accounting

Start answering each of five questions from a new page

1. Evaluate the accounting principles used in Canada (name, description, examples of the use)

2. Answer the questions in self-tests (do not re-type the questions; list the codes (S3.1, S.3.2, etc.) with your choice of the answer)

S3.1 Which one of the following equations is not correct?

a. Income - Expenses = Profit

b. Asset - Liabilities = Equity

c. Income + Assets = Equity

d. Assets = Equity + Liabilities

S3.2 A transaction to record the sale of merchandise for profit on credit would have the following effect:

a. Increase sales and decrease inventory

b. Increase profit and increase sales

c. Increase accounts receivable and increase sales

d. All of the above

S3.3 A transaction to record the purchase of merchandise for cash would have the following effect:

a. Increase in expenses and assets

b. Increase in expenses and liabilities

c. Increase in expenses and decrease in assets

d. Total assets will not change

( Pa g e 5 o f 5 )

S3.4 A transaction to record the purchase of an asset on credit would involve

a. Increasing assets and increasing expenses

b. Increasing assets and decreasing profit

c. Increasing assets and increasing accounts payable

d. Decreasing assets and increasing accounts payable

S3.5 A retail business had cash of $15,000 and inventory of $70,000 on hand on January 1. On January 7, it sold half of the inventory on credit for $50,000 and collected half of this amount on January 26. The financial statements of the business would show

a. Profit of $15,000 and cash of $40,000

b. Profit of $15,000 and cash of $65,000

c. Profit of $50,000 and cash of $65,000

d. Loss of $20,000 and cash of $40,000

S3.6 A business person starts a retail company by contributing $100,000 cash. The company then buys inventory for $90,000, has sales of $150,000, cost of goods sold of

$80,000, salaries of $30,000, rental of $12,000, advertising expenses of $8,000, and equipment purchases of $40,000. All of the transactions, except the purchase of equipment, are for cash. The financial statements of the company would show

a. Profit of $20,000, cash of $30,000, and equity of $100,000

b. Profit of $20,000, cash of $110,000, and equity of $120,000

c. Profit of $10,000, cash of $110,000, and equity of $120,000

d. Loss of $70,000, cash of $110,000, and equity of $30,000

S3.7 For the year a company earned revenue of $200,000 and incurred expenses of

$175,000. At the year end, it has assets of $600,000 and liabilities of $500,000. Equity at the end of the year is

a. $25,000 b. $75,000 c. $100,000 d. $125,000

S3.8 An accounting system comprises accounts that can be grouped into

a. Income, expenses, and profit

b. Statement of financial position, profit, and cash flow

c. Assets, liabilities, income, and expenses

d. Profit, capital, assets, and cash flow

S3.9 A transaction to record the sale of goods on credit would involve a double entry for the sales value to the following accounts:

a. Increase sales and reduce inventory

b. Increase sales and increase inventory

c. Increase accounts payable and increase sales

d. Increase accounts receivable and increase sales

S3.10 A new retail business has sales of $100,000, cost of goods sold of $35,000, salaries of $15,000, rental of $4,000, and advertising of $8,000. All expenses were paid out of the owner’s initial capital of $25,000; for the inventory paid $30,000 (remains unsold) and purchased equipment on credit for $20,000. The financial statements show:

a. Profit of $38,000, cash of $13,000, and shareholders’ equity of $25,000

b. Profit of $38,000, cash of $33,000, and shareholders’ equity of $63,000

c. Profit of $65,000, cash of $3,000, and shareholders’ equity of $38,000

d. Profit of $63,000, cash of $33,000, and shareholders’ equity of $38,000

S3.11 A statement of financial position shows liabilities of $125,000 and assets of $240,000. The statement of comprehensive income shows income of $80,000 and expenses of

$35,000. Capital is

a. $45,000 b. $115,000 c. $160,000 d. $365,000

S3.12 A transaction to record the purchase of assets on credit would involve

a. Increasing assets and reducing accounts payable

b. Reducing assets and reducing accounts payable

c. Increasing accounts payable and increasing assets

d. Increasing accounts payable and reducing assets

The general ledger of Colourful Corporation, a paint store, had the following balances in its general ledger on May 31, 2015:

The following transactions occurred during June 2015:

1. Collected all, but $800 of the accounts receivable outstanding on May 31.

2. Sold paint that costs $20,500 to customers for $34,000. Of these sales, 80% was for cash and 20% was on credit.

3. Paid the accounts payable outstanding on May 31.

4. Bought paint from a supplier for $18,300, half on credit and half for cash.

5. Paid rent for June of $2,200.

6. Sent out a statement reminding a customer that he still owed $800 from May.

7. Purchased additional equipment for $3,000 with money borrowed from the bank.

8. Took out an advertisement in the local paper for $150. The company will pay for it in July.

9. Paid salaries and wages of $5,500.

10. Paid utilities for June of $550.

11. Paid dividends of $1,000 cash to the owner of the company.

Required:

Prepare

a) Statement of comprehensive income for June 2015 and

b) Statement of financial position at June 30, 2015.

( 3. )

The balances below are shown in alphabetical order in a professional service firm’s ledger at the end of a financial year.

5.

For each of the following transactions, identify the effect on each component of the statement of earnings (income statement) and the statement of financial position (balance sheet) for the current month. The first one has been done as an example for you.

1) $14,000 of services were provided to clients on credit today

2) $5,000 cash was collected for service performed on credit last month

3) $25,000 cash was borrowed from the bank

4) $500 of advertising was done in the local newspaper on account today

5) $500 was paid regarding the advertising above (4)

6) The owners contributed an additional $10,000 cash into the business

7) The owners withdrew $5,000 of cash from the business

8) The owners took $200 worth of office supplies home for personal use

9) A new computer was purchased for $2,000 cash

10) A one-year insurance policy costing $12,000 was purchased today

11) Purchased $45 of fuel for the van; paid cash

12) Collected $900 from a client for work performed today