If the period revenues are less than the period expenses, and there are no gains or losses, then Retained Earnings must decrease during the period.

I. Determine whether each of the following is true or false.

1. If the period revenues are less than the period expenses, and there are no gains or losses, then Retained Earnings must decrease during the period.

2. In a pre-closing trial balance, revenue and expense accounts must have a zero balance.

3. If debits equal credits on the trial balance, you know with certainty that your records are correct.

4. At the end of the first year of ownership of a long-term asset, if straight-line depreciation is used, the net book value of the asset will always be equal to or greater than the market value of the asset.

5. If prices are increasing then LIFO, compared with FIFO,

will show a higher net income for the period.

6. At the end of the second year of ownership of a long-term

asset, the balance in the accumulated depreciation account must be equal to or greater than the balance in the

depreciation expense account

II. 

For each numbered item place the letter(s) that best

describes its category from the following possibilities:

(A)Assets, (L)Liabilities, (SE)Stockholders’ Equity,

(R)Revenue, and (E)Expense.

1. Cash 5. Retained Earnings

2. Patents 6. Unearned revenue

3. Interest payable 7. Inventory

4. Supplies expense 8. Cost of Goods Sold

III. 
Sarah Jones started a new business in January, 2008. The following are selected events that occurred in the business during the first year of business. Please provide journal entries for these events (explanations are not necessary).

1. Sarah invested $500,000 to start the business, SaJon Inc. and received 200 shares of stock from the business.

2. Purchased inventory of $80,000 on account.

3. Signed a lease for three years for $36,000. The company paid $3,000 immediately; this was one month's rent in advance plus a security deposit.

4. Sold inventory, costing $50,000, on account for $90,000 (recognize both the revenue and the expense).

5. Paid for the inventory purchased in 2).

6. Received payment for the amount billed in 4).

7. Paid $40,000 in salaries.

8. Recognized the rent expense for the first month.

IV.

The ABC Company has the following inventory records.

2/1 Beginning balance 5@ $20 $ 100

2/5 Purchase 15@ 10 150

2/10 Sale 18@ 100 1800

2/17 Purchase 20@ 30 600

2/23 Sale 17@ 100 1700

2/25 Purchase 10@ 40 400

3/10 Purchase 40@ 10 400

3/15 Sale 10@ 100 1000

3/19 Purchase 53@ 20 100

Required

For the above data set please answer the following multiple choice questions. Use the periodic inventory method.

For the month of February, using FIFO, the ending inventory would be

a) 200 b) 450 c) 550 d) 600

For the month of March, using FIFO, the ending inventory

would be

a) 200 b) 550 c) 600 d) 700

For the month of February, using LIFO, the ending inventory would be

a) 200 b) 450 c) 550 d) 600

For the month of March, using LIFO, the ending inventory

would be

a) 200 b) 550 c) 600 d) 700

For the month of February, using Weighted-average, the ending inventory would be

a) 375 b) 475 c) 575 d) 600

6. For the month of March, using Weighted-average, the

ending inventory would be

a) 471 b) 548 c) 620 d) 729

V. 

Assume the following events for the year 2008.

1. Credit sales $400,000 

2. Cash sales 100,000

3. Accounts receivable balance 1/1/08 100,000

4. Accounts written off during the year were 3,600

5. Allowance for Uncollectibles balance 1/1/08 3,000

6. Seventy percent (70%) of this year's credit sales are collected during the year.

Scenario One

Use the above data set. Assume that the company estimates its annual bad debt expense at 2% of total sales. 

1. The adjusting entry to recognize the bad debt expense would be

a) Bad debt ex 10,000

Allow for bad debts 10,000

b) Allow for bad debts 3,000

A/R 3,000

c) Bad debt ex 3,600

Allow for bad debts 3,600

d) Bad debt ex 6,200

Allow for bad debts 6,200

The write-off of delinquent accounts would be

a) A/R 3,000

Allow for bad debts 3,000

b) Allow for bad debts 3,600

A/R 3,600

c) Bad debt ex 3,600