Section 1: True/False Questions

1-true
2-false
3-true
4-true
5-true
6-true
7-false
8-true
9-false
10-true
11-false
12-true
13-true
14-true
15-false
Section 2: Multiple-Choice Questions

1-b Credit side

2-c General Ledger
3-a At the end of the accounting period
4-b Accrued expense
5-a Show cash payments and receipts during a period
6-c Expenses
7-a Liability
8-b Book of Final Entry
9-b Matching Principle
10-a Debit
11-b The performance obligation is satisfied
12-b Purchasing supplies on account
13-a Assets = Liabilities + Owner’s Equity + Revenues -
Expenses - Drawings
14-d A contra asset account
15-a Transferring journal entries to ledger accounts
Section 3: Practical Questions
Question 1

Date: January 1

Debit: Cash $50,000

Credit: Owner’s Capital $50,000

Date: January 2

Debit: Office Equipment $10,000

Credit: Cash $4,000
Credit: Accounts Payable $6,000

Date: January 3

Debit: Rent Expense $2,000

Credit: Cash $2,000

Date: January 4

Debit: Cash $5,000

Credit: Service Revenue $5,000

Date: January 5

Debit: Utilities Expense $1,200

Credit: Cash $1,200

Date: January 6

Debit: Supplies $1,500

Credit: Accounts Payable $1,500

Date: January 7

Debit: Accounts Payable $3,000

Credit: Cash $3,000
Question 2

1-

Debit: Supplies Expense $4,000

Credit: Supplies $4,000

2-

Debit: Depreciation Expense $3,000

Credit: Accumulated Depreciation $3,000

3-

Debit: Salaries Expense $2,500

Credit: Salaries Payable $2,500

4-
Debit: Unearned Revenue $4,000
Credit: Service Revenue $4,000

5-

Debit: Insurance Expense $1,200

Credit: Prepaid Insurance $1,200

6-

Debit: Interest Expense $800

Credit: Interest Payable $800

7-

Debit: Accounts Receivable $2,000

Credit: Service Revenue $2,000

B. Closing Entries

1-Revenue to Income Summary

Debit: Service Revenue $50,000

Credit: Income Summary $50,000

2- Close Expenses to Income Summary

Debit: Income Summary $30,000

Credit: Supplies Expense $4,000
Credit: Depreciation Expense $3,000
Credit: Salaries Expense $2,500
Credit: Insurance Expense $1,200
Credit: Interest Expense $800
3-Close Income Summary to Owner’s Capital

Debit: Income Summary $20,000

Credit: Owner’s Capital $20,000

4-Close Drawings (if any) to Owner’s Capital

(If the owner withdrew funds during the year, this would reduce capital.)

Question 3

1. Prepare Trial Balance and Compute Owner's Capital

Adjusted Trial Balance as of [Date]

Account Debit ($) Credit ($)

Cash 10,000
Accounts Receivable 5,000
Supplies 2,000
Equipment 25,000
Accumulated Depreciation 5,000
Accounts Payable 8,000
Unearned Revenue 4,000
Prepaid Insurance 1,200
Revenue 50,000
Expenses (includes Depreciation) 30,000
Owner’s Capital ?
Totals 73,200 73,200

Compute Owner’s Capital

From the accounting equation:

Owner’s Capital (Closing Balance)=Assets−Liabilities+Net Income\text{Owner's Capital

(Closing Balance)} = \text{Assets} - \text{Liabilities} + \text{Net Income}

Assets:

10,000(Cash)+5,000(Accounts Receivable)+2,000(Supplies)+25,000(Equipment)+1,200(
Prepaid Insurance)=43,20010,000 (\text{Cash}) + 5,000 (\text{Accounts Receivable}) +
2,000 (\text{Supplies}) + 25,000 (\text{Equipment}) + 1,200 (\text{Prepaid Insurance})
= 43,200
Liabilities:

8,000(Accounts Payable)+4,000(Unearned Revenue)=12,0008,000 (\text{Accounts

Payable}) + 4,000 (\text{Unearned Revenue}) = 12,000

Net Income:

Revenue−Expenses=50,000−30,000=20,000\text{Revenue} - \text{Expenses} = 50,000 -

30,000 = 20,000

Owner’s Capital (Closing Balance):

43,200−12,000+20,000=51,20043,200 - 12,000 + 20,000 = 51,200

2. Financial Statements

Income Statement for [Period Ending Date]

Revenues
Service Revenue $50,000
Total Revenues $50,000
Expenses
Depreciation Expense $3,000
Other Expenses $27,000
Total Expenses $30,000
Net Income $20,000

Owner’s Equity Statement for [Period Ending Date]

Particulars Amount ($)

Beginning Owner’s Capital Unknown
Add: Net Income 20,000
Less: Withdrawals (if any) (Not Mentioned)
Ending Owner’s Capital 51,200

Balance Sheet as of [Date]

Assets Amount ($)

Cash 10,000
 Assets Amount ($)
Accounts Receivable 5,000
Supplies 2,000
Prepaid Insurance 1,200
Equipment 25,000
Less: Accumulated Depreciation (5,000)
Total Assets 43,200
Liabilities and Equity Amount ($)
Liabilities
Accounts Payable 8,000
Unearned Revenue 4,000
Total Liabilities 12,000
Owner’s Equity
Owner’s Capital 51,200
Total Liabilities & Equity 63,200

Question 4

A. Journal Entries for April 2020 Transactions

1. April 1: Owner invested $30,000 cash in the business.

2. Debit: Cash $30,000
3. Credit: Owner’s Capital $30,000
4. April 2: Purchased office supplies for $5,000 in cash.
5. Debit: Office Supplies $5,000
6. Credit: Cash $5,000
7. April 3: Performed services worth $8,000, receiving $4,000 in cash and
$4,000 on account.
8. Debit: Cash $4,000
9. Debit: Accounts Receivable $4,000
10. Credit: Service Revenue $8,000
11. April 5: Paid $1,500 for advertising expenses.
12. Debit: Advertising Expense $1,500
13. Credit: Cash $1,500
14. April 8: Received $2,000 from customers on account.
15. Debit: Cash $2,000
16. Credit: Accounts Receivable $2,000
17. April 10: Paid $3,000 for salaries.
18. Debit: Salaries Expense $3,000
19. Credit: Cash $3,000
20. April 12: Purchased equipment for $10,000, paying $4,000 in cash and $6,000
on account.
21. Debit: Equipment $10,000
22. Credit: Cash $4,000
23. Credit: Accounts Payable $6,000
B. Posting to Ledger Accounts

Cash

Date Description Debit ($) Credit ($) Balance ($)

April 1 Owner’s Investment 30,000 30,000
April 2 Office Supplies 5,000 25,000
April 3 Service Revenue (Partial) 4,000 29,000
April 5 Advertising Expense 1,500 27,500
April 8 Accounts Receivable 2,000 29,500
April 10 Salaries Expense 3,000 26,500
April 12 Equipment 4,000 22,500

Office Supplies

Date Description Debit ($) Credit ($) Balance ($)

April 2 Office Supplies Purchase 5,000 5,000

Accounts Receivable

Date Description Debit ($) Credit ($) Balance ($)

April 3 Service Revenue (Partial) 4,000 4,000
April 8 Cash Collection 2,000 2,000

Service Revenue

Date Description Debit ($) Credit ($) Balance ($)

April 3 Revenue Earned 8,000 8,000

Advertising Expense

Date Description Debit ($) Credit ($) Balance ($)

April 5 Advertising Paid 1,500 1,500

Salaries Expense

Date Description Debit ($) Credit ($) Balance ($)

April 10 Salaries Paid 3,000 3,000
Equipment

Date Description Debit ($) Credit ($) Balance ($)

April 12 Equipment Purchased 10,000 10,000

Accounts Payable

Date Description Debit ($) Credit ($) Balance ($)

April 12 Equipment Purchase 6,000 6,000

C. Financial Statements

Income Statement for April 2020

Revenues
Service Revenue $8,000
Total Revenues $8,000
Expenses
Advertising Expense $1,500
Salaries Expense $3,000
Total Expenses $4,500
Net Income $3,500

Owner’s Equity Statement for April 2020

Particulars Amount ($)

Beginning Capital $0
Add: Net Income 3,500
Add: Owner’s Investment 30,000
Ending Owner’s Capital $33,500

Balance Sheet as of April 30, 2020

Assets Amount ($)

Cash 22,500
Accounts Receivable 2,000
Office Supplies 5,000
Equipment 10,000
 Assets Amount ($)
Total Assets $39,500
Liabilities and Equity Amount ($)
Liabilities
Accounts Payable 6,000
Total Liabilities $6,000
Owner’s Equity
Owner’s Capital 33,500
Total Liabilities & Equity $39,500

Question 5

Adjusted Journal Entries at Year-End

1. Adjust Supplies:
o Explanation: Supplies purchased during the year were $2,500, and $700
remains at year-end. The used supplies amount to $2,500 - $700 = $1,800.

Debit: Supplies Expense $1,800

Credit: Supplies $1,800

2. Record Depreciation on Machinery:

o Explanation: Depreciation expense for the machinery for the year is
$4,000.

Debit: Depreciation Expense $4,000

Credit: Accumulated Depreciation $4,000

3. Accrue Interest:
o Explanation: Interest of $1,200 has been incurred but not paid by year-
end.

Debit: Interest Expense $1,200

Credit: Interest Payable $1,200

4. Earn Unearned Revenue:

o Explanation: Unearned revenue of $3,000 has now been earned during
the year.

Debit: Unearned Revenue $3,000

Credit: Revenue $3,000

5. Adjust Prepaid Rent:

o Explanation: Prepaid rent of $6,000 covers six months. Four months have
expired, so $6,000 × (4 ÷ 6) = $4,000 is the expired rent.
 Debit: Rent Expense $4,000
Credit: Prepaid Rent $4,000

Question 6

Adjusting Entries on January 31, 2020

1. Adjust Prepaid Rent:

• Explanation: The prepaid rent of $9,000 covers 9 months starting January 1. One
month of rent has expired. Monthly rent = $9,000 ÷ 9 = $1,000.

Debit: Rent Expense $1,000

Credit: Prepaid Rent $1,000

2. Adjust Supplies:

• Explanation: Supplies at the beginning of the period were $5,000. Supplies on

hand at January 31 are $2,000. The amount used is $5,000 - $2,000 = $3,000.

Debit: Supplies Expense $3,000

Credit: Supplies $3,000

3. Record Depreciation on Equipment:

• Explanation: The equipment has a useful life of 5 years. Monthly depreciation =

$30,000 ÷ (5 × 12) = $500.

Debit: Depreciation Expense $500

Credit: Accumulated Depreciation $500

4. Adjust Unearned Revenue:

• Explanation: Unearned revenue at the beginning of the period was $11,000. On

January 31, $4,000 remains unearned, meaning $11,000 - $4,000 = $7,000 was
earned.

Debit: Unearned Revenue $7,000

Credit: Service Revenue $7,000

5. Accrue Salaries:
 • Explanation: Salaries of $1,000 have been incurred but not yet paid by January
31.

Debit: Salaries Expense $1,000

Credit: Salaries Payable $1,000

Summary of Adjusting Entries

Account Debit ($) Credit ($)

Rent Expense 1,000
Prepaid Rent 1,000
Supplies Expense 3,000
Supplies 3,000
Depreciation Expense 500
Accumulated Depreciation 500
Unearned Revenue 7,000
Service Revenue 7,000
Salaries Expense 1,000
Salaries Payable 1,000