Question

1.The only revenue for the Ford Company is Sales. The only expenses are Cost of Goods Sold and Operating Expenses. A net income will result if:

Select one:

a. Gross Margin exceeds Operating Expenses

b. Cost of Goods Sold exceeds Purchases

c. Operating Expenses exceeds Cost of Good Sold

d. Gross Margin exceeds Cost of Goods Sold

e. Operating Expenses exceeds Gross Margin

2.Lopez Company received $6,400 on July 1, 2017 for four years’ rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2017 adjusting entry is:

Select one:

a. Debit Rent Revenue and credit Unearned Rent, $800

b. Debit Rent Revenue and credit Unearned Rent, $5,600

c. Debit Unearned Rent and credit Rent Revenue, $5,600

d. Debit Unearned Rent and credit Rent Revenue, $6,400

e. Debit Unearned Rent and credit Rent Revenue, $800

3.The accounts to be credited in the closing entries at year-end include:

Select one:

a. Depreciation Expense, Purchases, Freight-In

b. Freight-Out, Purchase Returns, Purchases

c. Purchase Returns, Purchase Discounts, Interest Revenue

d. Prepaid Expense, Depreciation Expense, Freight-Out

e. Depreciation Expense, Purchases, Sales Revenue

4

On 12/31/12, as part of the year-end adjusting journal entries, the Strickland Company accrues three day's wages of $600 ($200 per day). The proper 12/31/12 closing entries are made. No reversing entry is made on 1/1/13. Strickland pays the weekly payroll of $1,000 on 1/2/13. The balance in the Wage Expense account after the 1/2/13 journal entry will be:

Select one:

a. $0

b. $400

c. $600

d. $1,000

e. $1,200

5.

Which principle is most representative of the accrual basis of accounting?

Select one:

a. Industry Practices

b. Revenue Recognition

c. Full Disclosure

d. Going Concern

Answer 1

(1)

OPTION a: Gross Margin exceeds Operating Expenses

EXPLANATION:

sales - cost of goods sold = gross margin

net income = gross margin - operating expenses

(2)

OPTION b: Debit Rent Revenue and credit Unearned Rent, $5,600

EXPLANATION:

the rent is earned only to the extent of $6400 x (6/48) = $800. Remaining $6400 - $800 = $5600 is credited to the Unearned Rent account.

(3)

OPTION a. Depreciation Expense, Purchases, Freight-In

EXPLANATION:

Expenses accounts are credited with closing entries in order to close the accounts.