Reviewer1

Chapter 1
The Accounting Process
NAME: Date:
Professor: Section: Score:

QUIZ
1. It is the basic storage of information in accounting.
a. Journal entry c. Debit or Credit
b. T-account d. Account

2. A trial balance
a. proves that debits and credits are equal in the ledger.
b. provides a listing of open accounts and their balances which are used in preparing financial statements.
c. is usually prepared three times in the accounting cycle.
d. all of these.

3. When an item of expense is paid and recorded in advance before it is incurred, it is normally called a(n)
a. prepaid asset/expense. c. estimated expense.
b. accrued expense. d. cash expense.

4. An accounting record into which the essential facts and figures in connection with all transactions are initially
recorded is called the
a. ledger. c. trial balance.
b. account. d. none of these.

5. These are entries made at the end of the accounting period to update certain amounts so that they reflect correct
balances at the designated time.
a. Correcting entries c. Reclassification entries
b. Adjusting entries d. Reversing entries

6. ABC Co. prepared its unadjusted trial balance and determined that the totals of debits and credits do not equal.
Further investigation revealed the following:
• The debit posting for a cash sale was omitted. 6,000
• The balance of Inventory was listed as a credit instead of debit 36,000
• The balance of Insurance expense was listed as Rent expense 9,000
• Unearned interest income was listed as a debit instead of credit 15,000

How much is the difference between the total debits and total credits in the trial balance?
a. 36,000
b. 42,000
c. 48,000
d. 55,000

7. The credit total of a trial balance exceeds the debit total by ₱700. In investigating the cause of the difference,
the following errors were determined:
(a) A credit to accounts receivable of ₱660 was not posted;
(b) A ₱6,000 debit to be made to the Purchases account was debited to Accounts payable instead;
(c) A ₱3,600 credit to be made to the Sales account was credited to the Accounts receivable account instead;
(d) The Interest payable account balance of ₱5,040 was included in the trial balance as ₱6,400.

The reconciled balance from the given information is

a. 8,490.
b. 8,640.
c. 8,940.
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d. 9,240.

Use the following information for the next four questions:

On January 1, 20x1, an entity collects a 3-year advance rent of ₱360,000.

8. If the entity uses the liability method of initial recording, the 20x1 year-end adjusting journal entry will include
a. a debit to rent income for ₱120,000.
b. a credit to unearned rent for ₱240,000.
c. a debit to unearned rent for ₱120,000.
d. a credit to rent income for ₱240,000.

9. If the entity uses the income method of initial recording, the 20x1 year-end adjusting journal entry includes
a. a debit to rent income for ₱240,000
b. a credit to unearned rent for ₱120,000
c. a debit to unearned rent for ₱240,000
d. a credit to rent income for ₱120,000

10. If the entity uses the income method of initial recording, how much is the rent income for the year 20x1?
a. 240,000
b. 180,000
c. 120,000
d. 80,000

11. If the entity uses the liability method of initial recording, how much is the unearned rent as of December 31,
20x1?
a. 240,000
b. 180,000
c. 120,000
d. 80,000

Use the following information for the next two questions:

On August 1, 20x1, an entity prepays one-year insurance for ₱240,000.

12. If the entity uses the asset method of initial recording, the 20x1 year-end adjusting journal entry will include
a. a credit to prepaid insurance for ₱140,000.
b. a credit to insurance expense for ₱140,000.
c. a credit to prepaid insurance for ₱100,000.
d. a debit to prepaid insurance for ₱140,000.

13. If the entity uses the expense method of initial recording, the 20x1 year-end adjusting journal entry will include
a. a debit to prepaid insurance for ₱140,000.
b. a credit to insurance expense for ₱100,000.
c. a debit to prepaid insurance for ₱100,000.
d. a debit to insurance expense for ₱140,000.

14. The inexperienced accountant of Raymel Co. prepared the following closing entry on December 31, 20x1:
Dec. 31, 20x1 Sales 1,800,000
Interest income 40,000
Unrealized gain – OCI 20,000
Accrued interest income 32,000
Dividend income 16,000
Cost of goods sold 680,000
Prepaid insurance 18,000
Dividends 280,000
Accrued interest expense 70,000
Finance cost 50,000
Depreciation expense 60,000
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Income summary 750,000

Dec. 31, 20x1 Income summary 750,000

Retained earnings 750,000

How much is the correct amount of “Income summary” to be closed to retained earnings?
a. 786,000
b. 1,028,000
c. 1,066,000
d. 1,048,000

15. Reversing entries are

1. normally prepared for prepaid, accrued, and estimated items.
2. necessary to achieve a proper matching of revenue and expense.
3. desirable to exercise consistency and establish standardized procedures.
a. 1 c. 3
b. 2 d. 1 and 2

“A wise man will hear and increase learning, and a man of understanding will attain wise counsel.” (Proverbs 1:5)
- END –
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SOLUTIONS
1. D
2. D
3. A
4. D – journal
5. B

6. C
Trial balance
Dr. Cr.
Corresponding credit of
Debit to cash omitted 6,000 6,000 the debit to cash

Inventory omitted and Corresponding credit of

listed as credit 36,000 36,000 the debit to inventory

Inventory listed as a
36,000 credit

Corresponding debit of Unearned interest

the credit to unearned omitted and listed as
interest 15,000 15,000 debit

Unearned interest
listed as debit 15,000
Total Debits 30,000 78,000 Total Credits

Difference, excess of
total credits over total
48,000 debits

7. C
Trial balance
Dr. Cr.
700 Excess of credits over debits

(a) credit to AR not posted (660)

(b) debit to purchases not made 6,000 6,000 (b) erroneous debit to accounts payable
(c) erroneous credit to accounts
receivable 3,600 3,600 (c) credit to sales unrecorded

(d) overstatement of interest payable (6,400 -

(1,360) 5,040)
Totals 8,940 8,940

8. C
Solutions:
The receipt is initially recorded under each of the methods as follows:
Liability method Income method
Jan. 1, 20x1 Jan. 1, 20x1
Cash 360,000 Cash 360,000
Unearned rent 360,000 Rent income 360,000

The year-end adjusting journal entries (AJE) under each of the methods are as follows:
Liability method Income method
Dec. 31, 20x1 Dec. 31, 20x1
Unearned rent 120,000 Rent income 240,000
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Rent income (360K x 1/3) 120,000 Unearned rent (360K x 2/3) 240,000

9. A (See solutions above)

10. C
Solutions:
Regardless of the method used, the entity reports the same amounts of rent income and unearned rent.
Liability Method Income Method
Unearned rent Unearned rent
360,000 1/1/x1 - 1/1/x1
AJE 120,000 240,000 AJE
12/31/x1 240,000 12/31/x1 240,000

Rent income Rent income

- 1/1/x1 360,000 1/1/x1
120,000 AJE AJE 240,000
12/31/x1 120,000 12/31/x1 120,000

11. A (See solutions above)

12. C
Solutions:
The disbursement is initially recorded under each of the methods as follows:
Asset method Expense method
Aug. 1, 20x1 Aug. 1, 20x1
Prepaid insurance 240,000 Insurance expense 240,000
Cash 240,000 Cash 240,000

The year-end adjusting journal entries under each of the methods are as follows:
Asset method Expense method
Dec. 31, 20x1 Dec. 31, 20x1
Insurance expense 100,000a Prepaid insurance 140,000b
Prepaid insurance 100,000 Insurance expense 140,000
a (240,000 x 5/12) = 100,000
b (240,000 x 7/12) = 140,000

13. A (See solutions above)

14. C
Solution:
Dec. 31, 20x1 Sales 1,800,000
Interest income 40,000
Dividend income 16,000
Cost of goods sold 680,000
Finance cost 50,000
Depreciation expense 60,000
Income summary 1,066,000

Dec. 31, 20x1 Income summary 1,066,000

Retained earnings 1,066,000
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15. C