Test Bank For Financial Accounting, 16th Edition

Name: Class: Date: Chapter 02 – Analyzing Transactions True / False 1. Accounts are records of increases and decreases in individual financial statement items. a. True b. False ANSWER: True 2. A chart of accounts is a listing of accounts that make up the journal. a. True b. False ANSWER: False 3. The chart of accounts should be the same for each business. a. True b. False ANSWER: False 4. Accounts payable are accounts that you expect will be paid to you. a. True b. False ANSWER: False 5. Consuming goods and services in the process of generating revenues results in expenses. a. True b. False ANSWER: True 6. Prepaid expenses are an example of an expense. a. True b. False ANSWER: False 7. The unearned revenue account is an example of a liability. a. True b. False ANSWER: True 8. The drawing account is an expense. a. True b. False ANSWER: False 9. Accounts in the ledger are usually maintained in alphabetical order. a. True b. False Copyright Cengage Learning. Powered by Cognero. Page 1 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: False 10. Depending on the account title, the right side of the account is referred to as the credit side. a. True b. False ANSWER: False 11. To determine the balance in an account, always subtract credits from debits. a. True b. False ANSWER: False 12. An account in its simplest form has three parts to it: a title, an increase side, and a decrease side. a. True b. False ANSWER: True 13. The T account got its name because it resembles the letter “T.” a. True b. False ANSWER: True 14. The right side of a T account is known as a debit and the left side is known as a credit. a. True b. False ANSWER: False 15. A debit entry to the cash account will increase the account. a. True b. False ANSWER: True 16. A credit entry to the cash account will increase the account. a. True b. False ANSWER: False 17. The cash account will always be debited. a. True b. False ANSWER: False 18. The recording of cash receipts to the cash account will be done by debiting the account. a. True b. False Copyright Cengage Learning. Powered by Cognero. Page 2 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: True 19. The recording of cash payments from the cash account is done by entering the amount as a credit. a. True b. False ANSWER: True 20. The balance of an account can be determined by adding all of the debits, adding all of the credits, and adding the amounts together. a. True b. False ANSWER: False 21. Liabilities are debts owed by the business entity. a. True b. False ANSWER: True 22. The accounts payable account is listed in the chart of accounts as an asset. a. True b. False ANSWER: False 23. A drawing account represents the amount of withdrawals made by the owner. a. True b. False ANSWER: True 24. Revenues are equal to the difference between cash receipts and cash payments. a. True b. False ANSWER: False 25. Expenses result from using up assets or consuming services in the process of generating revenues. a. True b. False ANSWER: True 26. Owner’s equity will be reduced by the amount in the drawing account. a. True b. False ANSWER: True 27. When an owner invests assets in the business, the capital account increases due to revenue being earned. a. True Copyright Cengage Learning. Powered by Cognero. Page 3 Name: Class: Date: Chapter 02 – Analyzing Transactions b. False ANSWER: False 28. When an account receivable is collected in cash, the total assets of the business increase. a. True b. False ANSWER: False 29. When an account payable is paid with cash, the owner’s equity in the business decreases. a. True b. False ANSWER: False 30. For a month’s transactions for a typical medium-sized business, the salary expense account is likely to have only credit entries. a. True b. False ANSWER: False 31. A debit is abbreviated as Db and a credit is abbreviated as Cr. a. True b. False ANSWER: False 32. When a business purchases supplies on account, no entry should be made until the invoice is paid. a. True b. False ANSWER: False 33. For a month’s transactions for a typical medium-sized business, the accounts payable account is likely to have only credit entries. a. True b. False ANSWER: False 34. Withdrawals decrease owner’s equity and are listed on the income statement as a deduction from revenue. a. True b. False ANSWER: False 35. The normal balance of revenue accounts is a credit. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero. Page 4 Name: Class: Date: Chapter 02 – Analyzing Transactions 36. The normal balance of an expense account is a credit. a. True b. False ANSWER: False 37. The normal balance of the drawing account is a debit. a. True b. False ANSWER: True 38. Expense accounts are increased by credits. a. True b. False ANSWER: False 39. The normal balance of a capital account is a debit. a. True b. False ANSWER: False 40. Revenue accounts are increased by credits. a. True b. False ANSWER: True 41. Liability accounts are increased by debits. a. True b. False ANSWER: False 42. Journalizing transactions using the double-entry bookkeeping system will eliminate fraud. a. True b. False ANSWER: False 43. Transactions are listed in the journal chronologically. a. True b. False ANSWER: True 44. Journalizing is the process of entering amounts in the ledger. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero. Page 5 Name: Class: Date: Chapter 02 – Analyzing Transactions 45. The process of recording a transaction in the journal is called journalizing. a. True b. False ANSWER: True 46. Transactions are initially entered into a record called a journal. a. True b. False ANSWER: True 47. The double-entry accounting system records each transaction twice. a. True b. False ANSWER: False 48. The increase side of an account is also the side of the normal balance. a. True b. False ANSWER: True 49. Journal entries include both debit and credit accounts for each transaction. a. True b. False ANSWER: True 50. A transaction that is recorded in the journal is called a journal entry. a. True b. False ANSWER: True 51. Assets are increased with debits and decreased with credits. a. True b. False ANSWER: True 52. Liabilities are increased with debits and decreased with credits. a. True b. False ANSWER: False 53. Debits will increase unearned revenues and revenues. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero. Page 6 Name: Class: Date: Chapter 02 – Analyzing Transactions 54. All owner’s equity accounts record increases to the accounts with credits. a. True b. False ANSWER: False 55. Journalizing always eliminates fraudulent activity. a. True b. False ANSWER: False 56. Journal entries can have more than two accounts as long as the debits equal the credits. a. True b. False ANSWER: True 57. Normal account balances are on the increase side of the accounts. a. True b. False ANSWER: True 58. The process of transferring data from the journal to the ledger accounts is called posting. a. True b. False ANSWER: True 59. The posting reference notation used in the ledger is the account number. a. True b. False ANSWER: False 60. The posting reference notation used in the journal is the page number. a. True b. False ANSWER: False 61. A notation in the Post. Ref. column of the general journal indicates that the amount has been posted to the ledger. a. True b. False ANSWER: True 62. The order of the flow of accounting data is (1) record in the ledger, (2) record in the journal, and (3) prepare the financial statements. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero. Page 7 Name: Class: Date: Chapter 02 – Analyzing Transactions 63. The process of transferring the debits and credits from the journal entries to the accounts is known as posting. a. True b. False ANSWER: True 64. Postings made to four-column account forms show a new balance after each entry. a. True b. False ANSWER: True 65. A group of related accounts that make up a complete unit is called a trial balance. a. True b. False ANSWER: False 66. A trial balance determines the accuracy of the numbers. a. True b. False ANSWER: False 67. Even when a trial balance is in balance, there may be errors in the individual accounts. a. True b. False ANSWER: True 68. The totals at the bottom of the trial balance and the totals at the bottom of the balance sheet both show equality and balancing and therefore should be equal. a. True b. False ANSWER: False 69. A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a balance sheet. a. True b. False ANSWER: False 70. If the trial balance is in balance, it can be assumed that all journal entries were posted correctly and no errors were made. a. True b. False ANSWER: False 71. Posting the credit part of a journal entry to the wrong account will cause the trial balance totals to be unequal. Copyright Cengage Learning. Powered by Cognero. Page 8 Name: Class: Date: Chapter 02 – Analyzing Transactions a. True b. False ANSWER: False 72. The erroneous arrangement of digits, such as writing $45 as $54, is called a slide. a. True b. False ANSWER: False 73. Journalizing a transaction with both the debit and the credit for $69 instead of $96 will cause the trial balance to be out of balance. a. True b. False ANSWER: False 74. The erroneous moving of an entire number one or more spaces to the right or left, such as writing $85 as $850, is called a transposition. a. True b. False ANSWER: False Multiple Choice 75. Accounts a. do not reflect money amounts b. are not used by entities that manufacture products c. are records of increases and decreases in individual financial statement items d. are only used by large entities with many transactions ANSWER: c 76. Accounts are classified in the ledger a. chronologically b. alphabetically c. in accordance with their appearance in the financial statements d. with the accounts used most often listed first ANSWER: c 77. Which of the following accounts is an owner’s equity account? a. Cash b. Accounts Payable c. Prepaid Insurance d. Ross Morris, Capital ANSWER: d 78. The gross increases in owner’s equity attributable to business activities are called Copyright Cengage Learning. Powered by Cognero. Page 9 Name: Class: Date: Chapter 02 – Analyzing Transactions a. assets b. liabilities c. revenues d. expenses ANSWER: c 79. A chart of accounts is a. the same as a balance sheet b. usually a listing of accounts in alphabetical order c. usually a listing of accounts in financial statement order d. used in place of a ledger ANSWER: c 80. The debit side of an account a. depends on whether the account is an asset, liability, or owner’s equity b. can be either side of the account depending on how the accountant set up the system c. is the right side of the account d. is the left side of the account ANSWER: d 81. An account is said to have a debit balance if a. the amount of the debits exceeds the amount of the credits b. there are more entries on the debit side than on the credit side c. there are more entries on the credit side than on the debit side d. the first entry of the accounting period was posted on the debit side ANSWER: a 82. Which side of the account increases the cash account? a. credit b. neither a debit nor a credit c. debit d. either a debit or a credit ANSWER: c 83. Which statement(s) concerning cash is (are) true? a. Cash will always have more debits than credits. b. Cash will never have a credit balance. c. Cash is increased by debiting. d. All of these choices. ANSWER: c 84. Which of the following is true about T accounts? a. The left side of a T account is called the debit side. b. The left side of a T account is called the credit side. Copyright Cengage Learning. Powered by Cognero. Page 10 Name: Class: Date: Chapter 02 – Analyzing Transactions c. The right side of a T account is called the debit side. d. Transactions are first recorded in T accounts and then posted to the journal. ANSWER: a 85. A cash payment is recorded in the cash account as a. neither a debit nor a credit b. a credit c. a debit d. either a debit or a credit ANSWER: b 86. A list of the accounts used by a business is called the a. journal b. chart of accounts c. T chart d. debit listing ANSWER: b 87. In the chart of accounts, the balance sheet accounts are normally listed in which order? a. liabilities, assets, owner’s equity b. assets, liabilities, owner’s equity c. owner’s equity, assets, liabilities d. assets, owner’s equity, liabilities ANSWER: b 88. In which order are the accounts listed in the chart of accounts? a. assets, expenses, liabilities, owner’s equity, revenues b. owner’s equity, assets, liabilities, revenues, expenses c. assets, liabilities, owner’s equity, revenues, expenses d. assets, liabilities, revenues, expenses, owner’s equity ANSWER: c 89. Which are the parts of the T account? a. title, date, total b. date, debit side, credit side c. title, debit side, credit side d. title, debit side, total ANSWER: c 90. The chart of accounts is designed to a. alphabetize the accounts to make reading easier for financial statement users b. organize accounts in order of dollar amount to simplify the accounting information for users c. summarize the transactions and determine ending account balances d. meet the information needs of a company’s managers and other users of its financial statements Copyright Cengage Learning. Powered by Cognero. Page 11 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: d 91. Which group of accounts is comprised of only assets? a. Cash, Accounts Payable, Buildings b. Accounts Receivable, Revenue, Cash c. Prepaid Expenses, Buildings, Patents d. Unearned Revenue, Prepaid Expenses, Cash ANSWER: c 92. Which of the following is true about assets? a. Assets include both physical and intangible items. b. Assets include only physical items. c. Assets are the personal property of the owner of the company. d. Assets are the result of selling products or services to customers. ANSWER: a 93. Which of the following is not considered to be a liability? a. Wages Payable b. Accounts Receivable c. Unearned Revenue d. Accounts Payable ANSWER: b 94. Which of the following statements is not true about liabilities? a. Liabilities are debts owed to outsiders. b. Account titles of liabilities often include the term “payable.” c. Cash received before a service is performed creates a liability. d. Liabilities do not include wages owed to employees of the company. ANSWER: d 95. Owner’s equity will be reduced by all of the following except a. revenues b. expenses c. withdrawals d. All of these choices ANSWER: a 96. Expenses can result from a. increasing owner’s equity b. consuming services c. using up liabilities d. purchasing assets ANSWER: b Copyright Cengage Learning. Powered by Cognero. Page 12 Name: Class: Date: Chapter 02 – Analyzing Transactions 97. Assume that you are creating a chart of accounts for a company. Each account number will have two digits. The first digit indicates the major account group to which the account belongs. Which of the following correctly identifies the major account groups typically represented by the numbers 1 through 5? a. 1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Expenses, 5-Revenues b. 1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Revenues, 5-Expenses c. 1-Assets, 2-Owner’s Equity, 3-Revenues, 4-Expenses, 5-Drawing d. 1-Owner’s Equity, 2-Drawing, 3-Revenues, 4-Expenses ANSWER: b 98. The following accounts appear in the ledger of Monroe Entertainment Co. All accounts have normal balances. Accounts Payable Accounts Receivable Prepaid Insurance Cash Drawing $1,500 1,800 2,000 3,200 1,200 Fees Earned Insurance Expense Land Wages Expense Capital $3,600 1,300 3,000 1,400 8,800 Total assets are a. $10,000 b. $8,000 c. $9,700 d. $9,800 ANSWER: a 99. The balance of an account is determined by a. adding all of the debits to all of the credits b. always subtracting the debits from the credits c. always subtracting the credits from the debits d. adding all of the debits, adding all of the credits, and then subtracting the smaller sum from the larger sum ANSWER: d 100. Which of the following types of accounts have a normal credit balance? a. assets and liabilities b. liabilities and expenses c. revenues and capital d. capital and drawing ANSWER: c 101. Which of the following groups of accounts have a normal debit balance? a. revenues, liabilities, and capital b. capital and assets c. liabilities and capital d. assets and expenses ANSWER: d 102. Which of the following statements is not a purpose for the journal? Copyright Cengage Learning. Powered by Cognero. Page 13 Name: Class: Date: Chapter 02 – Analyzing Transactions a. to show increases and decreases in accounts b. to show a chronological order by date c. to show a complete transaction in one place d. to help locate errors ANSWER: d 103. A credit signifies a decrease in a. assets b. liabilities c. capital d. revenue ANSWER: a 104. A debit signifies a decrease in a. assets b. expenses c. drawing d. revenues ANSWER: d 105. Which of the following applications of the rules of debit and credit is true? a. decrease Prepaid Insurance with a credit and the normal balance is a credit b. increase Accounts Payable with a credit and the normal balance is a debit c. increase Equipment with a debit and the normal balance is a debit d. decrease Cash with a debit and the normal balance is a credit ANSWER: c 106. Which of the following describes the classification and normal balance of the fees earned account? a. asset, credit b. liability, credit c. owner’s equity, debit d. revenue, credit ANSWER: d 107. The classification and normal balance of the accounts payable account are a. asset, credit balance b. liability, credit balance c. owner’s equity, credit balance d. revenue, credit balance ANSWER: b 108. The classification and normal balance of the drawing account are a. expense, credit balance b. expense, debit balance Copyright Cengage Learning. Powered by Cognero. Page 14 Name: Class: Date: Chapter 02 – Analyzing Transactions c. liability, credit balance d. owner’s equity, debit balance ANSWER: d 109. Which of the following accounts are debited to record increases? a. assets and liabilities b. drawing and liabilities c. expenses and liabilities d. assets and expenses ANSWER: d 110. In which of the following types of accounts are increases recorded by credits? a. revenues and liabilities b. drawing and assets c. liabilities and drawing d. expenses and liabilities ANSWER: a 111. In which of the following types of accounts are decreases recorded by debits? a. assets b. liabilities c. expenses d. drawing ANSWER: b 112. In which of the following types of accounts are decreases recorded by credits? a. liabilities b. owner’s equity c. assets d. revenues ANSWER: c 113. A credit balance in which of the following accounts would likely indicate an error? a. Fees Earned b. Salary Expense c. Janet James, Capital d. Accounts Payable ANSWER: b 114. A debit balance in which of the following accounts would likely indicate an error? a. Salaries Expense b. Notes Payable c. Edgar Martin, Drawing d. Supplies Copyright Cengage Learning. Powered by Cognero. Page 15 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: b 115. Which of the following entries records the payment of an account payable? a. debit Cash; credit Accounts Payable b. debit Accounts Receivable; credit Cash c. debit Cash; credit Supplies Expense d. debit Accounts Payable; credit Cash ANSWER: d 116. Which of the following entries records the investment of cash by Taylor Thomas, owner of a proprietorship? a. debit Taylor Thomas, Capital; credit Accounts Receivable b. debit Cash; credit Taylor Thomas, Capital c. debit Taylor Thomas, Drawing; credit Cash d. debit Cash; credit Taylor Thomas, Drawing ANSWER: b 117. Which of the following entries records the withdrawal of cash by Sally Anderson, owner of a proprietorship, for personal use? a. debit Sally Anderson, Capital; credit Cash b. debit Sally Anderson, Drawing; credit Cash c. debit Salaries Expense; credit Cash d. debit Salaries Expense; credit Salaries Payable ANSWER: b 118. Office supplies were sold by Janer’s Cleaning Service at cost to another repair shop, with cash received. Which of the following entries for Janer’s Cleaning Service records this transaction? a. Office Supplies, debit; Cash, credit b. Office Supplies, debit; Accounts Payable, credit c. Cash, debit; Office Supplies, credit d. Accounts Payable, debit; Office Supplies, credit ANSWER: c 119. Office supplies purchased by Janer’s Cleaning Service on account were returned. Which of the following entries for Janer’s Cleaning Service records this transaction? a. Cash, debit; Office Supplies, credit b. Office Supplies, debit; Accounts Receivable, credit c. Accounts Payable, debit; Office Supplies, credit d. Office Supplies, debit; Accounts Payable, credit ANSWER: c 120. Cash was paid by Janer’s Cleaning Service to creditors on account. Which of the following entries for Janer’s Cleaning Service records this transaction? a. Cash, debit; Debbi Janer, Capital, credit b. Accounts Payable, debit; Cash, credit Copyright Cengage Learning. Powered by Cognero. Page 16 Name: Class: Date: Chapter 02 – Analyzing Transactions c. Accounts Receivable, debit; Cash, credit d. Accounts Payable, debit; Accounts Receivable, credit ANSWER: b 121. The process of initially recording a business transaction is called a. closing b. posting c. journalizing d. balancing ANSWER: c 122. Which of the following entries records the acquisition of office supplies on account? a. Office Supplies, debit; Cash, credit b. Cash, debit; Office Supplies, credit c. Office Supplies, debit; Accounts Payable, credit d. Accounts Receivable, debit; Office Supplies, credit ANSWER: c 123. Which of the following abbreviations is correct? a. Debit, “Dr”; Credit, “Cd” b. Debit, “Db”; Credit, “Cr” c. Debit, “Db”; Credit, “Cd” d. Debit, “Dr”; Credit, “Cr” ANSWER: d 124. Which of the following is not a correct rule of debits and credits? a. Assets, expenses, and withdrawals are increased by debits. b. Assets are decreased by credits and have a normal debit balance. c. Liabilities, revenues, and owner’s equity are increased by credits. d. The normal balance for revenues and expenses is a credit. ANSWER: d 125. Gently Laser Clinic purchased laser equipment for $8,500 and paid $2,250 down, with the remainder to be paid later. The correct journal entry would be a. Equipment 2,250 Cash 2,250 b. Cash 2,250 Accounts Payable 6,250 Equipment 8,500 c. Equipment Expense 8,500 Accounts Payable 2,250 Cash 6,250 d. Equipment 8,500 Accounts Payable 6,250 Cash 2,250 Copyright Cengage Learning. Powered by Cognero. Page 17 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: d 126. A transaction can first be found in the accounting records in the a. chart of accounts b. income statement c. balance sheet d. journal ANSWER: d 127. The process of recording a transaction in the journal is called a. ledgerizing b. journalizing c. posting d. summarizing ANSWER: b 128. Joshua Scott invests $40,000 into his new business. How would this transaction be entered in the journal? a. Cash 40,000 Joshua Scott, Capital 40,000 Invested cash in business. b. Cash 40,000 Joshua Scott, Loan 40,000 Invested cash in business. c. Joshua Scott, Capital 40,000 Cash 40,000 Invested cash in business. d. Joshua Scott, Loan 40,000 Cash 40,000 Invested cash in business. ANSWER: a 129. May 23 Cash Scott Clark, Capital Invested cash in business. 22,000 22,000 This journal entry will a. increase Capital and decrease Cash b. increase Cash and decrease Capital c. increase Cash and increase Capital d. decrease Cash and decrease Capital ANSWER: c 130. May 24 Land Cash Copyright Cengage Learning. Powered by Cognero. 105,000 105,000 Page 18 Name: Class: Date: Chapter 02 – Analyzing Transactions Purchased land for business. What effects does this journal entry have on the accounts? a. increase Cash and increase Land b. increase Land and decrease Cash c. decrease Cash and decrease Land d. increase Cash and decrease Land ANSWER: b 131. Mar. 10 Accounts Payable Cash Paid creditors on account. What effects does this journal entry have on the accounts? a. decrease Accounts Payable, increase Cash b. increase Cash, decrease Accounts Payable c. increase Accounts Payable, increase Cash d. decrease Accounts Payable, decrease Cash ANSWER: d 800 800 132. Which of the following accounts would be increased with a credit? a. Land; Accounts Payable; Drawing b. Accounts Payable; Unearned Revenue; Collins, Capital c. Collins, Capital; Accounts Receivable; Unearned Revenue d. Cash; Accounts Receivable; Collins, Capital ANSWER: b 133. In accordance with the debit and credit rules, which of the following is true? a. Debits increase assets. b. Credits increase assets. c. Debits increase both assets and capital. d. Credits increase both assets and liabilities. ANSWER: a 134. All of the following accounts are increased with a debit except a. Unearned Revenue b. Land c. Accounts Receivable d. Cash ANSWER: a 135. Which of the following owner’s equity accounts follows the same debit and credit rules as liabilities? a. expense accounts only b. drawing accounts only c. revenue accounts only Copyright Cengage Learning. Powered by Cognero. Page 19 Name: Class: Date: Chapter 02 – Analyzing Transactions d. expense and drawing accounts ANSWER: c 136. The payment for the monthly rent will require which of the following entries? a. debit Cash and debit Rent Expense b. credit Cash and credit Rent Expense c. debit Rent Expense and credit Cash d. credit Rent Expense and debit Cash ANSWER: c 137. Expenses follow the same debit and credit rules as a. revenues b. the drawing account c. the capital account d. liabilities ANSWER: b 138. Which of the following transactions increases owner’s equity? a. Earn revenue b. Withdraw money for personal use c. Pay expenses d. Receive cash from customers on account ANSWER: a 139. Which of the following transactions increases owner’s equity? a. Purchase supplies on account b. Provide services on account c. Receive cash from customers on account d. Receive utility bill to be paid next month ANSWER: b 140. Which of the following groups of accounts is increased with a debit? a. assets, liabilities, owner’s equity b. assets, drawing, expenses c. assets, revenues, expenses d. assets, liabilities, revenues ANSWER: b 141. Which of the following groups of accounts is increased with a credit? a. capital, revenues, expenses b. assets, capital, revenues c. liabilities, capital, revenues d. None of these choices. ANSWER: c Copyright Cengage Learning. Powered by Cognero. Page 20 Name: Class: Date: Chapter 02 – Analyzing Transactions 142. Which of the following is true regarding normal balances of accounts? a. All accounts have a normal debit balance. b. The normal balance of all accounts will have either a positive or negative balance. c. Accounts that have a normal debit balance will only have debit entries, never credit entries. d. The normal balance is on the increase side of the account. ANSWER: d 143. Which of the following is not true with a double-entry accounting system? a. The accounting equation remains in balance. b. The sum of all debits is always equal to the sum of all credits in each journal entry. c. Each business transaction will have two debits. d. Every transaction affects at least two accounts. ANSWER: c 144. Mar. 6 Cash 2,500 Unearned Fees ???????????? What is the best explanation for this journal entry? a. Received cash for services performed. b. Received cash for services to be performed in the future. c. Paid cash in advance for services to be performed. d. Performed services for which cash is owed. ANSWER: b 145. Apr. 2,500 14 Equipment 15,000 Cash 5,000 Notes Payable 10,000 ???????????? Which is the best explanation for this journal entry? a. Purchased equipment; paid cash of $5,000, with the remainder to be paid in the future. b. Purchased equipment; paid cash of $10,000, with the remainder to be received in the future. c. Purchased equipment with cash. d. Purchased equipment on account. ANSWER: a 146. A debit may signify a(n) a. decrease in asset accounts b. decrease in liability accounts c. increase in the capital account d. decrease in the drawing account ANSWER: b Copyright Cengage Learning. Powered by Cognero. Page 21 Name: Class: Date: Chapter 02 – Analyzing Transactions 147. Which of the following entries records the payment of an insurance premium covering the next year? a. debit Prepaid Insurance; credit Cash b. debit Insurance Payable; credit Accounts Receivable c. debit Accounts Payable; credit Cash d. debit Cash; credit Prepaid Insurance ANSWER: a 148. Which of the following entries records the payment of insurance for the current month? a. Cash, debit; Insurance Expense, credit b. Insurance Expense, debit; Cash, credit c. Insurance Expense, debit; Accounts Receivable, credit d. Prepaid Insurance, debit; Cash, credit ANSWER: b 149. Which of the following entries records the receipt of cash from clients on account? a. Accounts Payable, debit; Fees Earned, credit b. Accounts Receivable, debit; Fees Earned, credit c. Accounts Receivable, debit; Cash, credit d. Cash, debit; Accounts Receivable, credit ANSWER: d 150. Which of the following entries records the collection of cash from cash customers? a. Fees Earned, debit; Cash, credit b. Fees Earned, debit; Accounts Receivable, credit c. Cash, debit; Fees Earned, credit d. Accounts Receivable, debit; Fees Earned, credit ANSWER: c 151. Which of the following entries records the receipt of cash for two months’ rent? The cash was received in advance of providing the service. a. Prepaid Rent, debit; Rent Revenue, credit b. Cash, debit; Unearned Rent, credit c. Cash, debit; Prepaid Rent, credit d. Cash, debit; Rent Expense credit ANSWER: b 152. A client has a massage and asks the company bookkeeper to mail her the bill. The bookkeeper should make which entry to record the invoice? a. no entry until the cash is received b. Fees Earned, debit; Accounts Receivable, credit c. Cash, debit; Fees Earned, credit d. Accounts Receivable, debit; Fees Earned, credit ANSWER: d Copyright Cengage Learning. Powered by Cognero. Page 22 Name: Class: Date: Chapter 02 – Analyzing Transactions 153. The process of transferring the debits and credits from the journal entries to the accounts is called a. sliding b. transposing c. journalizing d. posting ANSWER: d 154. The posting process will include the transfer of which of the following data from the journal to the ledger? a. date, amount (debit or credit) b. date, amount (debit or credit), journal page number c. amount (debit or credit), account number d. date, amount (debit or credit) account number ANSWER: b 155. The Posting Reference columns are used to trace transactions from the ledger to the journal. What will be entered in the Posting Reference column of (1) the journal and (2) the ledger? a. (1) the amount of the debit or credit and (2) the journal page number b. (1) the journal page number and (2) the date of the transaction c. (1) the journal page number and (2) the account number d. (1) the account number and (2) the journal page number ANSWER: d The chart of accounts for Corning Company includes the following: Account Name Account Number 11 13 15 21 24 31 32 41 54 56 Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Corning, Capital Corning, Drawing Fees Earned Salaries Expense Rent Expense Page 3 of the journal contains the following entry: Prepaid Insurance Cash 1,530 1,530 156. What is the posting reference that will be found in the cash account? a. 11 b. 15 c. 3 d. 13 Copyright Cengage Learning. Powered by Cognero. Page 23 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: c 157. What is the posting reference that will be found in the prepaid insurance account? a. 11 b. 15 c. 3 d. 13 ANSWER: c 158. What posting references will be found in the journal entry? a. 15, 11 b. 15, 3 c. 11, 3 d. 3, 15 ANSWER: a 159. The chart of accounts for Miguel Company includes the following: Account Name Account Number 11 13 15 21 24 31 32 41 54 56 Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Miguel, Capital Miguel, Drawing Fees Earned Salaries Expense Rent Expense Page 3 of the journal contains the following transaction: Cash Fees Earned 640 640 What posting references will be found in the journal entry? a. 41, 3 b. 3, 11 c. 11, 41 d. 11, 3 ANSWER: c 160. The chart of accounts for Miguel Company includes the following: Account Name Cash Accounts Receivable Prepaid Insurance Copyright Cengage Learning. Powered by Cognero. Account Number 11 13 15 Page 24 Name: Class: Date: Chapter 02 – Analyzing Transactions Accounts Payable Unearned Revenue Miguel, Capital Miguel, Drawing Fees Earned Salaries Expense Rent Expense 21 24 31 32 41 54 56 Page 5 of the journal contains the following transaction: Salaries Expense Cash 525 525 What is the posting reference that will be found in the salaries expense account? a. 5 b. 11 c. 54 d. 21 ANSWER: a 161. Proof that the dollar amount of the debits equals the dollar amount of the credits in the ledger means a. all of the information from the journal was correctly transferred to the ledger b. all accounts have their correct balances in the ledger c. only the journal is accurate; the ledger may be incorrect d. only that the debit dollar amounts equal the credit dollar amounts ANSWER: d 162. That the total dollar amount of the debits equals the total dollar amount of the credits in the ledger accounts can be verified through a(n) a. chart of accounts b. trial balance c. income statement d. balance sheet ANSWER: b 163. Randomly listed steps for preparing a trial balance are as follows: (1) Verify that the total of the Debit column equals the total of the Credit column. (2) List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance. (3) List the name of the company, the title of the trial balance, and the date the trial balance is prepared. (4) Total the Debit and Credit columns of the trial balance. What is the proper order of these steps? a. (3), (2), (4), (1) b. (2), (3), (4), (1) c. (3), (2), (1), (4) Copyright Cengage Learning. Powered by Cognero. Page 25 Name: Class: Date: Chapter 02 – Analyzing Transactions d. (4), (3), (2), (1) ANSWER: a 164. A trial balance is prepared to a. prove that there were no errors made in recording transactions into the journal b. prove that no errors were made in posting to the ledger c. prove that each account balance is correct d. discover errors that affect the equality of debits and credits ANSWER: d 165. The following accounts appear in the ledger of Monroe Entertainment Co. All accounts have normal balances. Accounts Payable Accounts Receivable Cash Kim Monroe, Drawing Prepaid Insurance $1,500 1,800 3,200 1,200 2,000 Fees Earned Insurance Expense Kim Monroe, Capital Land Wages Expense $3,600 1,300 8,800 3,000 1,400 When a trial balance is prepared, the total of the debits will be a. $13,900 b. $11,200 c. $12,700 d. $9,700 ANSWER: a 166. Which of the following is an internal report that will determine if debit balances equal credit balances in the ledger? a. chart of accounts b. income statement c. trial balance d. account reconciliation ANSWER: c 167. An overpayment error was discovered in computing and paying the wages of a Jamison Tree Trimming employee. When Jamison receives cash from the employee for the amount of the overpayment, which of the following entries will Jamison make? a. Cash, debit; Wages Expense, credit b. Wages Payable, debit; Wages Expense, credit c. Wages Expense, debit; Cash, credit d. Cash, debit; Wages Payable, credit ANSWER: a 168. If the two totals of a trial balance are not equal, it could be due to a. failure to record a transaction b. recording the same erroneous amount for both the debit and the credit parts of a transaction c. an error in determining the account balances, such as a balance being incorrectly computed d. recording the same transaction more than once Copyright Cengage Learning. Powered by Cognero. Page 26 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: c 169. When a transposition error is made on the trial balance, the difference between the debit and credit totals on the trial balance will be a. zero b. twice the amount of the transposition c. one-half the amount of the transposition d. divisible by 9 ANSWER: d 170. Which of the following errors would cause the trial balance totals to be unequal? a. A transaction was not posted. b. A payment of $67 for insurance was posted as a debit of $76 to Prepaid Insurance and a credit of $76 to Cash. c. A payment of $4,450 to a creditor was posted as a debit of $4,500 to Accounts Payable and a credit of $450 to Cash. d. Cash received from customers on account was posted as a debit of $720 to Cash and a credit of $720 to Accounts Payable. ANSWER: c 171. Which of the following errors will cause the trial balance totals to be unequal? a. posting the debit portion of a journal entry incorrectly when the credit portion of the entry is correctly posted b. failure to record a transaction or to post a transaction c. recording the same transaction more than once d. recording the same erroneous amount for both the debit and the credit parts of a transaction ANSWER: a 172. The trial balance is out of balance and the accountant suspects that a transposition or slide error has occurred. What will the accountant do to confirm this suspicion? a. Determine the amount of the error and look for that amount on the trial balance. b. Determine the amount of the error and divide by 2, then look for that amount on the trial balance. c. Determine the amount of the error and refer to the journal entries for that amount. d. Determine the amount of the error and divide by 9. If the result is evenly divided, then this type of error is likely. ANSWER: d 173. The purchase of supplies on account was recorded and posted as a debit to Supplies for $500 and a credit to Accounts Receivable for $500. The correcting entry would include a a. credit to Accounts Receivable for $500 b. credit to Accounts Receivable for $1,000 c. credit to Accounts Payable for $500 d. credit to Accounts Payable for $1,000 ANSWER: c 174. Which of the following is not a useful step in finding errors on the trial balance? a. Determine the difference between debits and credits and look for the amount. Copyright Cengage Learning. Powered by Cognero. Page 27 Name: Class: Date: Chapter 02 – Analyzing Transactions b. Determine the difference between debits and credits and change any account to make the trial balance correct. c. Determine the difference between debits and credits, divide the amount by 2, and look for the amount. d. Determine the difference between debits and credits, divide the amount by 9, and if it divides evenly, look for a transposition or slide error. ANSWER: b 175. Which of the following statements regarding a horizontal analysis is false? a. A horizontal analysis is used to compare an item in a current statement with the same item in prior statements. b. A horizontal analysis can be performed on a balance sheet and income statement, but not on a statement of cash flows. c. If Fees Earned in Year 1 is $125,000 and Fees Earned in Year 2 is $143,750, a horizontal analysis will indicate a 15% increase over this period. d. When two statements are compared in horizontal analysis, the earlier statement is used as the base for computing the amount and the percent of change. ANSWER: b 176. McNally Industries has a condensed income statement as shown. Sales Total operating expenses Net income Year 2 $198,000 163,000 $ 35,000 Year 1 $165,500 147,500 $ 18,000 Using horizontal analysis, compute the amount and percent change for sales. Round to one decimal place. a. $32,500, 19.6% b. $18,000, 10.9% c. $35,000, 17.7% d. $17,000, 9.4% ANSWER: a 177. Richardson Company has a condensed income statement as shown. Sales Total operating expenses Net income Year 2 $150,000 133,000 $ 17,000 Year 1 $165,500 147,500 $ 18,000 Using horizontal analysis, compute the amount and percent change for sales. Round to one decimal place. a. $(17,000), (11.3%) b. $(15,500), (10.3%) c. $(18,000), (10.9%) d. $(15,500), (9.4%) ANSWER: d Matching Match each of the following accounts with its proper account group. Copyright Cengage Learning. Powered by Cognero. Page 28 Name: Class: Date: Chapter 02 – Analyzing Transactions a. Assets b. Liabilities c. Owner’s Equity d. Revenue e. Expenses 178. Unearned Rent ANSWER: b 179. Prepaid Insurance ANSWER: a 180. Fees Earned ANSWER: d 181. Patents ANSWER: a 182. Chris Clark, Drawing ANSWER: c Match each of the following accounts to the side of the T account on which its normal balance would appear. a. Debit side b. Credit side 183. John Smith, Capital ANSWER: b 184. Accounts Receivable ANSWER: a 185. Accounts Payable ANSWER: b 186. Fees Earned ANSWER: b 187. Copyrights ANSWER: a 188. Utilities Expense ANSWER: a 189. Notes Payable ANSWER: b Copyright Cengage Learning. Powered by Cognero. Page 29 Name: Class: Date: Chapter 02 – Analyzing Transactions 190. Unearned Revenues ANSWER: b 191. John Smith, Drawing ANSWER: a Match each of the following transactions to its effect on the accounting equation. A letter may be used more than once, and not all letters will be used. a. Assets, Dr.; Assets, Cr. b. Assets, Dr.; Owner’s Equity (Investment), Cr. c. Assets, Dr.; Liabilities, Cr. d. Assets, Dr.; Owner’s Equity (Revenue), Cr. e. Liabilities, Dr.; Assets, Cr. f. Owner’s Equity (Drawing), Dr.; Assets, Cr. g. Owner’s Equity (Expense), Dr.; Assets, Cr. h. Owner’s Equity (Expense), Dr.; Liabilities, Cr. 192. Paid $725 to a vendor for supplies purchased previously on account. ANSWER: e 193. Performed $850 of services and billed the customer. ANSWER: d 194. Paid utility bill of $395. ANSWER: g 195. Withdrew $145 of supplies for personal use. ANSWER: f 196. Paid $315 in salaries. ANSWER: g 197. Collected $730 from customers on account. ANSWER: a Several types of errors can be made during the journalizing and posting process. Match each of the following errors with an error type. a. Trial balance preparation errors b. Account balance errors c. Posting errors 198. Balance incorrectly computed ANSWER: b 199. Debit or credit posting omitted ANSWER: c Copyright Cengage Learning. Powered by Cognero. Page 30 Name: Class: Date: Chapter 02 – Analyzing Transactions 200. Wrong amount posted to an account ANSWER: c 201. Column incorrectly added ANSWER: a 202. Balance entered on wrong side of account ANSWER: b 203. Amount incorrectly entered on trial balance ANSWER: a 204. Balance entered in wrong column or omitted ANSWER: a 205. Debit posted as credit, or vice versa ANSWER: c Subjective Short Answer 206. The chart of accounts classifies the accounts to make identification of the accounts easier. Describe the numbering system businesses use in setting up the chart of accounts. ANSWER: A chart of accounts is set up by assigning two-digit numbers to each of the accounts for use as references. The first digit indicates the major account group of the ledger in which the account is located. Accounts beginning with 1 represent assets; 2, liabilities; 3, owner’s equity; 4, revenue; 5, expenses. The second digit indicates the location of the account within its group. Large companies may have additional digits to accommodate a large number of accounts. 207. On January 1, Cassie Harris established a catering service. She would like to open the following accounts in the general ledger. List the accounts in the order in which they should appear in the ledger and propose a two-digit account numbering scheme that is consistent with the rules of a proper chart of accounts. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Cash Supplies Equipment Accounts Payable Cassie Harris, Capital Wages Expense Rent Expense Truck Utilities Expense Cassie Harris, Drawing Truck Expense Prepaid Insurance Fees Earned Miscellaneous Expense Insurance Expense Notes Payable Accounts Receivable Copyright Cengage Learning. Powered by Cognero. Page 31 Name: Class: Date: Chapter 02 – Analyzing Transactions ANSWER: 11 Cash 12 Accounts Receivable 13 Supplies 14 Prepaid Insurance 15 Equipment 16 Truck 21 Accounts Payable 22 Notes Payable 31 Cassie Harris, Capital 32 Cassie Harris, Drawing 41 Fees Earned 51 Wages Expense 52 Rent Expense 53 Utilities Expense 54 Truck Expense 55 Insurance Expense 56 Miscellaneous Expense 208. On January 31, the cash account balance was $96,750. During January, cash receipts totaled $305,000 and cash payments totaled $375,880. Determine the cash balance on January 1. ANSWER: ? + $305,000 − $375,880 = $96,750 Cash balance at January 1 = $167,630 209. Organize the following accounts into the usual sequence of a chart of accounts. Alecia Morris, Capital Alecia Morris, Drawing Accounts Payable Accounts Receivable Cash Fees Earned Miscellaneous Expense Prepaid Rent Salaries Expense Unearned Revenue ANSWER: Cash Accounts Receivable Prepaid Rent Accounts Payable Unearned Revenue Alecia Morris, Capital Alecia Morris, Drawing Fees Earned Salaries Expense Miscellaneous Expense 210. Compute the following: (a) Determine the cash receipts for April based on the following data: Cash payments during April Copyright Cengage Learning. Powered by Cognero. $63,000 Page 32 Name: Class: Date: Chapter 02 – Analyzing Transactions Cash account balance, April 1 Cash account balance, April 30 (b) 25,500 31,750 Determine the cash received from customers on account during April based on the following data: Accounts receivable account balance, April 1 Accounts receivable account balance, April 30 Fees billed to customers during April ANSWER: (a) $69,250 ($31,750 + $63,000 − $25,500) (b) $52,250 ($22,500 + $45,000 − $15,250) $22,500 15,250 45,000 211. The following select accounts are from the ledger of Garrison Company. For each account, indicate the following: (a) The type of account, using the following abbreviations Asset – A Revenue – R Liability – L Expense – E None of these choices – N (b) The side of the T account in which an increase entry would appear (Dr. or Cr.) Account (1) Supplies (2) Notes Receivable (3) Fees Earned (4) Garrison, Drawing (5) Accounts Payable (6) Salaries Expense (7) Garrison, Capital (8) Accounts Receivable (9) Equipment (10) Notes Payable ANSWER: Type of Account _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ Type of Account A A R N L E N A A L (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Increase Side ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ Increase Side Dr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Dr. Cr. 212. All nine transactions for Dalton Survey Company for September, the first month of operations, are recorded in the following T accounts: Cash Copyright Cengage Learning. Powered by Cognero. Michael Dalton, Capital Page 33 Name: Class: Date: Chapter 02 – Analyzing Transactions (1) (7) (9) (4) 20,000 (3) 6,900 (5) 4,700 (6) (8) 7,500 2,600 5,500 2,000 Accounts Receivable 4,900 (9) 4,700 (3) Supplies 7,500 (2) Equipment 4,500 (5) Accounts Payable 2,600 (2) (1) 20,000 Michael Dalton, Drawing (8) 2,000 Fees Earned (4) (7) (6) 4,900 6,900 Operating Expenses 5,500 4,500 Indicate the following for each debit and credit: (a) (b) The type of account affected (asset, liability, capital, drawing, revenue, or expense). The effect on the account, using “+” for increase and “−” for decrease. Present your answers in the following form: Account Debited Account Credited Transaction Type Effect Type Effect ANSWER: Account Debited Account Credited Transaction Type Effect Type (1) asset + capital (2) asset + liability (3) asset + asset (4) asset + revenue (5) liability − asset (6) expense + asset (7) asset + revenue (8) drawing + asset (9) asset + asset Effect + + − + − − + − − 213. On June 1, the cash account balance was $96,750. During June, cash receipts totaled $305,000 and the June 30 balance was $75,880. Determine the cash payments made during June. ANSWER: $75,880 = $96,750 + $305,000 − ? Cash Payments = $325,870 214. On September 1, Erika Company purchased land for $47,500 cash. Provide the journal entry for this transaction. ANSWER: Sept. 1 Land 47,500 Copyright Cengage Learning. Powered by Cognero. Page 34 Name: Class: Date: Chapter 02 – Analyzing Transactions Cash 47,500 Purchased land for the company. 215. On October 10, Nickle Company purchased supplies for $1,800 on account. On October 25, Nickle Company paid the invoice. Journalize the entries required for these transactions ANSWER: Oct. 10 Supplies 1,800 Accounts Payable 1,800 Purchased supplies on account. Oct. 25 Accounts Payable Cash Paid creditor on account. 1,800 1,800 216. On October 17, Nickle Company purchased a building and a plot of land for $750,000. The building was valued at $500,000, while the land carried a value of $250,000. Nickle paid $300,000 down in cash and signed a note payable for the balance. Journalize the entry required for this transaction. ANSWER: Oct. 17 Building 500,000 Land 250,000 Cash 300,000 Notes Payable 450,000 Purchased building and land with cash down payment. 217. On November 1, Nickle Company made a cash payment of $200,000 on a note payable that was generated in the purchase of a building and land. Journalize the entry required for this transaction. ANSWER: Nov. 1 Notes Payable 200,000 Cash 200,000 Made payment on note payable. 218. On January 7, Damien Lawson invested $45,000 cash to initiate the operation of his business, JumpStart. Journalize the entry required for this transaction. ANSWER: Jan. 7 Cash 45,000 Damien Lawson, Capital 45,000 Invested cash in business. 219. On January 8, Jumpstart purchased several pieces of office equipment at a clearance price of $20,000, paying cash. The equipment was originally priced at $35,000. Journalize the entry required for this transaction. ANSWER: Jan. 8 Office Equipment 20,000 Cash 20,000 Purchased office equipment. 220. On August 30, JumpStart paid the following expenses: rent, $2,300; utilities, $525; wages, $1,750, and miscellaneous, $275. Journalize these payments as one entry. ANSWER: Aug. 30 Rent Expense 2,300 Utilities Expense 525 Wages Expense 1,750 Miscellaneous Expense 275 Cash 4,850 Paid expenses. Copyright Cengage Learning. Powered by Cognero. Page 35 Name: Class: Date: Chapter 02 – Analyzing Transactions 221. On October 30, Damien Lawson withdraws $3,330 from JumpStart for personal use. Journalize this event. ANSWER: Oct. 30 Damien Lawson, Drawing 3,330 Cash 3,330 Withdrew cash for personal use. 222. Several transactions are shown, with the accounting equation stated to the right side of each. Use the following identification codes to indicate the effects of each transaction on the accounting equation. Write your answers in the space provided under the accounting equation. You need an identification code for each element of the accounting equation. An example is given before the first transaction. I – Increase D – Decrease NE – No Effect Assets Example John Smith invests in his new business by giving it his personal drill press valued at $3,500. (a) Cash sales are made. (b) Equipment is purchased on credit. (c) Payment is made for the equipment purchased on credit in (b). (d) The company sold excess supplies to another company on credit. (e) Cash is collected from customers for accounts receivable balances. = I Liabilities + NE ANSWER: (a) Cash sales are made. (b) Equipment is purchased on credit. Payment is made for the equipment purchased on credit in (b). The company sold excess supplies to another company on credit. Cash is collected from customers for (c) (d) (e) Owner’s Equity I Owner’s Equity Assets = Liabilities + I NE I I I NE D D NE NE NE NE NE NE NE Copyright Cengage Learning. Powered by Cognero. Page 36 Name: Class: Date: Chapter 02 – Analyzing Transactions accounts receivable balances. 223. Increases and decreases in various types of accounts follow. In each case, indicate by “Dr.” or “Cr.” (a) whether the change in the account would be recorded as a debit or a credit and (b) whether the normal balance of the account is a debit or a credit. (1) Increase in Denice Dickenson, Capital (2) Increase in Denice Dickenson, Drawing (3) Decrease in Accounts Receivable (4) Increase in Notes Payable (5) Increase in Accounts Payable (6) Decrease in Supplies (7) Decrease in Salaries Expense (8) Increase in Accounts Receivable (9) Increase in Cash (10) Decrease in Land ANSWER: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (a) Recorded As ________ ________ ________ ________ ________ ________ ________ ________ ________ ________ (a) Recorded As Cr. Dr. Cr. Cr. Cr. Cr. Cr. Dr. Dr. Cr. (b) Normal Balance _______ _______ _______ _______ _______ _______ _______ _______ _______ _______ (b) Normal Balance Cr. Dr. Dr. Cr. Cr. Dr. Dr. Dr. Dr. Dr. 224. Journalize the following selected transactions for Long Company’s first month of operations in a two-column journal, identifying each entry by letter. Omit explanations. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Received $18,000 from Katie Long, owner, as an investment in the business. Purchased equipment for $27,000, paying $10,000 in cash and giving a note payable for the remainder. Paid $2,300 for rent for April. Purchased $1,500 of supplies on account. Recorded $9,800 of fees earned on account. Received $7,500 in cash for fees earned. Paid $1,200 to creditors on account. Paid wages of $3,425. Received $7,900 from customers on account. Recorded owner’s withdrawal of $1,875. ANSWER: (a) Cash Katie Long, Capital Copyright Cengage Learning. Powered by Cognero. 18,000 18,000 Page 37 Name: Class: Date: Chapter 02 – Analyzing Transactions (b) Equipment Cash Notes Payable 27,000 (c) Rent Expense Cash 2,300 (d) Supplies Accounts Payable 1,500 (e) Accounts Receivable Fees Earned 9,800 (f) Cash Fees Earned 7,500 (g) Accounts Payable Cash 1,200 (h) Wages Expense Cash 3,425 (i) Cash Accounts Receivable 7,900 (j) Katie Long, Drawing Cash 1,875 10,000 17,000 2,300 1,500 9,800 7,500 1,200 3,425 7,900 1,875 225. On January 12, JumpStart purchased $870 in office supplies. (a) Journalize this transaction as if JumpStart paid cash. (b) Journalize this transaction as if JumpStart made the purchase on account. (c) Assuming Jumpstart made the purchase on account, journalize the full payment on January 18. ANSWER: (a) Jan. 12 Office Supplies 870 Cash 870 (b) Jan. 12 (c) Jan. 18 Office Supplies Accounts Payable 870 Accounts Payable Cash 870 870 870 226. On November 10, JumpStart provides $2,900 in services to clients. At the time of service, the clients paid $600 in cash and put the balance on account. (a) Journalize this event. Copyright Cengage Learning. Powered by Cognero. Page 38 Name: Class: Date: Chapter 02 – Analyzing Transactions (b) On November 20, JumpStart’s clients paid an additional $900 on their accounts due. Journalize this event. (c) Compute the accounts receivable balance on November 30. ANSWER: (a) Nov. 10 Cash Accounts Receivable Fees Earned (b) Nov. 20 600 2,300 2,900 Cash Accounts Receivable 900 900 (c) Original invoice Less cash paid upon completion Original amount on accounts receivable Less November 20 payment Accounts receivable balance $2,900 600 $2,300 900 $1,400 227. Journalize the transaction for the purchase of a truck on April 4 for $85,700, paying $15,000 cash and the remainder on account. Omit explanation. ANSWER: Apr. 4 Truck 85,700 Cash 15,000 Accounts Payable 70,700 228. Journalize the following selected transactions for January. Explanations may be omitted. Jan. 1 2 3 4 5 6 7 8 ANSWER: Received cash from the investment made by the owner, $14,000. Received cash for providing accounting services, $9,500. Billed customers on account for providing services, $4,200. Paid advertising expense, $700. Received cash from customers on account, $2,500. Owner withdrew $1,010. Received telephone bill, $900. Paid telephone bill, $900. Date Description Post. Ref. Debit Credit Jan. 1 Cash Owner, Capital 14,000 2 Cash Revenues 9,500 3 Accounts Receivable Revenues 4,200 4 Advertising Expense Cash 700 5 Cash Accounts Receivable 2,500 Copyright Cengage Learning. Powered by Cognero. 14,000 9,500 4,200 700 2,500 Page 39 Name: Class: Date: Chapter 02 – Analyzing Transactions 6 Owner, Drawing Cash 1,010 1,010 7 Telephone Expense Accounts Payable 900 8 Accounts Payable Cash 900 900 900 229. On December 1, JumpStart provides $2,800 in services to clients. (a) Journalize this event as if the clients had paid cash at the time the services were rendered. (b) Journalize this event as if the clients received the services on account. (c) Assuming that the clients received the services on account, journalize $1,200 in payments received from the clients on December 30. ANSWER: (a) Dec. 1 Cash 2,800 Fees Earned 2,800 (b) (c) Dec. 1 Dec. 30 Accounts Receivable Fees Earned 2,800 Cash Accounts Receivable 1,200 2,800 1,200 230. 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 when recording business transactions during the month. Also, indicate the normal balance of each account. 1. Fees Earned 4. Supplies 2. Utilities Expense 5. Cash 3. Accounts Payable 6. Accounts Receivable ANSWER: 1. Credit entries only, normal credit balance 2. Debit entries only, normal debit balance 3. Both debit and credit entries, normal credit balance 4. Both debit and credit entries, normal debit balance 5. Both debit and credit entries, normal debit balance 6. Both debit and credit entries, normal debit balance 231. On October 12, fees earned on account were $14,600. Journalize this transaction. Omit explanation. ANSWER: Oct. 12 Accounts Receivable 14,600 Fees Earned 14,600 232. Journalize the following five transactions for Nexium & Associates, Inc. Omit explanations. Mar. 1 Invoiced client for services provided on account, $800. 9 Purchased office furniture ($1,060) and office supplies ($160) on account from Corner Office, Inc., receiving an invoice for $1,220. 15 Paid Corner Office, Inc. for the furniture and office supplies delivered on March 9. Copyright Cengage Learning. Powered by Cognero. Page 40 Name: Class: Date: Chapter 02 – Analyzing Transactions 23 Paid utility bill for the month, $430. 31 Paid salaries of $850 are paid to employees. ANSWER: Mar. 1 Accounts Receivable Service Revenue 800 800 9 Office Furniture Office Supplies Accounts Payable 1,060 160 15 Accounts Payable Cash 1,220 23 Utilities Expense Cash 430 31 Salaries Expense Cash 850 1,220 1,220 430 850 233. Journalize the following selected transactions of Mirmax Rentals. Omit explanations. Aug. 1 Purchased two new saws on credit at $425 each. The saws are added to Mirmax’s rental inventory. Payment is due in 30 days. 8 Accepted advance deposits of $125 for tool rentals that will be applied to the cash rental when the tools are returned. 20 Charged customers $1,250 on account for tool rentals. Payment is due within 30 days. 31 Paid utility bill for the month, $180. 31 Received $600 in payments from the customers that were billed for rentals on August 20. Equipment (or Tools) 850 Accounts Payable 850 ANSWER: Aug. 1 8 Cash 125 Unearned Revenue 20 31 31 Accounts Receivable Rental Revenue 125 1,250 1,250 Utilities Expense Cash 180 Cash 600 Accounts Receivable 180 600 234. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (d), each Copyright Cengage Learning. Powered by Cognero. Page 41 Name: Class: Date: Chapter 02 – Analyzing Transactions identified by a number, are listed. Following this list are the transactions that occurred during the first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15. 17. 18. 21. 22. 31. 32. 41. 51. 52. 53. 54. 55 59. Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Miscellaneous Expense Transactions Account(s) Debited Account(s) Credited a. Merry transferred cash from a personal bank account to an account to be used for the business. b. Paid rent for the period of January 3 to the end of the month. c. Purchased truck for $30,000 with a cash down payment of $5,000 and the remainder on a note. d. Purchased equipment on account. ANSWER: Transactions Account(s) Debited Account(s) Credited a. 11 31 b. 53 11 c. 18 11,22 d. 17 21 235. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (e), each identified by a number, are listed. Following this list are the transactions that occurred in Walker’s first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15. 17. 18. 21. 22. 31. Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Merry Walker, Capital Copyright Cengage Learning. Powered by Cognero. Page 42 Name: Class: Date: Chapter 02 – Analyzing Transactions 32. 41. 51. 52. 53. 54. 55 56. 59. Merry Walker, Drawing Fees Earned Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Insurance Expense Miscellaneous Expense Transactions Account(s) Debited Account(s) Credited a. Purchased supplies for cash. b. Paid the annual premiums on property and casualty insurance. c. Received cash for a job previously recorded on account. d. Paid a creditor a portion of the amount owed for equipment previously purchased on account. e. Received cash for a completed job. ANSWER: Transactions Account(s) Debited Account(s) Credited a. 14 11 b. 15 11 c. 11 12 d. 21 11 e. 11 41 236. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (f), each identified by a number, are listed. Following this list are the transactions that occurred in Walker’s first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15 17. 18. 21. 22. 31. 32. 41. 51. 52 53. 54. 55. 56. 57. Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Insurance Expense Miscellaneous Expense Copyright Cengage Learning. Powered by Cognero. Page 43 Name: Class: Date: Chapter 02 – Analyzing Transactions Transactions Account(s) Debited Account(s) Credited a. Recorded jobs completed on account and sent invoices to customers. b. Received an invoice for truck expenses to be paid in February. c. Paid utilities expense d. Received cash from customers on account. e. Paid employee wages. f. Withdrew cash for personal use. ANSWER: Transactions Account(s) Debited Account(s) Credited a. 12 41 b. 55 21 c. 54 11 d. 11 12 e. 51 11 f. 32 11 237. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (f), each identified by a number, are listed. Following this list are the transactions that occurred in Walker’s first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15 17. 18. 21. 22. 23 31. 32. 41. 51. 52 53. 54. 55. 56. 57. Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Unearned Revenue Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Insurance Expense Miscellaneous Expense Transactions Account(s) Debited Account(s) Credited a. Purchased supplies on account. b. Paid the invoice previously recorded in transaction (a). c. Bought a three-year insurance policy and paid in full. d. Received $7,000 from a contract to Copyright Cengage Learning. Powered by Cognero. Page 44 Name: Class: Date: Chapter 02 – Analyzing Transactions perform accounting services over the next two years. ANSWER: Transactions Account(s) Debited a. 14 b. 21 c. 15 d. 11 Account(s) Credited 21 11 11 23 238. The following two situations are independent of each other. (a) On June 1, the cash account balance was $45,750. During June, cash payments totaled $243,910, and the June 30 balance was $53,200. Determine the cash receipts during June and show your calculation. (b) On March 1, the supplies account balance was $1,800. During March, supplies of $2,450 were purchased, and supplies of $630 were on hand as of March 31. Determine the supplies expense for March and show your calculation. ANSWER: (a) $53,200 = $45,750 + Cash Receipts − $243,910 Cash Receipts = $251,360 (b) $630 = $1,800 + $2,450 − Supplies Expense Supplies Expense = $3,620 239. The bookkeeper for Brockton Industries prepared the following journal entries and posted the entries to the general ledger as indicated in the T accounts presented. Assume that the dollar amounts and the descriptions of the entries are correct. July 3 11 12 25 7/3 Accounts Receivable Service Revenue Customers were billed for services completed. 1,000 Cash Accounts Receivable Payment is received from a customer billed for services on July 3. 500 Office Supplies Accounts Payable Purchased office supplies on credit; payment is due in 30 days. 600 Office Furniture Cash Payment is made for office furniture received on July 25. 700 Accounts Receivable 1,000 7/3 Cash Copyright Cengage Learning. Powered by Cognero. Service Revenue 1,000 7/11 1,000 500 600 700 500 Accounts Payable Page 45 Name: Class: Date: Chapter 02 – Analyzing Transactions 7/11 500 7/25 7/12 Office Supplies 600 700 7/12 600 7/25 Office Furniture 700 Required If you assume that all journal entries have been recorded correctly, use the given information to: (1) Identify the postings to the general ledger that were made incorrectly. (2) Describe how each incorrect posting should have been made. ANSWER: (1) The bookkeeper incorrectly posted the July 3, July 11, and 12 journal entries. (2) For the July 3 journal entry, the $1,000 credit to Service Revenue should have been posted to the Service Revenue account as a credit, not as a debit. For the July 11 journal entry, the $500 credit should be posted to Accounts Receivable, not to Service Revenue. For the July 12 journal entry, the $600 credit to Accounts Payable should have been posted as a credit, not as a debit. 240. Journalize the entries to correct the following errors: (a) A purchase of supplies for $500 on account was recorded and posted as a debit to Supplies for $200 and as a credit to Accounts Receivable for $200. (b) A receipt of $2,500 for fees earned was recorded and posted as a debit to Fees Earned for $2,500 and a credit to Cash for $2,500. ANSWER: (a) Accounts Receivable 200 Supplies 200 Supplies Accounts Payable (b) Cash Fees Earned 500 500 5,000 5,000 241. On November 30, Damien Lawson is informed by his accountant that $550 of a transaction recording the purchase of office supplies was really office equipment. Prepare the journal entry to correct this situation. ANSWER: Nov. 30 Office Equipment 550 Office Supplies 550 242. The following errors took place in journalizing and posting transactions: (a) A withdrawal of $5,000 by Stan Norton, owner of the business, was recorded as a debit to Office Expense and a credit to Cash. (b) A receipt of $7,800 cash from a customer on account was recorded as a debit to Cash and a credit to Fees Earned. Journalize the entries to correct the errors. Omit the explanations. ANSWER: (a) Stan Norton, Drawing 5,000 Office Expense (b) Fees Earned Accounts Receivable Copyright Cengage Learning. Powered by Cognero. 5,000 7,800 7,800 Page 46 Name: Class: Date: Chapter 02 – Analyzing Transactions 243. For each of the following errors, considered individually, indicate whether the error would cause the trial balance totals to be unequal. If the error would cause the trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much. (a) Payment of a cash withdrawal of $6,800 was journalized and posted as a debit of $8,600 to Salaries Expense and a credit of $8,600 to Cash. (b) A fee of $9,780 earned was debited to Accounts Receivable for $7,980 and credited to Fees Earned for $9,780. (c) A payment of $3,000 to a creditor was posted as a credit of $3,000 to Accounts Payable and a credit of $3,000 to Cash. ANSWER: (a) The totals are equal. (b) The totals are unequal. The credit total is higher by $1,800. (c) The totals are unequal. The credit total is higher by $6,000. 244. The unadjusted trial balance for Dawson Designs Co. follows. Required (1) Identify the errors in the trial balance. All accounts have normal balances. (2) Prepare a corrected trial balance. Cash Accounts Receivable Prepaid Insurance Equipment Accounts Payable Salaries Payable Tim Dawson, Capital Tim Dawson, Drawing Service Revenue Salary Expense Miscellaneous Expense Dawson Designs Co. Unadjusted Trial Balance For the Month of January Debit Balances 23,000 Credit Balances 49,700 11,300 150,500 6,050 4,250 110,000 18,500 236,600 98,930 424,020 4,970 424,020 ANSWER: (1) a. The Debit column is added incorrectly; the sum is actually $289,780. b. The trial balance should be dated January 31, rather than “For the Month of January” c. The Accounts Receivable balance should be in the Debit column. d. The Accounts Payable balance should be in the Credit column. e. The Tim Dawson, Drawing balance should be in the Debit column. f. The Miscellaneous Expense balance should be in the Debit column. (2) Copyright Cengage Learning. Powered by Cognero. Page 47 Name: Class: Date: Chapter 02 – Analyzing Transactions Dawson Designs Co. Unadjusted Trial Balance January 31 Debit Balances Credit Balances Cash 23,000 Accounts Receivable 49,700 Prepaid Insurance 11,300 Equipment 150,500 Accounts Payable 6,050 Salaries Payable 4,250 Tim Dawson, Capital 110,000 Tim Dawson, Drawing 18,500 Service Revenue 236,600 Salary Expense 98,930 Miscellaneous Expense 4,970 356,900 356,900 245. Prepare a trial balance, listing the following accounts in proper sequence. The accounts (all normal balances) were taken from the ledger of Sophie Designs Co. on April 30. Accounts Payable Accounts Receivable Cash Equipment Fees Earned Miscellaneous Expense Rent Expense ANSWER: $ 4,100 3,450 6,700 14,500 45,245 850 11,500 Salary Expense Sophie Dawson, Capital Sophie Dawson, Drawing Supplies Supplies Expense Utilities Expense $14,000 17,800 7,500 3,125 1,700 4,000 Sophie Designs Co. Trial Balance April 30 Cash Accounts Receivable Supplies Equipment Accounts Payable Sophie Dawson, Capital Sophie Dawson, Drawing Fees Earned Salary Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense Debit Credit Balances Balances 6,700 3,450 3,125 14,500 4,100 17,800 7,500 45,425 14,000 11,500 4,000 1,700 850 67,325 67,325 246. The following trial balance was prepared for Winslow’s Auto Body on April 30. (a) List the errors in the trial balance. Assume all accounts have normal balances. Copyright Cengage Learning. Powered by Cognero. Page 48 Name: Class: Date: Chapter 02 – Analyzing Transactions (b) What would be the new totals in the Debit and Credit columns after errors are corrected? What would be the balance of Accounts Receivable? Winslow’s Auto Body Trial Balance For Month Ending April 30 Debit Balances Cash Accounts Receivable Supplies Equipment Prepaid Insurance Accounts Payable Thad Winslow, Capital Thad Winslow, Drawing Fees Earned Salary Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense ANSWER: (a) (1) (2) (3) (4) (5) (6) (7) (8) (9) (b) Credit Balances 19,475 ? 1,000 15,000 500 2,500 17,000 1,000 49,600 14,500 9,000 1,400 3,900 250 55,000 81,575 In the heading, the date should be April 30; not for a period of time. The Cash balance should be a debit. The Accounts Receivable balance is missing. The Supplies balance should be a debit. The Prepaid Insurance balance should be a debit and this account should follow Accounts Receivable. The Thad Winslow, Capital balance should be a credit. The Thad Winslow, Drawing balance should be a debit. Rent Expense should be a debit. The trial balance does not balance. The new total for credits would be $69,100 ($2,500 accounts payable + $49,600 fees earned + $17,000 capital). The debits would also total $69,100. Accounts receivable would be $3,075 ($69,100 total credits − $66,025 corrected debits). 247. Answer the following questions for each of the errors listed, considered individually: (a) (b) (c) Did the error cause the trial balance totals to be unequal? What is the amount of the difference between the trial balance totals (where applicable)? Which of the trial balance totals, debit or credit, is the larger (where applicable)? Present your answers in columnar form, using the following headings: Error Totals Difference in Totals Larger of Totals (identifying number) (equal or unequal) (amount) (debit or credit) Errors: (1) A withdrawal of $3,000 cash by the owner was recorded by a debit of $3,000 Copyright Cengage Learning. Powered by Cognero. Page 49 Name: Class: Date: Chapter 02 – Analyzing Transactions (2) (3) (4) (5) (6) (7) (8) (9) to Salary Expense and a credit of $3,000 to Cash. A $650 purchase of supplies on account was recorded as a debit of $1,650 to Equipment and a credit of $1,650 to Accounts Payable. A purchase of equipment for $3,450 on account was not recorded. An $870 receipt on account was recorded as an $870 debit to Cash and a $780 credit to Accounts Receivable. A payment of $1,530 cash on account was recorded only as a credit to Cash. Cash sales of $8,500 were recorded as a credit of $8,500 to Cash and a credit of $8,500 to Fees Earned. The debit to record a $4,000 cash receipt on account was posted twice; the credit was posted once. The credit to record a $300 cash payment on account was posted twice; the debit was posted once. The debit balance of $7,400 in Accounts Receivable was recorded in the trial balance as a debit of $7,200. ANSWER: Error (1) (2) (3) (4) (5) (6) (7) (8) (9) Totals equal equal equal unequal unequal unequal unequal unequal unequal Difference in Totals — — — $ 90 1,530 17,000 4,000 300 200 Larger of Totals — — — debit credit credit debit credit credit Exhibit 2-1 All nine transactions for Ralston Sports Co. for September, the first month of operations, are recorded in the following T accounts: (1) (7) (9) (4) Cash 25,000 (3) 11,900 (5) 9,700 (6) (8) Accounts Receivable 9,900 (9) James Ralston, Capital (1) 12,500 7,600 10,500 7,000 James Ralston, Drawing 9,700 (8) 7,000 Supplies (3) (2) 25,000 Fees Earned (4) (7) 12,500 Equipment 9,500 Copyright Cengage Learning. Powered by Cognero. 9,900 11,900 Operating Expenses (6) 10,500 Page 50 Name: Class: Date: Chapter 02 – Analyzing Transactions (5) Accounts Payable 7,600 (2) 9,500 248. Refer to Exhibit 2-1. Prepare a trial balance, listing the accounts in their proper order. ANSWER: Ralston Sports Company Trial Balance September 30 Debit Credit Balances Balances Cash 9,000 Accounts Receivable 200 Supplies 12,500 Equipment 9,500 Accounts Payable 1,900 James Ralston, Capital 25,000 James Ralston, Drawing 7,000 Fees Earned 21,800 Operating Expenses 10,500 48,700 48,700 249. Lewis Company has the following condensed income statement: Year 2 $178,400 $100,000 33,000 30,000 $163,000 $ 15,400 Sales Wages expense Rent expense Utilities expense Total operating expenses Net income Year 1 $162,500 $ 92,500 30,000 25,000 $147,500 $ 15,000 Required Prepare a horizontal analysis of Lewis Company’s income statements. Comment on the changes as favorable or unfavorable. ANSWER: Increase/ Percent Decrease Year 2 Year 1 Change Amount Sales Wages expense Rent expenses Utilities expense Total operating expenses Net income $178,400 $100,000 33,000 30,000 $163,000 $162,500 $ 92,500 30,000 25,000 $147,500 $15,900 $ 7,500 3,000 5,000 $15,500 $ 15,400 $ 15,000 $ 400 9.8% 8.1 10.0 20.0 10.5 2.7 While the increase in sales revenue is favorable, it is not sufficient to offset the rising expenses (unfavorable), resulting in a positive but small increase in net income. 250. Nebraska Technologies has the following condensed income statement: Copyright Cengage Learning. Powered by Cognero. Page 51 Name: Class: Date: Chapter 02 – Analyzing Transactions Year 2 Sales Wages expense Rent expense Utilities expense Total operating expenses Net income Year 1 $158,400 $ 80,000 28,000 30,000 $138,000 $ 20,400 $162,500 $ 92,500 30,000 25,000 $147,500 $ 15,000 Required Prepare a horizontal analysis of Nebraska Technologies’ income statements. Comment on the changes as favorable or unfavorable. ANSWER: Increase/Decrease Percent Year 2 Year 1 Amount Change Sales $158,400 $162,500 $ (4,100) (2.5)% Wages expense $ 80,000 $ 92,500 $(12,500) (13.5) Rent expense 28,000 30,000 (2,000) (6.7) Utilities expense 30,000 25,000 5,000 20.0 Total operating expenses $138,000 $147,500 $ (9,500) (6.4) $ 20,400 $ 15,000 $ 5,400 36.0 Net income The decrease in sales revenue is unfavorable, but it is more than offset by the declines in operating expenses, with the exception of utilities, which increased over the period. Despite the 2.5% drop in sales, the net effect was a favorable increase in net income of 36.0%, which was in large part spurred by the drop in wages expense. Copyright Cengage Learning. Powered by Cognero. Page 52