MASTERING CORRECTION OF ACCOUNTING ERRORS

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MASTERING CORRECTION OF ACCOUNTING ERRORS TESTBANK Section 1WHERE ERRORS OCCUR AND HOW THEY ARE FOUND 1. How frequently should the bank reconciliation be performed? a. Monthly b. Weekly c. Ea ... ch time wages are paid to employees d. As frequently as is necessary to find errors 2. At year-end 20X2, you see that no insurance expense was recorded for 20X1. On July 1, 20X1, your company had prepaid a 2-year policy for $4,800, debiting Prepaid Insurance and crediting Cash. Correcting this error requires: a. a prior period adjustment b. a current period adjustment c. both a and b d. neither a nor b 3. Company accounting departments perform periodic reviews to ensure the reliability of company accounting procedures during: a. preparation of the trial balance b. a review of adjusting journal entries c. an external audit d. an internal audit 4. Bad debt expense of $500 recorded as $5,000 is an example of: a. a transposition error b. incorrect use of an estimate c. a classification error d. a slide error 5. GrayCo estimates debt using 2% of net sales, but you discover that this year someone used 4% of net sales. This is: a. a transposition error b. an incorrect estimate c. incorrect use of an accounting principle d. a slide error © American Institute of Professional Bookkeepers, 2010 Section 2–THE BANK RECONCILIATION 1. You are performing a bank reconciliation for August 20X1. The balance per bank is $21,863; the ledger Cash balance, $17,250. Outstanding checks are as follows: Check Number Amount 2003 $ 560 2004 910 2008 1,700 2009 2,110 You have also identified the following:  A $13 bank service charge for August  An NSF check for $720  Check #1996, made out to Local Gas & Electric for $798, was booked as $870 This study source was downloaded by 100000820529148 from CourseHero.com on 07-14-2022 15:23:08 GMT -05:00 https://www.coursehero.com/file/136948401/Mastering-Correction-of-Accounting-Errors-Testbankdoc/ Mastering Correction of Accounting Errors  A $6 charge for your bank’s Web Banking, which the company does not use To reconcile the balance per book to the balance per bank will require adjusting the book balance by: a. $661 b. $727 c. $733 d. $648 2. In a bank reconciliation, to adjust for a customer’s NSF check requires: a. increasing the bank balance by the amount b. reducing the bank balance by the amount c. increasing the book balance by the amount d. reducing the book balance by the amount 3. In a bank reconciliation, to adjust for a bank charge for another company's check requires: a. increasing the bank balance by the amount of the check b. reducing the bank balance by the amount of the check c. increasing the book balance by the amount of the check d. reducing the book balance by the amount of the check 4. In a bank reconciliation, to adjust for in incorrect deposit of $1,000 from another company in your account requires: a. increasing the bank balance by the amount of the deposit b. reducing the bank balance by the amount of the deposit c. increasing the book balance by the amount of the deposit d. reducing the book balance by the amount of the deposit 5. In a bank reconciliation, to adjust for the bank’s deducting $980 for a company check that you wrote and booked for $890 requires: a. increasing the book balance by $90 b. reducing the book balance by $90 c. increasing the bank balance by $90 d. reducing the bank balance by $90 6. Your company writes a check for $123, but records it as $132. To adjust for this in a bank reconciliation, you would: a. increase the bank balance by $9 b. increase the book balance by $9 c. reduce the bank balance by $9 d. reduce the book balance by $9 7. During the bank reconciliation, you notice that the bank deducted $1,321 for check 3201, which was made out for $3,123. What adjustment do you make? a. Increase the bank balance by $1,802 b. Reduce the bank balance by $1,802 c. Increase the book balance by $1,802 d. Reduce the book balance by $1,802 8. During the bank reconciliation, you see that the following checks have not cleared: Check Number Amount 2003 $2,300 2004 2,400 2005 2,500 2006 3,300 Testbank 2 This study source was downloaded by 100000820529148 from CourseHero.com on 07-14-2022 15:23:08 GMT -05:00 https://www.coursehero.com/file/136948401/Mastering-Correction-of-Accounting-Errors-Testbankdoc/ Mastering Correction of Accounting Errors What adjustment should you make? a. Increase the book balance by $10,500 b. Reduce the book balance by $10,500 c. Increase the bank balance by $10,500 d. Reduce the bank balance by $10,500 9. The bank statement balance of $7,850 does not include $1,200 in checks outstanding and $750 deposits in transitWhen the bank balance is adjusted, it will be: a. $7,850 b. $7,415 c. $7,400 d. $7,385 10. The following checks were outstanding when you did last month’s bank reconciliation and remain outstanding this month: Check number Amount 3452 $1,000 3454 1,500 3455 2,000 What adjustment should you make this month? a. Increase the bank balance by $4,500 b. Reduce the bank balance by $4,500 c. Increase the book balance by $4,500 d. Reduce the book balance by $4,500 Section 3FINDING AND CORRECTING ERRORS USING THE UNADJUSTED TRIAL BALANCE 1. The unadjusted trial balance shows total debits of $66,000 and total credits of $68,600. If there is only one type of error, which type would you look for? a. Slide b. Transposition c. Doubling d. Misclassification 2. On a trial balance, there is difference between total debits and total credits divisible by 9. If this is the only error, you can track it down and make the correction if this is: a. an omission error b. a slide error c. a doubling error d. a misclassification error 3. Which of the following errors would not be revealed by the trial balance? a. Receipt of a payment debited to Accounts Receivable for $2,000 and credited to Cash for $2,000 b. Payment of a utility bill debited to Utilities Expense for $890 and credited to Cash for $980 c. A sale debited to Accounts Receivable for $80 and credited to Sales for $800 d. Receipt of a $1,200 check for sublet office space debited to Cash for $2,100 and credited to Accounts Receivable for $1,200 4. A trial balance may reveal: a. a transposition error b. an omission error c. a classification error d. a bank reconciliation error Testbank 3 This study source was downloaded by 100000820529148 from CourseHero.com on 07-14-2022 15:23:08 GMT -05:00 https://www.coursehero.com/file/136948401/Mastering-Correction-of-Accounting-Errors-Testbankdoc/ Mastering Correction of Accounting Errors Section 4CORRECTING CURRENT PERIOD ACCRUAL ERRORS 1. If you accrue expenses of $130 instead of $150, the financial statements will: a. overstate assets and understate expenses b. understate prepaid expenses c. understate both liabilities and expenses d. overstate liabilities 2. On November 1, 20X4, ComCo debits Cash and credits Notes Payable for $20,000 for a note maturing May 1, 20X5. At that time, ComCo must repay the entire $20,000 plus interest of 6% accrued annually. If no adjusting entry is made at year-end 20X4, ComCo will record a correcting entry that: a. debits Interest Expense for $400 b. credits Interest Payable for $100 c. debits Interest Expense for $200 d. none of the above 3. Your employer has a Monday–Friday workweek and distributes its $20,000 payroll each Friday. In 20X1, December 31 is a Thursday. One of your assistants debited Salaries Expense and credited Salaries Payable for $12,000. If no correcting entry is recorded: a. the balance sheet will overstate assets b. the income statement will over state expenses c. the balance sheet will overstate liabilities d. the balance sheet will overstate retained earnings 4. Your employer has a Monday–Friday workweek and distributes its $35,000 payroll each Friday. In 20X2, December 31 is a Tuesday. One of your assistants debited Salaries Expense and credited Salaries Payable for $18,000. Your correcting entry will: a. debit Salaries Expense for $6,000 b. debit Salaries Payable for $6,000 c. credit Salaries Expense for $4,000 d. credit Salaries Payable for $4,000 5. A calendar year company plans to pay its December gas bill in January. As of December 31, no adjusting entry has been recorded. As a result: a. the balance sheet total will overstate assets b. the balance sheet total will overstate retained earnings c. the income statement total overstate expenses d. the balance sheet total will overstate liabilities 6. On March 1, 20X1, your calendar year company borrows $10,000. Terms require repayment of principal and annual interest of 9% after 4 years. At year-end 20X1, an adjusting entry accrues $550 interest expense. If you discover the error before the books are closed, what is the correcting entry? a. Interest Payable 600 Interest Expense 600 b. Interest Expense 600 Interest Payable 600 c. Interest Expense 200 Interest Payable 200 d. Interest Payable 550 Interest Expense 550 7. On November 1, 20X4, DumpCo debits Cash and credits Notes Payable for $20,000 for a note maturing on May 1, 20X5, when principal and accrued interest of 6% a year is due. If, on December 31, 20X4, you discover that no adjusting entry was made to accrue interest for 20X4, you will record an entry that includes: Testbank 4 This study source was downloaded by 100000820529148 from CourseHero.com on 07-14-2022 15:23:08 GMT -05:00 https://www.coursehero.com/file/136948401/Mastering-Correction-of-Accounting-Errors-Testbankdoc/ Mastering Correction of Accounting Errors a. a debit to Interest Payable for $400 b. a debit to Interest Expense for $200 c. a credit to Interest Payable for $400 d. none of the above 8. Your calendar year company completes a $6,000 job, of which $1,000 has been received by year end and credited to Revenue. If you discover before the books are closed that no adjusting entry was made, your correcting entry will: a. debit Revenue for $5,000 b. debit Accounts Receivable for $6,000 c. credit Accounts Receivable for $5,000 d. none of the above Section 5CORRECTING CURRENT PERIOD DEFERRAL ERRORS 1. Which of the following is a deferral error? a. Failure to calculate and record interest expense owed on a note payable b. Debiting Accounts Payable and crediting Revenue when billing a customer c. Failure to book revenue earned but not received as of year end d. Failure to adjust Unearned Revenue at year end 2. Your company purchases $2,000 of office supplies and records the amount to Prepaid Office Supplies. At year end, a physical count shows $700 of supplies have not been used. If the adjusting entry debits Supplies Expense and credits Prepaid Office Supplies for $700: a. net income will be understated b. assets will be overstated c. liabilities will be understated d. none of the above 3. On March 31, 20X8, your calendar year company takes out a 3-year insurance policy with a premium of $5,000 a year and pays the entire $15,000 in advance, booking it as prepaid insurance. On December 31, 20X8, you discover that the adjusting entry debited Insurance Expense and credited Prepaid Insurance for $5,000. Your correcting journal entry will: a. debit Insurance Expense for $3,750 b. debit Prepaid Insurance for $5,000 c. credit Insurance Expense for $1,250 d. credit Insurance Expense for $3,750 4. On March 31, 20X8, your calendar year company takes out a 3-year insurance policy with a premium of $4,000 a year and pays the entire $12,000 in advance, booking it as prepaid insurance. At year-end 20X8, you discover that the adjusting entry debits Insurance Expense and credits Prepaid Insurance for $4,000. If you do not correct this: a. net income will be understated b. assets will be overstated c. liabilities will be understated d. none of the above 5. On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months at $8,000 a month, from November 1, 20X3 through March 31, 20X4, and books the amount as Rent Revenue. On December 31, 20X3, you discover the following adjusting entry: Rent Revenue 32,000 Rent Received in Advance 32,000 To correct this error you must: Testbank 5 This study source was downloaded by 100000820529148 from CourseHero.com on 07-14-2022 15:23:08 GMT -05:00 https://www.coursehero.com/file/136948401/Mastering-Correction-of-Accounting-Errors-Testbankdoc/ Mastering Correction of Accounting Errors a. debit Rent Revenue and credit Rent Received in Advance for $8,000 b. debit Rent Received in Advance and credit Rent Revenue for $8,000 c. debit Rent Revenue and credit Rent Received in Advance for $16,000 d. debit Rent Received in Advance and credit Rent Revenue for $16,000 6. Your company purchases $3,000 of supplies, recording them as assets. At year end, a physical count shows $1,200 of supplies on hand. The year-end adjusting entry debits Supplies Expense and credits Supplies On Hand for $1,200. The correcting entry will: a. debit to Supplies Expense for $1,800 b. credit to Supplies On Hand for $600 c. credit to Supplies Expense for $600 d. no correcting entry is necessary 7. On July 1, 20X8, your calendar year company prepays $12,000 for 3 years’ rent and records the amount as an asset. At year end, you discover that the adjusting entry debits Rent Expense and credits Prepaid Rent for $1,000. Without a correcting entry: a. assets will be overstated b. liabilities will be understated c. net income will be understated d. none of the above 8. On October 1, 20X8, your calendar year company prepays $10,000 for 2 years’ rent, recording the entire $10,000 as an expense. At year end, you discover that the adjusting entry debits Prepaid Rent and credits Rent Expense for $5,000. The correcting entry must: a. debit Rent Expense for $2,500 b. debit Prepaid Rent for $1,250 c. credit Rent Expense for $3,750 d. none of the above 9. On September 1, 20X8, your calendar year company pays $2,400 for 12 months’ insurance, recording the amount as an asset. Just before closing the books, you realize that no adjusting entry was recorded. Without it: a. net income will be overstated b. assets will be understated c. liabilities will be overstated d. none of the above 10. On November 1, 20X8, your calendar year company pays $1,200 for 12 months’ insurance, recording it as an expense. Just before closing the books, you realize that no adjusting entry was made. The correct entry must: a. credit an asset account for $1,000 b. credit an expense account for $1,000 c. debit an expense account for $200 d. debit an asset account for $200 Testbank 6 This study source was downloaded by 100000820529148 from CourseHero.com on 07-14-2022 15:23:08 GMT -05:00 https://www.coursehero.com/file/136948401/Mastering-Correction-of-Accounting-Errors-Testbankdoc/ Powered by TCPDF (www.tcpdf.org) [Show More]

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