Chapter 4 Self-Test (printable version)

Questions:

  1. The _______ is the mechanism to record original transactions.
  2. Accounts are considered _______ if their balances carry forward from period to period.
  3. A listing of all accounts where all debits equal credits is called a_______.
  4. The six steps in the account process in correct order are:
  5. An event which increases cash but the money received has not yet been earned is a ____.
  6. When money is borrowed, periodically we must accrue _________.
  7. The proper journal entry to make for the previous accrual is:
  8. Make the proper journal entries for the following events:
    1. Purchase equipment for $60,000 on July 1, 2001 (paid cash)
    2. Assume the equipment had a $10,000 salvage value what entry should we make on 12/31/01 (assume a 5 year life and the straight line method of depreciation).
    3. Sold the same equipment on 12/31/04 for $22,000. (hint: must account for depreciation to date of sale and then disposal)
    4. Bought a Fire Insurance policy covering two years on Sept. 1, 2001 for $12,000 (assume all the payment was expensed when purchased.)
    5. Make the 12/31/01 adjusting entry for question d.
    6. Assume the Fire insurance policy was recorded as a prepaid on 9/1/01.
    7. Make the correct adjusting entry for question f. on 12/31/01.
  1. What is the operating cycle of a Business?

Answers:

  1. journal entry
  2. permanent
  3. trial balance
  4. analysis of transaction, record or journalize the event, post from journal to ledger, made adjusting entries, close the temporary accounts, and prepare financial statements.
  5. Unearned revenue.
  6. Interest
  7.     Interest Expense        XXX
                Interest Payable        XXX
  8. (journal entries)
  1. 7/1/01    Equipment                              60,000
                                     Cash                                     60,000
  2. 12/31/01    Depreciation Expense       5,000
                                    Accumulated Deprec.          5,000
  3. all years entries are shown:
     
    12/31/02    Depreciation Expense     10,000
                                    Accumulated Deprec.        10,000
     
    12/31/03    Depreciation Expense     10,000
                                    Accumulated Deprec.        10,000
     
    12/31/04    Depreciation Expense     10,000
                                    Accumulated Deprec.        10,000
     
    12/31/04     Cash                                   22,000
                        Accumulated Deprec.      35,000
                                    Equipment                            60,000
                        Loss on Sale of Equip.      3,000
     
    Had the equipment been sold for 27,000 we would have a gain of 2,000.
     
  4. 9/01/01    Insurance Expense              12,000
                                    Cash                                     12,000
     
  5. 12/31/01    Prepaid Insurance             10,000
                                    Insurance Expense            10,000
     
    Note: The remaining balance in the Insurance expense account is $2,000 that is the correct amount to be expensed in 2001.
     
  6. 9/01/01    Prepaid Insurance               12,000
                                    Cash                                   12,000
     
  7. 12/31/01    Insurance Expense              2,000
                                    Prepaid Insurance              2,000
     
    Note:    The two entries give the same results at 12/31/01. Insurance expense is 2,000 and the remaining balance is 10,000 in the Prepaid account.
  1. The operating cycle of a business is the time it takes to go from cash, into inventory then into receivables and then back to cash. The cycle is relative long for manufacturing firms and generally shorter for retailing type companies.