Part I: Write True if the statement is correct and False if the statement is not correct

________ 1. A group of related accounts that comprise all accounts of a specific business is
called the ledger.
_______ 2. The capital account of a sole proprietorship at the end of the period doesn't show the
ending balance of capital that should appear on the balance sheet if it is before
closing.
_______ 3. During closing, the Income Summary account is credited and capital is debited if
there is net loss for the year.
_______ 4. When preparing bank reconciliation for a period, the depositor has to notify the bank
if there are any deposits in transit so that the bank will add them within that period.
_______ 5. When goods are sold FOB shipping point, the goods become the property of the
buyer only when the buyer receives them at destination.

Part II. Choose the best answer for the following questions

_____ 1. Which of the following is/are not external users of accounting information provided by
a particular organization?
A. Federal Inland Revenue Authority C. Sales managers
B. Potential investors D. None

______ 2. A debit may signify

A. an increase in a liability account
B. decrease in owner's equity
C. increase in asset
D. increase in an expense account
E. all except A

______ 3. The form which lists the balance and titles of accounts in the ledger of an organization
on a given day is:
A. income statement C. balance sheet
B. income summary D. trial balance

1
______ 4. If the appropriate adjusting entry for accrued salaries is omitted at the end of a fiscal
year:
A. assets for the period will be overstated
B. liabilities for the period will be understated
C. expenses for the period will be overstated
D. owner's equity for the period will be understated

______ 5. If the effect of the debit portion of an adjusting entry is to decrease the balance of a
liability account, which of the following statement describe the effect of the credit
portion of the entry?
A. Increase the balance of an asset account
B. Increase the balance of an expense account
C. Increase the balance of a revenue account
D. Decrease the balance of an asset account

______ 6. Which of the following accounts will appear in the post-closing trial balance of a
business?
A. Drawings C. Wages expense
B. Accumulated depreciation D. Sales revenue

The following data are taken from the income statement columns of the worksheet of a
merchandising business prepared for the year ended December 31, 2002.

Net Income Br. 12,500

Sales 45,000
Income Summary 10,000 Dr. and 6,000 Cr.
Gross Purchase 19,750
Purchase Ret. & Allowances 200
Purchase Discount 50

2
Based on the data given above answer questions 7 – 9

______ 7. What is the total cost of goods sold for the year?
A. Br. 69,500 B. Br. 89,250 C. Br. 23,500
D. Br. 57,000 E. none

______ 8. What is the amount of total operating expenses?

A. Br. 9,000 C. Br. 21,500 E. none
B. Br. 32,5000 D. Br. 36,000

______ 9. What is the amount of gross profit fort the year?

A. Br. 9000 C. Br. 23,500 E. none
B. Br. 21,500 D. Br. 25,000

______ 10. Which of the following reconciling items necessitate an entry in the depositors
record?
A. Bank service charge
B. Deposit in transit
C. Outstanding checks
D. All of the above

Part III. Workout Questions

Exercise 1
Presented below is the trial balance of Modesty General Service on June 30,2001, the end of the
current fiscal year.

3
 Modesty General Service
Trial balance
June 30.2001
Account Title Dr. Cr.
Cash Br. 22,600
Account Receivable Br. 31,600
Office Supplies 10,000
Office Equipment 80,140
Account Payable 36,000
Mr. X Capital 102,000
Mr. X Drawing 36,980
Service Revenue 96,600
Wages Expense 24,000
Rent Expense 19,200
Advertising Expense 5,000

251,720 206,460

The trial balance is incorrect because of the following errors:

1. The sum of the debits in the cash account is Br. 86,000 and the sum of
the credits is Br. 60,000.
2. A Br. 550 payment from a credit customer was not posted to Accounts
Receivable.
3. A purchase of supplies on account for Br. 800 was not recorded at all.
4. A transposition error was committed in copying the balance of Service
Revenue account to the trail balance. The correct amount was 90,660.
5. Utilities expense with a balance of Br. 2000 was omitted from the trail
balance.
6. The balance of Mr. X Drawing was overstated by Br. 2000.
7. A credit of Br. 2500 in Accounts Payable was overlooked in
determining the balance of the account.

4
8. Accumulated Depreciation on equipment with a balance of Br. 1210
was omitted from the trail balance

Required:
Prepare a correct trail balance for the company as of June 30, 2001 assuming every account in
the ledger has a normal balance.

Exercise - 2
Connection Co. received a note from Hot Co. on July 24,2001. The company discounted the note
at Disdain bank on August 23, 2001. A summary of the facts concerning the note follows:
Face amount ……………………………….. Br. 720,000
Term of note …………………………………..120 days
Date of note (issue date) ………………………7/24/2001
Interest rate on note ……………………………..12%
Date of discounting …………………………. 8/23/2001
Discount rate charged by bank…………………. 15%

Required: Determine
a) The maturity value of the note
b) Number of days from the discount date to maturity
c) Amount of the discount
d) Cash proceeds received by the company
e) Journal entry at each of the above dates