MASTERING CORRECTION OF ACCOUNTING ERRORSTESTBANK Section 1WHERE ERRORS OCCUR AND HOW THEY ARE FOUND 1. How frequently should the bank reconciliation be performed? a. Monthly b. Weekly c. Each time wages are paid to employees d. As frequently as is necessary to find errors 2. At yearend 20X2, you see that no insurance expense was recorded for 20X1. On July 1, 20X1, your company had prepaid a 2year 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 increasing the book balance by the amount of the check d.000 from another company in your account requires: a. increasing the bank balance by the amount of the deposit b. increasing the book balance by $90 Testbank 2 . $17. reducing the bank balance by the amount c. $661 b. In a bank reconciliation. The balance per bank is $21. $733 d. was booked as $870 A $6 charge for your bank’s Web Banking. In a bank reconciliation. In a bank reconciliation. reducing the bank balance by the amount of the deposit c. reducing the bank balance by the amount of the check c. You are performing a bank reconciliation for August 20X1. $648 2. made out to Local Gas & Electric for $798. to adjust for the bank’s deducting $980 for a company check that you wrote and booked for $890 requires: a. reducing the book balance by the amount 3.Mastering Correction of Accounting Errors Section 2–THE BANK RECONCILIATION 1. reducing the book balance by the amount of the deposit 5. Outstanding checks are as follows: Check Number Amount 2003 $ 560 2004 910 2008 1. which the company does use To reconcile the balance per book to the balance per bank will require adjusting the book balance by: a. increasing the book balance by the amount d.700 2009 2. to adjust for a bank charge for another company's check requires: a. increasing the bank balance by the amount of the check b.110 You have also identified the following: A $13 bank service charge for August An NSF check for $720 Check #1996. to adjust for a customer’s NSF check requires: a.250. increasing the book balance by the amount of the deposit d. $727 c. increasing the bank balance by the amount b. the ledger Cash balance. reducing the book balance by the amount of the check 4.863. In a bank reconciliation. to adjust for in incorrect deposit of $1. 385 10. Reduce the bank balance by $10. The following checks were outstanding when you did last month’s bank reconciliation and remain outstanding this month: Check number Amount 3452 $1.850 does not include $1. but records it as $132.500 9. During the bank reconciliation.500 b.Mastering Correction of Accounting Errors b.321 for check 3201.200 in checks outstanding and $750 deposits in transit.123.500 2006 3. reducing the bank balance by $90 6. which was made out for $3. it will be: a.000 3454 1. $7. you see that the following checks have not cleared: Check Number Amount 2003 $2. To adjust for this in a bank reconciliation. reducing the book balance by $90 c. Your company writes a check for $123. Increase the bank balance by $198 b. Increase the bank balance by $10. increasing the bank balance by $90 d. $7. reduce the book balance by $9 7. $7.400 2005 2. When the bank balance is adjusted.500 3455 2. you would: a.850 b. Increase the book balance by $10. Reduce the book balance by $10. Reduce the bank balance by $198 c. increase the bank balance by $9 b.400 d. reduce the bank balance by $9 d.500 c.415 c.000 Testbank 3 .300 2004 2.300 What adjustment should you make? a. $7. During the bank reconciliation. increase the book balance by $9 c. The bank statement balance of $7. you notice that the bank deducted $3. Increase the book balance by $198 d. What adjustment do you make? a.500 d. Reduce the book balance by $198 8. Which of the following errors would not be revealed by the trial balance? a.000 and total credits of $68. Misclassification 2. Doubling d. Increase the bank balance by $4. which type would you look for? a. Transposition c. Receipt of a $1. Payment of a utility bill debited to Utilities Expense for $890 and credited to Cash for $980 c.100 and credited to Accounts Receivable for $1.500 Section 3FINDING AND CORRECTING ERRORS USING THE UNADJUSTED TRIAL BALANCE 1. a bank reconciliation error Section 4CORRECTING CURRENT PERIOD ACCRUAL ERRORS 1.000 b. A sale debited to Accounts Receivable for $80 and credited to Sales for $800 d. a transposition error b. Reduce the book balance by $4. a slide error c.200 4. Slide b. a classification error d. Increase the book balance by $4. Receipt of a payment debited to Accounts Receivable for $2.200 check for sublet office space debited to Cash for $2. the financial statements will: a. overstate assets and understate expenses Testbank 4 .500 c.000 and credited to Cash for $2. If there is only one type of error. Reduce the bank balance by $4.600. Mastering Correction of Accounting Errors What adjustment should you make this month? a. If this is the only error. A trial balance may reveal: a. a doubling error d. If you accrue expenses of $130 instead of $150.500 b. there is difference between total debits and total credits divisible by 9. an omission error b. an omission error c.500 d. The unadjusted trial balance shows total debits of $66. a misclassification error 3. you can track it down and make the correction if this is: a. On a trial balance. the balance sheet total will overstate assets b. As a result: a. credits Interest Payable for $100 c. ComCo debits Cash and credits Notes Payable for $20. One of your assistants debited Salaries Expense and credited Salaries Payable for $18. the income statement total overstate expenses d. overstate liabilities 2. As of December 31. At that time. debit Salaries Payable for $6. In 20X2.000 5. Terms require repayment of principal and annual interest of 9% after 4 years. ComCo will record a correcting entry that: a. If no adjusting entry is made at yearend 20X4. credit Salaries Payable for $4. One of your assistants debited Salaries Expense and credited Salaries Payable for $12. If no correcting entry is recorded: a. the balance sheet total will overstate retained earnings c.Mastering Correction of Accounting Errors b. the balance sheet will overstate liabilities d.000 for a note maturing May 1. debit Salaries Expense for $6.000. none of the above 3. what is the correcting entry? a. the income statement will over state expenses c. Your employer has a Monday–Friday workweek and distributes its $35.000 c. In 20X1. A calendar year company plans to pay its December gas bill in January. December 31 is a Thursday. credit Salaries Expense for $4.000 plus interest of 6% accrued annually. On March 1. debits Interest Expense for $200 d. debits Interest Expense for $400 b. the balance sheet will overstate assets b. no adjusting entry has been recorded.000 payroll each Friday. your calendar year company borrows $10.000 payroll each Friday. If you discover the error before the books are closed. understate both liabilities and expenses d. ComCo must repay the entire $20. December 31 is a Tuesday.000 d. Your employer has a Monday–Friday workweek and distributes its $20.000. On November 1. Interest Payable 600 Interest Expense 600 b.000 b. the balance sheet total will overstate liabilities 6. 20X5. At yearend 20X1. the balance sheet will overstate retained earnings 4. 20X4. Interest Expense 600 Testbank 5 . understate prepaid expenses c. 20X1. an adjusting entry accrues $550 interest expense.000. Your correcting entry will: a. If. Your company purchases $2. Failure to calculate and record interest expense owed on a note payable b. assets will be overstated c. debit Revenue for $5. booking it as prepaid insurance.Mastering Correction of Accounting Errors Interest Payable 600 c. none of the above Section 5CORRECTING CURRENT PERIOD DEFERRAL ERRORS 1. On March 31.000. 20X8. you discover that no adjusting entry was made to accrue interest for 20X4. a debit to Interest Payable for $400 b. debit Accounts Receivable for $6. you discover that the adjusting entry debited Insurance Expense and credited Prepaid Insurance for $5.000 job. credit Accounts Receivable for $5. 20X8.000 has been received by year end and credited to Revenue. If you discover before the books are closed that no adjusting entry was made.000 a year and pays the entire $15. none of the above 3.000 d. Your calendar year company completes a $6. Which of the following is a deferral error? a. Your correcting journal entry will: Testbank 6 . If the adjusting entry debits Supplies Expense and Supplies On Hand for $700: a. On November 1. Failure to book revenue earned but not received as of year end d.000 of supplies and books the amount as prepaid office supplies. Interest Expense 200 Interest Payable 200 d. a physical count shows $700 of supplies on hand. Failure to adjust Unearned Revenue at year end 2. when principal and accrued interest of 6% a year is due. on December 31.000 c. net income will be understated b. On December 31. Debiting Accounts Payable and crediting Revenue when billing a customer c. you will record an entry that includes: a. of which $1. a debit to Interest Expense for $200 c. 20X5. 20X4. At year end.000 b. DumpCo debits Cash and credits Notes Payable for $20. liabilities will be understated d.000 in advance. your calendar year company takes out a 3year insurance policy with a premium of $5. none of the above 8.000 for a note maturing on May 1. 20X4. Interest Expense 200 Interest Payable 200 7. your correcting entry will: a. a credit to Interest Payable for $400 d. none of the above Testbank 7 . At yearend 20X8.750 4. credit Insurance Expense for $1. assets will be overstated c. your calendar year company takes out a 3year insurance policy with a premium of $4.000 a year and pays the entire $12.Mastering Correction of Accounting Errors a.000 in advance.750 b. debit Prepaid Insurance for $5. 20X8. you discover that the adjusting entry debits Insurance Expense and credits Prepaid Insurance for $4.250 d. debit Insurance Expense for $3.000. If you do not correct this: a.000 c. booking it as prepaid insurance. net income will be understated b. credit Insurance Expense for $3. On March 31. liabilities will be understated d. 250 c. assets will be overstated b. credit to Supplies Expense for $600 d. no correcting entry is necessary 7. On July 1. recording them as assets.000 d. you discover the following adjusting entry: Rent Revenue 32.200.750 d. 20X8. debit Rent Received in Advance and credit Rent Revenue for $16. The correcting entry will: a. debit Rent Revenue and credit Rent Received in Advance for $16. Without a correcting entry: a. Without it: a. The yearend adjusting entry debits Supplies Expense and credits Supplies On Hand for $1.000 b.800 b. On December 31.200 of supplies on hand. On October 1. and books the amount as Rent Revenue. credit Rent Expense for $3. debit Rent Expense for $2. net income will be understated d. 20X8.000 for 2 years’ rent. 20X3. you discover that the adjusting entry debits Prepaid Rent and credits Rent Expense for $5. liabilities will be understated c. At year end. your calendar year company prepays $12. The correcting entry must: a. from November 1. you realize that no adjusting entry was recorded.400 for 12 months’ insurance. credit to Supplies On Hand for $600 c. debit Prepaid Rent for $1. 20X3 through March 31. your calendar year company pays $2. Your company purchases $3. recording the amount as an asset. At year end.000.000 6. 20X4. none of the above 9. you discover that the adjusting entry debits Rent Expense and credits Prepaid Rent for $1. 20X3.000 of supplies. On September 1. a physical count shows $1. On November 1.000 c.000 Rent Received in Advance 32. your calendar year company receives $40. debit Rent Received in Advance and credit Rent Revenue for $8.000 To correct this error you must: a.Mastering Correction of Accounting Errors 5.000. recording the entire $10.000 for space it is subletting for 5 months at $8. Just before closing the books.000 as an expense. your calendar year company prepays $10. debit to Supplies Expense for $1. net income will be overstated Testbank 8 .500 b. debit Rent Revenue and credit Rent Received in Advance for $8. none of the above 8.000 for 3 years’ rent and records the amount as an asset. At year end. 20X8.000 a month. 20X8. credit an expense account for $1. recording it as an expense.Mastering Correction of Accounting Errors b.200 for 12 months’ insurance. On November 1. debit an asset account for $200 Testbank 9 . Just before closing the books. credit an asset account for $1. liabilities will be overstated d.000 c. The correct entry must: a. assets will be understated c. you realize that no adjusting entry was made. debit an expense account for $200 d. your calendar year company pays $1.000 b. none of the above 10.
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