Chapter 03 Multiple Choice Questions #2 (Algorithmic)

A company purchased a new delivery van at a cost of $46,000 on January 1. The delivery van is estimated to have a useful life of 4 years and a salvage value of $3,400. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?

$10,650. Explanation [($46,000 − $3,400)/4 years] = $10,650

The following information is available from the adjusted trial balance of the Harris Vacation Rental Agency. After closing entries are posted, what will be the balance in the Retained earnings account? Total revenues $180,000 Total expenses $86,400 Retained earnings $115,200 Dividends $21,600

$187,200 Explanation: Ending Retained earnings = Beginning Retained Earnings + Revenues − Expenses − Dividends Ending Retained earnings Balance = $115,200 + $180,000 − $86,400 − $21,600 = $187,200

A company pays its employees $3,850 each Friday, which amounts to $770 per day for the five-day work week that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is:

$3,080 Explanation: 4 days × $770/day = $3,080

A company's Office Supplies account shows a beginning balance of $640 and an ending balance of $480. If office supplies expense for the year is $3,300, what amount of office supplies was purchased during the period?

$3,140 Explanation $640 + Supplies Purchased − $3,300 = $480 Supplies Purchased − $2,660 = $480 Supplies Purchased = $3,140

On December 1, Milton Company borrowed $480,000, at 8% annual interest, from the Tennessee National Bank. Interest is paid when the loan matures one year from the issue date. What is the adjusting entry for accruing interest that Milton would need to make on December 31, the calendar year-end?

$3,200 Explanation: $480,000 × 0.08 × 30/360 = $3,200

On January 1, Northern College received $1,380,000 from its students for the spring semester that it recorded in Unearned Revenue. The term spans four months beginning on January 1 and the college earns the revenue evenly over the months of the term. Assuming the college prepares adjustments on January 31, what amount of tuition revenue should the college recognize for the month of January?

$345,000 Explanation $1,380,000/4 = $345,000

High Step Shoes had annual revenues of $199,000, expenses of $110,700, and paid dividends of $23,600 during the current year. The retained earnings account before closing had a balance of $311,000. The ending retained earnings balance after closing is:

$375,700 Explanation: Beginning Retained earnings + Revenues − Expenses − Dividends = Ending Retained earnings $311,000 + $199,000 − $110,700 − $23,600 = $375,700

On January 1, a company purchased new furniture at a cost of $31,000. The furniture is estimated to have a useful life of 5 years and a salvage value of $3,700. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the furniture for the first year ended December 31?

$5,460 Explanation: ($31,000 − $3,700)/5 years = $5,460 per year.

On April 1, Garcia Publishing Company received $2,898 from Otisco, Incorporated for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Garcia Publishing Company for the first year of the subscription assuming the company uses a calendar-year reporting period?

$724.50. Explanation: $2,898/36 = $80.50 per month Year 1: $80.50 × 9 months = $724.50 Year 2: $80.50 × 12 months = $966.00 Year 3: $80.50 × 12 months = $966.00 Year 4: $80.50 × 3 months = $241.50

On October 1, Vista View Company rented warehouse space to a tenant for $4,000 per month and received $20,000 for five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Revenue account. The company's annual accounting period ends on December 31. The Unearned Revenue account balance at the end of December, after adjustment, should be:

$8,000 Explanation: $4,000 × 3 = $12,000 earned $20,000 − $12,000 = $8,000

A company reported net income of $3,125 for October. Its net sales for October were $12,500. Its profit margin is:

25% Explanation: Profit Margin = Net Income/Net Sales Profit Margin = $3,125/$12,500 = 0.25 = 25%

Fragment Company leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,150. Fragment collected the entire $9,200 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made on December 31 would be:

A debit to Unearned Revenue and a credit to Rent Revenue for $3,450. Explanation: $9,200 × 3/8 = $3,450 earned by December 31

High Step Shoes had annual revenues of $205,000, expenses of $113,700, and dividends of $26,000 during the current year. The retained earnings account before closing had a balance of $317,000. The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is:

Debit Income Summary $91,300; credit Retained Earnings $91,300

Harrod Company paid $6,200 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $6,200, and no adjustments had been made previously. The adjusting entry required on December 31 is:

Debit Insurance Expense, $3,100; credit Prepaid Insurance, $3,100. Explanation: $6,200 × 2/4 = $3,100

Prior to recording adjusting entries, the Office Supplies account had a $374 debit balance. A physical count of the supplies showed $113 of unused supplies available. The required adjusting entry is:

Debit Office Supplies Expense $261 and credit Office Supplies $261.

Castillo Services paid K. Castillo, the sole shareholder of Castillo Services, $6,700 in dividends during the current year. The entry to close the dividends account at the end of the year is:

Debit Retained Earnings $6,700; credit Dividends $6,700

A company pays each of its two office employees each Friday at the rate of $270 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

Debit Salaries Expense $1,080 and credit Salaries Payable $1,080. Explanation 2 employees × 2 days × $270/employee/day = $1,080

A company made no adjusting entry for accrued and unpaid employee salaries of $9,300 on December 31. Which of the following statements is true?

It will understate expenses and overstate net income by $9,300.

An adjusting entry was made on year-end December 31 to accrue salary expense of $2,400. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $5,400 payment of salaries in January of the following year?

Salaries Payable 2,400 (Debit) Salaries Expense 3,000 (Debit) Cash 5,400 (Credit)

On April 1, Garcia Publishing Company received $20,880 from Otisco, Incorporated for 36-month subscriptions to several different magazines. The company credited Unearned Revenue for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, what is the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the first year?

debit Unearned Revenue, $5,220; credit Subscription Revenue, $5,220. Explanation $20,880 × 9/36 = $5,220