Page |1

Chapter 1
The Accounting Process

PROBLEM 1: TRUE OR FALSE

1. FALSE – trial balance
2. TRUE
3. FALSE – AJE: Income (Dr.) 7; Unearned income (Cr.) 7
4. TRUE
5. FALSE
6. TRUE
7. FALSE
8. FALSE
9. TRUE
10. FALSE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. C
2. B
3. C
4. Solution:

Cash 100,000
Unearned income 100,000

Unearned income
40,000 beg.
earned portion (squeeze) 110,000 100,000 advanced collections
end. 30,000

AJE:
Unearned income 110,000
Income 110,000

1
 Page |2

5. Solution:

Expense

prepayments 80,000 35,000 adjustment (squeeze)

45,000

AJE:
Prepaid asset 35,000
Expense 35,000

6. D

PROBLEM 3: CLASSROOM ACTIVITY

ACTIVITY #1:
1. Identifying and analyzing transactions.
2. Journalizing
3. Posting
4. Preparing the unadjusted trial balance
5. Preparing the adjusting entries
6. Preparing the adjusted trial balance
7. Preparing the financial statements
8. Closing the books
9. Preparing the post-closing trial balance
10. Preparing the reversing entries

2
 Page |3

ACTIVITY #2:

Requirement (a): Adjusting entries

1. Bad debts expense 1,000

Allowance for bad debts 1,000

2. Depreciation expense (100K ÷ 10) 10,000

Accumulated depreciation 10,000

3. Interest expense (24K x 10% x 3/12) 600

Interest payable 600

4. Rent expense 2,000

Rent payable 2,000

Requirement (b): Worksheet

3
 Page |4

4
 Page |5

PROBLEM 4: MULTIPLE CHOICE - THEORY

1. D
2. C
3. D
4. D
5. D
6. C
7. D
8. B
9. D
10. D

PROBLEM 5: COMPUTATIONAL: MULTIPLE CHOICE

1. C
Solution:
Dr. Cr.
Cash 7,540
Accounts receivable 8,060
Equipment 42,120
Accumulated depreciation 21,762 a
Accounts payable 6,370
Owner's equity 29,588 b
Totals 57,720 57,720

Accumulated depreciation - beg. 21,060

Depreciation expense 702
Accumulated depreciation - end. 21,762 a

Owner's equity - beg. 28,600

Sales 12,480
Depreciation expense (702)
Advertising expense (390)
Other expense (4,940)
Owner's drawings (5,460)
Owner's equity - end. 29,588 b

5
 Page |6

2. D In a post-closing trial balance, all nominal accounts are zeroed-

out.

3. B
Solution:

Dr. Cr.
I. "Should be" 58,762 58,762 "Should be"
58,726 "Entry made"
II. Sales discount not posted 52 52
III. No net effect on trial balance - -
IV. Accounts receivable posted
twice 250 250
250
Totals 59,262 59,028
Excess debits 234

4. A
Unadjusted bal. 1,185,903 883,469
1) credit to accounts payable omitted 135,616
2) Overstatement of office supplies
(65,788 - 56,788) (9,000)
3) Erroneous debit to accounts receivable (155,987)
3) Omitted debit to accounts payable (155,987)
4) Accumulated depreciation listed as debit (78,909) 78,909
5) No effect on totals of the trial balance
942,007 942,007

5. B