1. Panjim’s prepaid expense account consists only of garage rental prepayments. Its 2005 beginning and ending balance were the same. Which one of the following statements must be true?
• Panjim had no garage rental expenses during 2005
• Panjim’s prepaid expense account balance never varied during 2005
• Panjim’s prepaid expense account balance varied during 2005
• None of the above statements is true
2. Juan Foods purchases a computer system in 2005 for $20,000. Its expected useful life is 5 years. At the end of 2005, it has to record depreciation on the computer system of $2,000.
What is the correct journal entry to record the depreciation?
• Debit computer system $2,000; credit depreciation expense $2,000
• Debit accumulated depreciation $2,000; credit computer system $2,000
• Debit depreciation expense $2,000; credit accumulated depreciation $2,000
• Debit computer system $2,000; credit accumulated depreciation $2,000
3. Jackie’s Crafts is a successful retailer of fabric by the yard and other sewing supplies. If Jackie were to shut down the store, the bolts of fabrics and the bins of lace and trim, inventory valued at $20,000, on average, at any point in time, would have to be sold for about 10% of that value. But, Jackie’s accountant does not feel the need to reduce the value of the inventory on the books.
This is a reflection of the:
• Consistency concept
• Materiality concept
• Historical cost concept
• Going-concern concept
4. Weldon Engineering owes one of its creditors $20,000. To settle the debt, Weldon pays $5,000 cash and also issues common stock valued at $15,000 to the creditor.
How would this repayment of the $20,000 debt be recorded in Weldon’s books?
• Debit debt owed $20,000; credit cash $5,000; credit common stock $15,000
• Debit common stock $15,000; debit cash $5,000; credit debt owed $20,000
• Debit common stock $15,000; debit debt owed $5,000; credit cash $20,000
• Debit debt owed $5,000; credit cash $5,000