipment costing
$96,000. The equipment will be depreciated over 48 months. The adjusting
entry at November 30 would be:
| Account Name | Debit | Credit |
|---|---|---|
| Depreciation expense | 2,000 | |
| Accumulated depreciation | 2,000 |
| Account Name | Debit | Credit |
|---|---|---|
| Accumulated depreciation | 2,500 | |
| Depreciation expense | 2,500 |
| Account Name | Debit | Credit |
|---|---|---|
| Depreciation expense | 2,500 | |
| Accumulated depreciation | 2,500 |
| Account Name | Debit | Credit |
|---|---|---|
| Accumulated depreciation | 2,000 | |
| Depreciation expense | 2,000 |
4. On May 1, Phoenix Corporation took out a bank loan of $500,000 to finance the
purchase of equipment. The interest rate on the bank loan is 12 percent per year
and interest is due annually on April 30. What would be the effect on the
accounting equation of the May 31 adjusting entry for interest?
| Assets | Liabilities | Shareholders’ Equity |
|---|---|---|
| No Effect | Increase $5,000 | Increase $5,000 |
| Assets | Liabilities | Shareholders’ Equity |
|---|---|---|
| No Effect | Increase $5,000 | Decrease $5,000 |
| Assets | Liabilities | Shareholders’ Equity |
|---|---|---|
| No Effect | Decrease $5,000 | Decrease $5,000 |
| Assets | Liabilities | Shareholders’ Equity |
|---|---|---|
| No Effect | Decrease $5,000 | Increase $5,000 |
5. The Arizona Saguaros Soccer Team sells season tickets and collects the cash in
January at the beginning of the season. They collected $24,000 for season
tickets. The soccer season starts in February and the season tickets are for 10
games. In February, the team played 2 games. What adjusting journal entry
would the Arizona Saguaros record at the end of February?
| Account Name | Debit | Credit |
|---|---|---|
| Revenue | 4,800 | |
| Unearned Revenue | 4,800 |
| Account Name | Debit | Credit |
|---|---|---|
| Unearned revenue | 4,800 | |
| Revenue | 4,800 |
| Account Name | Debit | Credit |
|---|---|---|
| Unearned revenue | 1,200 | |
| Revenue | 1,200 |
| Account Name | Debit | Credit |
|---|---|---|
| Revenue | 1,200 | |
| Unearned revenue | 1,200 |
6. The Cholla Corporation earned rental revenue of $5,000 in December but will not
receive this until January. What is the effect of making the adjusting entry at
December 31?
7. Jojoba, Inc., received a one-year, 10 percent, $150,000 note receivable on May 1,
with interest and principal to be received at maturity. How much interest
receivable will be reported on Jojoba’s balance sheet as of December 31?
8. Jerry’s Window Service received $14,000 from a client on February 20. This
payment was an advance payment for 7 months of window cleaning starting
March 1. The window cleaning services are provided equally over the 7 months.
At May 31, calculate the balance in the unearned revenue account assuming that
all adjusting entries have been properly recorded.
9. Mesa Motors received cash in advance from several customers to repair their
cars next month. The adjusting entry associated with this is referred to as:
10. Ocotillo Villas prepared the following adjusted trial balance for the year ended
December 31:
| Debits | Credits | |
|---|---|---|
| Cash | $45,000 | |
| Revenue | $60,000 | |
| Common Stock | 50,000 | |
| Depreciation expense | 8,000 | |
| Retained earnings | 15,000 | |
| Accounts receivable | 15,000 | |
| Unearned revenue | 12,000 | |
| Cost of goods sold | 30,000 | |
| Equipment | 40,000 | |
| Accumulated depreciation | 14,000 | |
| Note payable to bank | 23,000 | |
| Wages expense | 6,000 | |
| Inventory | 25,000 | |
| Dividends | 5,000 | |
| Total | $174,000 | $174,000 |
Using the adjusted trial balance from above, what is Ocotillo Villas’ net income for
the year ended December 31?
11. Temporary accounts:
12. Which of the following is not an example of a closing entry?
13. Which of the following is not reported on a classified balance sheet?
14. A company has net income of $5,000, current assets of $10,000, total assets of
$40,000, and current liabilities of $8,000. What is the company’s current ratio?
15. A company has current liabilities of $5,000, long-term liabilities of $10,000, and
stockholders’ equity of $15,000. What is the company’s debt-to-total assets
ratio?
16. A company has net income of $5,000, net sales of $20,000, and total assets of
$50,000. What is the company’s return on sales ratio?
17. A company has net income of $5,000, capital expenditures of $10,000, sales
revenue of $15,000, and cash flow from operations of $18,000. How much is the
company’s free cash flow?
