1. ____Which of the following is not a satisfactory statement of the accounting equation? a. Assets - Owner's Equity = Liabilities b. Assets = Liabilities + Owner's Equity c. Assets - Liabilities = Owner's Equity d. Assets = Liabilities - Owner's Equity 2. ____The best definition of assets is the a. owner's investment in the business. b. collection of resources belonging to the company and the claims on these resources. c. cash owned by the company. d. resources belonging to a company having future benefit to the company. 3. ____A person who wants to determine the balance of a particular account should refer to the a. book of original entry. b. source documents. c. chart of accounts. d. ledger. 4. ____The primary purpose of the trial balance is to test the a. equality of debit and credit entries in the journal. b. analysis of transactions. c. equality of debit and credit balances in the ledger. d. recording of transactions. 5. ____The cost of doing business is also known as a. revenue. b. an expense. c. an asset. d. a liability. 6. ____ In accounting, depreciation refers to the a. obsolescence of an asset. b. wearing away of an asset. c. allocation of asset cost. d. decline in value of an asset. 7. ____One user of accounting information with an indirect financial interest in a business is a. an investor. b. a creditor. c. a financial adviser. d. a stockholder. 8. ____The purchase of an asset on credit a. leaves total assets unchanged. b. increases assets and liabilities. c. decreases assets and increases liabilities. d. increases assets and owner's equity. 9. ____The purchase of an asset for cash a. increases assets and owner's equity. b. leaves total assets unchanged. c. increases assets and liabilities. d. decreases assets and increases liabilities. 10. ____The chart of accounts is a table of contents for a a. financial statement. b. trial balance. c. ledger. d. journal. 11. ____Office supplies are expensed a. when they are consumed (used up). b. when they are purchased. c. recording of transactions. d. at no time, since they are an asset. 12. ____Which of the following events does not require a journal entry? a. Purchase of a one-year insurance policy b. Agreement to perform a service at a future date c. Performance of a service agreed to at a past date d. Payment for a service performed previously 13. ____ Which of the following statements is not necessarily true about a proper journal entry? a. The Post. Ref. column is left blank until after the entry has been posted. b. Liabilities are indented. c. An explanation must always follow the journal entry. d. All debits must be recorded before any credits. 14. ____When expenses exceed revenues, a. a liability is created. b. a net income will result. c. a net loss occurs. d. owner's equity increases. 15. ____Which of the following situations is an example of an accrual? a. Recording the portion of prepaid rent that has expired b. Recording depreciation c. Recording supplies consumed d. Recording unrecorded revenues 16. ____Accumulated depreciation is classified as a(n) a. contra-expense account. b. contra-asset account. c. expense account. d. liability. 17.____ Which of the following sequences of documents or records describes the usual sequence in the accounting cycle? a. Ledger, source documents, journal, financial statements b. Journal, source documents, ledger, financial statements c. Source documents, journal, ledger, financial statements d. Source documents, ledger, journal, financial statements 18.____ Which of the following accounts is not closed during the closing process? a. Owner's Capital b. Commissions Revenue c. Income Summary d. Owner's Withdrawals 19. ____Which of the following is not a permanent account? a. Depreciation Expense, Building b. Owner's Capital c. Accounts Receivable d. Supplies 20. ____After all closing entries have been posted, which of the following accounts is most likely to have a nonzero balance? a. Interest Expense b. Service Revenue c. Wages Payable d. Income Summary 21. ____Which of the following accounts might appear in the adjusted trial balance but not in the post-closing trial balance? a. Owner's Capital b. Unearned Revenue c. Income Summary d. Depreciation Expense 22. ____Gross margin equals the difference between net sales and a. cost of goods sold. b. operating expenses. c. net income. d. cost of goods sold plus operating expenses. 23. ____Which of the following is most likely to appear on the balance sheet as a current liability? a. Bonds Payable b. Mortgage Payable c. Wages Payable d. Prepaid Insurance 24. ____A liability is recognized when a. the exact due date is known. b. the exact amount of the liability is known. c. it is paid for. d. an obligation has arisen. 25.____ Adjustments for prepaid expenses a. decrease assets and increase revenues. b. decrease expenses and increase assets. c. decrease assets and increase expenses d. decrease revenues and increase assets PROBLEM #1 (1 point each) Determine the normal balance (DR or CR) for each of the accounts listed below. 1___ Accounts Payable 14__ Inventory 2___ Accounts Receivable 15__ Note Payable 3___ Accumulated Depreciation-Equip 16__ Office Supplies 4___ Advertising Expense 17__ Office Supplies Expense 5___ Building 18__ Payroll Tax Expense 6___ Capital - Julia Hamilton 19__ Prepaid Insurance 7___ Cash 20__ Purchases 8___ Consulting Revenue 21__ Rent Expense 9___ Depreciation Expense - Equipment 22__ Sales Revenue 10__ Equipment 23__ Unearned Revenue 11__ Insurance Expense 24__ Wages Payable 12__ Interest Expense 25__ Withdrawals 13__ Interest Payable PROBLEM #2 Julia Hamilton started a new company beginning in May of the current year. She sells computers, computer supplies and software. She also provides consulting services to her customers. Prepare the following monthly Journal Entries and Adjusting Entries for the month of May. (25 points) 1. May 1, the owner contributed $4,000 cash and equipment valued at $10,000. 2. May 2, sold merchandise to Rebecca Hamm for $1,500, terms 2/10, n/30. 3. May 4, purchased $300 of office supplies on credit. 4. May 5, paid $4,800 in advance for a one-year insurance policy. 5. May 16, paid salaries and wages of $2,200. 6. May 18, paid current month's advertising bill of $300. 7. May 20, received a bill for equipment repairs, $100. The bill is not due until June 2nd. 8. May 22, received $1,000 for five days of consulting services to be performed. Journal Entries Pg. Post Date Description Ref. Debit Credit 1 2 3 4 5 6 7 8