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The correct options of this multiple choice questions (mcq) are A, E, I, J and K, as the Contra Accounts decrease the values of these relevant accounts which are sales revenue, purchases, accounts receivable, fixed assets (non-current assets) and inventory here. These contra accounts have opposite balances of their relevant accounts. For example, sales revenue has credit balance while its contra revenue accounts have debit balances, so the contra revenue accounts decrease the value of sales revenue account in the income statement. The option A shows Sales Revenue which is recorded in Income Statement for the period. The contra revenue accounts for sales revenue are Sales returns & allowances and discounts which reduce the balance of sales revenue in Income Statement. The option E is also correct option as it shows purchases which decreases when purchases returns & allowances and purchases discounts are occurred, which are contra expense accounts and deducted from purchases...

The correct option of this multiple choice question (mcq) is D, as Retained Earnings are affected by Closing Entries. After the preparation of Adjusted Trial Balance, the closing entries are recorded to close all the Temporary Accounts (Revenues, Expenses, Dividends) and all the Permanent Accounts (Assets, Liabilities and Equity) are recorded in Post-Closing Trial Balance in order to transfer these accounts’ balances to the next accounting period. Net Income for the current accounting period and Dividends are transferred to Retained Earnings during closing entry process. Net income is added to opening retained earnings while dividends is deducted. If there is net loss, then it is deducted from beginning retained earnings. The final balance is ending retained earnings which is transferred to balance sheet under equity section. The option A i.e., Common Stock is not affected by closing entry process. It is an equity account which is transferred to post-closing trial balance. The o...

The correct option of this multiple choice question (mcq) is C, as the debit side of cash account, amounting to $3,000, is greater than the credit side of cash account, amounting to $1,800. The debit side is greater than credit side by $1,200 ($3,000 - $1,800). Actually, if the total of debit side or left side of an account is greater than the credit side or right side, then the resulted balance is called debit balance. Conversely, if the total of credit side is greater than the debit side of an account, then, there is a credit balance. Those accounts which have favorable debit balances are assets and expenses. Liabilities, equity and revenues have favorable credit balances. It is possible that assets have negative credit balances while liabilities also show negative debit balances under certain circumstances. For example, in case of Bank Overdraft i.e., if the company withdrew money than the amount deposited into the bank account, then, cash account shows credit balance. The exce...

The correct option of this multiple choice question (mcq) is "D" as proved below: Firstly, here we need to calculate Net Income, which is transferred to Retained Earnings Account (REA), and then the balance of REA after the posting of closing journal entries. We are given the following relevant information from the adjusted trial balance of a company / corporation: Service Revenue = $184 Commission Revenue = $28 Salaries And Wages Expense = $80 Travel Expense = $33 Opening Retained Earnings Or Retained Earnings Before Adjustments or before posting closing entries = $3,305 In closing entries, all the temporary accounts (revenue and expense accounts) are, finally, closed to Income Summary Account, which affects the REA also. All other accounts, which are shown in this adjusted trial balances are assets (cash, accounts receivable, inventory, prepaid rent and equipment), liabilities (accounts payable and unearned service revenue), equity account (retained earnings and commo...

Before answering this multiple choice question, let’s know little bit about accounting terms used in the formulas. Expenses: Expenses are the costs of doing business. Revenues: Revenues are income earned by the business by selling goods or services during the current accounting period. If the business makes revenues from its day-to-day activities, then the business is performing well during the period. Net Income It is the difference between revenues and expenses for the period. Retained Earnings: Earnings retained in the business to be used for purchasing assets, stabilizing & growing business, etc. Beginning Retained Earnings Earnings of the previous accounting period. Ending Retained Earnings These are earnings retained during the current accounting period. Dividends: Share of profits distributed to shareholders / stockholders of the company / corporation who invested into the business to get a share of returns on their investments. The correct option of this multiple cho...

The correct option of this multiple choice question is D, as Useful Life of patent can be shorter than legal life and over that period, the patent will provide economic benefits to the business by increasing its sales. Actually, the amortization on Patent is charged to expense over its useful life or legal life whichever is less. For example, if the legal life is 20 years but the useful life is 18 years, then it should be amortized over its useful life of 18 year during which it is valuable for the business and generate revenues for it. If the legal life is less than useful life, then it means that invention period is expired due to non-payment of periodic maintenance fees, which is paid for maintaining legal life of patent. In this case, amortized on patent is charged upto the legal life. The option A is not correct choice here as patent can’t be amortized exceeding the legal life. It is amortized over its useful or legal life whichever is less. The option B is also wrong choic...

Answers Of Three Questions Here, we need to calculate Amortization Expense (AE) for Patent and Franchise and then record the Adjusting Journal Entry for such expense for the year under three different scenarios. We also record Accumulated Amortization (AA) for these Intangible Assets which are Contra Assets Accounts and decrease the values of these kinds of intangible assets on balance sheet. 1.  A Patent With A 10-Year Remaining Legal Life Was Purchased For $350,000. The Patent Will Be Commercially Exploitable For Another Eight Years. Given: Useful Life = 8 Years (as the patent will be valuable in the market for 8 years, so useful life is revised by the company which is now 8 years instead of 10 years) Cost of Patent = $350,000 Salvage Value = $0 Required: Annual Amortization Expense (AAE) = ? Journal Entry To Record Expense = ? We know that: Annual Amortization Expense = Cost - Salvage Value / Useful Life = $350,000 - 0 / 8 = $43,750 Journal Entry:         ...