Quiz Chapter 1 The Accounting Process Ia 1 2020 Edition

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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
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normally called a(n)
er as
a. prepaid asset/expense. c. estimated expense.
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b. accrued expense. d. cash expense.
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4. An accounting record into which the essential facts and figures in connection with all
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transactions are initially recorded is called the
a. ledger. rs e c. trial balance.
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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.
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a. Correcting entries c. Reclassification entries

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b. Adjusting entries d. Reversing entries

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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
ed d
 The balance of Inventory was listed as a credit instead 36,000

of debit
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 The balance of Insurance expense was listed as Rent 9,000

expense
 Unearned interest income was listed as a debit 15,000
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instead of credit
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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
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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;
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(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.
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
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journal entry includes
a. a debit to rent income for ₱240,000
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b. a credit to unearned rent for ₱120,000
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c. a debit to unearned rent for ₱240,000
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d. a credit to rent income for ₱120,000
rs e
10. If the entity uses the income method of initial recording, how much is the rent income
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for the year 20x1?
a. 240,000
b. 180,000
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c. 120,000
d. 80,000
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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
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c. 120,000
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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.
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12. If the entity uses the asset method of initial recording, the 20x1 year-end adjusting
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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.
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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
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.
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14. The inexperienced accountant of Raymel Co. prepared the following closing entry on
December 31, 20x1:
Dec. 31, Sales 1,800,0
20x1 Interest income 00
Unrealized gain – OCI 40,000
Accrued interest income 20,000
Dividend income 32,000
Cost of goods sold 16,000 680,000
Prepaid insurance 18,000
Dividends 280,000
Accrued interest 70,000
expense 50,000
Finance cost 60,000
Depreciation 750,000
expense
Income summary
Dec. 31, Income summary 750,00

20x1 Retained earnings 0 750,000
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How much is the correct amount of “Income summary” to be closed to retained earnings?
a. 786,000
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b. 1,028,000
c. 1,066,000
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d. 1,048,000
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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.
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a. 1 c. 3
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b. 2 d. 1 and 2
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“A wise man will hear and increase learning, and a man of understanding will attain wise
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counsel.” (Proverbs 1:5)

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- END –
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SOLUTIONS
1. D
2. D
3. A
4. D – journal
5. B
6. C
Trial balance
Dr. Cr.
Corresponding
Debit to cash credit of the debit
omitted 6,000 6,000 to cash
Inventory omitted Corresponding

and listed as credit of the debit
credit 36,000 36,000 to inventory
Inventory listed as
36,000 a credit
Corresponding
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debit of the credit Unearned interest
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to unearned omitted and listed
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interest 15,000 15,000 as debit
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Unearned interest
listed as debit 15,000
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Total Debits 30,000 78,000 Total Credits
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Difference,
excess of total
48,00 credits over
0 total debits
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aC s
7. C
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Trial balance
Dr. Cr.
700 Excess of credits over debits
(a) credit to AR not posted (660)

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(b) debit to purchases not (b) erroneous debit to accounts

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made 6,000 6,000 payable

(c) erroneous credit to
accounts receivable 3,600 3,600 (c) credit to sales unrecorded
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(d) overstatement of interest payable

(1,360) (6,400 - 5,040)
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Totals 8,940 8,940
8. C
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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
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Dec. 31, 20x1 Dec. 31, 20x1

Unearned rent 120,000 Rent income 240,000
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
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12. C
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Solutions:
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The disbursement is initially recorded under each of the methods as follows:
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Asset method Expense method
Aug. 1, 20x1 Aug. 1, 20x1
Prepaid insurance 240,000 Insurance expense 240,000
Cash Cash
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240,000 240,000
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The year-end adjusting journal entries under each of the methods are as follows:
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Asset method Expense method

Dec. 31, 20x1 Dec. 31, 20x1
Insurance expense 100,000a Prepaid insurance 140,000b
Prepaid insurance Insurance expense 140,000
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100,000
a
(240,000 x 5/12) = 100,000
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b
(240,000 x 7/12) = 140,000

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

Retained earnings 1,066,000
15. C
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er as
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rs e
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aC s
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ed d
ar stu
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3. When an item of expense is paid and recorded in advance before it is incurred, it is

a. Correcting entries c. Reclassification entries

b. Adjusting entries d. Reversing entries

 The balance of Inventory was listed as a credit instead 36,000

 The balance of Insurance expense was listed as Rent 9,000

The reconciled balance from the given information is

Use the following information for the next four questions:

Use the following information for the next two questions:

journal entry will include

d. a debit to prepaid insurance for ₱140,000.

Dec. 31, Income summary 750,00

counsel.” (Proverbs 1:5)

Inventory omitted Corresponding

(a) credit to AR not posted (660)

(b) debit to purchases not (b) erroneous debit to accounts

made 6,000 6,000 payable

(d) overstatement of interest payable

Totals 8,940 8,940

Dec. 31, 20x1 Dec. 31, 20x1

9. A (See solutions above)

Rent income Rent income

Asset method Expense method

13. A (See solutions above)

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

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