4. Gardner Company purchased a truck from Kutners on November 1 by issuing a 6-month, 10% pa note payable for $60,000. On December 31, the accrued expense adjustment for interest is:

1. No entry is required.
2. DR Interest Expense $6,000 and CR Bank $6,000
3. DR Interest Expense $12,000 and CR Interest Payable $12,000
4. DR Interest Expense $1,000 and CR Interest Payable $1,000

5. Trent Tables paid employee wages on Friday, January 26. The next payroll will be paid in February. There are three more working days in January (2931). Employees work a 5 day week and the company pays $800 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

1. DR Wages Expense $2,400 and CR Wages Payable $2,400
2. DR Wages Expense $4,000 and CR Wages Payable $4,000
3. DR Wages Expense $800 and CR Wages Payable $800
4. No adjusting entry is required.

6. Joe is a lawyer who requires that his clients pay him in advance of legal services being rendered. Joe routinely credits Legal Service Revenue when his clients pay him in advance. In June Joe collected $8,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry is required by Joe's firm at the end of June?

1. DR Unearned Revenue $6,000 and CR Legal Service Revenue $6,000
2. DR Unearned Revenue $2,000 and CR Legal Service Revenue $2,000
3. DR Legal Service Revenue $2,000 and CR Unearned Revenue $2,000
4. DR Cash $8,000 and CR Legal Service Revenue $8,000

7. The most efficient way to accomplish closing entries is to:

1. credit the Profit or loss Summary account for each individual income account balance.
2. debit the Profit or loss Summary account for each individual expense account balance.
3. credit the owner's drawings balance directly to the Profit or loss Summary account.
4. credit the Profit or loss Summary account for total income and debit the Profit or loss Summary account for total expenses.

8. A post-closing trial balance will show:

1. zero balances for all accounts.
2. zero balances for statement of financial position accounts.
3. only statement of financial position accounts.
4. only income statement accounts.

9. Speedy Bike Company received a $740 cheque from a Debtor for the balance due. The transaction was erroneously recorded as a debit to Cash $470 and a credit to Service Income $470. The correcting entry is:

1. Debit Cash $270; Debit Service Income $470; and Credit Accounts Receivable $740.
2. Debit Cash $270; Debit Accounts Receivable $470; and Credit Service Income, $740.
3. Debit Cash $740; and Credit Accounts Receivable $740.
4. Debit Accounts Receivable $740; Credit Cash $270; and Credit Service Income $470.

10. Which of these is correct? Current liabilities:

1. are normally expected to be paid from existing current assets or through the creation of other current liabilities.
2. are listed first in the liabilities section of the statement of financial position.
3. should include the portion of non-current debt that is expected to be paid within the next year.
4. all of the options are correct.

11. The use of reversing entries:

1. is a required step in the accounting cycle.
2. changes the amounts reported in the prior years financial statements.
3. simplifies the recording of subsequent transactions relating to adjustments.
4. is required for all adjusting entries.

12. Current assets are:

1. the most recent assets purchased.
2. the assets which are currently being used to produce a product or service.
3. a separate classification in the income statement.
4. expected to be realised in cash, sold or consumed within one year of the statement of financial position date or the businesss operating cycle, whichever is longer.

13. A lawyer collected $860 of legal fees in advance. He erroneously debited Cash for $680 and credited Accounts Receivable for $680. The correcting entry is:

1. DR Cash $680; DR Accounts Receivable $180; and CR Unearned Income $860
2. DR Cash $860; and CR Service Income $860
3. DR Cash $180; DR Accounts Receivable $680; and CR Unearned Income $860
4. DR Cash $180; and CR Accounts Receivable $180

14. The credit terms offered to a customer by a business are 2/10, n/30 which means that:

1. the customer must pay the bill within 10 days.
2. the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date.
3. the customer can deduct a 2% discount if the bill is paid between the 10th and 30th day from the invoice date.
4. two sales returns can be made within 10 days of the invoice date and no returns thereafter.

15. Eastern Suppliers sells inventory on credit for $1000 to Tang Company with credit terms of 2/10, n/30. Tang Company returns $300 of inventory that was damaged, along with a cheque to settle the account within the discount period. What entry does Eastern Suppliers make upon receipt of the cheque? (ignore GST)

1. Dr Cash $700; and Cr Accounts Receivable $700
2. Dr Cash $686; Dr Sales Returns and Allowances $300; Dr Sales Discount $14; and Cr Accounts Receivable $1,000
3. Dr Cash $686; Dr Sales Returns and Allowances $314; and Cr Accounts Receivable $1,000
4. Dr Cash $980; Dr Discount Allowed $20; Cr Sales Returns and Allowances $300; and Cr Accounts Receivable $700

16. Which one of the following is not a justification for adjusting entries?

1. Adjusting entries are necessary to ensure that revenue recognition principles are followed.
2. Adjusting entries are necessary to ensure that the matching principle is followed.
3. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.
4. Adjusting entries are necessary to enable financial statements to conform with GAAP.

17. The Harris Company Ltd purchased a computer for $3,000 on 1 December. It is estimated that annual depreciation on the computer will be $600. If financial statements are to be prepared on 31 December, the company should make the following adjusting entry:

1. Debit Depreciation expense, $600; Credit Accumulated depreciation, $600.
2. Debit Depreciation expense, $50; Credit Accumulated depreciation, $50.
3. Debit Office equipment $2,400; Credit Accumulated depreciation, $2,400.
4. Debit Office equipment, $3,000; Credit Accumulated depreciation, $3,000.

18. Temporary accounts of a business include:

1. revenue, expense and dividend accounts.
2. assets only accounts.
3. assets, liabilities and equity accounts.
4. retained earnings only account.

19. Sales revenues are usually considered earned when:

1. goods are transferred from the seller to the buyer.
2. an order is received.
3. goods are invoiced to the customer.
4. cash is received from credit sales.

20. The closing entry process results in the balance of the Profit and loss summary account being closed to the:

1. Total assets account.
2. Retained earnings account.
3. Share capital account.
4. Total liabilities account.