What body is primarily responsible for the statements which comprise GAAP? A) PCAOB B) FASB C) SEC D) AICPA REPEATED B Every transaction in the history of a company is reflected in the ending balance of the accounts on which statement? A) Statement of cash flows B) Statement of independence from taxation without representation C) Balance sheet D) Income statement REPEATED C Which of the following groups uses accounting information to determine whether the company can pay its obligations? A) Creditors C) Marketing managers B) Chief Financial Officer D) Investors in common stock A The group of users of accounting information charged with achieving the goals of the business is its A) creditors. B) auditors. C) investors. D) managers. REPEATED D What body is primarily responsible for the rules governing audits, those rules commonly referred to as GAAS? A) PCAOB B) SEC C) FASB D) AICPA D It was established in class that auditors lend credibility to financial statements. After completion of an audit, who has primary responsibility for the financial statements, and how much assurance does an auditor provide?

A) Management remains responsible and the auditors provide reasonable assurance in the form of an opinion. B) The auditors are primarily responsible but only provide reasonable assurance. C) The auditors are primarily responsible and provide positive assurance. D) Management remains responsible and the auditors provide absolute assurance. A Which of the following groups uses accounting information to determine whether the company's net income will result in a stock price increase? A) Marketing managers C) Chief Financial Officer B) Creditors D) Investors in common stock D The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) A) revenue. B) account payable. C) expense. D) account receivable. B Which group ultimately controls a company, and through what activity is this accomplished? A) The shareholders through dat to day decision-making B) The shareholders through voting C) The Board of Directors through appointment of management D) Management through day to day decision-making REPEATED B Current assets and current liabilities will be satisfied within: A) One year or the operating cycle, whichever is shorter B) One year C) The operating cycle

D) One year or the operating cycle, whichever is longer REPEATED D Which statement is true with respect to compliance with GAAP. A) A company must comply with GAAP only if they are required to by a user of their financial statements, such as public companies B) All companies incorporated in the United States of America must comply with GAAP C) A company need only comply with GAAP if they are a public company governed by the SEC D) No company must comply with GAAP REPEATED A The operating cycle of a company is the average time that is required to go from cash to A) cash in producing revenues. B) accounts receivable in producing revenues. C) sales in producing revenues. D) inventory in producing revenues A On a classified balance sheet, companies usually list current assets A) with the largest dollar amounts first. B) in the order in which they are expected to be converted into cash. C) in the order of acquisition. D) in alphabetical order. B Which of the following is not considered an asset? A) Dividends B) Accounts receivable C) Inventory D) Equipment A

Office equipment is classified on the balance sheet as A) property, plant, and equipment. C) a current asset. B) a long-term investment. D) an intangible asset A A current asset is A) expected to be converted to cash or used in the business within a relatively short period of time. B) usually found as a separate classification in the income statement. C) the last asset purchased by a business. D) an asset which is currently being used to produce a product or service. A We sell goods to customers and record revenue even though the cash has not been received. This is an example of where revenue has been _____ when the cash payment has not yet been_____. A) recognized and realized, respectively C) adjusted and collected, respectively B) realized and recognized, respectively D) given and taken, respectively A If services are rendered for cash, then A) stockholders' equity will decrease. B) assets will increase. C) liabilities will decrease. D) liabilities will increase. B An investment by the stockholders in a business increases A) assets and liabilities. C) assets and stockholders' equity. B) assets only. D) liabilities and stockholders' equity C

Who is the author of the following quote: "what we learn to do, we learn by doing" A) Aristotle B) Bell C) Anderson D) Armstrong A When collection is made on Accounts Receivable, A) total assets will increase. C) stockholders equity will increase. B) total assets will decrease. D) total assets will remain the same. D Which of the following items has no effect on retained earnings? A) Dividends B) Revenue C) Expense D) Land purchase D If total liabilities increased by $5,000, then A) assets must have increased by $5,000, or stockholders' equity must have decreasedby $5,000. B) assets and stockholders' equity each increased by $2,500. C) stockholders' equity must have increased by $5,000. D) assets must have decreased by $5,000. A Collection of a $600 Accounts Receivable A) decreases a liability $600; increases stockholders' equity $600. B) increases an asset $600; decreases an asset $600. C) decreases an asset $600; decreases a liability $600. D) increases an asset $600; decreases a liability $600. B On March 1, 2007, Dillon Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not? A) No, hiring an employee is an important event, however it is not an economic event that should be recorded.

B) Yes, failure to record the event would cause the financial statements to be misleading. C) No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known. D) Yes, the company is now obligated to pay the employee, thus that event must be recorded. A Effect on equity: REVENUE increases Effect on equity: EXPENSES decreases Effect on equity: DIVIDENDS decreases Effect on equity: PREPAID RENT (1ST) none Effect on equity: PAYING RENT ON 31ST decrease expense so decreases net income Effect on equity: RECEIPT OF NONREFUNDABLE DEPOSIT none Effect on equity: COLLECT ACCOUNTS RECIEVABLE none Effect on equity: NET INCOME increase Effect on equity: NET LOSS

decrease Effect on equity: TUITION none Effect on equity: INSURANCE EXPENSE decrease Under GAAP, revenue is recognized when it is __________ and expenses when they have been ___________.? earned, incurred Define asset probable future economic benefit as result of past transaction define liability probable future economic sacrifice as result of past transaction define equity assets - liabilities residual interest of owners If services are rendered for cash, then A) stockholders' equity will decrease. B) assets will increase. C) liabilities will decrease. D) liabilities will increase. B Journal Entry for : Sold common stock for $100,000 debit cash, credit common stock Journal entry for: Borrowed $200,000 from a bank debit cash, credit debt Journal entry for: Sold goods for $10,000 cash, which cost $7,000 debit cash, credit sales debit cogs, credit inventory

Which financial statement is used to determine cash generated from operations? A) retained earnings statement B) statement of cash flows C) income statement D) statement of operations B A list of accounts and their balances at a given time is called a(n) A) trial balance. B) journal. C) income statement. D) posting. A At December 31, 2007 Long Company had retained earnings of $1,092,000. During 2007 they issued stock for $49,000, and paid dividends of $17,000. Net income for 2007 was $201,000. The retained earnings balance at the beginning of 2007 was: A) $908,000 B) $957,000 C) $1,227,000 D) $1,276,000 A The sum of the debit account balances equals the sum of the credit account balances in the trial balance. This indicates that A) it is time to prepare the financial statements. B) the ledger accounts are error free. C) all transactions of the accounting period have been posted. D) the ledger accounts are in balance. D The going concern assumption is inappropriate when A) the business is organized as a proprietorship. B) market values are higher than costs.

C) the business is just starting up. D) liquidation appears likely. D An item is considered material if A) it is of a tangible good. B) the cost of reporting the item is greater than its benefits. C) it doesn't costs a lot of money. D) it is likely to influence the decision of an investor or creditor. D Which of the following statements is not true A) Accounting provides users with a mechanism for developing expectations about a company. B) Accounting reports activity which has already taken place. C) Accounting reports activity which will take place. D) Accounting is process which provides information useful for various decision makers. C The usual ordering of accounts in the general ledger is A) assets, liabilities, stockholders' equity, expenses, and revenues. B) liabilities, assets, stockholders' equity, revenues, and expenses. C) stockholders' equity, assets, liabilities, expenses, and revenues. D) assets, liabilities, stockholders' equity, revenues, and expenses. D Some critics of GAAP financial statements prepared on the accrual basis of accounting assert that net income is "paper income". What GAAP concept negates the merit of this claim? A) Statement of cash flows B) Statement of Retained Earnings C) Accrual basis of accounting D) Balance sheet A

If management is responsible to the Board of Directors, to whom is the Board of Directors accountable to, and what mechanism enables this accountability? A) The shareholders, through shareholder voting. B) "C" Level management through Board of Director voting C) The SEC through sanctions D) The FASB through rules enforcement A How can a company improve its current ratio? A) Use cash to reduce current liabilities B) Use excess cash to buy new equipment C) Work with a creditor to reclassify some current debt into long-term debt D) Nothing can ethically be done to improve the current ratio C The usual sequence of steps in the transaction recording process is: A) analyze → journalize → post to the ledger. B) journalize → post to the ledger → analyze. C) post to the ledger → journalize → analyze. D) journalize → analyze → post to the ledger. A The ACE Company has five plants nationwide that cost $300 million. The current market value of the plants is $500 million. The plants will be reported as assets at A) $500 million. B) $300 million. C) $200 million. D) $800 million. B At October 1, 2007, Deet Industries had an accounts payable balance of $30,000. During the month, the company made purchases on account of $25,000 and made payments on account of $40,000. At October 31, 2007, the accounts payable balance is A) $10,000 credit B) $40,000 credit

C) $30,000 debit D) $15,000 credit D Which of the following errors, each considered individually, would cause the trial balance to be out of balance? A) A transaction was not posted. B) A payment of $59 for supplies was posted as a debit of $95 to supplies and a credit of $95 to cash. C) A payment of $148 to a creditor was posted as a debit to accounts payable and a debit of $148 to cash. D) Cash received from a customer on account was posted as a debit of $350 to cash and as a credit of $350 to accounts payable. C The unearned revenue account is classified as a(n) A) revenue. B) liability. C) asset. D) expense. B In 2006 Bombay Corporation had cash receipts of $14,000 and cash disbursements of $8,000. Their ending cash balance at December 31, 2006 was $22,000. What was their beginning cash balance? A) $28,000 B) $16,000 C) $20,000 D) $30,000 B Valuing assets at their market value rather than at their cost is inconsistent with the: A) time period assumption. C) cost principle. B) full disclosure principle. D) economic entity assumption. C The historical cost basis of accounting implies that: A) The cost of an asset will be matched to the period the benefit is derived. B) Assets measured at historical cost are intended to be used, not sold.

C) Consistent and verifiable data is provided in a format that requires little to no judgment. D) All of these are true. D The right side of an account A) is the credit side. B) is the correct side. C) reflects all transactions for the accounting period. D) shows all the balances of the accounts in the system. A Management could determine the amounts due from customers by examining which ledger account? A) Accounts Payable C) Supplies B) Accounts Receivable D) Service Revenue B Which of the following is an asset? A) Supplies expense B) Service revenue C) Prepaid rent D) Notes payable C With respect to revenue recognition, which factor below is most relevant to determining when a revenue should be reported: A) Collection B) Earning C) Write-off D) Billing B Assumption that the company will continue in operation for the foreseeable future going concern assumption Made possible by using standardized accounting principle

comparability Choosing the option that is least likely to overstate assets and net income conservatism Using the same accounting methods year to year consistency Determining whether an item is large enough to influence decisions materiality Each economic entity can by separately identified and accounted for economic entity assumption Whether or not information can influence a decision relevance Which of the following would not be considered an internal user of accounting data for the XYZ Company? A) Production manager C) President of the company B) President of the employees' labor union D) Merchandise inventory clerk B Preparation of financial statements in accordance with GAAP is required.... A) For all companies B) For all companies whose users have required it C) For all public companies D) B and C D The statement of cash flows solves which of the following criticisms of the accrual basis of accounting? A) Paper income B) Income C) Operating income D) Net income A

When Bob Anderson in class keeps saying that GAAP "levels the playing field", which attribute of GAAP most closely is associated with this statement? A) Consistency/ Comparability C) Conservatism B) Compatibility D) Completeness A Accounting is a process of doing three principal things, which item below is NOT one of them A) Communicating B) Identifying C) Validating D) Measuring C The historical cost principal is one which results in: A) Textbooks for students B) More information C) Less information but more consistent reporting D) Inflated balance sheets C At January 31, 2001, the balance in Prieto Inc,'s supplies account was $250. During February. Prieto purchased supplies of $300 and used supplies of $400. At the end of February, the balance in the supplies account should be A) $950 debit. B) $250 debit. C) $150 debit D) $350 credit. C If a company buys a $700 machine on credit, this transaction will affect the: A) balance sheet only. B) income statement and retained earnings statement only. C) income statement only.

D) income statement, retained earnings statement, and balance sheet. A Which of the following is not classified properly as a current asset? A) A receivable from the sale of an asset to be collected in two years B) Supplies C) Marketable securities D) A fund to be used to purchase a building within the next year A Which of the following is a limitation of the corporate form of ownership? A) Ease of raising capital C) Dual taxation B) Personal liability D) Ease of ownership transfer C Collecting an open account receivable should have what impact on income? none Paying an open account payable should have what impact on income? none Recording an expense in the period when the benefit is derived is a fundamental GAAP process of _______________. matching The purchase of an asset on credit A) leaves total assets unchanged. B) decreases assets and increases liabilities. C) increases assets and stockholders' equity. D) increases assets and liabilities. D Which of the following is a measure of liquidity?

A) Profit margin C) Working capital B) Debt to equity ratio D) Earnings per share C The relationship between current assets and current liabilities is important in evaluating a company's A) liquidity. B) market value. C) solvency. D) profitability. A If services are rendered for cash, then A) stockholders' equity will decrease. C) liabilities will increase. B) liabilities will decrease. D) assets will increase. D Accounting is a process designed to do all of the following relative to econcomic information, except: a. project c. communicate b. identify d. measuer a Which of the following statements is true? a. Profits distributed to the owners are called dividends. b. The income statement shows the assets, liabilities, and profits of a company. c. Dividends are an expense and are reported on the income statement as a deduction from net income. d. The income statement reports the cash deposits and cash withdrawals. a The preparation of financial statements require that the information be understandable a. only to those with a Ph.D. in accounting or a CPA. b. to those willing to spend the time to understand it. c. only to those who take an accounting course. d. only to financial analysts. b

Which of the following categories on a statement of cash flows is used to report the cash flow effects of buying and selling long-term assets? a. Operating activities b. Investing activities c. Financing activities d. Both financing and investing activities B Which set of the following accounts normally would be reported as current liabilities on a classified balance sheet? a. Accounts payable and Bonds payable b. Interest payable and Mortgage payable c. Income taxes payable and Salaries payable d. Capital stock and Accounts payable C Information that is material means that an error or alternative method of handling a transaction a. would possibly affect the judgment of someone relying on the financial statements. b. would not affect the decisions of users. c. might cause a company to understate its earnings for the accounting period. d. could increase the profitability of a company. a The declaration that the financial statements "in our opinion, present fairly the financial position, operating results, and cash flows, in conformity with generally accepted accounting principles" would be found in which of the following parts of an annual report? a. Balance Sheet b. Management Discussion and Analysis c. Notes to Financial Statements d. Auditors' Report D

Which of the following is a correct expression of one of the three basic financial statement models? a. Assets - Liabilities = Net income b. Assets - Liabilities = Owners' equity c. Revenues + Expenses = Net income d. Beginning retained earnings + Net income + Dividends = Ending retained earnings B One significant difference between a classified and a non-classified balance sheet is the distinction between a. economic resources (assets) and the sources of the assets (liabilities and owners' equity). b. current and noncurrent items. c. liabilities and owners' equity. d. resources invested by owners and resources earned from revenue activities. B XYZ, Inc. paid $12,000 on January 1, 2004 for an insurance policy covering the period from January 1 through December 31, 2004. The following amounts should be reflected on their balance sheet as of July 31, 2004 and as an expense on the income statement for the 7 months ended July 31, 2004, respectively: a. $5,000 asset and $7,000 expense c. $12,000 asset and no expense b. $12,000 asset and $7,000 expense d. No asset and $12,000 expense A The financial statement which reports changes in all components of stockholders' equity is the a. Statement of Retained Earnings. b. Balance Sheet. c. Cash Flow Statement. d. Statement of Stockholders' Equity D Premiums Received in Advance for the ABC Insurance Company are considered

a. assets. b. liabilities. c. stockholders' equity. d. revenues. B Financial statements seek to reflect information which is both: a. relevant and recordable c. collectible and conservative b. relevant and reliable d. none of the above B T/F While the balance sheet presents a company's financial position as of a specified date, the income statement presents the results of their operations for a specified period of time. T t/f In order to qualify as an S-Corporation, a business entity shall have less than 150 employees. F, less than 75 Borrowing and repayment of debt, and buying and selling an enterprises own stock are examples of _____ activities. financing GAAP records transactions in a fashion which attempts to reflect the substance of the transaction. The timing of such recordation may not reflect the time at which cash is received or paid. This basis of accounting is the _______ basis of accounting. accrual When preparing financial statements, assets and liabilities are not valued at their liquidation values because they are not assumed to be liquidated within the next year. This assumption is known as: going concern

Assets are recorded at the value originally paid and not adjusted upward for increases in their fair-value. historical cost GAAP requires that contingent losses be immediately recorded. This is because of this constraint. conservatism A Company may elect to not present certain financial information because the benefit of the additional information would not impact the decision-making of a reasonably informed financial statement user. This is because of the principle of ________. materiality Another term for the balance sheet is a statement of ____________ ____________. financial position Borrowing and repayment of debt and purchases of fixed assets, respectively, would be presentd in the statement of cash flows in the following sections: a. Operating and Investing, respectively c. Operating and trading, respectively b. Investing and Financing, respectively d. Financing and investing, respectively D Which of the following types of entities is/ are not subject to "dual taxation"? a. S-corporations c. Partnerships b. Corporations d. Both partnerships and S-corporations d Various information is presented in annual reports to shareholders. Which of the following information is required under generally accepted accounting principles? a. Basic financial statements c. Management's discussion and analysis b. Notes to the financial statements d. Both a and b d

Some critics of accrual accounting argue that it results in "paper income". What ammunition does a basic set of GAAP financial statements have to counter this claim? a. Statement of retained earnings c. Statement of fairness b. Statement of cash flows d. Statement of homeland security b Webuffyouout is a new gym and they sell a lifetime membership for $100 with a monthly fee of $10. The lifetime membership and first month fee of $110 are collected on the date a new member signs up and are non-refundable. Under GAAP accounting, how much revenue would be shown on the day that a new member signs up? a. $110 c. $0 b. $100 d. $5,243.56 c On January 1, 2006 you paid $1,200 for automobile insurance coverage for the year ending December 31, 2006. As of March 31, 2006 how much expense should be reflected on your GAAP income statement for the three month period? a. $0 c. $1,200 b. $300 d. $600 b Has oversight and regulatory responsibility for "public" companies. SEC GAAP seeks to ensure that information in different periods and among different companies is accounted for the same. comparable/consistent Income statement information would be most relevant to. investors

Information about fair value may threaten reliability, but would constitute more ________ information to a user of financial statements. relevant A measure of an entity's liquidity. current ratio A seemingly small dollar amount may be deemed material based on this characteristic qualitative While historical cost may be less relevant to users, it is a component of the GAAP framework because it is more ________. reliable gross profit margin ratio gross profit / sales A/R turnover ratio & days sales sales / avg AR inventory turnover ratio COGS / avg I operating cycle in days AR + inventory Which of the following is not an external user of financial information? a. Company management b. The Internal Revenue Service c. Stockholders d. Creditors a An organization that provides a loan to a business entity and expects repayment of the funds is referred to as a(n): a. partner. b. stockholder.

c. owner. d. creditor. d Which of the following is not one of the three activities included in the definition of accounting? a. Communicating b. Operating c. Identifying d. Measuring b Which of the following statements is true concerning assets? a. Assets are recorded at cost and adjusted for inflation. b. Assets are recorded at market value for financial reporting because historical cost is arbitrary. c. Accounting principles require that companies report assets on the income statement. d. Assets are measured using the cost concept. d Carson Associates purchased land for $1,200,000 in 1982. In 2004, the land was appraised at $1,795,000. The land would appear on the company's books in 2004 at a. $595,000. b. $2,995,000. c. $1,795,000. d. $1,200,000. d The quality of accounting information which allows comparisons to be made between two different companies is a. consistency. b. neutrality. c. comparability. d. understandability c The consistency convention refers to the consistent use of accounting principles a. among competitors. b. such that once a principle is adopted changes can never be

made. c. between accounting periods within the company. d. within all countries. c Premiums Received in Advance for the ABC Insurance Company are considered a. assets. b. liabilities. c. stockholders' equity. d. revenues. b Which of the following categories on a statement of cash flows is used to report the cash flow effects of buying and selling long-term assets? a. Operating activities b. Investing activities c. Financing activities d. Both financing and investing activities b Which of the following categories on a statement of cash flows is used to report the cash flow effects of transactions involving long-term debt and the company's stock? a. Operating activities b. Investing activities c. Financing activities d. Profit activities c Which one of the following statements is true? a. External events (transactions) involve interactions between an entity and a party outside the entity. b. Every event or transaction which affects an entity is identified from a source document. c. All economic events can be reliably measured. d. The transfer of raw material into production is an external event. a

Which of the following is an internal event (transaction)? a. Life guard salaries are paid by a swim club. b. Dividends are distributed to shareholders. c. Eggs used to make omelets in a restaurant are purchased. d. Potato chips are transferred from the production line to the packaging area d All of the following events (transactions) would be identified from standard source documents except for a. freight charges for merchandise purchased from suppliers. b. the amount to be paid to settle a lawsuit for discrimination in hiring employees. c. wages to be paid to hourly employees. d. commissions earned by sales employees. b The payment of employee salaries has what effect on the accounting equation? a. Assets decrease and owners' equity decrease b. Liabilities decrease and owners' equity decreases c. Assets decrease and liabilities increase d. Assets increase and liabilities decrease a During May, Lewis, Inc. purchased office supplies for cash. The supplies will be used in June. What effect does this transaction have on the accounting equation? a. Assets increase and owners' equity decreases b. Assets increase and assets decrease c. Assets increase and liabilities increase d. Assets decrease and liabilities decrease b The following lists items of financial information presented to users of financial information: 1. Management's discussion and analysis 2. Balance sheet 3. Income statement 4. Letter to the shareholders 5. Statement of cash flows 6. Summary financial information

7. Notes to financial statements 8. Press release 9. Statement of stockholders equity (or retained earnings) Using the numbers above, which answer below lists the items required to be included in financial statements prepared in accordance with GAAP? 2,3,5,7,9 Which of the following groups uses accounting information to determine whether the company can pay its obligations? A) Creditors C) Marketing managers B) Chief Financial Officer D) Investors in common stock a What body is primarily responsible for the rules governing audits, those rules commonly referred to as GAAS? A) PCAOB B) SEC C) FASB D) AICPA D The operating cycle of a company is the average time that is required to go from cash to A) cash in producing revenues. B) accounts receivable in producing revenues. C) sales in producing revenues. D) inventory in producing revenues. a We sell goods to customers and record revenue even though the cash has not been received. This is an example of where revenue has been _____ when the cash payment has not yet been_____. A) recognized and realized, respectively C) adjusted and collected, respectively B) realized and recognized, respectively D) given and taken, respectively a

If services are rendered for cash, then A) stockholders' equity will decrease. C) liabilities will decrease. B) assets will increase. D) liabilities will increase. b An investment by the stockholders in a business increases A) assets and liabilities. C) assets and stockholders' equity. B) assets only. D) liabilities and stockholders' equity c 3 processes of Accounting identifying, measuring, communicating kind of financial statement: How did we do: For a stated period; Accrual basis; income statement Rolls forward retained earnings and other EQUITY activity: For a stated period. statement of stockholders eq Where did the cash come from and where did it go: Activities impacting cash; broken into activities...the "three buckets" (1) operating (2) investing (3) financing It's like a cash basis income statemen statement of cash flows T/F Accounting is important for markets, free enterprise, and competition because it assists in providing information that leads to capital allocation.

1. Jones Dairy purchased a new milking machine for $40,000 cash. To record the transaction on Jones' books, you would: a. debit an asset account and credit an asset account.

b. debit an asset account and credit a liability account. c. debit an asset account and debit a liability account. d. debit an asset account and credit owner's equity. a. debit an asset account and credit an asset account.

2. Rent Expense typically would have: a. a debit balance. b. a credit balance. c. a zero balance. d. no entries since expenses don't go on the balance sheet. a. a debit balance.

3. If the beginning balance in the Machinery account is $35,000, and if the ending balance in the Machinery account is $57,000, then: a. $22,000 of machinery was sold. b. $22,000 of machinery was purchased. c. the market value of machinery was $57,000 at year-end. d. purchases and sales of machinery cannot be determined from the information given. d. purchases and sales of machinery cannot be determined from the information given.

4. A double-entry system of accounting requires that each transaction or event be recorded: a. as an increase or decrease to stockholders' equity. b. in at least two different financial statements. c. in at least two different accounts. d. in two different types of accounts (e.g., an asset and a liability; an asset and a revenue, etc.).

c. in at least two different accounts.

5. After the adjusting entries have been posted to the unadjusted trial balance, the adjusted trial balance is then used to: a. Make the journal entries. b. Post the journal entries. c. Prepare the financial statements. d. Make the adjusting journal entries. c. Prepare the financial statements.

6. At the end of an accounting period when accounts are ready to be closed, which of the following activities must be performed? a. Make adjusting entries b. Make closing entries c. Prepare post closing trial balance d. (b) and (c) d. (b) and (c)

7. The Prepaid Insurance account has an account balance of $3,000. At the end of an accounting period, the controller has decided that $2,000 of the balance has expired. Which of the following adjusting entries should be made? a. Prepaid Insurance 2,000 Insurance Expense 2,000 b. Insurance Expense 2,000 Prepaid Insurance 2,000 c. Prepaid Insurance 1,000 Insurance Expense 1,000 d. Insurance Expense 1,000 Prepaid Insurance 1,000 b. Insurance Expense 2,000 Prepaid Insurance 2,000

8. Gross profit is calculated by: a. subtracting total expenses from total revenues. b. subtracting cost of goods sold from net sales. c. subtracting the ending inventory from cost of goods sold. d. adding cost of goods sold to net sales. b. subtracting cost of goods sold from net sales.

9. The Income Statement is the ___________ financial statement prepared: a. first b. second c. third d. fourth a. first

10. Cramer Corp. reported the following for 2012: total assets, $90,000; total liabilities, $35,000; common stock, $40,000. Therefore, retained earnings was: a. $5,000 b. $40,000 c. $20,000 d. $15,000 d. $15,000

11. Which of the following would not be considered a current asset? a. Inventories b. Prepaid expenses c. Long-term Investments d. Accounts receivable due in 6 months c. Long-term Investments

12. In a Classified Balance Sheet, the current assets are listed a. in alphabetical order b. in descending order by amount c. in any order d. according to how readily each asset can be converted into cash d. according to how readily each asset can be converted into cash

13. Assume that Jones Company purchased $100 of inventory on credit. If Jones Company uses the Periodic Inventory system the journal entry to record this purchase would be: a. Purchases 100 Accounts Payable 100 b. Purchases 100 Cash 100 c. Inventory 100 Accounts Payable 100 d. Inventory 100 Cash 100 a. Purchases 100 Accounts Payable 100

14. Jones Company began the year with $100 of merchandise inventory. During the year Jones purchased inventory that cost $200 and also paid $15 of freight costs on the purchased inventory. At the end of the year Jones Company determined that the cost of its ending inventory was $50. Given these facts Jones should report cost of goods sold totaling: a. $50 b. $200 c. $215 d. $265 d. $265

15. A financial statement that reports accounting data at a specific date is the a. balance sheet. b. retained earnings statement. c. income statement. d. statement of cash flows. a. balance sheet.

16. GAAP refers to a. General Accounting and Auditing Principles. b. Guidelines for American Accounting Procedures. c. General Association of Accounting Practitioners. d. Generally Accepted Accounting Principles. d. Generally Accepted Accounting Principles.

17. If total liabilities decreased by $30,000 during a period of time and owners equity increased by $35,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a: a. $65,000 increase. b. $5,000 increase. c. $5,000 decrease. d. $65,000 decrease. b. $5,000 increase.

18. Current assets are listed a. alphabetically. b. by importance. c. by longevity.

d. by liquidity (how readily they can be converted to cash). d. by liquidity (how readily they can be converted to cash).

19. The Retained Earnings account had a beginning balance of $60,000 and an ending balance of $70,000. If $20,000 of dividends were declared and paid during the period, net income must have been a. $20,000. b. $30,000. c. $10,000. d. $50,000. b. $30,000.

20. The Accumulated Depreciation account is a(n) a. contra asset. b. liability. c. asset. d. operating expense. a. contra asset.

21. For which of the following types of adjusting entries are liabilities overstated and revenues understated before the adjusting entry is made? a. Unearned Revenues b. Accrued Revenues c. Prepaid Expenses d. Accrued Expenses a. Unearned Revenues

22. A credit will reduce ________, but increase ________. a. accounts receivable; accounts payable

b. expenses; accounts receivable c. accounts payable; common stock d. common stock; prepaid insurance a. accounts receivable; accounts payable

23. The book value of a depreciable asset is defined as the asset's a. cost less accumulated depreciation. b. current market value. c. replacement cost. d. cost. a. cost less accumulated depreciation.

24. A business pays weekly salaries of $15,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Thursday is: a. debit Salaries Payable, $12,000; credit Cash $12,000. b. debit Salaries Expense, $12,000; credit Cash $12,000. c. debit Salaries Expense, $12,000; credit Accounts Payable $12,000. d. debit Salaries Expense, $12,000; credit Salaries Payable $12,000. d. debit Salaries Expense, $12,000; credit Salaries Payable $12,000.

25. A company received $10,000 for services the company will perform in the future. At the time the cash is received, the company records the following journal entry: a. Cash 10,000 Service Revenue 10,000 b. Cash 10,000 Accounts Receivable 10,000 c. Cash 10,000 Unearned Revenue 10,000

d. Accounts Receivable 10,000 Service Revenue 10,000 c. Cash 10,000 Unearned Revenue 10,000

26. Credit terms of 3/10, n/30 mean that a(n) a. 10% cash discount may be taken if payment is made immediately; a 3% discount if paid within 30 days. b. 3% cash discount may be taken if payment is made within 10 days of the invoice date; otherwise the full amount is due within 30 days. c. 3% cash discount may be taken if payment is made within 10 days of the invoice date; otherwise the full amount is due at the end of the month. d. additional amount equal to 3% of the invoice price must be paid if payment is not received within 10 days; the account is overdue after 30 days. b. 3% cash discount may be taken if payment is made within 10 days of the invoice date; otherwise the full amount is due within 30 days.

27. A periodic inventory system a. allows for the determination of cost of goods sold after each sale. b. requires a physical inventory count to determine the cost of goods on hand. c. maintains a current balance of the cost of goods on hand at all times d. requires the use of a cost of goods sold account. b. requires a physical inventory count to determine the cost of goods on hand.

28. In accordance with the revenue recognition principle, sales revenues are recorded when a. earned, which typically occurs when services have been performed, or the goods have been transferred from the seller to the buyer. b. cash is received from the customer for items already delivered. c. an order is received from a customer with delivery of the product expected to take place within the next 30 days.

d. the accountant determines which period's income statement "needs" more revenue. a. earned, which typically occurs when services have been performed, or the goods have been transferred from the seller to the buyer.

29. Freight-in is included _______________? a. In the cost of inventory b. in selling expenses c. Property, Plant and Equipment d. in administrative expenses a. In the cost of inventory

30. Freight terms of FOB destination point mean that the a. buyer must bear the freight costs. b. seller must bear the freight costs. c. goods are placed free on board at the buyer's place of business. d. it is not decided who will pay the freight costs. b. seller must bear the freight costs.

31. Freight-out, the cost of shipping sold goods to the customer, is treated as a(an): a. inventoriable cost. b. selling expense. c. cost of goods sold. d. insignificant cost not worth recording. b. selling expense.

32. The Sales Returns and Allowances account a. normally has a credit balance. b. should not be closed at the end of the period.

c. is a contra account to Accounts Receivable. d. is a contra Sales account. d. is a contra Sales account.

33. A company prepares its adjusting journal entries at the end of the accounting period. All of the following could be true concerning these entries except a. An Unearned Revenue gave rise to one of the adjusting journal entries. b. A Prepaid Expense gave rise to one of the adjusting journal entries. c. Some of the adjusting journal entries have a debit or credit to Cash. d. Accrued Expenses gave rise to one of the adjusting journal entries. c. Some of the adjusting journal entries have a debit or credit to Cash.

34. On 6/1/2010, ABC Co. pays $12,000 for Prepaid Insurance to insure its delivery trucks for the next 10 months. For June 2010, which of the following adjusting journal entries should be made? a. Prepaid Insurance 2,000 Insurance Expense 2,000 b. Insurance Expense 2,000 Prepaid Insurance 2,000 c. Prepaid Insurance 1,200 Insurance Expense 1,200 d. Insurance Expense 1,200 Prepaid Insurance 1,200 d. Insurance Expense 1,200 Prepaid Insurance 1,200

35. Diner Company's ending inventory is understated by $3,000. The effect of this error on the current year's cost of goods sold and net income, respectively, are: a. overstated and understated. b. overstated and overstated. c. understated and overstated.

d. understated and understated. a. overstated and understated.

36. Given the following information, compute the amount of cash finally remitted by the customer. Feb. 22—Sale on credit, terms of 2/10, n/30—$3,000 Feb. 27—Allowance of $400 granted due to some items being damaged Feb. 28—Payment in full received from customer—$? a. $2,600 b. $2,940 c. $2,548 d. $2,522 c. $2,548 A:(3,000 - 400 = 2,600; 2,600 * .02 = 52; 2,600 - 52 = 2,548)

37. Which of the following is the most appropriate and modern definition of accounting? a. The information system that identifies, records, and communicates the economic events of an organization to interested users b. A means of collecting information c. The interconnected network of subsystems necessary to operate a business d. Electronic collection, organization, and communication of vast amounts of information. a. The information system that identifies, records, and communicates the economic events of an organization to interested users

38. The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n) a. account payable. b. account receivable. c. revenue.

d. expense. a. account payable.

39. The right to receive money in the future is called a(n) a. account payable. b. account receivable. c. liability. d. revenue. b. account receivable.

40. The common characteristic possessed by all assets is a. long life. b. great monetary value. c. tangible nature. d. future economic benefit. d. future economic benefit.

41. The best definition of assets is the a. cash owned by the company. b. collections of resources belonging to the company and the claims on these resources. c. Owners' investment in the business. d. resources belonging to a company have future benefit to the company. d. resources belonging to a company have future benefit to the company.

42. Dividends are reported on the a. Income Statement b. Statement of Retained Earnings

c. Balance Sheet d. None of the above b. Statement of Retained Earnings

43. The financial statement that summarizes the changes in retained earnings for a specific period of time is the a. balance sheet. b. income statement. c. statement of cash flows. d. Statement of Retained Earnings d. Statement of Retained Earnings

44. To show how successfully your business performed (performance) during a period of time, you would report its revenues and expense in the a. balance sheet. b. income statement. c. statement of cash flows. d. retained earnings statement. b. income statement.

45. Retained earnings at the end of the period is equal to a. retained earnings at the beginning of the period plus net income minus liabilities. b. retained earnings at the beginning of the period plus net income minus dividends. c. net income. d. assets plus liabilities. b. retained earnings at the beginning of the period plus net income minus dividends.

46. An income statement

a. summarizes the changes in retained earnings for a specific period of time. b. reports the changes in assets, liabilities, and stockholders' equity over a period of time. c. reports the assets, liabilities, and stockholders' equity at a specific date. d. presents the revenues and expenses for a specific period of time. d. presents the revenues and expenses for a specific period of time.

47. If the retained earnings account increases from the beginning of the year to the end of the year, then a. net income is less than dividends. b. a net loss is less than dividends. c. additional investments are less than net losses. d. net income is greater than dividends. d. net income is greater than dividends.

48. Which financial statement is prepared first? a. Balance sheet b. Income statement c. Retained earnings statement d. Statement of cash flows b. Income statement

49. An income statement shows a. revenues, liabilities, and stockholders' equity. b. expenses, dividends, and stockholders' equity. c. revenues, expenses, and net income. d. assets, liabilities, and stockholders' equity. c. revenues, expenses, and net income.

50. In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement? a. I've been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets. b. You are right. Revenues and expenses are shown on the income statement. Dividends are a cost of generating revenues and that makes them an expense. c. Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement. d. Dividends are deducted from retained earnings on the balance sheet. c. Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement.

51. Benson Company began the year with retained earnings of $175,000. During the year, the company recorded revenues of $250,000, expenses of $190,000, and paid dividends of $20,000. What was Benson's retained earnings at the end of the year? a. $255,000 b. $215,000 c. $405,000 d. $235,000 b. $215,000

52. Which of the following is not a satisfactory statement of the accounting equation? a. Assets = Stockholders' Equity - Liabilities. b. Assets = Liabilities + Stockholders' Equity. c. Assets - Liabilities = Stockholders' Equity. d. Assets - Stockholders' Equity = Liabilities. a. Assets = Stockholders' Equity - Liabilities.

Benny's Repair Shop started the year with total assets of $100,000 and total liabilities of $80,000. During the year the business recorded $210,000 in revenues, $110,000 in expenses, and dividends of $20,000.

53. Stockholders' equity at the end of the year was a. $120,000. b. $100,000. c. $80,000. d. $90,000. b. $100,000.

Benny's Repair Shop started the year with total assets of $100,000 and total liabilities of $80,000. During the year the business recorded $210,000 in revenues, $110,000 in expenses, and dividends of $20,000. 54. The net income reported by Benny's Repair Shop for the year was a. $80,000. b. $100,000. c. $60,000. d. $190,000. b. $100,000.

55. If total liabilities decreased by $15,000 and stockholders' equity decreased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period? a. $20,000 increase b. $10,000 decrease c. $20,000 decrease d. $10,000 decrease c. $20,000 decrease

56. The balance sheet a. summarizes the changes in retained earnings for a specific period of time.

b. reports the changes in assets, liabilities, and stockholders' equity over a period of time. c. reports the assets, liabilities, and stockholders' equity at a specific date (financial position). d. presents the revenues and expenses for a specific period of time. c. reports the assets, liabilities, and stockholders' equity at a specific date (financial position).

57. Common stock is reported on the a. statement of cash flows. b. retained earnings statement. c. income statement. d. balance sheet. d. balance sheet.

58. Stockholders' equity is comprised of a. common stock and dividends. b. common stock and retained earnings. c. dividends and retained earnings. d. net income and retained earnings. b. common stock and retained earnings.

59. Retained earnings is a. the stockholders' claim on total assets. b. equal to cash. c. equal to revenues. d. the amount of net income kept in the corporation for future use. d. the amount of net income kept in the corporation for future use.

Carter Company compiled the following financial information as of 12/31/2012: Revenues $140,000 Common stock 30,000 Equipment 40,000 Expenses 125,000 Cash 35,000 Dividends 10,000 Supplies 5,000 Accounts payable 20,000 Accounts receivable 15,000 Retained earnings, 1/1/2012 75,000 60. Carter's assets on December 31, 2012 are: a. $235,000 b. $170,000 c. $ 80,000 d. $ 95,000 d. $ 95,000

Carter Company compiled the following financial information as of 12/31/2012: Revenues $140,000 Common stock 30,000 Equipment 40,000 Expenses 125,000 Cash 35,000 Dividends 10,000 Supplies 5,000 Accounts payable 20,000 Accounts receivable 15,000 Retained earnings, 1/1/2012 75,000 61. Carter's retained earnings on December 31, 2012 are: a. $75,000 b. $90,000 c. $80,000 d. $ 5,000 c. $80,000

Carter Company compiled the following financial information as of 12/31/2012: Revenues $140,000 Common stock 30,000 Equipment 40,000 Expenses 125,000 Cash 35,000 Dividends 10,000 Supplies 5,000 Accounts payable 20,000 Accounts receivable 15,000 Retained earnings, 1/1/2012 75,000 62. Carter's stockholders' equity on December 31, 2007 is: a. $105,000 b. $110,000 c. $ 80,000 d. $120,000 b. $110,000

63. A company's annual Financial Statements include all of the following except a. the "Management Discussion and Analysis" section (called "MDA"). b. notes to the financial statements. c. the independent auditor's report. d. a list of the names and salaries of every employee who works for the company. d. a list of the names and salaries of every employee who works for the company.

64. Examples of Intangible Assets include all of the following except: a. Trademarks b. Copyrights c. Unearned Revenues d. Franchises c. Unearned Revenues

65. In a classified balance sheet, assets are usually classified as: a. current assets; long-term assets; property, plant, and equipment; and intangible assets. b. current assets; long-term investments; property, plant, and equipment; and common stocks. c. current assets; long-term investments; tangible assets; and intangible assets. d. current assets; long-term investments; property, plant, and equipment; and intangible assets. d. current assets; long-term investments; property, plant, and equipment; and intangible assets.

66. An intangible asset a. derives its value from the rights and privileges it provides the owner. b. is worthless because it has no physical substance. c. is converted into a tangible asset during the operating cycle. d. cannot be classified on the balance sheet because it lacks physical substance. a. derives its value from the rights and privileges it provides the owner.

67. Which of the following is not considered an asset? a. Equipment b. Dividends c. Accounts receivable d. Inventory b. Dividends

68. Trademarks would appear in which balance sheet section? a. Intangible assets b. Investments c. Property, plant, and equipment

d. Current assets a. Intangible assets

69. Liabilities are generally classified on a balance sheet as a. small liabilities and large liabilities. b. present liabilities and future liabilities. c. tangible liabilities and intangible liabilities. d. current liabilities and long-term liabilities. d. current liabilities and long-term liabilities.

70. Which of the following is not a current liability? a. Wages payable b. Accounts payable c. Taxes payable d. Bonds payable d. Bonds payable

71. On a classified balance sheet, companies usually list current assets a. in alphabetical order. b. with the largest dollar amounts first. c. in the order in which they are expected to be converted into cash. d. in the order of acquisition. c. in the order in which they are expected to be converted into cash.

Benton Office Supplies Balance Sheet December 31, 2007 Cash $ 65,000 Accounts Payable $ 70,000 Prepaid Insurance 30,000 Salaries Payable 10,000

Accounts Receivable 50,000 Mortgage Payable 90,000 Inventory 70,000 Total Liabilities $160,000 Land held for investment 75,000 Land 90,000 Building $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 Depreciation (20,000) 80,000 Total stockholders' equity $370,000 Trademark 70,000 Total Liabilities and Total Assets $530,000 Stockholders' Equity $530,000 72. The total dollar amount of assets to be classified as current assets is a. $290,000. b. $215,000. c. $180,000. d. $145,000. b. $215,000.

Benton Office Supplies Balance Sheet December 31, 2007 Cash $ 65,000 Accounts Payable $ 70,000 Prepaid Insurance 30,000 Salaries Payable 10,000 Accounts Receivable 50,000 Mortgage Payable 90,000 Inventory 70,000 Total Liabilities $160,000 Land held for investment 75,000 Land 90,000 Building $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 Depreciation (20,000) 80,000 Total stockholders' equity $370,000 Trademark 70,000 Total Liabilities and Total Assets $530,000 Stockholders' Equity $530,000 73. The total dollar amount of assets to be classified as property, plant, and equipment is a. $320,000. b. $170,000. c. $245,000.

d. $190,000. b. $170,000.

Benton Office Supplies Balance Sheet December 31, 2007 Cash $ 65,000 Accounts Payable $ 70,000 Prepaid Insurance 30,000 Salaries Payable 10,000 Accounts Receivable 50,000 Mortgage Payable 90,000 Inventory 70,000 Total Liabilities $160,000 Land held for investment 75,000 Land 90,000 Building $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 Depreciation (20,000) 80,000 Total stockholders' equity $370,000 Trademark 70,000 Total Liabilities and Total Assets $530,000 Stockholders' Equity $530,000 74. The total dollar amount of assets to be classified as investments is a. $0. b. $150,000. c. $75,000. d. $180,000. c. $75,000.

Benton Office Supplies Balance Sheet December 31, 2007 Cash $ 65,000 Accounts Payable $ 70,000 Prepaid Insurance 30,000 Salaries Payable 10,000 Accounts Receivable 50,000 Mortgage Payable 90,000 Inventory 70,000 Total Liabilities $160,000 Land held for investment 75,000 Land 90,000 Building $100,000 Common Stock $120,000 Less Accumulated Retained Earnings 250,000 Depreciation (20,000) 80,000 Total stockholders' equity $370,000 Trademark 70,000 Total Liabilities and

Total Assets $530,000 Stockholders' Equity $530,000 75. Total Current Assets less total Current Liabilities equals: a. $135,000. b. $295,000. c. $75,000. d. $60,000. a. $135,000.

76. ABC Corporation has total assets of $1.35 million, common stock of $351,000, and retained earnings of $214,000. What are the creditors' claims on total assets? a. $1,213,000 b. $ 565,000 c. $ 785,000 d. $1,487,000 c. $ 785,000 Solution:(1,350,000 - 351,000 - 214,000)

77. Generally accepted accounting principles a. are accounting rules formulated by the Internal Revenue Service. b. are sound in theory but rarely used in real life. c. are accounting rules that are recognized as a general guide for financial reporting. d. have eliminated all errors in accounting. c. are accounting rules that are recognized as a general guide for financial reporting.

78. The agency of the United States federal government with the ultimate power to oversee and regulate U.S. financial markets is the a. Internal Revenue Service b. Security Exchange Commission (SEC)

c. Financial Accounting Standards Board. d. International Auditing Standards Committee. b. Security Exchange Commission (SEC)

79. What organization works under the SEC and issues U.S. accounting standards, so long as the SEC approves? a. Security Exchange Commission. b. International Accounting Standards Committee. c. International Auditing Standards Committee. d. Financial Accounting Standards Board (FASB). d. Financial Accounting Standards Board (FASB).

80. Adherence to the procedure of choosing the accounting method that will be least likely to overstate assets and income is an example of the constraint of a. relevance. b. reliability. c. conservatism. d. comparability. c. conservatism.

81. Another constraint in accounting is the concept of Materiality. An item is considered material if a. it doesn't costs a lot of money. b. it is a tangible good. c. it is likely to influence the decision of an investor or creditor. d. the cost of reporting the item is greater than its benefits. c. it is likely to influence the decision of an investor or creditor.

82. The writing down of inventory from its cost of $1,000 to its fair market value of $700 follows the constraint of a. consistency. b. materiality. c. full disclosure. d. conservatism. d. conservatism.

83. The time period assumption states that the economic life of a business can be divided into a. business segments. b. departments. c. artificial time periods. d. hierarchies of management. c. artificial time periods.

84. Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments? a. Monetary unit assumption b. Economic entity assumption c. Time period assumption d. Going concern assumption d. Going concern assumption

85. Which of the following is not an accounting assumption? a. Integrity b. Going concern c. Time period

d. Economic entity a. Integrity

86. The cost principle requires that when assets are acquired, they be recorded at a. market value. b. the amount paid for them. c. selling price. d. list price. b. the amount paid for them.

87. Which of the following items has no effect on retained earnings? a. Expense b. Dividends c. Land purchase d. Revenue c. Land purchase

88. With GAAP, are advanced receipts from customers treated as revenue at the time of receipt? Why or why not? a. Yes, they are treated as revenue at the time of receipt because the company has access to the cash b. No, because of the Matching Principle c. Yes, The intent of the company is to perform the work and the customer is confident that the services will be completed. d. No, revenue cannot be recognized until the work is performed, in accordance with the Revenue Recognition Principle. d. No, revenue cannot be recognized until the work is performed, in accordance with the Revenue Recognition Principle.

89. Is the purchase of equipment treated as an expense at the time of purchase? Why or why not? a. No, GAAP requires that 10% of the cost be expensed each year. This minimizes attempts to mislead financial statement users. b. Yes, the matching principle requires that the cost be expensed in the period of purchase. c. No, the cost needs to be allocated to the future years of expected use using one of the methods for depreciating property plant and equipment (PPE) assets. d. Yes, the actual life of the asset is not known, thus there is no acceptable way to allocate the cost. c. No, the cost needs to be allocated to the future years of expected use using one of the methods for depreciating property plant and equipment (PPE) assets.

90. One T-account is prepared for each __________ and all of the T-accounts comprise the ____________. a. Account Category; General Ledger b. Debit Balance, Chart of Tangible Assets c. Asset and Liability account only; General Ledger d. Account; General Ledger d. Account; General Ledger

91. A T-account is a. a way of depicting the basic form of an account; it is used for all accounts. b. a special account used instead of a journal. c. a special account used instead of a trial balance. d. used only for the permanent accounts. a. a way of depicting the basic form of an account; it is used for all accounts.

92. Debits a. increase both assets and liabilities.

b. decrease both assets and liabilities. c. increase assets and decrease liabilities. d. decrease assets and increase liabilities. c. increase assets and decrease liabilities.

93. The normal balance of any account is the a. left side. b. right side. c. side which increases that account. d. side which decreases that account. c. side which increases that account.

94. The double-entry system requires that each transaction must be recorded a. in at least two different accounts. b. in two sets of books. c. in a journal and in a ledger. d. first as a revenue and then as an expense. a. in at least two different accounts.

95. Which of the following describes the classification and normal balance of the retained earnings account? a. Asset, debit b. Stockholders' equity, credit c. Revenues, credit d. Expense, debit b. Stockholders' equity, credit

96. A revenue account

a. is increased by debits. b. decreased by credits. c. has a normal balance of a debit. d. is increased by credits. d. is increased by credits.

97. Which of the following correctly identifies normal balances of accounts? a. Assets Debit Liabilities Credit Common Stock Credit Revenues Debit Expenses Credit b. Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Credit c. Assets Credit Liabilities Debit Common Stock Debit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Common Stock Credit Revenues Credit Expenses Debit

98. Which accounts normally have debit balances? a. Assets, expenses, and revenues. b. Assets, expense, and retained earnings.

c. Assets, liabilities, and dividends. d. Assets, expenses, and dividends. d. Assets, expenses, and dividends.

99. Which accounts normally have credit balances? a. Revenues, liabilities, and dividends. b. Revenues, liabilities, and assets. c. Revenues, liabilities, and retained earnings. d. Revenues, liabilities, and expenses. c. Revenues, liabilities, and retained earnings.

100. Which of the following statements is true? a. Debits increase assets and increase liabilities. b. Credits decrease assets and decrease liabilities. c. Credits decrease assets and increase liabilities. d. Debits increase liabilities and decrease assets. c. Credits decrease assets and increase liabilities.

101. A company that receives money in advance of performing a service a. debits cash and credits unearned revenue. b. debits unearned fees and credits accounts payable c. debits cash and credits prepaid fees. d. debits cash and credits accounts receivable. a. debits cash and credits unearned revenue.

102. Which of the following statements is not true? a. Expenses increase stockholders' equity. b. Expenses have normal debit balances.

c. Expenses decrease stockholders' equity. d. Expenses are a negative factor in the computation of net income. a. Expenses increase stockholders' equity.

103. Denton Company showed the following balances at the end of it's first year: Cash $7,000 Prepaid insurance 700 Accounts receivable 3,500 Accounts payable 2,800 Notes payable 4,200 Common stock 1,400 Dividends 700 Revenues 21,000 Expenses 17,500 What did Denton Company show as total credits on its trial balance? a. $30,100 b. $29,400 c. $28,700 d. $30,800 b. $29,400

104. At December 1, 2007, Marco Company's accounts receivable balance was $1,200. During December, Marco had credit sales of $5,000 and collected accounts receivable of $4,000. At December 31, 2007, the accounts receivable balance is a. $1,200 debit b. $2,200 debit c. $6,200 debit d. $2,200 credit b. $2,200 debit Solution: (Use the T-account for Accounts Receivables to determined the answer (called "T-account analysis")

105. The usual sequence of steps in the transaction recording process is: a. journalize / analyze / post to the ledger. b. analyze / journalize / post to the ledger. c. journalize / post to the ledger / analyze. d. post to the ledger / journalize / analyze. b. analyze / journalize / post to the ledger.

106. In recording accounting transactions, evidence that a transaction has taken place is obtained from a. source documents. b. the Internal Revenue Service. c. the public relations department. d. the SEC. a. source documents.

107. After all of the business transactions for the period have been analyzed and entered as journal entries in the book of original entry, at the end of the period, the next step in the recording process is to transfer the information to _________ in a process called "posting." a. the company's bank b. stockholders' equity c. the General Ledger accounts d. the financial statements c. the General Ledger accounts

108. Transactions in a journal are initially recorded in a. account number order. b. dollar amount order. c. alphabetical order.

d. chronological order. d. chronological order.

109. When a company receives a utility bill but will not pay it right away, it should a. debit utilities expense and credit cash. b. debit utilities expense and credit accounts payable. c. debit accounts payable and credit utilities expense. d. make no entry until the bill is paid. b. debit utilities expense and credit accounts payable.

110. When a company receives a utility bill and pays it right away, it should a. debit utilities expense and credit cash. b. debit utilities expense and credit accounts payable. c. debit accounts payable and credit utilities expense. d. make no entry until the bill is paid. a. debit utilities expense and credit cash.

111. Posting: a. transfers journal entries to ledger accounts. b. transfers ledger transaction data to the journal. c. involves transferring all debits and credits on a journal page to the trial balance. d. provides a chronological record of transactions. a. transfers journal entries to ledger accounts.

112. On January 14, Franco industries purchased supplies of $500 on account. The entry to record the purchase will include. a. a debit to Supplies and a credit to Accounts Payable. b. a debit to Supplies expense and a credit to Accounts Receivable.

c. a debit to Supplies and a credit to Cash. d. a debit to Accounts Receivable and a credit to Supplies. a. a debit to Supplies and a credit to Accounts Payable.

113. A trial balance will not balance if a. a correcting journal entry is posted twice. b. a $50 cash dividend is debited to dividends for $500 and credited to cash for $50. c. a $300 payment on accounts payable is debited to accounts payable for $30 and credited to cash for $30. d. a transaction is not posted at all. b. a $50 cash dividend is debited to dividends for $500 and credited to cash for $50.

114. An accounting time period that is one year in length is called a. a fiscal year. b. an interim period. c. the time period assumption. d. a reporting period. a. a fiscal year.

115. The Revenue Recognition principle dictates that revenue should be recognized in the accounting records a. when cash is received. b. when the revenue has been earned. c. at the end of the month. d. in the period that income taxes are paid. b. when the revenue has been earned.

116. The matching principle states that expenses should be matched with revenues for a given time period. Another way of stating the principle is to say that

a. assets should be matched with liabilities. b. efforts should be matched with accomplishments. c. dividends should be matched with stockholder investments. d. cash payments should be matched with cash receipts. b. efforts should be matched with accomplishments.

117. Why do generally accepted accounting principles require the application of the revenue recognition principle? a. Failure to apply the revenue recognition principle could lead to an overstatement of revenue. b. It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve. c. Recording revenue when cash is received is an objective application of the revenue recognition principle. d. Accounting software has made the revenue recognition easy to apply. a. Failure to apply the revenue recognition principle could lead to an overstatement of revenue.

118. Accrued expenses are one of four categories that gives rise to adjusting journal entries. For example, when wages accrue in the current period but will be paid in the next period, this situatio9n give rise to an adjusting journal entry made at the end of the current period that debits Wages Expense and credits ________. a. Due from Employees b. Due to Employer c. Wages Payable d. Unearned Revenue c. Wages Payable

119. Each of the following pairs give rise to adjusting journal entries except: a. earned expenses and prepaid expenses.

b. prepaid expenses and unearned revenues. c. unearned revenues and accrued expenses. d. accrued revenues and prepaid expenses. a. earned expenses and prepaid expenses.

120. Which of the following accounts would not likely need to be adjusted at year end? a. Office Supplies b. Unearned Revenue c. Prepaid Advertising d. Land d. Land

121. Prepaid expenses are a. paid and recorded in an asset account before they are used up, expended or consumed. b. paid and recorded in an asset account after they are used or consumed. c. incurred but not yet paid or recorded. d. Land assets that never depreciates a. paid and recorded in an asset account before they are used up, expended or consumed.

122. Accrued expenses such as Salary Expense and Interest Expense are a. paid and recorded in an asset account before they are used or consumed. b. paid and recorded in an asset account after they are used or consumed. c. incurred but not yet paid or recorded. d. incurred and already paid or recorded. c. incurred but not yet paid or recorded.

123. Unearned revenues are a. received and recorded as liabilities before they are earned. b. earned and recorded as liabilities before they are received. c. earned but not yet received or recorded. d. earned and already received and recorded. a. received and recorded as liabilities before they are earned.

124. The Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset (There were no supplies on hand before this purchase, and this was the only purchase of supplies). On June 30, an inventory of the laundry supplies indicated only $3,000 of supplies on hand. The adjusting journal entry that should be made by the company on June 30 is a. Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000. b. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,000. c. Debit Laundry Supplies, $3,500; Credit Laundry Supplies Expense, $3,500. d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500. d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500.

125. On July 1 the Winter Shoe Store paid $12,000 to Ace Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Winter Shoe Store is a. Debit Rent Expense, $12,000; Credit Prepaid Rent, $2,000. b. Debit Prepaid Rent, $2,000; Credit Rent Expense, $2,000. c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000. d. Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000. c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000.

126. As prepaid expenses expire with the passage of time, the correct adjusting journal entry will be a a. debit to an asset account or contra asset account and a credit to an expense account.

b. debit to an expense account and a credit to an asset account or a credit to accumulated depreciation, which is a contra asset account. c. debit to an asset account and a credit to an asset account or contra asset account. d. debit to an expense account and a credit to an expense account. b. debit to an expense account and a credit to an asset account or a credit to accumulated depreciation, which is a contra asset account.

127. If a company fails to make an adjusting entry to record supplies expense, then a. stockholders' equity will be understated. b. expense will be understated. c. assets will be understated. d. net income will be understated. b. expense will be understated.

The UNADJUSTED trial balance for Houley Corporation appears as follows: Houley Corporation Trial Balance December 31, 2007 Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Office Equipment 4,000 Accumulated Depreciation, Office Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries Expense 1,000 Rent Expense 500 $6,500 $6,500 128. If on December 31, 2007, supplies on hand were $20, the adjusting entry would contain a

a. debit to Supplies for $20. b. credit to Supplies for $20. c. debit to Supplies Expense for $120. d. credit to Supplies Expense for $120. c. debit to Supplies Expense for $120.

The UNADJUSTED trial balance for Houley Corporation appears as follows: Houley Corporation Trial Balance December 31, 2007 Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Office Equipment 4,000 Accumulated Depreciation, Office Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries Expense 1,000 Rent Expense 500 $6,500 $6,500 129. If on December 31, 2007, the insurance still unexpired amounted to $10, the adjusting entry would contain a a. debit to Prepaid Insurance for $50. b. credit to Prepaid Insurance for $10. c. debit to Insurance Expense for $50. d. credit to Prepaid Insurance for $10. c. debit to Insurance Expense for $50.

The UNADJUSTED trial balance for Houley Corporation appears as follows: Houley Corporation

Trial Balance December 31, 2007 Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Office Equipment 4,000 Accumulated Depreciation, Office Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries Expense 1,000 Rent Expense 500 $6,500 $6,500 130. If the estimated depreciation for office equipment were $800, the adjusting entry would contain a a. credit to Accumulated Depreciation, Office Equipment for $800. b. credit to Depreciation Expense, Office Equipment for $800. c. debit to Accumulated Depreciation, Office Equipment for $800. d. credit to Office Equipment for $800. a. credit to Accumulated Depreciation, Office Equipment for $800.

The UNADJUSTED trial balance for Houley Corporation appears as follows: Houley Corporation Trial Balance December 31, 2007 Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Office Equipment 4,000 Accumulated Depreciation, Office Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400

Service Revenue 3,000 Salaries Expense 1,000 Rent Expense 500 $6,500 $6,500 131. If as of December 31, 2007, rent of $100 for December had not been recorded or paid, the adjusting entry would include a a. credit to Accumulated Rent for $100. b. credit to Cash for $100. c. debit to Rent Payable for $100 d. debit to Rent Expense for $100 d. debit to Rent Expense for $100

The UNADJUSTED trial balance for Houley Corporation appears as follows: Houley Corporation Trial Balance December 31, 2007 Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Office Equipment 4,000 Accumulated Depreciation, Office Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries Expense 1,000 Rent Expense 500 $6,500 $6,500 132. If service for $125 had been performed but not billed, the adjusting entry to record this would include a a. debit to Service Revenue for $125. b. credit to Unearned Service Revenue for $125. c. credit for Service Revenue for $125.

d. debit to Unearned Revenue for $125. c. credit for Service Revenue for $125.

133. From an accounting standpoint, the acquisition of long-lived property plant and equipment (PPE) assets is essentially a(n) ___________. The difference is that whereas current prepaid assets such as Supplies are directly credited as they are used up or expended, the using up or expensing of PPE assets is credited to ___________. a. accrual of expense; accumulated depreciation b. accrual of revenue; directly to the asset. c. accrual of unearned revenue; directly to the asset. d. prepaid expense; accumulated depreciation d. prepaid expense; accumulated depreciation

134. Meyer Realty Company received a check for $21,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $21,000. Financial statements will be prepared on July 31. Meyer Realty should make the following adjusting entry on July 31: a. Debit Unearned Rent, $3,500; Credit Rental Revenue, $3,500. b. Debit Rental Revenue, $3,500; Credit Unearned Rent, $3,500. c. Debit Unearned Rent, $21,000; Credit Rental Revenue, $21,000. d. Debit Cash, $21,000; Credit Rental Revenue, $21,000. a. Debit Unearned Rent, $3,500; Credit Rental Revenue, $3,500.

135. The four categories that give rise to adjusting journal entries are: a. Assets, Expenses, Liabilities, and Revenues. b. Overstatements, Understatements, Equality and Inequality c. Unearned Revenues, Prepaid Expenses, Accrued Expenses, and Accrued Revenues. d. Revenues, Expenses, Retained Earnings and Stockholders' Equity c. Unearned Revenues, Prepaid Expenses, Accrued Expenses, and Accrued Revenues.

136. An example of Accrued Revenue (better called Accrued Income) is a. Interest Expense b. Salary Payable c. Interest Income d. Wages Expense c. Interest Income

137. Draxon Company borrowed $20,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be a. Debit Interest Expense, $1,200; Credit Interest Payable, $1,200. b. Debit Interest Expense, $100; Credit Interest Payable, $100. c. Debit Note Payable, $1,200; Credit Cash, $1,200. d. Debit Cash, $300; Credit Interest Payable, $300. b. Debit Interest Expense, $100; Credit Interest Payable, $100. Solution: (20,000 6/100 1/12)

138. Jane Richards has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Jane make? a. Debit Cash and credit Unearned Revenue b. Debit Accounts Receivable and credit Unearned Revenue c. Debit Accounts Receivable and credit Service Revenue d. Debit Unearned Revenue and credit Service Revenue c. Debit Accounts Receivable and credit Service Revenue

139. A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in

the amount of $30,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest? a. Interest Expense 300 Interest Payable 300 b. Interest Expense 450 Interest Payable 450 c. Interest Expense 300 Cash 300 d. Interest Expense 450 Note Payable 450 a. Interest Expense 300 Interest Payable 300 Solution: (30,000 .06 2/12)

140. Snell Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29-31). Employees work 5 days a week and the company pays $900 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January? a. Wages Expense 900 Wages Payable 900 b. Wages Expense 4,500 Wages Payable 4,500 c. Wages Expense 2,700 Wages Payable 2,700 d. No adjusting entry is required. c. Wages Expense 2,700 Wages Payable 2,700

141. Manning Corporation issued a one-year 9% $200,000 note on April 30, 2007. Interest expense for the year ended December 31, 2007 was? a. $18,000 b. $13,500 c. $12,000 d. $10,500 c. $12,000 Solution: (200,000 9/100 8/12)

Given the following adjusted trial balance: Debit Credit Cash $1,562 Accounts receivable 2,098 Inventory 3,124 Prepaid rent 86 Property, plant & equipment 300 Accumulated depreciation 52 Accounts payable 82 Unearned revenue 172 Common stock 206 Retained earnings 6,610 Service revenue 218 Interest revenue 56 Salary expense 160 Travel expense 66 _____ _____ Total $7,396 $7,396 142. Net income for the year is: a. $48 b. $220 c. $274 d. $446 a. $48

Given the following adjusted trial balance: Debit Credit Cash $1,562 Accounts receivable 2,098 Inventory 3,124 Prepaid rent 86 Property, plant & equipment 300 Accumulated depreciation 52 Accounts payable 82 Unearned revenue 172 Common stock 206 Retained earnings 6,610 Service revenue 218 Interest revenue 56

Salary expense 160 Travel expense 66 _____ _____ Total $7,396 $7,396 143. Ending Retained Earnings in the Statement of Retained Earnings: a. $6,390 b. $6,562 c. $6,830 d. $6,658 d. $6,658

144. Closing entries a. are prepared before the financial statements. b. reduce the number of permanent accounts. c. cause the revenue and expense accounts to have zero balances. d. summarize the activity in every account. c. cause the revenue and expense accounts to have zero balances.

145. Which of the following is a true statement about closing the books of a corporation? a. Expenses are closed to the Expense Summary account. b. Only revenues are closed to the Income Summary account. c. Revenues and expenses are closed to the Income Summary account. d. Revenues, expenses, and the Dividends account are closed to the Income Summary account. c. Revenues and expenses are closed to the Income Summary account.

146. The closing entry process consists of closing a. all asset and liability accounts.

b. out the Retained Earnings account. c. all permanent accounts. d. all temporary accounts. d. all temporary accounts.

147. A post-closing trial balance will show nonzero balances for a. zero balances for all accounts. b. zero balances for balance sheet accounts. c. only Permanent accounts (the balance sheet accounts). d. only Temporary accounts (the income statement accounts). c. only Permanent accounts (the balance sheet accounts).

148. Two categories of expenses in merchandising companies are a. cost of goods sold and financing expenses. b. operating expenses and financing expenses. c. cost of goods sold and operating expenses. d. sales and cost of goods sold. c. cost of goods sold and operating expenses.

149. Select the correct statement about a perpetual inventory system a. accounting records continuously disclose the amount of inventory. b. increases in inventory resulting from purchases are debited to purchases. c. a year-end physical count is needed to value ending inventory. d. the account purchase returns and allowances is credited when goods are returned to vendors. a. accounting records continuously disclose the amount of inventory. 150. Which of the following expressions is incorrect? a. Gross profit - operating expenses = net income

b. Sales - cost of goods sold - operating expenses = net income c. Net income + operating expenses = gross profit d. Operating expenses - cost of goods sold = gross profit d. Operating expenses - cost of goods sold = gross profit

151. Detailed records of goods held for resale are not maintained under a a. perpetual inventory system. b. periodic inventory system. c. double entry accounting system. d. single entry accounting system. b. periodic inventory system.

152. Which of the following is a true statement about inventory systems? a. Periodic inventory systems require more detailed inventory records. b. Perpetual inventory systems require more detailed inventory records. c. A periodic system requires cost of goods sold be determined after each sale. d. A perpetual system determines cost of goods sold only at the end of the accounting period. b. Perpetual inventory systems require more detailed inventory records.

153. When using the periodic system the physical inventory count is used to determine a. only the sales value of goods in the ending inventory. b. both the cost of the goods in ending inventory and the sales value of goods sold during the period. c. both the cost of the goods sold and the cost of ending inventory. d. only the cost of merchandise sold during the period. c. both the cost of the goods sold and the cost of ending inventory.

154. Inventory becomes part of cost of goods sold when a company a. pays for the inventory. b. purchases the inventory. c. sells the inventory. d. receives payment from the customer. c. sells the inventory.

155. Under the perpetual inventory system, which of the following accounts would not be used? a. Sales b. Purchases c. Cost of Goods Sold d. Merchandise Inventory b. Purchases

156. The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit a. Accounts Payable. b. Purchase Returns and Allowances. c. Sales. d. Merchandise Inventory d. Merchandise Inventory

157. Under the perpetual inventory system, in addition to making the entry to record a sale, a company would a. debit Merchandise Inventory and credit Cost of Goods Sold. b. debit Cost of Goods Sold and credit Purchases. c. debit Cost of Goods sold and credit Merchandise Inventory.

d. make no additional entry until the end of the period. c. debit Cost of Goods sold and credit Merchandise Inventory.

158. The entry to record the receipt of payment within the discount period on a sale of $750 with terms of 2/10, n/30 will include a a. credit to Sales Discounts for $15. b. debit to Sales for $735. c. credit to Accounts Receivable for $750. d. credit to Sales for $750. c. credit to Accounts Receivable for $750.

159. If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales a. discount. b. return. c. contra asset. d. allowance. d. allowance.

160. Ellis Company sells merchandise on account for $1,500 to Thomas Company with credit terms of 2/10, n/30. Thomas Company returns $500 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Ellis Company make upon receipt of the check? a. Cash 1,000 Accounts Receivable 1,000 b. Cash 980 Sales Returns and Allowances 520 Accounts Receivable . 1,500 c. Cash 980 Sales Returns and Allowances 500 Sales Discounts 20 Accounts Receivable 1,500

d. Cash 1,470 Sales Discounts 30 Sales Returns and Allowances 500 Accounts Receivable 1,000 c. Cash 980 Sales Returns and Allowances 500 Sales Discounts 20 Accounts Receivable 1,500

161. Gross profit equals the difference between sales and a. operating expenses. b. cost of goods sold. c. net income. d. cost of goods sold plus operating expenses. b. cost of goods sold.

162. Interest expense would be classified on a multiple-step income statement under the heading a. Other expenses and losses b. Other revenues and gains c. Selling expenses d. Cost of goods sold a. Other expenses and losses

163. Operating Expenses do not include a. Administrative expenses b. Selling expenses c. Depreciation expense d. Interest Expense d. Interest Expense

164. Operating Revenues do not include: a. Interest Income b. Service Revenue from consulting c. Revenue from sale of merchandise inventory d. Service Revenue from catering need answer

Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 13,000 Sales Discount 6,000 Sales 160,000 Cost of Goods Sold 77,000 165. The amount of net sales on the income statement would be a. $154,000. b. $141,000. c. $160,000. d. $166,000. b. $141,000.

Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 13,000 Sales Discount 6,000 Sales 160,000 Cost of Goods Sold 77,000 166. Gross Profit would be a. $77,000. b. $70,000. c. $64,000.

d. $83,000. c. $64,000.

167. What is an advantage of using the multiple-step income statement? a. It highlights the components of net income. b. Gross profit is not a separate item. c. It is easier to prepare than the single-step income statement. d. Net income will be higher than net income computed using the single-step income statement. a. It highlights the components of net income.

168. The Freight-in account a. increases the cost of merchandise purchased. b. is contra to the Purchases account. c. is a permanent account. d. has a normal credit balance. a. increases the cost of merchandise purchased.

169. The Freight-out account a. increases the cost of merchandise sold. b. is contra to the sales account. c. is a permanent account. d. is an operating expense for the period. d. is an operating expense for the period.

170. Westcoe Company's goods in transit at December 31 include sales made (1) FOB destination (2) FOB shipping point and purchases made (3) FOB destination

(4) FOB shipping point. Which items should be included in Westcoe's inventory at December 31? a. (2) and (3) b. (1) and (4) c. (1) and (3) d. (2) and (4) b. (1) and (4)

171. The term "FOB" denotes a. free on board. b. freight on board. c. free only (to) buyer. d. freight charge on buyer. a. free on board.

172. When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory? a. To check the accuracy of the perpetual inventory records b. To determine cost of goods sold for the accounting period c. To compute inventory ratios d. To determine Gross Profit. a. To check the accuracy of the perpetual inventory records

173. Bennett Company recorded a transaction which did not change total assets, total liabilities or total stockholder's equity. The transaction was made to record: a. The purchase of land partly for cash and partly on credit. b. The collection of an account receivable. c. A purchase of stock in the company for cash.

d. The settlement of a liability by paying cash to the creditor. b. The collection of an account receivable.

174. Which of the following statements is true? a. Assets plus stockholder's equity equals liabilities. b. Historical cost data are considered to be definite and verifiable. c. Payments of accounts payable always increase expenses. d. The cash purchase of a delivery truck will affect both assets and stockholder's equity. b. Historical cost data are considered to be definite and verifiable.

175. On the last day of the accounting period, Edwards Company buys a $2,000 truck on account. This transaction will affect the: a. Income statement only. b. Balance sheet only. c. Income statement and retained earnings statement only. d. Income statement, retained earnings statement, and balance sheet. b. Balance sheet only.

181. The Operating Expenses section of an Income Statement would not include the following account: a. Dividends paid. b. utilities expense. c. freight-out d. salary expense. a. Dividends paid.

182. 2011 was Cramer Corp.'s first year of operations. Cramer reported $100,000 Net Income in its 2011 Income Statement. In its 2012 Income Statement, Cramer reported $300,000 Net Income. Cramer paid cash dividends of $10,000 in 2011 and

$20,000 in 2012. Therefore, the amount of retained earnings Cramer reported in its 2010 Balance sheet was: a. $312,000 b. $390,000 c. $332,000 d. $370,000 d. $370,000

184. In the Income Statement, "Other Income and Other Expenses" are shown after "Income from Operations." An example of "Other Expenses" is a. Increase Revenues resulting from increasing the price of goods sold. b. Interest Income from Notes Receivable c. Interest Expense from Notes Payable d. Increase Revenues resulting from a decreasing in Cost of Goods Sold. c. Interest Expense from Notes Payable

185. IBM began its business by issuing Common Stock for which the new company received 1,000,000. The Journal Entry for this transaction: a. Debit Cash for 1,000,000 and credit Common Stock for 1,000,000 b. Debit Common Stock for 1,000,000 and credit Cash for 1,000,000 c. Debit Retained Earnings for 1,000,000 and credit Common Stock for 1,000,000 d. Debit Cash for 1,000,000 and credit Stockholders' Equity for 1,000,000 a. Debit Cash for 1,000,000 and credit Common Stock for 1,000,000

186. IBM purchased Equipment for 20,000 cash. The Journal Entry for this transaction: a. Debit Cash for 20,000 and credit Equipment for 20,000 b. Debit Land for 20,000 and credit Cash for 20,000

c. Debit Equipment for 20,000 and credit Accounts Payable for 20,000 d. Debit Equipment for 20,000 and credit Cash for 20,000 d. Debit Equipment for 20,000 and credit Cash for 20,000

187. IBM purchased Supplies on account for 1,000 cash. The Journal Entry for this transaction: a. Debit Cash for 1,000 and credit Supplies for 1,000 b. Debit Supplies for 1,000 and credit Accounts Payable for 1,000 c. Debit Supplies for 1,000 and credit Cash for 1,000 d. Debit Merchandise Inventory for 1,000 and credit Accounts Payable for 1,000 b. Debit Supplies for 1,000 and credit Accounts Payable for 1,000

188. IBM uses the perpetual inventory system. On June 1, IBM purchase 1,000 of Merchandise Inventory on account with terms 2/10/n30. Then, on June 5, IBM paid the full amount due. The journal entry for the June 5 payment is: a. Debit Inventory 1,000 and credit Accounts Payable 1,000 b. Debit Accounts Payable 1,000 and credit Cash 1,000 c. Debit Accounts Payable 1,000, credit Inventory 100 and credit Cash 900. d. Debit Accounts Payable 1,000, credit Purchase Discount 100 and credit Cash 900. c. Debit Accounts Payable 1,000, credit Inventory 100 and credit Cash 900.

189. IBM uses the periodic inventory system. On June 1, IBM purchase 1,000 of Merchandise Inventory on account with terms 2/10/n30. Then, on June 5, IBM paid the full amount due. The journal entry for the June 5 payment is: a. Debit Inventory 1,000 and credit Accounts Payable 1,000 b. Debit Accounts Payable 1,000 and credit Cash 1,000 c. Debit Accounts Payable 1,000, credit Inventory 100 and credit Cash 900. d. Debit Accounts Payable 1,000, credit Purchase Discount 100 and credit Cash 900. d. Debit Accounts Payable 1,000, credit Purchase Discount 100 and credit Cash 900.

190. IBM uses the perpetual inventory system. On June 1, IBM sold for 1,000 Merchandise Inventory on account that cost 900 with terms 2/10/n30. Then, on June 5, IBM received the full amount due. The journal entry for the June 1 sale is (journal entry = JE, Accounts Receivable = AR, Cost of Goods Sold = COGS): a. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: not required b. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: debit Inventory 900 and credit COGS 900 c. 1st JE: debit Cash 1,000 and credit Sales Revenue for 1,000; 2nd JE: debit COGS 900 and credit Inventory 900 d. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: debit COGS 900 and credit Inventory 900 d. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: debit COGS 900 and credit Inventory 900

191. IBM uses the periodic inventory system. On June 1, IBM sold for 1,000 Merchandise Inventory on account that cost 900 with terms 2/10/n30. Then, on June 5, IBM received the full amount due. The journal entry for the June 1 sale is (journal entry = JE, Accounts Receivable = AR, Cost of Goods Sold = COGS): a. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: not required b. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: debit Inventory 900 and credit COGS 900 c. 1st JE: debit Cash 1,000 and credit Sales Revenue for 1,000; 2nd JE: debit COGS 900 and credit Inventory 900 d. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: debit COGS 900 and credit Inventory 900 a. 1st JE: debit AR 1,000 and credit Sales Revenue for 1,000; 2nd JE: not required

192. IBM uses the perpetual inventory system. On June 1, IBM sold for 1,000 Merchandise Inventory on account that cost 900 with terms 2/10/n30. Then, on June 5, IBM received the full amount due. The journal entry for the June 5 receipt is: a. Debit Cash for 900, debit Sales Discounts for 100, and credit Accounts Receivable for 1,000 b. Debit Cash for 1,000, credit Sales Discounts for 100, and credit Accounts Receivable for 900

c. Debit Accounts Receivable for 900, debit Purchase Discounts for 100, and credit Cash for 1,000 d. Debit Cash for 900, debit Purchase Discounts for 100, and credit Accounts Receivable for 1,000 need answer

193. IBM uses the Periodic Inventory System. That means that IBM's accounting system does not maintain a continuous, running total for these two accounts: a. Sales Returns and Allowances and Sales Discounts b. Freight in and Freight out c. Accounts receivables and Sales Revenue d. Inventory and Cost of Goods Sold d. Inventory and Cost of Goods Sold

194. IBM uses the Periodic Inventory System. That means that IBM computes its Cost of Goods Sold (COGS) a. By looking at the ending balance of Cost of Goods Sold account in the General Ledger b. By estimating the Cost of Goods Sold from the total Sales c. By using the formula: COSG = Beginning Inventory + Purchases + Freight-In - Purchase Discounts - Purchase Returns and Allowances - Ending Inventory d. Using SAP, the largest computerized ERP system c. By using the formula: COSG = Beginning Inventory + Purchases + Freight-In - Purchase Discounts - Purchase Returns and Allowances - Ending Inventory

195. For 192 above, if IBM uses the Periodic Inventory System, how does IBM determines the dollar value of its Ending Inventory ? (This question will not be on the Midterm Exam. You will learn about this in Lesson 6). a. LIFO b. FIFO c. Average Costs

d. By choosing one of the above and then using that method consistently from year to year d. By choosing one of the above and then using that method consistently from year to year

In Accounting the terms debit and credit mean left and right respectively T

The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction. T

Revenue accounts normally have debit balances F. The normal balance of a revenue account is a credit

The normal balance of an expense is a credit F. The normal balance of an expense account is a debit.

The expanded basic equation is: Assets = Liabilities + Owners's Capital + Owner's Drawing+ Revenues - Expenses F. The expanded basic equation is: Assets = Liabilities + Owners's Capital - Owner's Drawing+ Revenues - Expenses

The journal discloses in one place the complete effect of a transaction. T

The journal provides a chronological record of transactions T

Separate journal entries are made for each transaction T

The general journal is the most basic form of journal. T

A ledger is merely a bookkeeping device and therefore do not provide much useful data for management. F. The ledger is the entire group of accounts maintained by a company. It keeps in one place all the information about changes in account balances. The trial balance is a list of their balances at a given time.

A ledger is a list of accounts and their balances at a given time. F. The ledger gives management useful information about account balances; e.g. Accounts Receivable can be inspected to ascertain the amounts due from customers.

The standard form of ledger account has three money columns for debit, credit and balance T

Posting is the procedure of entering transactions data in the general journal. F. Posting is the procedure of transferring journal entries to the ledger accounts. Journalizing is the procedure of entering transaction data in a journal.

The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger. T

The purpose of transaction analysis is to first identify the type of account involved and then identify whether a debit or a credit to the account is required. T

A trial balance lists the accounts and their location in the ledger. F. The trial balance is a list of accounts and their balances at a given time. The chart fo accounts is a listing of accounts and their location in the ledger.

The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting. T

A trial balance is usually prepared daily. F. A trial balance can be prepared at any point in time. but is customarily prepared at the end of an accounting period.

A trial balance does not prove that all transactions have been recorded or that the ledger is correct. T

The trial balance will not balance when incorrect account titiles are used in journalizing or posting. F. One of the limitations of the trial balance is that it will still balance when incorrect account titles are used in journalizing or posting.

An account is an individual accounting record of increases and decreases in specific: assets, liabilities, and owner's equity items

Credits: decrease assets and increase liabilities

An account which is increased by a credit is: a liability account

Which of the following rules is incorrect? a. Credits decrease the drawing account. b. Debits increase the capital account. c. Credits increase revenue accounts. d. Debits decrease liability accounts. b. Debits increase the capital account.

An account which is increaed by a debit is a : a. liability account. b. drawing account c. capital account. d. revenue account. b. drawing account

An account which is increased by a credit is a(n): a. drawing account b. revenue account c. expense account d. asset account b. revenue account

Which of the following is the correct sequence of steps in the recording process? a. Posting journalizing, analyzing b. Journalizing, analyzing, posting c. Analyzing, posting, journalizing d. Analyzing, journalizing, posting d. Analyzing, journalizin, posting

The column in the general journal which is not used during journalizing is the : reference column The data column , the account title column, and the debit amount column are all used during the journalizing procedure. The reference column is used later when the journal entries are posted to the ledger.

Which of the following is a false statement? a. The account Revenue from fees is increased with a credit. b. A compound entry is when two or more accounts are required in one journal entry. c. Owner's drawing is increased by a debit entry. d. All transactions are initially recorded in a journal. b. A compound entry is when three or more accounts are required in one journal entry. a,c and d are all true statements.

Which of the following is not considered a significant contribution of hte journal to the recording process? a. The journal provides a chronological record fo all transactions. b. The journal provides a means of accumulating in one place all the information about changes in accounts balances. c. The journal discloses in one place the complete effect of a transaction. d. The journal helps prevent or locate errors since theh debit and credit amounts for each entry can be readily compared. b. The journal provides a means of accumulating in one place all the information about changes in accounts balances. The ledger -not the journal providesa means...

McClory Co. purchases equipment for 900 and supplies for 300 from Rudnicky Co. for 1,200 cash. The entry for this transaction will include: debit to Equipment 900 and a debit to Supplies for 300 for McClory.

Laventhol Co. sells 300 of equipment to Reiner Co. on credit. Reiner will enter the transaction in the journal : credit to Accounts Payable and a debit to Equipment.

Szyknowny Co. buys a machine from Scott Co. paying half in cash and putting the balance on account. The journal entry for this transaction by Szyknowny will include a : credit to Accounts Payable and a credit to cash.

Hrubec Co. pays 900 cash for a one-year insurance policy on July 1, 2011. The policy will expire on June 30, 2012. The entry for July 1, 2011 is: Debit Prepaid Insurance 900; credit Cash 900

Kevin Walsh withdraws 300 cash from his business for personal use. Kevin Walsh, Drawing

Vicki Wagner Dance Studio bills a client for dancing lessons earned during the past week. The journal entry will include a credit to : Dance Fees earned

Golden Pork Co. receives 400 from a customer on October 15 in payment of balance due for services billed on October 1. The entry by Golden Pork Co. will include a credit of 400 to: Accounts Receivable

On October 3, Mike Baker, a carpenter, received a cash payment for services previously billed to a client. Mike paid his telephone bill, and he also bought equipment on credit. Tor the three transactions, at least one of the entries will include a: a. credit to Mike Baker, Capital b. credit to Notes Payable c. debit to Accounts Receivable d. credit to Accounts Payable. d. credit to Accounts Payable.

The chart of accounts is a : listing of the accounts and the account numbers which identify their location in the ledger.

A trial balance will not balance if: a. a journal entry is posted twice b. a wrong amount is used in journalizing

c. incorrect account titles are used in journalizing d. a journal entry is only partially posted. d. a journal entry is only partially posted.

BOC issues 10,000 shares of $5 par value stock for $15 cash per share. debit Cash to increase that asset for 150,000, which is 10,000 shares times $15 of cash per share. Credit Common Stock at Par for 50,000. The rest of it goes into Additional Paid in Capital, so we credit Additional Paid in Capital 100,000.

BOC acquires a building costing $500,000. It pays $80,000 cash and assumes a long-term mortgage for the balance of the purchase price. debit Buildings to increase the asset by 500,000. credit Cash to reduce that asset by 80,000. credit Notes Payable to increase that liability by 420,000.

BOC obtains a three-year fire insurance policy and pays the $3,000 premium in advance. debit Prepaid Insurance to increase this asset by 3,000. credit Cash for 3,000.

BOC acquires on account office supplies costing $20,000 and merchandise inventory costing $35,000. Debit Office Supplies to increase that asset by 20,000. Debit Inventory to increase that asset by 35,000. Credit Accounts Payable for 55,000

BOC pays $22,000 to the suppliers debit Accounts Payable to reduce the liability 22,000 credit Cash to reduce the asset 22,000.

BOC exchanges a building valued on the books at $200,000 for a piece of undeveloped land. debit Land to increase that asset. We're giving up a building. So we're going to credit Building to reduce that asset.

BOC retires $1,000,000 of debt by issuing 100,000 shares of $5 par value stock. debit Notes Payable to reduce the liability for a million. We credit Common Stock at Par, increase that stockholders' equity by 500,000. The rest goes into additional paid in capital, APIC. Credit APIC for the other 500,000.

BOC receives an order for $6,000 of merchandise to be shipped next month. The customer pays $600 at the time of placing the order. debit Cash to increase that asset by 600. credit Advances from Customers to increase the liability for 600.

BOC declares and pays $8,000 of cash dividends. debit Retained Earnings to reduce the stockholders' equity account for 8,000. credit Cash to reduce that asset, $8,000. 1.A new account is opened for each transaction entered into by a business firm.

Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

2. The recording process becomes more efficient and informative if all transactions are recorded in one account.

Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

3. When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers.

Ans: F LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

4. An account is often referred to as a T-­‐account because of the way it is constructed.

Ans: T LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

5. A debit to an account indicates an increase in that account.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

6. If a revenue account is credited, the revenue account is increased.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

7. The normal balance of all accounts is a debit.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

8. Debit and credit can be interpreted to mean increase and decrease, respectively.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

9. The double-­‐entry system of accounting refers to the placement of a double line at the end of a column of figures.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

10. A credit balance in a liability account indicates that an error in recording has occurred.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

11. The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

12. Revenues are a subdivision of retained earnings.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

13. Under the double-­‐entry system, revenues must always equal expenses.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

14. Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

15. All accounts reported in the statement of financial position are increased by using debits on the left-­‐hand side of the T-­‐account.

Ans: F LO2 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

16. The rules for debit and credit and the normal balance of Share Capital–Ordinary are the same as for assets.

Ans: F LO2 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

17. Companies report share capital–ordinary and dividends in the equity section of the statement of financial position.

Ans: F LO2 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

18. Transaction information may be entered directly into the accounts without using a journal.

Ans: T LO3 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

19. Business documents can provide evidence that a transaction has occurred.

Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

20. Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

Ans: T LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

21. Transactions are entered in the ledger accounts and then transferred to journals.

Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

22. All business transactions must be entered first in the general ledger.

Ans: F LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

23. A simple journal entry requires only one debit to an account and one credit to an account.

Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

24. A compound journal entry requires several debits to one account and several credits to one account.

Ans: F LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

25. Transactions are recorded in alphabetic order in a journal.

Ans: F LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

26. A journal is also known as a book of original entry.

Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

27. The complete effect of a transaction on the accounts is disclosed in the journal.

Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

28. Entries that impact the income statement are called simple entries, whereas entries that impact the statement of financial position are called compound entries.

Ans: F LO4 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

29. The general ledger contains all the accounts that are reported on the statement of financial position, whereas the general journal contains all the accounts that are reported on the income statement.

Ans: F LO5 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

30. The chart of accounts lists accounts and the account numbers that identify their location in the ledger starting with the accounts that are reported on the income statement.

Ans: F LO5 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

31. The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

32. The chart of accounts is a special ledger used in accounting systems.

Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

33. A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the statement of financal position accounts.

Ans: T LO5 BT:C K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

34. The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises.

Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

35. Posting is the process of proving the equality of debits and credits in the trial balance.

Ans: F LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

36. After a transaction has been posted, the reference column in the journal should not be blank.

Ans: T LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

37. Posting involves transferring the journalized debits and credits to the statement of financial position.

Ans: F LO6 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

38. The trial balance lists accounts and their balances at a given point in time in the order in which they appear on the statement of financial position.

Ans: F LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

39. When debits do not equal credits on the trial balance, this indicates that the company has net income that needs to be transferred to the retained earnings account.

Ans: F LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

40. Errors on the statement of financial position are called transpositions and errors on the income statement are called irregularities.

Ans: F LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

41. Currency signs are typically used only in the trial balance and the financial statements.

Ans: T LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

42. The general rules of debit and credit, and the steps in the recording process–the journal, ledger, and chart of accounts–are the same under both GAAP and IFRS.

Ans: T LO7 BT: K Difficulty: Medium TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

43. A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

Ans: T LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Additional True-­‐False Questions

44. The double-­‐entry system is a logical method for recording transactions and results in equal debits and credits for each transaction.

Ans: T LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

45. The normal balance of an expense is a credit.

Ans: F LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

46. The journal provides a chronological record of transactions.

Ans: T LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

47. The ledger is merely a bookkeeping device and therefore does not provide much useful data for management.

Ans: F LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

48. The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger.

Ans: T LO6 BT: C Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

49. The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting.

Ans: T LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

50. The trial balance will not balance when incorrect account titles are used in journalizing or posting.

Ans: F LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

1. F 9. F 17. F 25. F 33. T 41. T 49. T

2. F 10. F 18. T 26. T 34. F 42. T 50. F

3. F 11. F 19. T 27. T 35. F 43. T

4. T 12. T 20. T 28. F 36. T 44. T

5. F 13. F 21. F 29. F 37. F 45. F

6. T 14. F 22. F 30. F 38. F 46. T

7. F 15. F 23. T 31. F 39. F 47. F

8. F 16. F 24. F 32. F 40. F 48. T

MULTIPLE CHOICE QUESTIONS 51. An account consists of

a. one part. b. two parts. c. three parts. d. four parts. Ans: c LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

52. The left side of an account is

a. blank. b. a description of the account. c. the debit side. d. the balance of the account. Ans: c LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

53. Which one of the following is not a part of an account?

a. Credit side b. Trial balance c. Debit side d. Title Ans: b LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

54. An account is a part of the financial information system and is described by all except which one of the following?

a. An account has a debit and credit side. b. An account is a source document. c. An account may be part of a manual or a computerized accounting system. d. An account has a title. Ans: b LO1 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

55. The right side of an account

a. is the correct side. b. reflects all transactions for the accounting period. c. shows all the balances of the accounts in the system. d. is the credit side. Ans: d LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

56. An account consists of

a. a title, a debit balance, and a credit balance. b. a title, a left side, and a debit balance. c. a title, a debit side, and a credit side. d. a title, a right side, and a debit balance.

Ans: c LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

57. A T-­‐account is

a. a way of depicting the basic form of an account. b. what the computer uses to organize bytes of information. c. a special account used instead of a trial balance. d. used for accounts that have both a debit and credit balance. Ans: a LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

58. Credits

a. decrease both assets and liabilities. b. decrease assets and increase liabilities. c. increase both assets and liabilities. d. increase assets and decrease liabilities. Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

59. A debit to an asset account indicates

a. an error. b. a credit was made to a liability account. c. a decrease in the asset. d. an increase in the asset. Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

60. The normal balance of any account is the

a. left side. b. right side. c. side which increases that account. d. side which decreases that account. Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

61. The double-­‐entry system requires that each transaction must be recorded

a. in at least two different accounts. b. in two sets of books. c. in a journal and in a ledger. d. first as a revenue and then as an expense. Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

62. Which of the following accounts does not have a normal credit balance?

a. Share Capital–Ordinary b. Revenue account c. Liability account d. Dividends Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

63. Which one of the following represents the expanded basic accounting equation?

a. Assets = Liabilities + Share Capital–Ordinary account + Retained Earnings + Dividends – Revenue – Expenses.

b. Assets + Dividends + Expenses = Liabilities + Share Capital–Ordinary + Retained Earnings + Revenues.

c. Assets – Liabilities – Dividends = Share Capital–Ordinary + Retained Earnings + Revenues – Expenses.

d. Assets = Revenues + Expenses – Liabilities. Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

64. Which of the following correctly identifies normal balances of accounts?

a. Assets Debit

Liabilities Credit

Equity Credit

Revenues Debit

Expenses Credit

b. Assets Debit

Liabilities Credit

Equity Credit

Revenues Credit

Expenses Credit

c. Assets Credit

Liabilities Debit

Equity Debit

Revenues Credit

Expenses Debit

d. Assets Debit

Liabilities Credit

Equity Credit

Revenues Credit

Expenses Debit

Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

65. The best interpretation of the word credit is the

a. offset side of an account. b. increase side of an account. c. right side of an account. d. decrease side of an account. Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

66. In recording an accounting transaction in a double-­‐entry system

a. the number of debit accounts must equal the number of credit accounts. b. there must always be entries made on both sides of the accounting equation. c. the amount of the debits must equal the amount of the credits. d. there must only be two accounts affected by any transaction. Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

67. An accounting convention is best described as

a. an absolute truth. b. an accounting custom. c. an optional rule. d. something that cannot be changed. Ans: b LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

68. A debit is not the normal balance for which account listed below?

a. Dividends b. Cash c. Accounts Receivable d. Service Revenue Ans: d LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

69. An accountant has debited an asset account for $1,000 and credited a liability account for $500. What can be done to complete the recording of the transaction?

a. Nothing further must be done. b. Debit an equity account for $500. c. Debit another asset account for $500. d. Credit a different asset account for $500. Ans: d LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

70. An accountant has debited an asset account for $1,000 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?

a. Credit an asset account for $500. b. Credit another liability account for $500.

c. Credit an equity account for $500. d. Debit an equity account for $500. Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

71. Which of the following is not true of the terms debit and credit?

a. They can be abbreviated as Dr. and Cr. b. They can be interpreted to mean increase and decrease. c. They can be used to describe the balance of an account. d. They can be interpreted to mean left and right. Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

72. An account will have a credit balance if the

a. credits exceed the debits. b. first transaction entered was a credit. c. debits exceed the credits. d. last transaction entered was a credit. Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

73. For the basic accounting equation to stay in balance, each transaction recorded must

a. affect two or less accounts. b. affect two or more accounts. c. always affect exactly two accounts. d. affect the same number of asset and liability accounts. Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

74. Which of the following statements is true?

a. Debits increase assets and increase liabilities. b. Credits decrease assets and decrease liabilities. c. Credits decrease assets and increase liabilities. d. Debits decrease liabilities and decrease assets. Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

75. Assets normally show

a. credit balances. b. debit balances. c. debit and credit balances. d. debit or credit balances. Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

76. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?

a. A debit balance in the dividends account b. A credit balance in an expense account c. A credit balance in a liabilities account d. A credit balance in a revenue account Ans: b LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

77. If a company has overdrawn its bank balance, then

a. its cash account will show a debit balance. b. its cash account will show a credit balance. c. the cash account debits will exceed the cash account credits. d. it cannot be detected by observing the balance of the cash account. Ans: b LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

78. Which account below is not a subdivision of retained earnings?

a. Dividends b. Revenues c. Expenses d. Share Capital-­Ordinary Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

79. When a company pays dividends

a. the dividend doesn't have to be cash, it could be another asset. b. the dividends account will be increased with a credit. c. the retained earnings account will be directly increased with a debit. d. the dividends account will be decreased with a debit. Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

80. The Dividends account

a. appears on the income statement along with the expenses of the business. b. must show transactions every accounting period. c. is increased with debits and decreased with credits. d. is not a proper subdivision of retained earnings. Ans: c LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

81. Which of the following statements is not true?

a. Expenses increase equity. b. Expenses have normal debit balances. c. Expenses decrease equity. d. Expenses are a negative factor in the computation of net income. Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

82. A credit to a liability account

a. indicates an increase in the amount owed to creditors. b. indicates a decrease in the amount owed to creditors. c. is an error. d. must be accompanied by a debit to an asset account. Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

83. In the first month of operations, the total of the debit entries to the cash account amounted to $700 and the total of the credit entries to the cash account amounted to $500. The cash account has a

a. $500 credit balance.

b. $700 debit balance. c. $200 debit balance. d. $200 credit balance. Ans: c LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

84. Martin’s Mail Service purchased equipment for $4,000. Martin paid $500 in cash and signed a note for the balance. Martin debited the Equipment account, credited Cash and

a. nothing further must be done. b. debited the retained earnings account for $3,500. c. credited another asset account for $500. d. credited a liability account for $3,500. Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

85. Taylor Industries purchased supplies for £1,000. They paid £500 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for ₤1,000, a credit to a liability account for ₤500. Which of the following would be the correct way to complete the recording of the transaction?

a. Credit an asset account for ₤500. b. Credit another liability account for ₤500. c. Credit the retained earnings account for ₤500. d. Debit the retained earnings account for ₤500. Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

86. On January 14, Ericsson Industries purchased supplies of $500 on account. The entry to record the purchase will include

a. a debit to Supplies and a credit to Accounts Payable. b. a debit to Supplies Expense and a credit to Accounts Receivable. c. a debit to Supplies and a credit to Cash. d. a debit to Accounts Receivable and a credit to Supplies. Ans: a LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

87. On June 1, 2014, Alma Inc. reported a cash balance of €12,000. During June, Alma made deposits of €3,000 and made disbursements totalling €16,000. What is the cash balance at the end of June?

a. €1,000 debit balance b. €15,000 debit balance c. €1,000 credit balance d. €4,000 credit balance Ans: c LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

88. At January 1, 2014, LeAnna Industries reported retained earnings of $195,000. During 2014, LeAnna had a net loss of $45,000 and paid dividends of $30,000. At December 31, 2014, the amount of retained earnings is

a. $195,000. b. $210,000. c. $150,000.

d. $120,000. Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

89. Omega Company pays its employees twice a month, on the 7th and the 21st. On June 21, Omega Company paid employee salaries of $4,000. This transaction would

a. increase equity by $4,000. b. decrease the balance in Salaries and Wages Expense by $4,000. c. decrease net income for the month by $4,000. d. be recorded by a $4,000 debit to Salaries and Wages Payable and a $4,000 credit to

Salaries and Wages Expense. Ans: c LO2 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

90. In the first month of operations for Widget Industries, the total of the debit entries to the cash account amounted to ₤9,000 (₤5,000 investment by the owners and revenues of ₤4,000). The total of the credit entries to the cash account amounted to ₤5,000 (purchase of equipment ₤2,000 and payment of expenses ₤3,000). At the end of the month, the cash account has a(n)

a. ₤3,000 credit balance. b. ₤3,000 debit balance. c. ₤4,000 debit balance. d. ₤4,000 credit balance. Ans: c LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

91. Rusthe Company showed the following balances at the end of its first year:

Cash $ 17,000

Prepaid insurance 1,400

Accounts receivable 7,000

Accounts payable 5,600

Notes payable 8,400

Share capital-­‐ordinary 2,800

Dividends 1,400

Revenues 45,000

Expenses 35,000

What did Rusthe Company show as total credits on its trial balance?

a. $63,200 b. $61,800 c. $60,400 d. $64,600

Ans: b LO2 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA PC: PS

92. Ayala Company showed the following balances at the end of its first year:

Cash $ 8,000

Prepaid insurance 500

Accounts receivable 2,500

Accounts payable 2,000

Notes payable 6,000

Share capital-­‐ordinary 1,000

Dividends 500

Revenues 15,000

Expenses 12,500

What did Ayala Company show as total credits on its trial balance?

a. $24,500 b. $24,000 c. $23,500 d. $25,000 Ans: b LO2 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA PC: PS

93. During February 2014, its first month of operations, the owner of Alona Enterprises invested cash of $75,000. Alona had cash revenues of $12,000 and paid expenses of $21,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28?

a. $9,000 credit b. $66,000 debit c. $87,000 debit d. $54,000 credit Ans: b LO2 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

94. Which of the following statements is true regarding debits and credits?

a. On the income statement, debits are used to increase account balances, whereas on the statement of financial position, credits are used to increase account balances.

b. The basic equation on the statement of financial position is Assets + Liabilities = Equity.

c. The rules for debit and credit and the normal balance of Share Capital-­Ordinary are the same as for liabilities.

d. On the income statement, revenues are increased by debits whereas on the statement of financial position retained earnings is increased by a credit.

Ans: c LO2 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

95. Which of the following accounts is reported in the equity section of the statement of financial position?

a. Dividends b. Share capital−ordinary c. Revenues d. All of these answer choices are correct. Ans: b LO2 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

96. Revenues are

a. impacted by debits and credits in the same way that expenses are impacted by debits and credits.

b. a subdivision of equity, providing information about why equity increased. c. reported on the statement of financial position as a current item. d. All of these answer choices are correct.

Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

97. Basic steps in the recording process include all of the following except

a. transfer the journal information to the appropriate account in the statement of financial position.

b. analyze each transaction for its effect on the accounts. c. enter the transaction information in a journal. d. All of these answer choices are correct. Ans: a LO3 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

98. At January 31, 2014, the balance in Bota Inc.’s supplies account was $500. During February, Bota purchased supplies of $600 and used supplies of $800. At the end of February, the balance in the supplies account should be

a. $500 debit. b. $700 credit. c. $1,100 debit. d. $300 debit. Ans: d LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

99. At December 1, 2014, Gibson Company’s accounts receivable balance was €2,400. During December, Gibson had credit revenues of €10,000 and collected accounts receivable of €8,000. At December 31, 2014, the accounts receivable balance is

a. €2,400 debit. b. €4,400 debit. c. €12,400 debit. d. €4,400 credit. Ans: b LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

100. At October 1, 2014, Padilla Industries had an accounts payable balance of $60,000. During the month, the company made purchases on account of $50,000 and made payments on account of $80,000. At October 31, 2014, the accounts payable balance is

a. $60,000. b. $20,000. c. $30,000. d. $80,000. Ans: c LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

101. During 2014, its first year of operations, Yaspo’s Bakery had revenues of $100,000 and expenses of $55,000. The business paid dividends of $30,000. What is the amount of equity at December 31, 2014?

a. $0 b. $30,000 debit c. $15,000 credit

d. $45,000 credit Ans: c LO3 BT: C Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

102. On July 7, 2014, Anaya Enterprises performed cash services of $1,400. The entry to record this transaction would include

a. a debit to Service Revenue of $1,400. b. a credit to Accounts Receivable of $1,400. c. a debit to Cash of $1,400. d. a credit to Accounts Payable of $1,400. Ans: c LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

103. At September 1, 2014, Crews Co. reported equity of ₤204,000. During the month, Crews generated revenues of ₤30,000, incurred expenses of ₤18,000, purchased equipment for ₤7,500 and paid dividends of ₤3,000. What is the amount of equity at September 30, 2014?

a. ₤204,000 b. ₤12,000 c. ₤205,500 d. ₤213,000 Ans: d LO3 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

104. The final step in the recording process is to

a. analyze each transaction. b. enter the transaction in a journal. c. prepare a trial balance. d. transfer journal information to ledger accounts. Ans: d LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

105. The usual sequence of steps in the transaction recording process is:

a. journal à analyze à ledger. b. analyze à journal à ledger. c. journal à ledger à analyze. d. ledger à journal à analyze. Ans: b LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

106. In recording business transactions, evidence that an accounting transaction has taken place is obtained from

a. business documents. b. the taxing authority. c. the public relations department. d. the IASB. Ans: a LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

107. After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to

a. the company's bank. b. equity. c. ledger accounts. d. financial statements. Ans: c LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

108. The first step in the recording process is to

a. prepare financial statements. b. analyze each transaction for its effect on the accounts. c. post to a journal. d. prepare a trial balance. Ans: b LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

109. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n)

a. cash register sales tape. b. bill. c. advertising brochure. d. check. Ans: c LO3 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

110. After transaction information has been recorded in the journal, it is transferred to the

a. trial balance. b. income statement. c. book of original entry. d. ledger. Ans: d LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

111. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the

a. journal, and transfer the information to the ledger accounts.

b. ledger, and transfer the information to the journal.

c. book of accounts, and transfer the information to the journal.

d. book of original entry, and transfer the information to the journal.

Ans: a LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

112. The final step in the recording process is to transfer the journal information to the

a. trial balance. b. financial statements. c. ledger. d. file cabinets. Ans: c LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

113. The recording process occurs

a. once a year. b. once a month. c. repeatedly during the accounting period. d. infrequently in a manual accounting system. Ans: c LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

114. A compound journal entry involves

a. two accounts. b. three accounts. c. three or more accounts. d. four or more accounts. Ans: c LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

115. A journal provides

a. the balances for each account. b. information about a transaction in several different places. c. a list of all accounts used in the business. d. a chronological record of transactions. Ans: d LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

116. When three or more accounts are required in one journal entry, the entry is referred to as a

a. compound entry. b. triple entry. c. multiple entry. d. simple entry. Ans: a LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

117. When only two accounts are required in one journal entry, the entry is referred to as a

a. balanced entry. b. simple entry. c. posting. d. nominal entry. Ans: b LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

118. Another name for the journal is the

a. listing. b. book of original entry. c. book of accounts. d. book of source documents. Ans: b LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

119. The standard format of a journal would not include

a. a reference column. b. an account title column. c. a T-­account.

d. a date column. Ans: c LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

120. Transactions in a journal are initially recorded in

a. account number order. b. dollar amount order. c. alphabetical order. d. chronological order. Ans: d LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

121. A journal is not useful for

a. disclosing in one place the complete effect of a transaction. b. preparing financial statements. c. providing a record of transactions. d. locating and preventing errors. Ans: b LO4 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

122 A complete journal entry does not show

a. the date of the transaction. b. the new balance in the accounts affected by the transaction. c. a brief explanation of the transaction. d. the accounts and amounts to be debited and credited. Ans: b LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

123. The name given to entering transaction data in the journal is

a. chronicling. b. listing. c. posting. d. journalizing. Ans: d LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

124. The standard form of a journal entry has the

a. debit account entered first and indented. b. credit account entered first and indented. c. debit account entered first at the extreme left margin. d. credit account entered first at the extreme left margin. Ans: c LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

125 When journalizing, the reference column is

a. left blank. b. used to reference the source document. c. used to reference the journal page.

d. used to reference the financial statements. Ans: a LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

126. On June 1, 2014 Quang Le buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will

a. use two journal entries. b. make a compound entry. c. make a simple entry. d. list the credit entries first, which is proper form for this type of transaction. Ans: b LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

127. Which of the following journal entries is recorded correctly and in the standard format?

a. Salaries and Wages Expense ......................................................... 600

Cash ........................................................................................ 1,500

Rent Expense . ............................................................................... 900

b. Salaries and Wages Expense . ........................................................ 600

Rent Expense . ............................................................................... 900

Cash ........................................................................................ 1,500

c. Cash ............................................................................................... 1,500

Salaries and Wages Expense .................................................. 600

Rent Expense .......................................................................... 900

d. Salaries and Wages Expense ......................................................... 600

Rent Expense ................................................................................ 900

Cash . ....................................................................................... 1,500

Ans: d LO4 BT: AN Difficulty: Easy TOT: 1 min. AACSB: Analysis AICPA BB: CT AICPA PC: PS

128. Which of the following statements is true regarding simple and compound entries?

a. Simple entries can be prepared by anyone whereas compound entries need to be prepared by a skilled accountant.

b. Simple entries are recorded on the income statement whereas compound entries are recorded on the statement of financial position.

c. Simple entries involve one account, whereas compound entries involved 2 or more accounts.

d. An example of a compound entry would be the purchase of a machine for $400 cash and a $2,000 note payable.

Ans: d LO4 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

129. Compound entries

a. would include an entry to record the purchase of a computer for cash. b. include at least two debits or two credits. c. require that all credits be listed before the debits for entries affecting the statement of

financial position. d. should be broken into their component parts and recorded as simple entries. Ans: b LO4 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

130. Accounts maintained within the ledger that appear on the statement of financial position include all of the following except

a. Salaries and Wages Expense. b. Interest Payable. c. Supplies. d. Share Capital-­Ordinary. Ans: a LO5 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

131. The entire group of accounts maintained by a company is called the

a. statement of cash flows. b. general journal. c. general ledger. d. trial balance. Ans: c LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

132. An accounting record of the balances of all assets, liabilities, and equity accounts is called

a. compound entry. b. general journal. c. general ledger. d. chart of accounts. Ans: c LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

133. The usual ordering of accounts in the general ledger is

a. assets, liabilities, share capital−ordinary, retained earnings, dividends, revenues, and expenses.

b. assets, liabilities, dividends, share capital−ordinary, retained earnings, expenses, and revenues.

c. liabilities, assets, share capital−ordinary, retained earnings, revenues, expenses, and dividends.

d. Share capital−ordinary, retained earnings, assets, liabilities, dividends, expenses, and revenues.

Ans: a LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

134. Management could determine the amounts due from customers by examining which ledger account?

a. Service Revenue b. Accounts Payable c. Accounts Receivable d. Supplies Ans: c LO5 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

135. A three column form of account is so named because it has columns for

a. debit, credit, and account name. b. debit, credit, and reference. c. debit, credit, and balance. d. debit, credit, and date. Ans: c LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

136. On August 13, 2014, Merrill Enterprises purchased equipment for $1,500 and supplies of $300 on account. Which of the following journal entries is recorded correctly and in the standard format?

a. Equipment ..................................................................................... 1,500

Account Payable ...................................................................... 1,800

Supplies ............................................................................................. 300

b. Equipment. .................................................................................... 1,500

Supplies .......................................................................................... 300

Accounts Payable .................................................................... 1,800

c. Accounts Payable ........................................................................... 1,800

Equipment ............................................................................... 1,500

Supplies ................................................................................... 300

d. Equipment ..................................................................................... 1,500

Supplies ............................................................................................. 300

Accounts Payable. ................................................................... 1,800

Ans: d LO5 BT: AP Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

137. Robitaille Company received a cash advance of $500 from a customer. As a result of this event, a. assets increased by $500. b. equity increased by $500. c. liabilities decreased by $500. d. revenues increased by $500. Ans: a LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

138. Pastorek Company purchased equipment for $1,800 cash. As a result of this event,

a. equity decreased by $1,800. b. total assets increased by $1,800. c. total assets remained unchanged. d. total liabilities increased by $1,800. Ans: c LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

139. Root Company provided consulting services and billed the client $2,500. As a result of this

event,

a. assets remained unchanged. b. assets increased by $2,500. c. equity increased by $2,500. d. Both assets and equity increased by $2,500. Ans: d LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

140. The first step in posting involves

a. entering in the appropriate ledger account the date, journal page, and debit amount shown in the journal.

b. writing in the journal the account number to which the debit amount was posted. c. writing in the journal the account number to which the credit amount was posted. d. entering in the appropriate ledger account the date, journal page, and credit amount

shown in the journal. Ans: a LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

141. A chart of accounts usually starts with

a. asset accounts. b. expense accounts. c. liability accounts. d. revenue accounts. Ans: a LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

142. The procedure of transferring journal entries to the ledger accounts is called

a. journalizing. b. analyzing. c. reporting. d. posting. Ans: d LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

143. A number in the reference column in a general journal indicates

a. that the entry has been posted to a particular account. b. the page number of the journal. c. the dollar amount of the transaction. d. the date of the transaction. Ans: a LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

144. A chart of accounts for a business firm

a. is a graph. b. indicates the amount of profit or loss for the period. c. lists the accounts and account numbers that identify their location in the ledger. d. shows the balance of each account in the general ledger. Ans: c LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

145. Posting

a. should be performed in account number order.

b. accumulates the effects of journalized transactions in the individual accounts. c. involves transferring all debits and credits on a journal page to the trial balance. d. is accomplished by examining ledger accounts and seeing which ones need updating. Ans: b LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

146. After journal entries are posted, the reference column

a. of the general journal will be blank. b. of the general ledger will show journal page numbers. c. of the general journal will show "Dr" or "Cr". d. of the general ledger will show account numbers. Ans: b LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

147. The explanation column of the general ledger

a. is completed without exception. b. is nonexistent. c. is used infrequently. d. shows account titles. Ans: c LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

148. A numbering system for a chart of accounts

a. is prescribed by IFRS. b. is uniform for all businesses. c. usually starts with income statement accounts. d. usually starts with statement of financial position accounts. Ans: d LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

149. The first step in designing a computerized accounting system is the creation of the

a. general ledger. b. general journal. c. trial balance. d. chart of accounts. Ans: d LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

150. Posting

a. accumulates the effects of ledger entries and transfers them to the general journal. b. is done only for income statement activity;; activity related to the statement of financial

position does not require posting. c. is done only once per year. d. is done by posting all the debits and credits of one entry before moving on to the next

entry. Ans: d LO6 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

151. The trial balance

a. is a listing of all the accounts and their balances in the order the accounts appear on the statement of financial position.

b. has as its primary purpose to prove (check) that all journal entries were made for the period.

c. can be used to uncover errors in journalizing and posting. d. is used to prepare the statement of financial position while the general ledger is used

to prepare the income statement. Ans: c LO7 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

152. Which of the following errors will prevent the trial balance from balance?

a. A transaction is not journalized. b. Transposition error related to the statement of financial position. c. A journal entry is posted twice. d. A journal entry to purchase $100 worth of equipment is posted as a $1,000 purchase. Ans: b LO7 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

153. Which of the following statements is false concerning use of currency signs?

a. Currency signs do not appear in journals or ledgers. b. Currency signs are generally only shown for the first item in a column and for the

column total. c. Currency signs are not typically used in the trial balance. d. All of these answer choices are correct. Ans: c LO7 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

154. Which of the following statement is true regarding the recording process?

a. Because IFRS rely more on fair value and less on historical cost than U.S. GAAP the double-­entry accounting system is not widely used by companies who use IFRS.

b. Both IFRS and U.S. GAAP, use the same general rules of debits and credits and the steps in the recording process.

c. A trial balance using IFRS is organised by first showing the accounts from the statement of financial position followed by accounts from the income statement;; a trial balance using U.S. GAAP is organized using the opposite order.

d. All of the choices are correct regarding the recording process. Ans: b LO7 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

155. Under U.S. GAAP

a. currency signs are generally used in the journal, ledger, trial balance, and financial statements.

b. Share Capital-­Ordinary is referred to as Retained Earnings. c. the statement of financial position is often called the statement of changes in financial

position.

d. the rules of debits and credits, and the steps in the recording process are the same as under IFRS.

Ans: d LO7 BT: K Difficulty: Hard TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

156. The steps in preparing a trial balance include all of the following except

a. listing the account titles and their balances. b. totaling the debit and credit columns. c. proving the equality of the two columns. d. transferring journal amounts to ledger accounts. Ans: d LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

157. A trial balance may balance even when each of the following occurs except when

a. a transaction is not journalized. b. a journal entry is posted twice. c. incorrect accounts are used in journalizing. d. a transposition error is made. Ans: d LO7 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

158. A list of accounts and their balances at a given time is called a(n)

a. journal. b. posting. c. trial balance. d. income statement. Ans: c LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

159. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates

a. no errors have been made. b. no errors can be discovered. c. that all accounts reflect correct balances. d. the mathematical equality of the accounting equation. Ans: d LO7 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

160. A trial balance is a listing of

a. transactions in a journal. b. the chart of accounts. c. general ledger accounts and balances. d. the totals from the journal pages. Ans: c LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

161. Customarily, a trial balance is prepared

a. at the end of each day. b. after each journal entry is posted. c. at the end of an accounting period. d. only at the inception of the business. Ans: c LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

162. A trial balance would only help in detecting which one of the following errors?

a. A transaction that is not journalized. b. A journal entry that is posted twice. c. Offsetting errors are made in recording the transaction.

d. A transposition error when transferring the debit side of journal entry to the ledger. Ans: d LO7 BT: C Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Additional Multiple Choice Questions

163. An account is an individual accounting record of increases and decreases in specific

a. liabilities. b. assets. c. expenses. d. assets, liabilities, and equity items. Ans: d LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

164. A debit is not the normal balance for which of the following?

a. Asset account b. Dividends account c. Expense account d. Share capital-­ordinary account Ans: d LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

165. Which of the following rules is incorrect?

a. Credits decrease the dividends account. b. Debits increase the share capital-­ordinary account. c. Credits increase revenue accounts. d. Debits decrease liability accounts. Ans: b LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

166. Which of the following statements is false?

a. Revenues increase equity. b. Revenues have normal credit balances. c. Revenues are a positive factor in the computation of net income. d. Revenues are increased by debits. Ans: d LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

167. Which of the following is the correct sequence of steps in the recording process?

a. Posting, journalizing, analyzing b. Journalizing, analyzing, posting c. Analyzing, posting, journalizing d. Analyzing, journalizing, posting Ans: d LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

168. Which of the following is false about a journal?

a. It discloses in one place the complete effects of a transaction. b. It provides a chronological record of transactions. c. It helps to prevent or locate errors because debit and credit amounts for each entry

can be readily compared. d. It keeps in one place all the information about changes in specific account balances. Ans: d LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

169. Sternberg Company purchases equipment for $1,200 and supplies for $400 from Tran Co. for $1,600 cash. The entry for this transaction will include a

a. debit to Equipment $1,200 and a debit to Supplies Expense $400 for Tran. b. credit to Cash for Tran. c. credit to Accounts Payable for Sternberg. d. debit to Equipment $1,200 and a debit to Supplies $400 for Sternberg. Ans: d LO4 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

170. Wiser Inc. paid cash dividends of $300. The entry for this transaction will include a debit of $300 to

a. Dividends. b. Supplies Expense. c. Shareholders' Expense. d. Salaries and Wages Expense. Ans: a LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

171. On October 3, Josh Antonio, a carpenter, received a cash payment for services previously billed to a client. Josh paid his telephone bill, and he also bought supplies on credit. For the three transactions, at least one of the entries will include a

a. credit to Retained Earnings. b. credit to Notes Payable. c. debit to Accounts Receivable. d. credit to Accounts Payable. Ans: d LO4 BT: C Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

172. Posting of journal entries should be done in

a. account number order. b. alphabetical order. c. chronological order. d. dollar amount order. Ans: c LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

173. The chart of accounts is a

a. list of accounts and their balances at a given time. b. device used to prove the mathematical accuracy of the ledger. c. listing of the accounts and the account numbers which identify their location in the

ledger. d. required step in the recording process. Ans: c LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

174. Which of the following is incorrect regarding a trial balance?

a. It proves that the debits equal the credits after posting. b. It proves that the company has recorded all transactions. c. A trial balance uncovers errors in journalizing and posting. d. A trial balance is useful in the preparation of financial statements. Ans: b LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

175. A trial balance will not balance if

a. a journal entry is posted twice. b. a wrong amount is used in journalizing. c. incorrect account titles are used in journalizing. d. a journal entry is only partially posted. Ans: d LO7 BT: C Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Answers to Multiple Choice Questions

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

51. c 69. d 87. c 105. b 123. d 141. a 159. d 52. c 70. d 88. d 106. a 124. c 142. d 160. c 53. b 71. b 89. c 107. c 125. a 143. a 161. c 54. b 72. a 90. c 108. b 126. b 144. c 162. d 55. d 73. b 91. b 109. c 127. d 145. b 163. d 56. c 74. c 92. b 110. d 128. d 146. b 164. d 57. a 75. b 93. b 111. a 129. b 147. c 165. b 58. b 76. b 94. c 112. c 130. a 148. d 166. d 59. d 77. b 95. b 113. c 131. c 149. d 167. d 60. c 78. d 96. b 114. c 132. c 150. d 168. d 61. a 79. a 97. a 115. d 133. a 151. c 169. d 62. d 80. c 98. d 116. a 134. c 152. b 170. a 63. b 81. a 99. b 117. b 135. c 153. c 171. d 64. d 82. a 100. c 118. b 136. d 154. b 172. c 65. c 83. c 101. c 119. c 137. a 155. d 173. c 66. c 84. d 102. c 120. d 138. c 156. d 174. b 67. b 85. a 103. d 121. b 139. d 157. d 175. d 68. d 86. a 104. d 122. b 140. a 158. c

BRIEF EXERCISES

BE 176 At June 1, 2014, Estrada Industries had an accounts receivable balance of ₤12,000. During the month, the company performed credit services of ₤30,000 and collected accounts receivable of ₤32,000. What is the balance in accounts receivable at June 30, 2014?

Solution 176 The balance at the end of the month is ₤10,000, calculated as follows:

Beginning accounts receivable ₤12,000

Add: Credit sales 30,000

Less: Collections (32,000)

Ending accounts receivable ₤10,000

LO2 BT: AP Difficulty: Easy TOT: 3 min. AACSB: RT AICPA BB: CT AICPA PC: PS

BE 177

J. B. Goode has the following transactions during April of the current year. Indicate

(a) the effect on the accounting equation and (b) the debit-­‐credit analysis.

Apr. 1 Opens a law office, investing $20,000 in cash.

4 Pays rent in advance for 6 months, $10,800 cash.

16 Receives $8,000 from clients for services provided.

27 Pays secretary $3,000 salary.

Solution 177

(a) Effect on Accounting Equation (b) Debit-­Credit Analysis Aug. 1

The asset Cash is increased;; the equity account Share Capital-­Ordinary is increased.

Debits increase assets: debit Cash $20,000. Credits increase equity: credit Share Capital-­Ordinary $20,000.

4 The asset Prepaid Rent is increased;; the

asset Cash is decreased. Debits increase assets: debit Prepaid Rent $10,800. Credits decrease assets: credit Cash $10,800.

16

The asset Cash is increased;; the revenue Service Revenue is increased.

Debits increase assets: debit Cash $8,000. Credits increase revenues: credit Service Revenue $8,000.

27

The expense Salaries and Wages Expense is increased;; the asset Cash is decreased.

Debits increase expenses: debit Salaries and Wages Expense $3,000. Credits decrease assets: credit Cash $3,000.

LO2 BT: C Difficulty: Medium TOT: 6 min. AACSB: RT AICPA BB: CT AICPA PC: PS

BE 178 For each of the following accounts indicate the effect of a debit or a credit on the account and the normal balance. Increase (+), Decrease (–).

Debit_ _Credit_ Normal Balance

1. Salaries and Wages Expense. _______ _______ ________

2. Accounts Receivable. _______ ______ ______

3. Service Revenue. _______ _______ ________

4. Share Capital-­‐Ordinary. _______ _______ ________

5. Dividends. _______ _______ ________

Solution 178 Debit_ _Credit_ Normal Balance

1. Salaries and Wages Expense. __ + ____ ___–__ _ __ Dr___

2. Accounts Receivable. __ +__ __ ___–__ _ __ Dr___

3. Service Revenue. __ –__ __ ___+__ _ __ Cr___

4. Share Capital-­‐Ordinary. __ –__ __ ___+__ _ __ Cr___

5. Dividends. __ +_ ___ ___–__ _ __ Dr___

LO2 BT: K Difficulty: Easy TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

BE 179 For each of the following transactions of Chen Inc., identify the account to be debited and the account to be credited.

1. Purchased 18-­‐month insurance policy for cash.

2. Paid weekly payroll.

3. Purchased supplies on account.

4. Received utility bill to be paid at later date.

Solution 179 Transaction Debit Credit

1 Prepaid Insurance Cash

2 Salaries and Wages Expense Cash

3 Supplies Accounts Payable

4 Utilities Expense Accounts Payable

LO4 BT: AP Difficulty: Medium TOT: 4 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

BE 180 Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transaction.

1. Kevin Diaz invested $40,000 cash in exchange for ordinary shares.

2. Hired an employee to be paid $400 per week, starting tomorrow.

3. Paid two years’ rent in advance, $7,200.

4. Paid the worker’s weekly salary.

5. Recorded revenue earned and received for the week, $1,500.

Solution 180 1. Cash……. ...................................................................................................... 40,000

Share Capital-­‐Ordinary ...................................................................... 40,000

2. No entry, not a transaction.

3. Prepaid Rent ............................................................................................... 7,200

Cash ................................................................................................... 7,200

Solution 180 (cont.)

4. Salaries and Wages Expense ....................................................................... 400

Cash ................................................................................................... 400

5. Cash………. ................................................................................................... 1,500

Service Revenue ................................................................................ 1,500

LO4 BT: AP Difficulty: Medium TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

BE 181 Identify the impact on the accounting equation of the following transactions.

1. Purchased 36-­‐month insurance policy for cash.

2. Purchased supplies on account.

3. Received utility bill to be paid at later date.

4. Paid utility bill previously accrued.

Solution 181 1. Net effect is no change: Increases assets and decreases assets.

2. Increases assets and increases liabilities.

3. Increases liabilities and decreases equity.

4. Decreases assets and decreases liabilities

LO4 BT: K Difficulty: Easy TOT: 4 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

BE 182 Journalize the following transactions for Mercado Company for June 2014, the company’s first month of operations. You may omit explanations for the transactions.

1. Purchased equipment on account for $6,000.

2. Billed customers $5,000 for services performed.

3. Made payment of $1,500 on account for equipment purchased earlier in month.

4. Collected $2,400 on customer accounts.

Solution 182 1. Equipment .................................................................................................. 6,000

Accounts Payable .............................................................................. 6,000

2. Accounts Receivable ................................................................................... 5,000

Service Revenue ................................................................................ 5,000

3. Accounts Payable ........................................................................................ 1,500

Cash ................................................................................................... 1,500

4. Cash ............................................................................................................ 2,400

Accounts Receivable ......................................................................... 2,400

LO4 BT: AP Difficulty: Medium TOT: 4 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

BE 183 Use the information in BE 182 to answer the following questions.

1. What is the balance in Accounts Payable at June 30, 2014?

2. What is the balance in Accounts Receivable at June 30, 2014?

Solution 183 1. Accounts Payable at June 30, 2014:

Beginning accounts payable $ 0

Purchases on account 6,000

Payments on account (1,500)

Ending accounts payable $4,500

2. Accounts Receivable at June 30, 2014:

Beginning accounts receivable $ 0

Billed to customers 5,000

Collections from customers (2,400)

Ending accounts receivable $2,600

LO6 BT: AP Difficulty: Medium TOT: 6 min. AACSB: RT AICPA BB: CT AICPA PC: PS

BE 184 The transactions of the Buy It Now Store are recorded in the general journal below. You are to post the journal entries to T-­‐accounts.

General Journal

_____________________________________________________________________________________

Date Account Titles Debit Credit

_____________________________________________________________________________________

2014

Aug. 5 Accounts Receivable 2,800

Service Revenue 2,800

10 Cash 5,000

Service Revenue 5,000

19 Rent Expense 1,000

Cash 1,000

25 Cash 1,400

Accounts Receivable 1,400

BE 184 (cont.)

General Ledger

Cash Accounts Receivable

Service Revenue Rent Expense

Solution 184 General Ledger

Cash Accounts Receivable

8/10 5,000 8/19 1,000 8/5 2,800 8/25 1,400

8/25 1,400

8/31 Bal. 5,400 8/31 Bal. 1,400

Service Revenue Rent Expense

8/5 2,800 8/19 1,000

8/10 5,000

8/31 Bal. 7,800 8/31 Bal. 1,000

LO6 BT: AP Difficulty: Medium TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

BE 185 Prepare a trial balance from the ledger accounts of Attica Company as of January 31, 2014.

Accounts Payable $ 500 Rent Expense $ 500

Accounts Receivable 2,000 Service Revenue 5,000

Cash 3,000 Supplies 200

Share Capital-­‐Ordinary 2,200 Salaries and Wages Expense 1,000

Dividends 1,000

Solution 185 ATTICA COMPANY

Trial Balance

January 31, 2014

Debit Credit

Cash $3,000

Accounts Receivable 2,000

Supplies 200

Accounts Payable $ 500

Share Capital-­‐Ordinary 2,200

Dividends 1,000

Service Revenue 5,000

Rent Expense 500

Salaries and Wages Expense 1,000

$7,700 $7,700

LO7 BT: AP Difficulty: Medium TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

BE 186 Prepare a corrected trial balance for Luzon Company. All accounts should have a normal balance.

LUZON COMPANY Trial Balance March 31, 2014

Debit Credit

Cash € 40,000 Accounts Receivable €30,000 Prepaid Insurance 2,500 Equipment 60,000 Accounts Payable 25,000 Unearned Service Revenue 10,000

Notes Payable 20,000 Share Capital-­Ordinary 54,000 Dividends 1,500 Service Revenue 55,000 Salaries and Wages Expense 15,000 Utilities Expense 5,000 Rent Expense 10,000 €142,500 €185,500

Solution 186 LUZON COMPANY

Trial Balance

For the Quarter Ended 3/31/14

Debit Credit

Cash € 40,000

Accounts Receivable 30,000

Prepaid Insurance 2,500

Equipment 60,000

Accounts Payable € 25,000

Unearned Service Revenue 10,000

Notes Payable 20,000

Share Capital-­‐Ordinary 54,000

Dividends 1,500

Service Revenue 55,000

Salaries and Wages Expense 15,000

Utilities Expense 5,000

Rent Expense 10,000

€164,000 €164,000

LO7 BT: AP Difficulty: Medium TOT: 6 min. AACSB: RT AICPA BB: CT AICPA PC: PS

EXERCISES Ex. 187 The chart of accounts used by Ming Copy Company is listed below. You are to indicate the proper accounts to be debited and credited for the following transactions by writing the account number(s) in the appropriate boxes.

CHART OF ACCOUNTS

101 Cash 209 Unearned Service Revenue

112 Accounts Receivable 311 Share Capital-­‐Ordinary

126 Supplies 332 Dividends

157 Equipment 400 Service Revenue

200 Note Payable 610 Advertising Expense

201 Accounts Payable 729 Rent Expense

———————————————————————————————————————————

Number(s) Number(s)

of account(s) of account(s)

debited credited

1. The company issues ordinary shares in exchange for ¥90,000,000 cash.

———————————————————————————————————————————

2. Purchased three photocopy machines for ¥200,000,000, paying ¥50,000,000 cash and signing a 5-­‐year, 10% note for the remainder.

———————————————————————————————————————————

3. Purchased ¥5,000,000 supplies on credit.

———————————————————————————————————————————

4. Cash photocopy revenue amounted to ¥7,000,000.

———————————————————————————————————————————

5. Paid ¥500,000 cash for radio advertising.

———————————————————————————————————————————

6. Paid ¥800,000 on account for supplies purchased in transaction 3.

———————————————————————————————————————————

7. The company paid dividends of ¥1,500,000.

———————————————————————————————————————————

8. Paid ¥1,200,000 cash for rent for the current month.

———————————————————————————————————————————

9. Received ¥2,000,000 cash advance from a customer for future copying.

———————————————————————————————————————————

10. Billed a customer for ¥450,000 for photocopy work done.

———————————————————————————————————————————

Solution 187

———————————————————————————————————————————

Number(s) Number(s)

of account(s) of account(s)

debited credited

1. The company issues ordinary shares in exchange

for ¥90,000,000 cash. 101 311

———————————————————————————————————————————

2. Purchased three photocopy machines for

¥200,000,000, paying ¥50,000,000 cash and signing a

5-­‐year, 10% note for the remainder. 157 101,200

———————————————————————————————————————————

3. Purchased ¥5,000,000 supplies on credit. 126 201

———————————————————————————————————————————

4. Cash photocopy revenue amounted to ¥7,000,000. 101 400

———————————————————————————————————————————

5. Paid ¥500,000 cash for radio advertising. 610 101

———————————————————————————————————————————

6. Paid ¥800,000 on account for supplies

purchased in transaction 3. 201 101

———————————————————————————————————————————

7. The company paid dividends of ¥1,500,000. 332 101

———————————————————————————————————————————

8. Paid ¥1,200,000 cash for rent for the current month. 729 101

———————————————————————————————————————————

9. Received ¥2,000,000 cash advance from a

customer for future copying. 101 209

———————————————————————————————————————————

10. Billed a customer for ¥450,000 for photocopy work

done. 112 400

———————————————————————————————————————————

LO2 BT: AP Difficulty: Medium TOT: 15 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 188 Under a double-­‐entry system, show how the entry in each statement is entered in the ledger by using debit or credit to indicate the increase or decrease in the affected account.

Debit or Credit

1. An increase in Salaries and Wages Expense. ___________________

2. A decrease in Accounts Payable. ___________________

3. An increase in Prepaid Insurance. ___________________

4. An increase in Share Capital-­‐Ordinary. ___________________

5. A decrease in Supplies. ___________________

6. An increase in Dividends. ___________________

7. An increase in Service Revenue. ___________________

8. A decrease in Accounts Receivable. ___________________

9. An increase in Rent Expense. ___________________

10. A decrease in Equipment. ___________________

Solution 188

1. An increase in Salaries and Wages Expense. Debit ________

2. A decrease in Accounts Payable. Debit ________

3. An increase in Prepaid Insurance. Debit ________

4. An increase in Share Capital-­‐Ordinary. Credit _______

5. A decrease in Supplies. Credit _______

6. An increase in Dividends. Debit ________

7. An increase in Service Revenue. Credit _______

8. A decrease in Accounts Receivable. Credit _______

9. An increase in Rent Expense. Debit ________

10. A decrease in Equipment. Credit _______

LO2 BT: C Difficulty: Easy TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 189 Selected transactions for Sweet Home, a property management company, in its first month of business, are as follows.

Jan. 2 Issued ordinary shares to investors for $15,000 cash.

3 Purchased used car for $4,000 cash for use in business.

9 Purchased supplies on account for $500.

11 Billed customers $1,800 for services performed.

16 Paid $200 cash for advertising.

20 Received $700 cash from customers billed on January 11.

23 Paid creditor $300 cash on balance owed.

28 Paid dividends of $2,000.

Instructions

For each transaction indicate the following.

(a) The basic type of account debited and credited (asset (A), liability (L), equity (E)).

(b) The specific account debited and credited (cash, rent expense, service revenue, etc.).

(c) Whether the specific account is increased (incr.) or decreased (decr).

(d) The normal balance of the specific account.

Use the following format, in which the January 2 transaction is given as an example.

Account Debited Account Credited

(a) (b) (c) (d) (a) (b) (c) (d)

Basic Specific Normal Basic Specific Normal

Date Type Account Effect Balance Type Account Effect Balance

Jan. 2 A Cash Incr. Debit E Share Incr. Credit

Cap.–Ord.

Solution 189

Account Debited Account Credited

(a) (b) (c) (d) (a) (b) (c) (d)

Basic Specific Normal Basic Specific Normal

Date Type Account Effect Balance Type Account Effect Balance

Jan. 2 A Cash Incr. Debit E Share Incr. Credit

Cap.–Ord.

3 A Equip. Incr. Debit A Cash Decr. Debit 9 A Supplies Incr. Debit L Accts. Pay. Incr. Credit 11 A Accts Service Rec. Incr. Debit E Revenue Incr. Credit

16 E Advert. Expense Incr. Debit A Cash Decr. Debit Accts. 20 A Cash Incr. Debit A Rec. Decr. Debit 23 L Accts. Pay. Decr. Credit A Cash Decr. Debit

28 E Dividends Incr. Debit A Cash Decr. Debit LO2 BT: C Difficulty: Medium TOT: 10 min. AACSB: RT AICPA BB: CT AICPA PC: PS

Ex. 190 For the accounts listed below, indicate if the normal balance of the account is a debit or credit.

Normal Balance

Accounts Debit or Credit

1. Service Revenue ___________________

2. Rent Expense ___________________

3. Accounts Receivable ___________________

4. Accounts Payable ___________________

5. Retained Earnings ___________________

6. Supplies ___________________

7. Insurance Expense ___________________

8. Dividends ___________________

9. Equipment ___________________

10. Notes Payable ___________________

Solution 190

Normal Balance

Accounts Debit or Credit

1. Service Revenue Credit

2. Rent Expense Debit

3. Accounts Receivable Debit

4. Accounts Payable Credit

5. Retained Earnings Credit

6. Supplies Debit

7. Insurance Expense Debit

8. Dividends Debit

9. Equipment Debit

10. Notes Payable Credit

LO2 BT: C Difficulty: Easy TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 191 For each of the following accounts, indicate the effects of (a) a debit and (b) the normal account balance. 1. Notes Payable 2. Prepaid Insurance 3. Salaries and Wages Expense 4. Service Revenue 5. Equipment 6. Share Capital-­‐Ordinary

Solution 191

Debit Effect Normal Balance

1. Notes Payable Decrease Credit 2. Prepaid Insurance Increase Debit 3. Salaries and Wages Expense Increase Debit 4. Service Revenue Decrease Credit 5. Equipment Increase Debit 6. Share Capital-­‐Ordinary Decrease Credit

LO2 BT: C Difficulty: Easy TOT: 7 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 192 During an accounting period, a business has numerous transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries.

____ (1) Advertising Expense _____ (6) Dividends

____ (2) Service Revenue _____ (7) Cash

____ (3) Accounts Payable _____ (8) Salaries and Wages Expense

____ (4) Accounts Receivable _____ (9) Notes Payable

____ (5) Share Capital-­‐Ordinary _____ (10) Insurance Expense

Solution 192

(1) (a) (5) (b) (9) (c)

(2) (b) (6) (a) (10) (a)

(3) (c) (7) (c)

(4) (c) (8) (a)

LO2 BT: C Difficulty: Easy TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 193 Eight transactions are recorded in the following T-­‐accounts:

CASH ACCOUNTS RECEIVABLE

(1) 35,000 (2) 3,500 (5) 27,500 (7) 22,500

(7) 22,500 (3) 1,950

(4) 2,225

(6) 8,000

(8) 4,500

SUPPLIES EQUIPMENT

(3) 1,950 (2) 13,500

SHARE CAPITAL-­‐ORDINARY SERVICE REVENUE

(1) 35,000 (5) 27,500

ACCOUNTS PAYABLE DIVIDENDS

(6) 8,000 (2) 10,000 (8) 4,500

SALARIES AND WAGES EXPENSE

(4) 2,225

Ex. 193 (cont.)

Indicate for each debit and each credit: (a) whether an asset, liability, equity, revenue, or expense account was affected and (b) whether the account was increased (+) or (–) decreased. Answers should be presented in the following chart form:

Transaction Account Debited Account Credited

No. Type Effect Type Effect

———————————————————————————————————————————

(1) (Example) Asset + Equity +

———————————————————————————————————————————

(2)

———————————————————————————————————————————

(3)

———————————————————————————————————————————

(4)

———————————————————————————————————————————

(5)

———————————————————————————————————————————

(6)

———————————————————————————————————————————

(7)

———————————————————————————————————————————

(8)

———————————————————————————————————————————

Solution 193 Transaction Account Debited Account Credited

No. Type Effect Type Effect

———————————————————————————————————————————

(1) (Example) Asset + Equity +

———————————————————————————————————————————

(2) Asset + Asset –

Liability +

———————————————————————————————————————————

(3) Asset + Asset –

———————————————————————————————————————————

(4) Expense + Asset –

———————————————————————————————————————————

(5) Asset + Revenue +

———————————————————————————————————————————

(6) Liability – Asset –

———————————————————————————————————————————

(7) Asset + Asset –

———————————————————————————————————————————

(8) Equity – Asset –

LO2 BT: C Difficulty: Medium TOT: 15 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 194 For each of the following accounts indicate (a) the type of account (Asset, Liability, Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the normal account balance.

Example

0. Cash a. Asset account

b. Debit increases, credit decreases

c. Normal balance -­‐ debit

Accounts

1. Accounts Payable 5. Service Revenue

2. Accounts Receivable 6. Insurance Expense

3. Share Capital-­‐Ordinary 7. Notes Payable

4. Dividends 8. Equipment

Solution 194

1. a. Liability account. 5. a. Revenue account.

b. Debit decreases, credit increases. b. Debit decreases, credit increases.

c. Normal balance -­‐ credit. c. Normal balance -­‐ credit.

2. a. Asset account. 6. a. Expense account.

b. Debit increases, credit decreases. b. Debit increases, credit decreases.

c. Normal balance -­‐ debit. c. Normal balance -­‐ debit.

3. a. Equity account. 7. a. Liability account.

b. Debit decreases, credit increases. b. Debit decreases, credit increases.

c. Normal balance -­‐ credit. c. Normal balance -­‐ credit.

4. a. Equity account. 8. a. Asset account.

b. Debit increases, credit decreases. b. Debit increases, credit decreases.

c. Normal balance -­‐ debit. c. Normal balance -­‐ debit.

LO2 BT: C Difficulty: Easy TOT: 15 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 195 For each transaction given, enter in the tabulation given below a "D" for debit and a "C" for credit to reflect the increases and decreases of the assets, liabilities, and equity accounts. In some cases there may be a "D" and a "C" in the same box.

Transactions:

1. Shareholders invest cash in the business in exchange for ordinary shares.

2. Pays insurance in advance for six months.

3. Pays secretary's salary.

4. Purchases supplies on account.

5. Pays electricity bill.

6. Borrows money from local bank.

7. Makes payment on account.

8. Receives cash due from customers.

Ex. 195 (cont.)

9. Provides services on account.

10. The company pays dividends.

Transaction #

1 2 3 4 5 6 7 8 9 10

Assets

Liabilities

Share Capital-­‐Ordinary

Dividends

Revenues

Expenses

Solution 195

Transaction #

1 2 3 4 5 6 7 8 9 10

Assets D D,C C D C D C D,C D C

Liabilities C C D

Share Capital-­‐Ordinary C

Dividends D

Revenues C

Expenses D D

LO2 BT: C Difficulty: Medium TOT: 15 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 196 Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transactions.

1. The company issues ordinary shares in exchange for ₤25,000 cash.

2. Purchased ₤400 of supplies on credit.

3. Purchased equipment for ₤10,000, paying ₤3,000 in cash and signed a 30-­‐day, ₤7,000, note payable.

4. Real estate commissions billed to clients amount to ₤4,000.

5. Paid ₤700 in cash for the current month's rent.

6. Paid ₤200 cash on account for supplies purchased in transaction 2.

7. Received a bill for ₤600 for advertising for the current month.

8. Paid ₤2,200 cash for salaries.

9. The company paid dividends of ₤1,200.

10. Received a check for ₤3,000 from a client in payment on account for commissions billed in transaction 4.

Solution 196 1. Cash ...................................................................................................... 25,000

Share Capital-­‐Ordinary ............................................................... 25,000

2. Supplies ................................................................................................ 400

Accounts Payable ........................................................................ 400

3. Equipment ............................................................................................ 10,000

Cash ............................................................................................ 3,000

Notes Payable ............................................................................. 7,000

4. Accounts Receivable ............................................................................. 4,000

Service Revenue ......................................................................... 4,000

5. Rent Expense ........................................................................................ 700

Cash ............................................................................................ 700

6. Accounts Payable ................................................................................. 200

Cash ............................................................................................ 200

7. Advertising Expense ............................................................................. 600

Accounts Payable ........................................................................ 600

8. Salaries and Wages Expense ................................................................ 2,200

Cash ............................................................................................ 2,200

9. Dividends .............................................................................................. 1,200

Cash ............................................................................................ 1,200

10. Cash ...................................................................................................... 3,000

Accounts Receivable ................................................................... 3,000

LO4 BT: AP Difficulty: Medium TOT: 15 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 197 Identify the accounts to be debited and credited for each of the following transactions.

1. The owners invested $10,000 cash in the business in exchange for ordinary shares. 2. Purchased supplies on account for $1,000. 3. Billed customers $2,000 for services performed. 4. Paid salaries of $900.

Solution 197 Account Debited Account Credited 1. Cash Share Capital-­‐Ordinary 2. Supplies Accounts Payable 3. Accounts Receivable Service Revenue 4. Salaries and Wages Expense Cash

LO3 BT: C Difficulty: Easy TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 198 Transactions for Tom Petty Company for the month of October are presented below. Journalize each transaction and identify each transaction by number. You may omit journal explanations.

1. Issued ordinary shares in exchange for $50,000 cash.

2. Purchased land costing $28,000 for cash.

3. Purchased equipment costing $20,000 for $3,000 cash and the remainder on credit.

4. Purchased supplies on account for $800.

5. Paid $1,000 for a one-­‐year insurance policy.

6. Received $3,000 cash for services performed.

7. Received $4,000 for services previously performed on account.

8. Paid salaries to employees for $2,500.

9. Paid dividends of $1,000.

Solution 198 1. Cash ............................................................................................................ 50,000

Share Capital-­‐Ordinary ...................................................................... 50,000

2. Land ............................................................................................................ 28,000

Cash ................................................................................................... 28,000

3. Equipment .................................................................................................. 20,000

Cash ................................................................................................... 3,000

Accounts Payable .............................................................................. 17,000

4. Supplies .................................................................................................... 800

Accounts Payable ............................................................................. 800

5. Prepaid Insurance ....................................................................................... 1,000

Cash ................................................................................................... 1,000

6. Cash ............................................................................................................ 3,000

Service Revenue ................................................................................ 3,000

7. Cash ............................................................................................................ 4,000

Accounts Receivable ......................................................................... 4,000

8. Salaries and Wages Expense ....................................................................... 2,500

Cash ................................................................................................... 2,500

9. Dividends .................................................................................................... 1,000

Cash ................................................................................................... 1,000

LO3 BT: AP Difficulty: Medium TOT: 10 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 199 Match the basic step in the recording process described by each of the following statements.

A. Analyze each transaction B. Enter each transaction in a journal C. Transfer journal information to ledger accounts

____ 1. This step is called posting.

____ 2. Business documents are examined to determine the effects of transactions on the accounts.

____ 3. This step is called journalizing.

Solution 199 1. C 2. A 3. B

LO3 BT: C Difficulty: Easy TOT: 2 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 200 Prepare journal entries for each of the following transactions.

1. Performed services for customers on account €6,000.

2. Purchased €20,000 of equipment on account.

3. Received €3,000 from customers in transaction 1.

4. The company paid dividends of €1,000.

Solution 200 1. Accounts Receivable ......................................................................................... 6,000 Service Revenue ...................................................................................... 6,000 2. Equipment ........................................................................................................ 20,000 Accounts Payable .................................................................................... 20,000

3. Cash ................................................................................................................ 3,000 Accounts Receivable ............................................................................... 3,000

4. Dividends .......................................................................................................... 1,000 Cash ......................................................................................................... 1,000

LO4 BT: AP Difficulty: Easy TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 201 Glynn Company is a newly organized business. The list of accounts to be opened in the general ledger is as follows:

Accounts Payable Prepaid Insurance

Accounts Receivable Prepaid Rent

Accumulated Depreciation Rent Expense

Cash Salaries and Wages Expense

Depreciation Expense Salaries and Wages Payable

Equipment Service Revenue

Insurance Expense Supplies

Share Capital-­‐Ordinary Supplies Expense

Dividends

Instructions

Organize the accounts into the order in which they should appear in the ledger of Glynn Company and assign account numbers. Use the following system to assign account numbers.

1—199 Assets

200—299 Liabilities

300—399 Equity

400—499 Revenues

500—599 Expenses

Solution 201 There are several possible correct account number assignments. The following is one of the correct solutions.

101-­‐ Cash

112-­‐ Accounts Receivable

126-­‐ Supplies

130-­‐ Prepaid Insurance

140-­‐ Prepaid Rent

157-­‐ Equipment

158-­‐ Accumulated Depreciation

201-­‐ Accounts Payable

212-­‐ Salaries and Wages Payable

311-­‐ Share Capital-­‐Ordinary

332-­‐ Dividends

400-­‐ Service Revenue

510-­‐ Salaries and Wages Expense

520-­‐ Supplies Expense

530-­‐ Rent Expense

540-­‐ Insurance Expense

550-­‐ Depreciation Expense

LO5 BT: AP Difficulty: Medium TOT: 15 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 202 The transactions of Medina Information Service are recorded in the general journal below. You are to post the journal entries to the accounts in the general ledger. After all entries have been posted, you are to prepare a trial balance on the form provided.

General Journal J1

———————————————————————————————————————————

Date Account Titles and Explanation Ref. Debit Credit

———————————————————————————————————————————

2014

Sept. 1 Cash 35,000

Share Capital-­‐Ordinary 35,000

(Issued ordinary shares for cash)

4 Equipment 30,000

Cash 10,000

Notes Payable 20,000

(Paid cash and issued 2-­‐year, 9%, note for

equipment)

8 Rent Expense 1,000

Cash 1,000

(Paid September rent)

15 Prepaid Insurance 400

Cash 400

(Paid one-­‐year liability insurance)

18 Cash 2,500

Service Revenue 2,500

(Received cash for delivery services)

20 Salaries and Wages Expense 500

Cash 500

(Paid salaries for current period)

25 Utilities Expense 600

Accounts Payable 600

(Received a bill for September utilities)

30 Dividends 1,800

Cash 1,800

(Paid dividends)

30 Accounts Receivable 2,000

Service Revenue 2,000

(Billed customer for delivery service)

Ex. 202 (cont.)

General Ledger

Cash Account No. 101

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Accounts Receivable Account No. 112

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Prepaid Insurance Account No. 130

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Equipment Account No. 155

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Accounts Payable Account No. 201

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Ex. 202 (cont.)

Notes Payable Account No. 205

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Share Capital-­‐Ordinary Account No. 311

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Dividends Account No. 332

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Service Revenue Account No. 400

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Rent Expense Account No. 719

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Ex. 202 (cont.)

Salaries and Wages Expense Account No. 726

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

Utilities Expense Account No. 735

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

MEDINA INFORMATION SERVICE

Trial Balance

September 30, 2014

———————————————————————————————————————————

Accounts Debit Credit

———————————————————————————————————————————

———————————————————————————————————————————

Solution 202 General Journal J1

———————————————————————————————————————————

Date Account Titles and Explanation Ref. Debit Credit

———————————————————————————————————————————

2014

Sept. 1 Cash 101 35,000

Share Capital-­‐Ordinary 311 35,000

(Issued ordinary shares for cash)

4 Equipment 155 30,000

Cash 101 10,000

Notes Payable 205 20,000

(Paid cash and issued 2-­‐year, 9%, note for

equipment)

8 Rent Expense 719 1,000

Cash 101 1,000

(Paid September rent)

15 Prepaid Insurance 130 400

Cash 101 400

(Paid one-­‐year liability insurance)

18 Cash 101 2,500

Service Revenue 400 2,500

(Received cash for delivery services)

20 Salaries and Wages Expense 726 500

Cash 101 500

(Paid salaries for current period)

25 Utilities Expense 735 600

Accounts Payable 201 600

(Received a bill for September utilities)

30 Dividends 332 1,800

Cash 101 1,800

(Paid dividends)

30 Accounts Receivable 112 2,000

Service Revenue 400 2,000

(Billed customer for delivery service)

Solution 202 (cont.) General Ledger

Cash Account No. 101

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 1 J1 35,000 35,000

4 J1 10,000 25,000

8 J1 1,000 24,000

15 J1 400 23,600

18 J1 2,500 26,100

20 J1 500 25,600

30 J1 1,800 23,800

Accounts Receivable Account No. 112

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 30 J1 2,000 2,000

Prepaid Insurance Account No. 130

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 15 J1 400 400

Equipment Account No. 155

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 4 J1 30,000 30,000

Accounts Payable Account No. 201

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 25 J1 600 600

Solution 202 (cont.) Notes Payable Account No. 205

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 4 J1 20,000 20,000

Share Capital-­‐Ordinary Account No. 311

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 1 J1 35,000 35,000

Dividends Account No. 332

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 30 J1 1,800 1,800

Service Revenue Account No. 400

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 18 J1 2,500 2,500

30 J1 2,000 4,500

Rent Expense Account No. 719

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 8 J1 1,000 1,000

Salaries and Wages Expense Account No. 726

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 20 J1 500 500

Solution 202 (cont.) Utilities Expense Account No. 735

———————————————————————————————————————————

Date Explanation Ref. Debit Credit Balance

———————————————————————————————————————————

2014

Sept. 25 J1 600 600

MEDINA INFORMATION SERVICE

Trial Balance

September 30, 2014

———————————————————————————————————————————

Accounts Debit Credit

———————————————————————————————————————————

Cash $ 23,800

Accounts Receivable 2,000

Prepaid Insurance 400

Equipment 30,000

Accounts Payable $ 600

Notes Payable 20,000

Share Capital-­‐Ordinary 35,000

Dividends 1,800

Service Revenue 4,500

Rent Expense 1,000

Salaries and Wages Expense 500

Utilities Expense 600

Totals $60,100 $60,100

_____________________________________________________________________________________

LO5 BT: AP Difficulty: Hard TOT: 25 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 203 The bookkeeper for Dole Yard Service made a number of errors in journalizing and posting as described below:

1. A debit posting to accounts receivable for $500 was omitted.

2. A payment of accounts payable for $600 was credited to cash and debited to accounts receivable.

3. A credit to accounts receivable for $650 was posted as $65.

4. A cash purchase of equipment for $561 was journalized as a debit to equipment and a credit to notes payable. The credit posting was made for $516.

5. A debit posting of $300 for purchase of supplies was credited to supplies.

6. A debit to insurance expense for $591 was posted as $519.

7. A debit posting for salaries expense for $900 was made twice.

8. A cash purchase of supplies for $700 was journalized and posted as a debit to supplies for $70 and a credit to cash for $70.

Instructions

For each error, indicate (a) whether the trial balance will balance; if the trial balance will not balance, indicate (b) the amount of the difference, and (c) the trial balance column that will have the larger total. Consider each error separately. Use the following form, in which error (1) is given as an example.

(A) (B) (C)

Error In Balance Difference Larger Column

1 No $500 Credit

Solution 203 (A) (B) (C)

Error In Balance Difference Larger Column

1 No $500 Credit

2 Yes — —

3 No 585 Debit

4 No 45 Debit

5 No 600 Credit

6 No 72 Credit

7 No 900 Debit

8 Yes — —

LO6 BT: AN Difficulty: Hard TOT: 15 min. AACSB: Analysis AICPA BB: CT AICPA PC: PS

Ex. 204 Post the following transactions to T-­‐accounts and determine each account's ending balance. 1. Supplies ....................................................................................................... 2,000 Accounts Payable .............................................................................. 2,000 2. Accounts Receivable ................................................................................... 4,000 Service Revenue ................................................................................ 4,000

3. Cash .......................................................................................................... 3,500 Accounts Receivable ......................................................................... 3,500 4. Accounts Payable ........................................................................................ 1,000 Cash ................................................................................................... 1,000

Solution 204 Cash Accounts Payable

3. 3,500 4. 1,000 4. 1,000 1. 2,000

Bal. 2,500 Bal. 1,000

Solution 204 (cont.)

Accounts Receivable Service Revenue

2. 4,000 3. 3,500 2. 4,000

Bal. 500 Bal. 4,000

Supplies

1. 2,000

Bal. 2,000

LO6 BT: AP Difficulty: Easy TOT: 6 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 205 The trial balance of Drysdale Company shown below does not balance.

DRYSDALE COMPANY

Trial Balance

June 30, 2014

———————————————————————————————————————————

Debit Credit

Cash ............................................................................................................ ₤ 2,600

Accounts Receivable ................................................................................... 7,600

Supplies ...................................................................................................... 600

Equipment .................................................................................................. 8,300

Accounts Payable ....................................................................................... ₤ 9,766

Share Capital-­‐Ordinary ............................................................................... 1,952

Dividends .................................................................................................... 1,500

Service Revenue ......................................................................................... 15,200

Salaries and Wages Expense ...................................................................... 3,800

Maintenance and Repairs Expense ............................................................ 1,600

Totals ................................................................................................ ₤26,000 ₤26,918

An examination of the ledger and journal reveals the following errors:

1. Each of the above listed accounts has a normal balance per the general ledger.

2. Cash of ₤170 received from a customer on account was debited to Cash ₤710 and credited to Accounts Receivable ₤710.

3. A dividend of ₤300 was posted as a credit to Dividends, ₤300 and credit to Cash ₤300.

4. A debit of ₤120 was not posted to Salaries and Wages Expense.

5. The purchase of equipment on account for ₤700 was recorded as a debit to Maintenance and Repairs Expense and a credit to Accounts Payable for ₤700.

6. Services were performed on account for a customer, ₤310, for which Accounts Receivable was debited ₤310 and Service Revenue was credited ₤31.

7. A payment on account for ₤225 was credited to Cash for ₤225 and credited to Accounts Payable for ₤252.

Instructions

Prepare a correct trial balance.

Solution 205 DRYSDALE COMPANY

Trial Balance

June 30, 2014

———————————————————————————————————————————

Debit Credit

Cash [2,600 – 540 (2)] ................................................................................ ₤ 2,060

Accounts Receivable [7,600 + 540 (2)] ....................................................... 8,140

Supplies ...................................................................................................... 600

Equipment [8,300 + 700 (5)] ...................................................................... 9,000

Accounts Payable [9,766 – 477 (7)] ............................................................ ₤9,289

Share Capital-­‐Ordinary ............................................................................... 1,952

Dividends [1,500 + 300 + 300 (3)] .............................................................. 2,100

Service Revenue [15,200 + 279 (6)] ............................................................ 15,479

Salaries and Wages Expense [3,800 + 120 (4)] ........................................... 3,920

Maintenance and Repairs Expense [1,600 – 700 (5)] ................................. 900

Totals .................................................................................................. ₤26,720 ₤26,720

LO7 BT: AN Difficulty: Hard TOT: 25 min. AACSB: Analysis AICPA BB: CT AICPA PC: PS

Ex. 206 Some of the following errors would cause the debit and credit columns of the trial balance to have unequal totals. For each of the four cases, state whether the error would cause unequal totals in the trial balance.

If the error causes unequal totals, indicate the amount of difference between the columns and state whether the debit or credit is larger. Each case is to be considered independently of the others.

1. A payment of $800 to a creditor was recorded by a debit to Accounts Payable of $80 and a credit to Cash of $800.

2. A $480 payment for a printer was recorded by a debit to Equipment of $48 and a credit to Cash for $48.

3. An account receivable in the amount of $1,500 was collected in full. The collection was recorded by a debit to Cash for $1,500 and a debit to Accounts Payable for $1,500.

4. An account payable was paid by issuing a check for $800. The payment was recorded by debiting Accounts Payable $800 and crediting Accounts Receivable $800.

Solution 206 1. The trial balance totals will be unequal. The credit column will be $720 larger than the debit column.

2. The trial balance totals will be misstated but not unequal.

Solution 206 (cont.)

3. The trial balance totals will be unequal. The debit column will be $3,000 larger than the credit column.

4. The trial balance totals will be misstated but not unequal.

LO7 BT: AN Difficulty: Medium TOT: 5 min. AACSB: Analysis AICPA BB: CT AICPA PC: PS

Ex. 207 M. Caria and Associates is a financial planning service. The account balances at December 31, 2014 are shown by the following alphabetical list:

Accounts Payable $ 13,000

Accounts Receivable 19,000

Buildings 120,000

Cash 26,500

Equipment 71,000

Land 42,000

Notes Payable 95,000

Notes Receivable 8,100

Share Capital-­‐Ordinary 179,700

Supplies 1,100

Instructions

Prepare a trial balance with the accounts arranged in proper order.

Solution 207 M. CARIA AND ASSOCIATES

Trial Balance

December 31, 2014

Debit Credit

Cash ............................................................................................................ $ 26,500

Accounts Receivable ................................................................................... 19,000

Supplies ...................................................................................................... 1,100

Notes Receivable ........................................................................................ 8,100

Equipment .................................................................................................. 71,000

Buildings ..................................................................................................... 120,000

Land ............................................................................................................ 42,000

Accounts Payable ....................................................................................... $ 13,000

Notes Payable ............................................................................................. 95,000

Share Capital-­‐Ordinary ............................................................................... 179,700

Totals ................................................................................................ $287,700 $287,700

LO7 BT: AP Difficulty: Medium TOT: 10 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 208 The ledger accounts of the Redlands Place Gym at June 30, 2014 are shown below:

Accounts Payable $ 14,100

Accounts Receivable 1,050

Buildings 81,400

Cash 20,000

Dividends 10,500

Equipment 12,900

Notes Payable 49,000

Share Capital-­‐Ordinary 63,100

Supplies 350

Instructions

Prepare a trial balance with the ledger accounts arranged in the proper order. Include the appropriate heading.

Solution 208 REDLANDS PLACE GYM

Trial Balance

June 30, 2014

Debit Credit

Cash ............................................................................................................ $ 20,000

Accounts Receivable ................................................................................... 1,050

Supplies ...................................................................................................... 350

Equipment .................................................................................................. 12,900

Buildings ..................................................................................................... 81,400

Accounts Payable ....................................................................................... $ 14,100

Notes Payable ............................................................................................. 49,000

Share Capital-­‐Ordinary ............................................................................... 63,100

Dividends .................................................................................................... 10,500

Totals ................................................................................................ $126,200 $126,200

LO7 BT: AP Difficulty: Medium TOT: 10 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex. 209 The ledger account balances for Perkins Company are listed below. Accounts Payable € 10,000 Accounts Receivable 7,000 Cash 13,000 Share Capital-­‐Ordinary 9,000 Dividends 4,000 Service Revenue 40,000 Salaries and Wages Expense 25,000

Unearned Service Revenue 2,000 Utilities Expense 12,000

Instructions

Prepare a trial balance in proper form for Perkins at December 31, 2014.

Solution 209 PERKINS COMPANY

Trial Balance December 31, 2014

Debit Credit

Cash €13,000 Accounts Receivable 7,000 Accounts Payable € 10,000 Unearned Service Revenue 2,000 Share Capital-­‐Ordinary 9,000 Dividends 4,000 Service Revenue 40,000 Salaries and Wages Expense 25,000

Utilities Expense 12,000

€61,000 €61,000

LO7 BT: AP Difficulty: Medium TOT: 8 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Ex 210

The bookkeeper for Stan Lei Auto Repair made a number of errors in journalizing

and posting, as described below.

1. A credit posting of $500 to Accounts Receivable was omitted.

2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.

3. A collection from a customer of $100 in payment of its account was journalized and

posted as a debit to Cash $100 and a credit to Service Revenue $100.

4. A credit posting of $300 to Property Taxes Payable was made twice.

5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25

and a credit to Cash $25.

6. A debit of $475 to Advertising Expense was posted as $457 Instructions

For each error:

(a) Indicate whether the trial balance will balance.

(b) If the trial balance will not balance, indicate the amount of the difference.

(c) Indicate the trial balance column that will have the larger total.

Consider each error separately. Use the following form, in which error (1) is given as an example.

(a) (b) (c)

Error In Balance Difference Larger Column

(1) No $500 debit

Solution 210

Error

(a) In Balance

(b) Difference

(c) Larger Column

1. No $500 Debit 2. Yes — — 3. Yes — — 4. No 300 Credit 5. Yes — — 6. No 18 Credit

LO7 BT: AN Difficulty: Hard TOT: 8 min. AACSB: Analytic AICPA BB: CT AICPA PC: PS

COMPLETION STATEMENTS

211. An _______________ is a record of increases and decreases in specific assets, liabilities, and

equity items.

212. The process of entering an amount on the left side of an account is called ____________ the

account, and making an entry on the right side is called _________________ the account.

213. ______________, _______________, and _______________ have debit normal account balances

whereas _______________, ________________, ________________, and ________________

have credit normal account balances.

214. The five subdivisions of equity are: ________________, ________________, ________________,

________________, and ________________.

215. The basic steps in the recording process are: _______________ each transaction, enter the

transaction in a ________________, and transfer the _______________ information to

appropriate accounts in the ________________.

216. A sales slip, a check, and a cash register tape are examples of ________________ used as evidence

that a transaction has taken place.

217. An accounting record where transactions are initially recorded in chronological order is called a

________________.

218. When three or more accounts are required in one journal entry, the entry is referred to as a

________________ entry.

219. The entire group of accounts and their balances maintained by a company is called the

________________.

220. A two column list of all accounts and their balances at a given time is a ______________.

Answers to Completion Statements

211. account 216. business documents

212. debiting, crediting 217. journal

213. Assets, expenses, dividends, 218. compound

share capital-­‐ordinary, retained earnings, 219. general ledger

liabilities, revenues 220. trial balance

214. share capital-­‐ordinary, retained earnings, dividends,

revenues, expenses

215. analyze, journal, journal, ledger

LO1-­‐7 BT: K Difficulty: Easy TOT: 8 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

MATCHING 221. Match the items below by entering the appropriate code letter in the space provided.

A. Account F. Journal

B. Normal account balance G. Posting

C. Debit H. Chart of accounts

D. Revenue account I. Trial balance

E. Compound entry J. Simple entry

_____ 1. An entry that involves three or more accounts.

_____ 2. Transferring journal entries to ledger accounts.

_____ 3. The side which increases an account.

_____ 4. A list of all the accounts used by an enterprise.

_____ 5. A record of increases and decreases in specific assets, liabilities, and equity items.

_____ 6. Left side of an account.

_____ 7. An entry that involves only two accounts.

_____ 8. A book of original entry.

_____ 9. A list of accounts and their balances at a given time.

_____ 10. Has a credit normal balance

Answers to Matching

1. E 6. C

2. G 7. J

3. B 8. F

4. H 9. I

5. A 10. D

LO1-­‐6 BT: K Difficulty: Easy TOT: 3 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

SHORT-­‐ANSWER ESSAY QUESTIONS S-­A E 222 An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased and its normal balance.

Solution 222 An account is an individual accounting record of increases and decreases in specific asset, liability, and equity accounts. In its simplest form, an account consists of three parts: (1) the title of the account, (2) a left or debit side, and (3) a right or credit side (it resembles the letter T). Accounts are classified as asset, liability, equity, revenue, and expense. Accounts with normal debit balances, such as assets and expenses, are increased when debited and decreased when credited. Accounts with normal credit balances, such as liabilities and revenues, are increased when credited and decreased when debited.

LO1,2 BT: C Difficulty: Medium TOT: 5 min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­A E 223 Your roommate, a marketing major, thinks that debit means decrease and credit means increase. And, that every account can be debited and credited and as result, every account can have both a debit and a credit balance. Explain to your roommate (1) the meaning of debit and credit;; (2) which accounts can only be debited, which can only be credited, and which can be both debited and credited;; and (3) which accounts normally have debit balances and which credit balances.

Solution 223

The terms debit and credit mean the left and right side, respectively, of every account. Some accounts such as Dividends and Expenses are only debited;; other accounts such as Share Capital-­Ordinary and Revenues are only credited;; and finally, some accounts such as Cash, Accounts Receivable, and Accounts Payable can be debited and credited. Accounts with debit balances include Assets, Dividends, and Expenses. Accounts with credit balances include Liabilities, Share Capital-­Ordinary and Revenues.

LO2 BT: C Difficulty: Medium TOT: 5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

S-­A E 224 A fellow classmate is confused about how debits and credits relate to the basic accounting equation. State the basic accounting equation, convert it into the expanded accounting equation, and then explain how it ties into the rules for debits and credits.

Solution 224

The basic accounting equation is:

Assets = Liabilities + Equity

The expanded equation divides Equity into its various parts, reflecting the shareholders' investment, dividends, revenues, and expenses:

Assets = Liabilities + Share Capital-­‐Ordinary + Retained Earnings – Dividends + Revenues – Expenses

This expanded equation can then be re-­‐arranged to explain why certain accounts have debit (left-­‐hand) balances, while other accounts have credit (right-­‐hand) balances, as follows:

Assets + Dividends + Expenses = Liabilities + Share Capital-­‐Ordinary + Retained Earnings + Revenues

The accounts on the left-­‐hand side of the equation have left-­‐hand, or debit balances, while the accounts on the right-­‐hand side of the equation have right-­‐hand, or credit balances. Accounts with debit balances are increased with debits and decreased with credits, while accounts with credit balances are increased with credits and decreased with debits.

LO2 BT: S Difficulty: Hard TOT: 10 min. AACSB: RT AICPA BB: CT AICPA PC: Communication

S-­A E 225 Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that insure that the ledger accounts are correct? Explain.

Solution 225 The process of preparing a trial balance consists of (1) listing the account titles and their debit or credit balances in the order in which they appear in the general ledger, (2) totaling the debit and credit columns, and (3) proving the equality of the total debits and total credits. The primary purpose of the trial balance is to prove the equality of the debits and credits after posting. A trial balance also uncovers errors in journalizing and posting because errors in journalizing and posting cause a trial balance not to balance. A trial balance does not prove that all transactions have been recorded or that the ledger is correct. The trial balance may balance even when (1) an entire transaction is not journalized, (2) a correct journal entry is not posted, (3) a journal entry is posted twice, (4) incorrect accounts are used in journalizing or posting, or (5) offsetting errors are made in recording the amount of a transaction or posting to the ledger.

LO7 BT: AN Difficulty: Medium TOT: 5 min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­‐A E 226

A classmate who is a computer science major thinks that accountants are obsolete. She states that computers can do the entire process without any human assistance.

Discuss the steps in the recording process and indicate what role the computer plays in that process.

Solution 226

The initial step in the recording process is to analyze each transaction. This is done by analyzing the source documents to determine which accounts were affected. The computer is not able to perform this step. The second step is enter the transaction in the journal using a journal entry. The computer is not able to perform this step and does not know if the correct accounts are being debited and credited, nor if the correct amounts were entered. It is only able to test the equality of the debits and credits comprising the entry. The final step is to transfer the journal entry to the specific accounts in the ledger (posting). The computer can perform this step efficiently and effectively.

LO3 BT: S Difficulty: Medium TOT: 7 min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­A E 227 John Dough, a fellow employee, wants to understand the basic steps in the recording process. Identify and briefly explain the steps in the order in which they occur.

Solution 227

The basic steps in the recording process are: 1. Analyze each transaction. In this step, business documents are examined to determine the

effects of the transaction on the accounts. 2. Enter each transaction in a journal. This step is called journalizing and it results in making

a chronological record of the transactions.

3. Transfer journal information to ledger accounts. This step is called posting. Posting makes

it possible to accumulate the effects of journalized transactions on individual accounts.

LO3 BT: C Difficulty: Medium TOT: 5min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­A E 228 All recordable transactions are initially recorded in the journal. Discuss the contributions that the journal makses to the recording process.

Solution 228

The journal makes several significant contributions to the recording process: (1) It discloses in one place the complete effects of a transaction;; (2) It provides a chronological record of transactions;; and, (3) It helps to prevent and locate errors because the debit and credit amounts for each entry can be readily compared.

LO4 BT: C Difficulty: Medium TOT: 5 min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­A E 229

A bookkeeping student has come to you for tutoring on the recording process. She is confused about the relationship between the chart of accounts and the ledger. Explain the purpose of the chart of accounts and the general ledger. In your explanation indicate the relationship between these two items as well.

Solution 229

The chart of accounts lists all of the accounts that a company uses and their account numbers that identify their location in the ledger. The numbering system used to identify the accounts usually starts with the statement of financial position accounts followed by the income statement accounts.

The general ledger contains all of the accounts of a company and their respective balances at any point in time. The ledger is organized by account number with assets coming first, then liabilities, equity, revenue, and expense accounts.

LO5&6 BT: C Difficulty: Easy TOT: 5 min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­A E 230 The process of transferring the information in the journal to the general ledger is called posting. Explain the posting process, including the importance of the journal page number and the account numbers.

Solution 230

The posting process begins with locating the account(s) being debited in the general ledger. Then entering the date of the entry, the journal page number where the entry originated and debit portion of the entry in the date, reference and debit columns, respectively. Once this done, the account number(s) of the account(s) being debited is (are) entered in the reference column in the journal. Next, the credit portion of the journal entry is posted to the appropriate accounts in the ledger following the same steps as noted for the debit portion.

The importance of the journal page number, in the reference column of each account in the general ledger accounts, is to indicate where to find the original entry. And, the general ledger account numbers, in the reference column of the journal, indicate that the entry has been posted.

LO6 BT: S Difficulty: Medium TOT: 5 min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­A E 231 During a study session, a classmate states that it is not necessary to make journal entries and then post them to the ledger. She states that it is sufficient to analyze the transaction and simply record the information in T-­‐accounts.

What is your response to this statement? Be brief, yet concise.

Solution 231 You have a very good point regarding the steps of the accounting cycle. If a company only has a few transactions, it might be possible to simply analyze them and then record each in T-­‐accounts. However, nearly all businesses have many transactions each day. There must be a systematic way to process these transactions. The steps of the accounting cycle represent this process. After analyzing each transaction, a journal entry needs to be prepared. The journal represents a chronological listing of every transaction for a business. This allows users to review past transactions. Your approach does not leave a trail that can be reviewed at a later date. Once the journal entries are made, posting allows each line of the journal to be transferred into the ledger. This process increases and decreases individual accounts in the ledger. At the end of the accounting period, the balance of each account is determined and the trial balance is prepared.

Based on your approach, if someone saw a credit to cash for $10,000 and wondered what the debit was, that person would have to go through every ledger account to locate the corresponding debit. By having a general journal, the person can view the entire transaction, thus easily seeing the account that was debited.

Your approach may work for a very simple business, but it would result in problems for the majority of businesses and accountants.

LO4-­‐6 BT: S Difficulty: Medium TOT: 7 min. AACSB: Comm. AICPA BB: CT AICPA PC: Communication

S-­A E 232 (Ethics) Jim Coleman, Jr. was appointed the manager of Maris Properties, a recently formed company that manages residential rental properties. Linda Grider is the accountant. She prepared a chart of accounts based on an analysis of the expenditures of the company. One of the largest expense categories is Travel and Entertainment. Mr. Coleman believes that it is important to maintain a presence in the social life of the city. In this, he sharply differs from his father, Jim Coleman, Sr. The elder Mr. Coleman has set up Maris Properties in order to test his son's management skills before allowing him to manage the more lucrative commercial property business. Mr. Coleman, Sr. provided the capital for Maris, and maintains close contact with the company. He allowed his son, however, to hire his own employees.

S-­A E 232 (cont.) Mr. Coleman has asked Ms. Grider to change the name of the Travel and Entertainment account to Property Development. He hopes to deflect his father's attention away from the amount he has spent on travel and entertainment until he has proven that his methods work. When Ms. Grider resisted, he reminded her that he, not his father, hired her. He also reminded her that she had been enthusiastic about his business plans when she was hired.

Required:

1. Who are the stakeholders in this situation?

2. Should Ms. Grider agree to the change in the Travel and Entertainment account to Property Development? Explain.

Solution 232 1. The stakeholders in this situation include

Mr. Coleman, Jr.

Linda Grider

Mr. Coleman, Sr.

Bankers and others who might rely on the financial statements

2. Ms. Grider definitely should not agree to the name change. The intention of the person making the change is to deceive someone who has a right to know the affairs of the business, fully and completely. Though Ms. Grider was hired by Mr. Coleman, Jr., and though she may agree with his business methods, she cannot be a party to such deceit.

LO1 BT: E Difficulty: Medium TOT: 7 min. AACSB: Ethics AICPA BB: CT AICPA PC: Professional Demeanor

S-­A E 233 (Communication) A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits.

a. Can the student be successful in the course without an understanding of the rules of debits and

credits?

b. Explain the rules of debits and credits in a way that will help him understand them.

Solution 233 a. No. Accounting is based on the double-­‐entry system. This system records the dual effect of each

transaction in the appropriate accounts, thus keeping the accounting equation in balance. Each transaction is analyzed and recorded using this dual effect system. If you do not have this basic understanding, the remaining chapters will become increasingly more difficult. You will not have the ability to make journal entries for the many new topics in these upcoming chapters.

Solution 233 (cont.)

b. You may be trying to memorize the rules of debits and credits, only to discover that this does not work. Here are some other ways to master this very important topic:

• Make sure that you understand the accounting equation. Assets equal the total of liabilities and equity. Equity is not an account but rather a group of accounts that includes share capital-­‐ordinary, retained earnings, revenues, expenses, and dividends. Share capital-­‐ordinary, retained earnings, and revenues cause equity to increase while expenses and dividends cause equity to decrease.

• Next, make sure that you understand the accounting meaning of the terms debits and credits. For accounting, debit means left and credit means right. Don’t try to add any more to these definitions.

• Then, work with the rules of debits and credits. These rules determine whether a debit or credit increases or decreases an account. Start with assets. Assets increase with a debit and thus decrease with a credit. Think about the cash account—when cash is received, the account is increased with a debit. When cash is paid, the account is decreased with a credit. The remaining accounts are on the right side of the equal sign in the accounting equation. All of the other rules of debits and credits keep the equation in balance. Liabilities, share capital-­‐ordinary, retained earnings and revenues are all increased with credits. Expenses and dividends are the two accounts that cause equity to decrease, thus they must be increased with a debit.

LO2 BT: S Difficulty: Hard TOT: 10 min. AACSB: RT AICPA BB: CT AICPA PC: Communication

GAAP QUESTIONS 1. The expanded accounting equation under GAAP is as follows

a. Assets = Liabilities + Common Stock + Retained Earnings − Dividends − Revenues − Expenses.

b. Assets = Liabilities + Common Stock + Retained Earnings − Dividends + Revenues − Expenses

c. Assets + Liabilities = Common Stock + Retained Earnings − Dividends + Revenues − Expenses

d. Assets = Liabilities + Common Stock − Retained Earnings − Dividends + Revenues − Expenses

Ans: B LO7 BT: K Difficulty: Medium TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

2. A trial balance

a. will not balance if a correct journal entry is posted twice.

b. proves that all transactions have been recorded.

c. proves that transactions are recorded correctly.

d. is the same under GAAP and IFRS.

Ans: D LO7 BT: K Difficulty: Medium TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

3. One difference between GAAP and IFRS is that

a. the limitations of a trial balance are different between GAAP and IFRS.

b. IFRS uses more fair value measurement than GAAP.

c. GAAP uses a different posting process than IFRS.

d. IFRS uses accruals accounting concepts and GAAP uses primarily the cash basis of accounting.

Ans: B LO7 BT: K Difficulty: Medium TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

4. The general policy for using proper currency signs (dollar, yen, pound, etc) is the same for both GAAP and this textbook. This policy is as follows

a. Currency signs are shown in trial balances and financial statements.

b. Currency signs are shown for all compound journal entries.

c. Currency signs are only shown in the trial balances.

d. Currency signs only appear ledgers and journal entries

Ans: A LO7 BT: K Difficulty: Medium TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting