Test Bank for Fundamental Accounting Principles, 24th Edition

Fundamental Accounting Principles, 24e (Wild) Chapter 2 Analyzing and Recording Transactions 1) Business transactions and events are the starting points of financial statements. Answer: TRUE Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 2) Preparation of a trial balance is the first step in processing a financial transaction. Answer: FALSE Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 3) Source documents identify and describe transactions and events entering the accounting process. Answer: TRUE Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 1 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4) Items such as sales receipts, bank statements, checks, and purchase orders are examples of a business’s source documents. Answer: TRUE Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 5) An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. Answer: TRUE Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 6) A customer’s promise to pay on credit is classified as an account payable by the seller. Answer: FALSE Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 7) Withdrawals by the owner are a business expense. Answer: FALSE Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 2 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8) The purchase of land and buildings will generally be recorded in the same ledger account. Answer: FALSE Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 9) Unearned revenues are classified as liabilities. Answer: TRUE Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 10) Cash withdrawn by the owner for personal expenses should be treated as an expense of the business. Answer: FALSE Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 11) When a company provides services for which cash will not be received until some future date, the company should record the amount billed as accounts receivable. Answer: TRUE Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 3 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 12) Owner withdrawals always decrease equity. Answer: TRUE Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 13) Expenses always decrease equity. Answer: TRUE Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 14) Revenues always increase equity. Answer: TRUE Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 15) Owner investments always decrease equity. Answer: FALSE Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 4 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 16) Unearned revenue is a liability that is settled in the future when a company delivers its products or services. Answer: TRUE Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 17) A company’s chart of accounts is a list of all the accounts used and includes an identification number assigned to each account. Answer: TRUE Difficulty: 1 Easy Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 18) An account’s balance is the difference between the total debits and total credits for the account, including any beginning balance. Answer: TRUE Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 19) The right side of an account is called the debit side. Answer: FALSE Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 5 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 20) In a double-entry accounting system, total debits must equal total credits for all entries, and total debit account balances in the ledger must equal total credit account balances. Answer: TRUE Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 21) Increases in liability accounts are recorded as debits. Answer: FALSE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 22) Debits increase asset and expense accounts. Answer: TRUE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 23) Credits always increase account balances. Answer: FALSE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 6 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 24) An expense account normally has a credit balance. Answer: FALSE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 25) A revenue account normally has a debit balance. Answer: FALSE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 26) Asset accounts are decreased by debits. Answer: FALSE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 27) Debit means increase and credit means decrease for all accounts. Answer: FALSE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 7 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 28) Asset accounts normally have debit balances and revenue accounts normally have credit balances. Answer: TRUE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 29) An owner’s withdrawal account normally has a debit balance. Answer: TRUE Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 30) A debit entry always increases an account. Answer: FALSE Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 31) A transaction that credits an asset account and credits a liability account must also affect one or more other accounts. Answer: TRUE Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 8 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 32) A transaction that decreases a liability and increases an asset must also affect one or more other accounts. Answer: TRUE Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 33) If insurance coverage for the next two years is paid for in advance, the amount of the payment is debited to an asset account called Prepaid Insurance. Answer: TRUE Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 34) The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable. Answer: TRUE Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 35) If a company purchases equipment paying cash, the journal entry to record this transaction will include a debit to Cash. Answer: FALSE Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 9 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 36) If a company provides services to a customer on credit, the company providing the service should credit Accounts Receivable. Answer: FALSE Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 37) When a company bills a customer for $700 for services performed, the journal entry to record this transaction will include a $700 debit to Services Revenue. Answer: FALSE Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 38) The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors. Answer: TRUE Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 10 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 39) The higher a company’s debt ratio, the lower the risk of a company not being able to pay its debts. Answer: FALSE Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 40) The debt ratio is calculated by dividing total assets by total liabilities. Answer: FALSE Difficulty: 1 Easy Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 41) A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage. Answer: TRUE Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 42) If a company is highly leveraged, this means that it has relatively high risk of not being able to repay its debt. Answer: TRUE Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 11 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 43) Stark Co. has liabilities of $105 million and total assets of $350 million. Its debt ratio is 40.0%. Answer: FALSE Explanation: Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $105 million/$350 million = 30% Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 44) A journal entry that affects only two accounts is called a compound entry. Answer: FALSE Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Remember AACSB/Accessibility: Reflective Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 45) Posting is the transfer of journal entry information to the ledger. Answer: TRUE Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 46) Transactions are recorded first in the ledger and then transferred to the journal. Answer: FALSE Difficulty: 2 Medium Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 12 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 47) A general journal gives a complete record of each transaction in one place, and shows the debits and credits for each transaction. Answer: TRUE Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 48) The general journal is a collection of all accounts and their balances. Answer: FALSE Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 49) At a given point in time, a trial balance is a list of all ledger accounts and their balances. Answer: TRUE Difficulty: 1 Easy Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 50) Errors made in journalizing transactions, posting to the ledger, and preparing the trial balance can still exist in a balanced trial balance. Answer: TRUE Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 13 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 51) The trial balance can serve as a replacement for the balance sheet, since total debits must equal total credits. Answer: FALSE Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 52) A balanced trial balance is proof that no errors were made in journalizing transactions, posting to the ledger, and preparing the trial balance. Answer: FALSE Difficulty: 1 Easy Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 53) If cash was incorrectly debited for $100 instead of correctly debiting accounts receivable for $100, assuming no other errors, the trial balance will balance. Answer: TRUE Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 54) The financial statement that summarizes how equity changes over the reporting period is called the balance sheet. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 14 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 55) An income statement reports revenues earned minus expenses incurred over a period of time. Answer: TRUE Difficulty: 1 Easy Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 56) The detail of individual revenue and expense accounts is reported on the balance sheet. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 57) The heading on every financial statement lists the three W’s—Who (the name of the business); What (the name of the statement); and Where (the organization’s address). Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 58) If an owner’s capital account had a $10,000 credit balance at the beginning of the period, and during the period, the owner invests an additional $5,000, the balance in the capital account listed on the trial balance will be equal to a debit balance of $5,000. Answer: FALSE Explanation: $10,000cr + $5,000cr = $15,000 credit balance Difficulty: 2 Medium Topic: Debits and Credits; Preparing a Trial Balance Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.; 02P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 15 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 59) Owner’s withdrawals are not reported on a business’s income statement. Answer: TRUE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 60) An income statement reports the revenues earned minus expenses incurred by a business over a period of time. Answer: TRUE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 61) The balance sheet reports the financial position of a company at a point in time. Answer: TRUE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 62) The same four basic financial statements are prepared by both U.S. GAAP and IFRS. Answer: TRUE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Global; FN Reporting 16 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 63) Neither U.S. GAAP nor IFRS require the use of accrual basis accounting. Answer: FALSE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Global; FN Reporting 64) The amount of net income is added on the statement of owner’s equity. Answer: TRUE Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Global; FN Reporting 65) The accounting process begins with: A) Analysis of business transactions and source documents. B) Preparing financial statements and other reports. C) Analysis of prepared financial statements. D) Presentation of financial information to decision-makers. E) Preparation of the trial balance. Answer: A Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 17 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 66) Which of the following statements is not true: A) Accounts receivable are held by a seller. B) Accounts receivable arise from credit sales. C) Accounts receivable are increased by customer payments. D) Accounts receivable are classified as assets. E) Accounts receivable are increased by billings to customers. Answer: C Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 67) A business’s source documents may include all of the following except: A) Sales receipts. B) Ledgers. C) Checks. D) Purchase orders. E) Bank statements. Answer: B Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 68) A business’s source documents: A) Include the ledger. B) Provide objective evidence that a transaction has taken place. C) Must be in electronic form. D) Are records of all increases and decreases in specific asset. E) Include the chart of accounts. Answer: B Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 18 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 69) A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n): A) Journal. B) Posting. C) Trial balance. D) Account. E) Chart of accounts. Answer: D Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 70) An account used to record the owner’s investments in a business is called a(n): A) Withdrawals account. B) Capital account. C) Revenue account. D) Expense account. E) Liability account. Answer: B Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 71) Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use: A) A revenue account. B) The owner’s withdrawals account. C) The owner’s capital account. D) An expense account. E) A liability account. Answer: B Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 19 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 72) Identify the statement below that is correct. A) When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. B) Promises of future payment by the customer are called accounts receivable. C) Increases and decreases in cash are always recorded in the owner’s capital account. D) An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business. E) Accrued liabilities include accounts receivable. Answer: B Difficulty: 3 Hard Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Apply AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 73) Unearned revenues are generally: A) Revenues that have been earned and received in cash. B) Revenues that have been earned but not yet collected in cash. C) Liabilities created when a customer pays in advance for products or services before the revenue is earned. D) Recorded as an asset in the accounting records. E) Increases to owners’ capital. Answer: C Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Measurement 74) Unearned revenues refer to a(n): A) Asset that will be used over time. B) Expense incurred because a customer has paid in advance. C) Liability that is settled in the future when a company delivers its products or services. D) Increase in assets as a result of delivering products or services to a customer. E) Decrease in an asset. Answer: C Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Measurement 20 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 75) Prepaid accounts (also called prepaid expenses) are generally: A) Payments made for products and services that never expire. B) Classified as liabilities on the balance sheet. C) Classified as equity on the balance sheet. D) Assets that represent prepayments of future expenses. E) Promises of payments by customers. Answer: D Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Measurement 76) A company’s written promise to pay (in the form of a promissory note) a future amount is a(n): A) Unearned revenue. B) Prepaid expense. C) Credit account. D) Note payable. E) Account receivable. Answer: D Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Measurement 77) The record of all accounts and their balances used by a business is called a: A) Journal. B) Chart of accounts. C) General Journal. D) Balance column journal. E) Ledger (or General Ledger). Answer: E Difficulty: 2 Medium Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 21 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 78) A company’s ledger is: A) A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item. B) A journal in which transactions are first recorded. C) A collection of documents that describe transactions and events entering the accounting process. D) A list of all identification numbers used by the company. E) A record containing all accounts and their balances used by the company. Answer: E Difficulty: 2 Medium Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 79) A company’s list of accounts and the identification numbers assigned to each account is called a: A) Source document. B) Journal. C) Trial balance. D) Chart of accounts. E) General Journal. Answer: D Difficulty: 2 Medium Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 80) A credit: A) Always decreases an account. B) Is the right-hand side of a T-account. C) Always increases an account. D) Is the left-hand side of a T-account. E) Always increases asset accounts. Answer: B Difficulty: 2 Medium Topic: Ledger and Chart of Accounts Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 22 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 81) A debit: A) Always increases an account. B) Is the right-hand side of a T-account. C) Always decreases an account. D) Is the left-hand side of a T-account. E) Always increases liability accounts. Answer: D Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 82) The right side of a T-account is a(n): A) Debit. B) Increase. C) Credit. D) Decrease. E) Account balance. Answer: C Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 83) Identify the statement below that is incorrect. A) The normal balance of accounts receivable is a debit. B) The normal balance of owner’s withdrawals is a debit. C) The normal balance of unearned revenues is a credit. D) The normal balance of an expense account is a credit. E) The normal balance of the owner’s capital account is a credit. Answer: D Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 23 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 84) A credit is used to record an increase in all of the following accounts except: A) Accounts Payable B) Service Revenue C) Unearned Revenue D) Wages Expense E) Owner’s Capital Answer: D Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 85) A debit is used to record an increase in all of the following accounts except: A) Supplies B) Cash C) Accounts Payable D) Owner’s Withdrawals E) Prepaid Insurance Answer: C Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 86) Identify the account below that is classified as a liability in a company’s chart of accounts: A) Cash B) Unearned Revenue C) Salaries Expense D) Accounts Receivable E) Supplies Answer: B Difficulty: 2 Medium Topic: Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 24 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 87) Identify the account below that is classified as an asset in a company’s chart of accounts: A) Accounts Receivable B) Accounts Payable C) Owner’s Capital D) Unearned Revenue E) Service Revenue Answer: A Difficulty: 1 Easy Topic: Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 88) Identify the account below that is classified as an asset account: A) Unearned Revenue B) Accounts Payable C) Supplies D) J. Jackson, Capital E) Service Revenue Answer: C Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 89) Identify the account below that is classified as a liability account: A) Cash B) Accounts Payable C) Salaries Expense D) J. Jackson, Capital E) Equipment Answer: B Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 25 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 90) Identify the account below that impacts the equity of a business: A) Utilities Expense B) Accounts Payable C) Accounts Receivable D) Cash E) Unearned Revenue Answer: A Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 91) Which of the following is NOT an equity account: A) Unearned Revenue B) Owner, Capital C) Services Revenue D) Wages Expense E) Owner, Withdrawals Answer: A Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 92) Which of the following is NOT an asset account: A) Cash B) Land C) Services Revenue D) Buildings E) Equipment Answer: C Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 26 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 93) A business uses a credit to record: A) An increase in an expense account. B) A decrease in an asset account. C) A decrease in an unearned revenue account. D) A decrease in a revenue account. E) A decrease in a capital account. Answer: B Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 94) A tool that represents a ledger account and is used to show the effects of transactions is called a: A) Withdrawals account. B) Capital account. C) Trial balance. D) T-account. E) Balance column sheet. Answer: D Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 95) Identify the statement below that is correct: A) The left side of a T-account is the credit side. B) Debits decrease asset and expense accounts, and increase liability, equity, and revenue accounts. C) The left side of a T-account is the debit side. D) Credits increase asset and expense accounts, and decrease liability, equity, and revenue accounts. E) The total amount debited need not equal the total amount credited for a particular transaction. Answer: C Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 27 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 96) An account balance is: A) The total of the credit side of the account. B) The total of the debit side of the account. C) The difference between the total debits and total credits for an account including the beginning balance. D) Used to identify source documents. E) Always a credit. Answer: C Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 97) Select the account below that normally has a credit balance. A) Cash. B) Office Equipment. C) Wages Payable. D) Owner, Withdrawals. E) Sales Salaries Expense. Answer: C Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 98) A debit is used to record which of the following: A) A decrease in an asset account. B) A decrease in an expense account. C) An increase in a revenue account. D) An increase in the owner’s capital account. E) An increase in the owner’s withdrawals account. Answer: E Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 28 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 99) A credit entry: A) Increases asset and expense accounts, and decreases liability, owner’s capital, and revenue accounts. B) Always decreases an account. C) Decreases asset and expense accounts, and increases liability, owner’s capital, and revenue accounts. D) Is recorded on the left side of a T-account. E) Always increases an account. Answer: C Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 100) A double-entry accounting system is an accounting system: A) That records each transaction twice. B) That records the effect of each transaction in at least two accounts with equal debits and credits. C) In which each transaction affects and is recorded in two or more accounts but that could include two debits and no credits. D) That allows total credits to be greater than total debits. E) That allows total debits to be greater than total credits. Answer: B Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 29 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 101) Edison Consulting received a $300 utilities bill and immediately paid it. Edison’s general journal entry to record this transaction will include a: A) Debit to Utilities Expense for $300. B) Credit to Accounts Payable for $300. C) Debit to Cash for $300. D) Credit to Utilities Expense for $300. E) Debit to Accounts Payable for $300. Answer: A Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 102) GreenLawn Co. provides landscaping services to clients. On May 1, a customer paid GreenLawn $60,000 for 6-months services in advance. GreenLawn’s general journal entry to record this transaction will include a: A) Debit to Unearned Revenue for $60,000. B) Credit to Accounts Receivable for $60,000. C) Credit to Cash for $60,000. D) Credit to Unearned Revenue for $60,000. E) Debit to Accounts Receivable for $60,000. Answer: D Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 30 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 103) Willow Rentals purchased office supplies on credit. The general journal entry made by Willow Rentals will include a: A) Debit to Accounts Payable. B) Debit to Accounts Receivable. C) Credit to Cash. D) Credit to Accounts Payable. E) Credit to Willow, Capital. Answer: D Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 104) An asset created by prepayment of an insurance premium is: A) Recorded as a debit to Unearned Revenue. B) Recorded as a debit to Prepaid Insurance. C) Recorded as a credit to Unearned Revenue. D) Recorded as a credit to Prepaid Insurance. E) Not recorded in the accounting records until the insurance period expires. Answer: B Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 31 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 105) Victor Cruz contributed $70,000 in cash and land worth $130,000 to open a new business, VC Consulting. Which of the following general journal entries will VC Consulting make to record this transaction? A) Debit Accounts Payable $200,000; Credit Cruz, Capital, $200,000. B) Credit Cash and Land, $200,000; Credit Cruz, Capital, $200,000. C) Debit Cash $70,000; Debit Land $130,000; Credit Cruz, Capital, $200,000. D) Debit Cruz, Capital, $200,000; Credit Cash $70,000, Credit Land, $130,000. E) Debit Cruz, Capital, $200,000; Credit Assets, $200,000. Answer: C Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 106) Green Cleaning purchased $500 of office supplies on credit. The company’s policy is to initially record prepaid and unearned items in balance sheet accounts. Which of the following general journal entries will Green Cleaning make to record this transaction? A) Debit Office supplies expense, $500; credit Cash, $500. B) Debit Cash, $500; credit Office supplies, $500. C) Debit Office supplies, $500; credit Cash, $500. D) Debit Office supplies, $500; credit Accounts payable, $500. E) Debit Accounts payable, $500; credit Office supplies, $500. Answer: D Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 32 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 107) Alicia Tax Services paid $500 to settle an account payable. Which of the following general journal entries will Alicia Tax Services make to record this transaction? A) Debit Office supplies expense, $500; credit Cash, $500. B) Debit Cash, $500; credit Office supplies, $500. C) Debit Office supplies, $500; credit Cash, $500. D) Debit Office supplies, $500; credit Accounts payable, $500. E) Debit Accounts payable, $500; credit Cash, $500. Answer: E Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 108) A law firm billed a client $1,800 for work performed in the current month. Which of the following general journal entries will the firm make to record this transaction? A) Debit Accounts Receivable, $1,800; credit Unearned Legal Fees Revenue, $1,800. B) Debit Cash, $1,800; credit Unearned Legal Fees Revenue, $1,800. C) Debit Legal Fees Revenue, $1,800; credit Accounts Receivable, $1,800. D) Debit Accounts Receivable, $1,800; credit Legal Fees Revenue, $1,800. E) Debit Cash, $1,800; credit Accounts Receivable, $1,800. Answer: D Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 33 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 109) A law firm collected $1,800 on account for work performed in the previous month. Which of the following general journal entries will the firm make to record this collection of cash? A) Debit Accounts Receivable, $1,800; credit Unearned Legal Fees Revenue, $1,800. B) Debit Cash, $1,800; credit Unearned Legal Fees Revenue, $1,800. C) Debit Legal Fees Revenue, $1,800; credit Accounts Receivable, $1,800. D) Debit Accounts Receivable, $1,800; credit Legal Fees Revenue, $1,800. E) Debit Cash, $1,800; credit Accounts Receivable, $1,800. Answer: E Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 110) A law firm collected $1,800 in advance for work to be performed in three months. Which of the following general journal entries will the firm make to record this transaction? A) Debit Accounts Receivable, $1,800; credit Unearned Legal Fees Revenue, $1,800. B) Debit Cash, $1,800; credit Unearned Legal Fees Revenue, $1,800. C) Debit Legal Fees Revenue, $1,800; credit Accounts Receivable, $1,800. D) Debit Accounts Receivable, $1,800; credit Legal Fees Revenue, $1,800. E) Debit Cash, $1,800; credit Accounts Receivable, $1,800. Answer: B Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 34 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 111) Specter Consulting purchased $7,000 of supplies and paid cash immediately. Which of the following general journal entries will Specter Consulting make to record this transaction? Assume the company’s policy is to initially record prepaid and unearned items in balance sheet accounts. A) Accounts Payable 7,000 Supplies 7,000 B) Cash Supplies 7,000 C) Supplies Cash 7,000 D) Supplies Accounts Payable 7,000 E) Supplies Expense Accounts Payable 7,000 7,000 7,000 7,000 7,000 Answer: C Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 35 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 112) Jose Consulting paid $500 cash for utilities for the current month. Determine the general journal entry that Jose Consulting will make to record this transaction. A) Utilities Expense 500 Cash 500 B) Cash Utilities Expense 500 C) Cash Accounts Payable 500 D) Utilities Expense Accounts Payable 500 E) Prepaid Utilities Accounts Payable 500 500 500 500 500 Answer: A Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 36 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 113) Alejandro Consulting paid $2,500 cash for a 5-month insurance policy that begins on March 1. Given the choices below, determine the general journal entry that Alejandro Consulting will make to record the cash payment. Assume the company’s policy is to initially record prepaid and unearned items in balance sheet accounts. A) Insurance Expense 2,500 Cash 2,500 B) Cash Insurance Expense 2,500 C) Cash Prepaid Insurance 2,500 D) Prepaid Insurance Cash 2,500 E) Insurance Expense Prepaid Insurance 2,500 2,500 2,500 2,500 2,500 Answer: D Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 37 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 114) Ted Catering received $800 cash in advance from a customer for catering services to be provided in three months. Determine the general journal entry that Ted Catering will make to record the cash receipt. Assume the company’s policy is to initially record prepaid and unearned items in balance sheet accounts. A) Unearned Catering Revenue 800 Catering Revenue 800 B) Cash Accounts Receivable 800 C) Cash Unearned Catering Revenue 800 D) Cash Catering Revenue 800 E) Accounts Receivable Catering Revenue 800 800 800 800 800 Answer: C Difficulty: 3 Hard Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 38 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 115) Gloria Catering provided $1,000 of catering services and billed its client for the amount owed. Determine the general journal entry that Gloria Catering will make to record this transaction. A) Unearned Catering Revenue 1,000 Catering Revenue 1,000 B) Catering Revenue Accounts Receivable 1,000 C) Accounts Receivable Unearned Catering Revenue 1,000 D) Accounts Receivable Catering Revenue 1,000 E) Accounts Payable Catering Revenue 1,000 1,000 1,000 1,000 1,000 Answer: D Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 39 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 116) Adriana Graphic Design receives $1,500 from a client billed in a previous month for services provided. Which of the following general journal entries will Adriana Graphic Design make to record this transaction? A) Cash 1,500 Accounts Receivable 1,500 B) Cash Unearned Design Revenue 1,500 C) Accounts Receivable Unearned Design Revenue 1,500 D) Accounts Payable Design Revenue 1,500 E) Accounts Receivable Cash 1,500 1,500 1,500 1,500 1,500 Answer: A Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 40 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 117) J. Smith withdrew $100 from Jay’s Limo Services for personal use. Which of the following general journal entries will Jay’s Limo Services make to record this transaction? A) J. Smith, Withdrawals 100 Cash 100 B) Cash J. Smith, Withdrawals 100 C) J. Smith, Capital J. Smith, Withdrawals 100 D) J. Smith, Withdrawals J. Smith, Capital 100 E) Cash J. Smith, Capital 100 100 100 100 100 Answer: A Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 41 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 118) Jay’s Limo Services paid $300 cash to employees for work performed in the current period. Which of the following general journal entries will Jay’s Limo Services make to record this transaction? A) Salaries Expense 300 Accounts Payable 300 B) Cash Salaries Expense 300 C) Salaries Expense J. Smith, Withdrawals 300 D) Salaries Payable Salaries Expense 300 E) Salaries Expense Cash 300 300 300 300 300 Answer: E Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 42 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 119) Russell Co. received a $400 utility bill for the current month’s electricity. It is not due until the end of the next month which is when they intend to pay it. Which of the following general journal entries will Russell Co. make to record the receipt of the bill? A) Utilities Expense 400 Accounts Receivable 400 B) Cash Utilities Expense 400 C) Utilities Expense Accounts Payable 400 D) Accounts Payable Utilities Expense 400 400 400 400 E) No journal entry is required. Answer: C Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 43 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 120) Sharp Services provided $800 of consulting work and $100 of design work to the same client. It billed the client for the total amount and is expecting to collect from the customer next month. Which of the following general journal entries did Sharp Services make to record the billing of the customer? A) Design Revenue 100 Consulting Revenue 800 Accounts Receivable 900 B) Accounts Payable Design Revenue Consulting Revenue C) Design Revenue Consulting Revenue Accounts Payable D) Unearned Revenue Consulting Revenue Design Revenue E) Accounts Receivable Consulting Revenue Design Revenue 800 100 800 100 800 900 900 800 100 900 800 100 Answer: E Difficulty: 3 Hard Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 44 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 121) Silvia’s Studio provided $150 of dance instruction and rented out its dance studio to the same client for another $100. The client paid cash immediately. Identify the general journal entry below that Silvia’s Studio will make to record the transaction. A) Rental Revenue 100 Instruction Revenue 150 Cash 250 B) Accounts Payable Rental Revenue Instruction Revenue C) Cash Rental Revenue Instruction Revenue D) Rental Revenue Instruction Revenue Accounts Receivable E) Unearned Revenue Rental Revenue Instruction Revenue 250 100 150 250 100 150 100 150 250 250 100 150 Answer: C Difficulty: 3 Hard Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 45 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 122) Geoff Parker, the owner of Parker Tax Services, started the business by investing $10,000 cash and a building worth $20,000. Identify the general journal entry below that Parker Tax Services will make to record the transaction. A) Cash 10,000 G. Parker, Capital 30,000 B) G. Parker, Capital Cash Building 30,000 10,000 20,000 C) Cash Building G. Parker, Capital 10,000 20,000 D) Notes Payable G. Parker, Capital 30,000 E) G. Parker, Withdrawals G. Parker, Capital 30,000 30,000 30,000 30,000 Answer: C Difficulty: 3 Hard Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 46 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 123) A company provided $12,000 of consulting services on account. The customer promises payment in 30 days. Identify the journal entry below that properly records this transaction. A) Accounts Payable 12,000 Cash 12,000 B) Cash Consulting Services Revenue 12,000 C) Consulting Services Revenue Cash 12,000 D) Accounts Payable Consulting Services Revenue 12,000 E) Accounts Receivable Consulting Services Revenue 12,000 12,000 12,000 12,000 12,000 Answer: E Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 47 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 124) A company provided $12,000 of consulting services and was immediately paid in cash by the customer. Identify the journal entry below that properly records this transaction. A) Accounts Receivable 12,000 Cash 12,000 B) Cash Consulting Services Revenue 12,000 C) Consulting Services Revenue Cash 12,000 D) Accounts Payable Consulting Services Revenue 12,000 E) Accounts Receivable Consulting Services Revenue 12,000 12,000 12,000 12,000 12,000 Answer: B Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 48 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 125) Molly Martin, the owner of Smart Consulting, withdrew $2,000 cash from the company for personal use. Identify the general journal entry below that Smart Consulting will make to record the transaction. A) M. Martin, Withdrawals 2,000 Cash 2,000 B) M. Martin, Capital Cash 2,000 C) M. Martin, Withdrawals M. Martin, Capital 2,000 D) Cash M. Martin, Capital 2,000 E) Cash M. Martin, Withdrawals 2,000 2,000 2,000 2,000 2,000 Answer: A Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 49 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 126) Matthew Martin, the owner of Innovation Consulting, started the business by investing $40,000 cash. Identify the general journal entry below that Innovation Consulting will make to record the transaction. A) Cash 40,000 M. Martin, Capital 40,000 B) M. Martin, Capital Cash 40,000 C) Accounts Receivable Cash 40,000 D) Investments M. Martin, Capital 40,000 E) Cash Note Payable 40,000 40,000 40,000 40,000 40,000 Answer: A Difficulty: 2 Medium Topic: Analyzing Transactions; Journal Entries Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 50 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 127) If cash is received from customers in payment for services that have not yet been performed, the business would record the cash receipt as: A) A debit to an unearned revenue account. B) A debit to a prepaid expense account. C) A credit to an unearned revenue account. D) A credit to a prepaid expense account. E) A credit to accounts payable. Answer: C Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 128) On May 31, the Cash account of Tesla had a normal balance of $5,000. During May, the account was debited for a total of $12,200 and credited for a total of $11,500. What was the balance in the Cash account at the beginning of May? A) A $0 balance. B) A $4,300 debit balance. C) A $4,300 credit balance. D) A $5,700 debit balance. E) A $5,700 credit balance. Answer: B Explanation: Beginning Cash Balance + Debits − Credits = Ending Cash Balance Beginning Cash Balance + $12,200 − $11,500 = $5,000 Beginning Cash Balance + $700 = $5,000; Beginning Balance = $4,300 debit balance Cash 4,300 12,200 11,500 5,000 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 51 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 129) On April 30, Gomez Services had an Accounts Receivable balance of $18,000. During the month of May, total credits to Accounts Receivable were $52,000 from customer payments. The May 31 Accounts Receivable balance was $13,000. What was the amount of credit sales during May? A) $5,000. B) $47,000. C) $52,000. D) $57,000. E) $32,000. Answer: B Explanation: Beginning Accounts Receivable Balance + Credit Sales (Debits) − Customer Payments (Credits) = Ending Accounts Receivable Balance $18,000 + Credit Sales (Debits) − $52,000 = $13,000 Credit Sales (Debits) − $34,000 = $13,000 Credit Sales (Debits) = $47,000 Accounts Receivable 18,000 47,000 52,000 13,000 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 52 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 130) During the month of February, Rubio Services had cash receipts of $7,500 and cash disbursements of $8,600. The February 28 cash balance was $1,800. What was the February 1 beginning cash balance? A) $700. B) $1,100. C) $2,900. D) $0. E) $4,300. Answer: C Explanation: Beginning Cash Balance + Cash Receipts − Cash Disbursements = Ending Cash Balance Beginning Cash Balance + $7,500 − $8,600 = $1,800 Beginning Cash Balance − $1,100 = $1,800 Beginning Cash Balance = $2,900 Cash 2,900 7,500 8,600 1,800 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 53 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 131) The following transactions occurred during July: 1. Received $900 cash for services provided to a customer during July. 2. Received $2,200 cash investment from Bob Johnson, the owner of the business. 3. Received $750 from a customer in partial payment of his account receivable which arose from sales in June. 4. Provided services to a customer on credit, $375. 5. Borrowed $6,000 from the bank by signing a promissory note. 6. Received $1,250 cash from a customer for services to be performed next year. What was the amount of revenue for July? A) $900. B) $1,275. C) $2,525. D) $3,275. E) $11,100. Answer: B Explanation: Revenues = $900 (from #1) + $375 (from #4) = $1,275 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 132) If Tyrol Willow, the owner of Willow Hardware, withdraws cash of the business to purchase a family car, the business should record this use of cash with an entry to: A) Debit Accounts Payable and credit Cash. B) Debit Cash and credit Salary Expense. C) Debit Cash and credit T. Willow, Withdrawals. D) Debit T. Willow, Withdrawals and credit Cash. E) Debit Cash and credit Cash. Answer: D Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 54 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 133) Marco Nelson opened a frame shop and completed these transactions: 1. Marco started the shop by investing $40,000 cash and equipment valued at $18,000. 2. Purchased $70 of office supplies on credit. 3. Paid $1,200 cash for the receptionist’s salary. 4. Sold a custom frame service and collected $1,500 cash on the sale. 5. Completed framing services and billed the client $200. What was the balance of the cash account after these transactions were posted? A) $300. B) $41,500. C) $40,300. D) $38,500. E) $38,700. Answer: C Explanation: Ending Cash Balance = $40,000 (#1) − $1,200 (#3) + $1,500 (#4) = $40,300 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 55 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 134) At the beginning of January of the current year, Sorrel Co.’s ledger reflected a normal balance of $52,000 for accounts receivable. During January, the company collected $14,800 from customers on account and provided additional services to customers on account totaling $12,500. Additionally, during January one customer paid Mikey $5,000 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be: A) $54,700. B) $49,700. C) $2,300. D) $54,300. E) $49,300. Answer: B Explanation: Beginning Accounts Receivable Balance + Services on Account − Collections from Customers = Ending Accounts Receivable Balance $52,000 + $12,500 − $14,800 = Ending Accounts Receivable Balance Ending Accounts Receivable = $49,700 Accounts Receivable 52,000 12,500 14,800 49,700 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 56 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 135) During the month of March, Harley’s Computer Services made purchases on account totaling $43,500. Also during the month of March, Harley was paid $8,000 by a customer for services to be provided in the future and paid $36,900 of cash on its accounts payable balance. If the balance in the accounts payable account at the beginning of March was $77,300, what is the balance in accounts payable at the end of March? A) $83,900. B) $91,900. C) $6,600. D) $75,900. E) $4,900. Answer: A Explanation: Beginning Accounts Payable Balance + Purchases on Account − Payments on Accounts = Ending Accounts Payable Balance $77,300 + $43,500 − $36,900 = Ending Accounts Payable Balance Ending Accounts Payable = $83,900 Accounts Payable 77,300 36,900 43,500 83,900 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 57 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 136) On January 1 of the current year, Jimmy’s Sandwich Company reported owner’s capital totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year Jimmy withdrew $20,000 from the company. No other changes in equity occurred during the year. The change in owner’s capital during the year was: A) A decrease of $9,500. B) An increase of $9,500. C) An increase of $30,500. D) A decrease of $30,500. E) An increase of $73,500. Answer: A Explanation: Beg. Owner’s Capital + Revenues − Expenses − Withdrawals = End. Owner’s Capital $122,500 + $96,000 − $85,500 − $20,000 = Ending Owner’s Capital Ending Owner’s Capital = $113,000 Change in Equity = Beginning Owner’s Capital − Ending Owner’s Capital Change in Equity = $122,500 − $113,000 = $9,500 Decrease Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 58 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 137) Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company’s books: 1. Andrea invested $13,500 cash in the business. 2. Andrea contributed $20,000 of photography equipment to the business. 3. The company paid $2,100 cash for an insurance policy covering the next 24 months. 4. The company received $5,700 cash for services provided during January. 5. The company purchased $6,200 of office equipment on credit. 6. The company provided $2,750 of services to customers on account. 7. The company paid cash of $1,500 for monthly rent. 8. The company paid $3,100 on the office equipment purchased in transaction #5 above. 9. Paid $275 cash for January utilities. Based on this information, the balance in the cash account at the end of January would be: A) $41,450. B) $12,225. C) $18,700. D) $15,250. E) $13,500. Answer: B Explanation: Ending Cash Balance = $13,500 (#1) − $2,100 (#3) + $5,700 (#4) − $1,500 (#7) − $3,100 (#8) − $275 (#9) = $12,225 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 59 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 138) Andrea Apple opened Apple Photography on January 1 of the current year. During January, the following transactions occurred and were recorded in the company’s books: 1. Andrea invested $13,500 cash in the business. 2. Andrea contributed $20,000 of photography equipment to the business. 3. The company paid $2,100 cash for an insurance policy covering the next 24 months. 4. The company received $5,700 cash for services provided during January. 5. The company purchased $6,200 of office equipment on credit. 6. The company provided $2,750 of services to customers on account. 7. The company paid cash of $1,500 for monthly rent. 8. The company paid $3,100 on the office equipment purchased in transaction #5 above. 9. Paid $275 cash for January utilities. Based on this information, the balance in the A. Apple, Capital account reported on the Statement of Owner’s Equity at the end of the month would be: A) $31,400. B) $39,200. C) $31,150. D) $40,175. E) $30,875. Answer: D Explanation: Ending Capital Balance = $13,500 (#1) + $20,000 (#2) + $5,700 (#4) + $2,750 (#6) − $1,500 (#7) − $275 (#9) = $40,175 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 60 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 139) The debt ratio is used: A) To measure the ratio of equity to expenses. B) To assess the risk associated with a company’s use of liabilities. C) To assess market expectations for future growth. D) To determine how efficient the company is using its assets. E) To determine the profitability of a company. Answer: B Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 140) Identify the correct formula below used to calculate the debt ratio. A) Total Equity/Total Liabilities. B) Total Liabilities/Total Equity. C) Total Liabilities/Total Assets. D) Total Assets/Total Liabilities. E) Total Equity/Total Assets. Answer: C Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 61 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 141) Langley has a debt ratio of 0.3 and its competitor, Appleton, has a debt ratio equal to 0.7. Determine the statement below that is correct. A) Appleton finances a smaller percentage of its assets with liabilities as compared to Langley. B) Appleton’s financial leverage is less than Langley’s financial leverage. C) Appleton’s financial leverage is greater than Langley’s financial leverage. D) Langley has a higher risk from its financial leverage E) Higher financial leverage involves lower risk. Answer: C Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 142) Identify the statement that is incorrect. A) Higher financial leverage involves higher risk. B) Risk is higher if a company has more liabilities. C) Risk is higher if a company has more assets. D) The debt ratio is one measure of financial risk. E) Lower financial leverage involves lower risk. Answer: C Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 62 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 143) The debt ratio of Company A is 0.31 and the debt ratio of Company B is 0.21. Based on this information, an investor can conclude: A) Company B has more debt than Company A. B) Company B has less financial leverage. C) Company A has less financial leverage. D) Company A has 10% more assets than Company B. E) Both companies have too much debt. Answer: B Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 144) The debt ratio of Braun is 0.9 and the debt ratio of Kemp is 1.0. Based on this information, an investor can conclude: A) Kemp finances a relatively lower portion of its assets with liabilities than Braun. B) Kemp has less financial leverage. C) Braun has higher financial leverage. D) Kemp has the exact same dollar amount of total liabilities and total assets. E) Braun has less equity per dollar of assets than Kemp. Answer: D Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 63 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 145) Jennings Co. has total assets of $425 million. Its total liabilities are $110.5 million. Its equity is $314.5 million. Calculate the debt ratio. A) 38%. B) 13%. C) 34%. D) 26%. E) 14%. Answer: D Explanation: Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $110.50 million/$425 million; Debt Ratio = 0.26 = 26% Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 146) Sanders Co. has total assets of $385 million. Its total liabilities are $100.1 million and its equity is $284.9 million. Calculate its debt ratio. A) 35%. B) 26%. C) 38%. D) 28%. E) 58%. Answer: B Explanation: Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $100.1 million/$385 million; Debt Ratio = 0.26 = 26.0% Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 64 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 147) All of the following statements accurately describe the debt ratio except. A) It is of use to both internal and external users of accounting information. B) A relatively low ratio signifies lower risk. C) The ratio is computed by dividing total liabilities by total assets. D) Higher financial leverage means greater risk. E) The ratio is computed by dividing total equity by total liabilities. Answer: E Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 148) At the end of the current year, James Co. reported total liabilities of $300,000 and total equity of $100,000. The company’s debt ratio was: A) 300%. B) 33%. C) 75%. D) 67%. E) $400,000. Answer: C Explanation: Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $300,000/$400,000*; Debt Ratio = 0.75 = 75% *Total Assets = Total Liabilities + Total Equity Total Assets = $300,000 + $100,000; Total Assets = $400,000 Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 65 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 149) At the beginning of the current year, Snell Co. total assets were $248,000 and its total liabilities were $174,200. During the year, the company reported total revenues of $93,000, total expenses of $76,000 and owner withdrawals of $5,000. There were no other changes in owner’s capital during the year and total assets at the end of the year were $260,000. The company’s debt ratio at the end of the current year is: A) 70%. B) 67%. C) 32%. D) 48%. E) 142%. Answer: B Explanation: Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $174,200**/$260,000; Debt Ratio = 0.67 = 67% *Beginning Total Assets = Beginning Total Liabilities + Beginning Total Equity $248,000 = $174,200 + Beginning Total Equity; Beginning Total Equity = $73,800 **Ending Total Assets = Ending Total Liabilities + Ending Total Equity $260,000 = Ending Total Liabilities + (Beginning Equity + Revenues − Expenses − Withdrawals) $260,000 = Ending Total Liabilities + ($73,800 + $93,000 − $76,000 − $5,000) $260,000 = Ending Total Liabilities + $85,800; Ending Total Liabilities = $174,200 Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 150) The process of transferring general journal entry information to the ledger is called: A) Double-entry accounting. B) Posting. C) Balancing an account. D) Journalizing. E) Not required unless debits do not equal credits. Answer: B Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 66 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 151) A column in journals and ledger accounts that is used to cross reference journal and ledger entries is the: A) Account balance column. B) Debit column. C) Posting reference column. D) Credit column. E) Description column. Answer: C Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 152) A complete record of each transaction in one place is called a(n): A) Account balance. B) Ledger. C) Journal. D) Trial balance. E) Cash account. Answer: C Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 153) A general journal provides a place for recording all of the following except: A) The transaction date. B) The names of the accounts involved. C) The amount of each debit and credit. D) An explanation of the transaction. E) The balance in each account. Answer: E Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 67 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 154) The balance column in a ledger account is: A) An account entered on the balance sheet. B) A column for showing the balance of the account after each entry is posted. C) Another name for the withdrawals account. D) An account used to record the transfers of assets from a business to its owner. E) A simple form of account that is widely used in accounting to illustrate the debits and credits required in recording a transaction. Answer: B Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 155) Which of the following is not one of the four steps of processing transactions? A) Record journal entry. B) Analyze transactions using the accounting equation. C) Identify transactions and source documents. D) Ensure assets are equal to liabilities. E) Post entry to ledger. Answer: D Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 156) A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n): A) Account. B) Trial balance. C) Journal. D) T-account. E) Balance column account. Answer: C Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 68 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 157) Centurion Co. had the following accounts and balances at December 31: Account Cash Accounts Receivable Prepaid Insurance Supplies Accounts Payable T. Happy, Capital Service Revenue Salaries Expense Utilities Expense Totals Debit $ 10,000 2,000 2,400 1,000 Credit $ 500 1,000 $ 16,900 5,000 4,900 7,000 $ 16,900 Using the information in the table, calculate the company’s reported net income for the period. A) $1,100. B) $4,000. C) $8,500 D) $10,400. E) $5,500. Answer: E Explanation: Net Income = Total Revenues − Total Expenses. (Service Revenue $7,000 − Salaries Expense $500 − Utilities Expense $1,000 = $5,500) Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 69 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 158) Jackson Services had the following accounts and balances at December 31: Account Cash Accounts Receivable Prepaid Insurance Supplies Accounts Payable R. Jackson, Capital R. Jackson, Withdrawals Service Revenue Utilities Expense Salaries Expense Totals Debit $ 20,000 6,000 1,500 5,000 Credit $ 500 16,200 1,000 20,000 2,000 1,200 $ 36,700 $ 36,700 Using the information in the table, calculate the company’s reported net income for the period. A) $16,800 B) $15,800. C) $15,300 D) $10,300. E) $23,200 Answer: A Explanation: Net Income = Total Revenues – Total Expenses. Service Revenue $20,000 − Utilities Expense $2,000 − Salaries Expense $1,200 = $16,800 Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 70 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 159) Cloud Solutions had the following accounts and balances as of December 31: Account Cash Accounts Receivable Salaries Expense Accounts Payable Lodging Revenue Utilities Expense Prepaid Insurance Supplies B. Oscar, Capital Totals Debit $ 20,000 2,000 500 Credit $ 4,000 7,000 500 1,400 1,500 14,900 $ 25,900 $ 25,900 Using the information in the table, calculate the total assets reported on the balance sheet for the period. A) $24,900. B) $25,400. C) $22,500. D) $25,900. E) $23,400. Answer: A Explanation: (Cash $20,000 + Accounts Receivable $2,000 + Prepaid Insurance $1,400 + Supplies $1,500 = $24,900) Difficulty: 3 Hard Topic: The Account and Its Analysis; Financial Statements Learning Objective: 02-C2 Describe an account and its use in recording transactions.; 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 71 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 160) At the end of its first month of operations, JMP Consulting reported net income of $25,000. They also had account balances of: Cash, $18,000; Office Supplies, $2,000 and Accounts Receivable, $10,000. The owner’s total investment for this first month was $5,000. There were no owner withdrawals in the first month. Calculate the ending balance in the Owner’s Capital account to be reported on the Statement of Owner’s Equity. A) $30,000 B) $25,000 C) $20,000 D) $5,000 E) $7,000 Answer: A Explanation: Investments $5,000 + Net Income $25,000 = $30,000 Difficulty: 3 Hard Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 161) Identify the accounts that would normally have balances in the debit column of a business’s trial balance. A) Assets and expenses. B) Assets and revenues. C) Revenues and expenses. D) Liabilities and expenses. E) Liabilities and withdrawals. Answer: A Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Reporting 72 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 162) Identify the accounts that would normally have balances in the credit column of a business’s trial balance A) Liabilities and expenses. B) Assets and revenues. C) Revenues and expenses. D) Revenues and liabilities. E) Withdrawals and liabilities. Answer: D Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Reporting 163) Which of the following is not a step in the accounting process? A) Analyze each transaction and event using the accounting equation. B) Identify each transaction and event from source documents. C) Record relevant transactions and events in a journal. D) Post journal information to ledger accounts. E) Ensure all cash is distributed to owners at the end of each period. Answer: E Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Reporting 73 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 164) A bookkeeper has debited an asset account for $3,500 and credited a liability account for $2,000. Which of the following would be an incorrect way to complete the recording of this transaction? A) Credit another asset account for $1,500. B) Credit another liability account for $1,500. C) Credit a revenue account for $1,500. D) Credit the owner’s capital account for $1,500. E) Debit another asset account for $1,500. Answer: E Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 165) A list of all ledger accounts and their balances at a point in time is called a(n): A) Account balance. B) Trial balance. C) Ledger. D) Chart of accounts. E) General Journal. Answer: B Difficulty: 1 Easy Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Measurement 166) Identify the statement below that is true. A) A trial balance can replace the need for financial statements. B) The trial balance presents net income for a period of time. C) Another name for the trial balance is the chart of accounts. D) The trial balance is a list of all accounts from the ledger with their balances at a point in time. E) The trial balance is another name for the balance sheet as long as debits balance with credits. Answer: D Difficulty: 1 Easy Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Measurement 74 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 167) While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the Equipment account. The effect of this error will be that: A) The Equipment account balance will be overstated. B) The trial balance will not balance. C) The error will overstate the debits listed in the journal. D) The total debits in the trial balance will be larger than the total credits. E) The error will overstate the credits listed in the journal. Answer: B Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 168) A $15 credit to Sales was posted as a $150 credit. By what amount is the Sales account in error? A) $150 understated. B) $135 overstated. C) $150 overstated. D) $15 understated. E) $135 understated. Answer: B Explanation: $150 − 15 = $135 Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 75 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 169) At year-end, a trial balance showed total credits exceeding total debits by $4,950. This difference could have been caused by: A) An error in the general journal where a $4,950 increase in Accounts Receivable was recorded as an increase in Cash. B) A net income of $4,950. C) The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950. D) The balance of $5,500 in the Office Equipment account being entered on the trial balance as a debit of $550. E) An error in the general journal where a $4,950 increase in Accounts Payable was recorded as a decrease in Accounts Payable. Answer: D Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 170) Identify the item below that would cause the trial balance to not balance? A) A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a credit to Cash. B) The purchase of office supplies on account for $3,250 was erroneously recorded in the journal as $2,350 debit to Office Supplies and $2,350 credit to Accounts Payable. C) A $50 cash receipt for the performance of a service was not recorded at all. D) The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and a credit to Cash for $1,200. E) The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for $750. Answer: E Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 76 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 171) The credit purchase of a new oven for $4,700 was posted to Kitchen Equipment as a $4,700 debit and to Accounts Payable as a $4,700 debit. What effect would this error have on the trial balance? A) The total of the Debit column of the trial balance will exceed the total of the Credit column by $4,700. B) The total of the Credit column of the trial balance will exceed the total of the Debit column by $4,700. C) The total of the Debit column of the trial balance will exceed the total of the Credit column by $9,400. D) The total of the Credit column of the trial balance will exceed the total of the Debit column by $9,400. E) The total of the Debit column of the trial balance will equal the total of the Credit column. Answer: C Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 172) On a trial balance, if the Debit and Credit column totals are equal, then: A) All transactions have been recorded correctly. B) All entries from the journal have been posted to the ledger correctly. C) All ledger account balances are correct. D) Equal debits and credits have been recorded for transactions. E) The balance sheet would be correct. Answer: D Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 77 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 173) Identify which error will cause the trial balance to be out of balance. A) A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries Expense. B) A $100 cash receipt from a customer in payment of her account posted as a $100 debit to Cash and a $10 credit to Accounts Receivable. C) A $75 cash receipt from a customer in payment of her account posted as a $75 debit to Cash and a $75 credit to Cash. D) A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50 credit to Cash. E) An $800 prepayment from a customer for services to be rendered in the future was posted as an $800 debit to Unearned Revenue and an $800 credit to Cash. Answer: B Difficulty: 2 Medium Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 174) A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the accounts under- or overstated as a result of this error? A) Supplies, understated $130; Fees Earned, overstated $130. B) Supplies, understated $260; Fees Earned, overstated $130. C) Supplies, overstated $130; Fees Earned, overstated $130. D) Supplies, overstated $130; Fees Earned, understated $130. E) Supplies, overstated $260; Fees Earned, understated $130. Answer: C Difficulty: 3 Hard Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 78 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 175) All of the following are asset accounts except: A) Accounts Receivable. B) Buildings. C) Supplies expense. D) Equipment. E) Prepaid insurance. Answer: C Difficulty: 1 Easy Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 176) Compare the list of accounts below and choose the list that contains only accounts that would be classified as asset accounts on the Chart of Accounts. A) Accounts Payable; Cash; Supplies. B) Unearned Revenue; Accounts Payable; Owner’s Withdrawals. C) Building; Prepaid Insurance; Supplies Expense. D) Cash; Prepaid Insurance; Equipment. E) Notes Payable; Cash; Owner’s Withdrawals. Answer: D Difficulty: 2 Medium Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 177) Which financial statement reports an organization’s financial position at a single point in time? A) Income statement. B) Balance sheet. C) Statement of owner’s equity. D) Cash flow statement. E) Trial balance. Answer: B Difficulty: 2 Medium Topic: Using a Trial Balance to Prepare Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Reporting 79 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 178) Jeff Jackson opened Jackson’s Repairs on March 1 of the current year. During March, the following transactions occurred: 1. Jackson invested $25,000 cash in the business. 2. Jackson contributed $100,000 of equipment to the business. 3. The company paid $2,000 cash to rent office space for the month of March. 4. The company received $16,000 cash for repair services provided during March. 5. The company paid $6,200 for salaries for the month of March. 6. The company provided $3,000 of services to customers on account. 7. The company paid cash of $500 for utilities for the month of March. 8. The company received $3,100 cash in advance from a customer for repair services to be provided in April. 9. Jackson withdrew $5,000 for his personal use from the company. Based on this information, net income for March would be: A) $10,300. B) $13,400. C) $5,300. D) $8,400. E) $13,500. Answer: A Explanation: Net Income = Revenues − Expenses Net Income = $16,000 (#4) − $2,000 (#3) − $6,200 (#5) + $3,000 (#6) − $500 (#7) = $10,300 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 80 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 179) Web Consulting received $3,000 from a customer for services provided. The general journal entry to record this transaction will be: A) Debit Services Revenue, credit Accounts Receivable. B) Debit Cash, credit Accounts Payable. C) Debit Cash, credit Accounts Receivable. D) Debit Cash, credit Services Revenue. E) Debit Accounts Payable, credit Services Revenue. Answer: D Difficulty: 2 Medium Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 81 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 180) Wiley Hill opened Hill’s Repairs on March 1 of the current year. During March, the following transactions occurred: 1. Wiley invested $25,000 cash in the business. 2. Wiley contributed $100,000 of equipment to the business. 3. The company paid $2,000 cash to rent office space for the month of March. 4. The company received $16,000 cash for repair services provided during March. 5. The company paid $6,200 for salaries for the month of March. 6. The company provided $3,000 of services to customers on account. 7. The company paid cash of $500 for utilities for the month of March. 8. The company received $3,100 cash in advance from a customer for repair services to be provided in April. 9. Wiley withdrew $5,000 for his personal use from the company. Based on this information, the balance in Wiley Hill, Capital reported on the Statement of Owner’s Equity at the end of March would be: A) $133,400. B) $130,300. C) $125,300. D) $8,400. E) $13,500. Answer: B Explanation: Ending Capital = $25,000 (#1) + $100,000 (#2) + $16,000 (#4) + $3,000 (#6) − $2,000 (#3) − $6,200 (#5) − $500 (#7) − $5,000 (#9) = $130,300 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 82 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 181) Match the following definitions and terms by placing the letter that identifies the best definition in the blank space next to the term. ____ 1. Source documents ____ 2. Debit ____ 3. Posting ____ 4. Double-entry accounting ____ 5. Ledger ____ 6. Journal ____ 7. Account ____ 8. Credit ____ 9. T-account ____ 10. Trial balance A. Decrease in an asset, owner withdrawal and expense account, and increase in a liability, owner’s capital and revenue account; recorded on the right side of a T-account. B. A record containing all the accounts of a company and their balances. C. An accounting system where each transaction affects and is recorded in at least two accounts; the sum of the debits for each entry must equal the sum of its credits. D. A company’s record of each transaction in one place that shows debits and credits for each transaction. E. An increase in an asset and expense account, and decrease in a liability, owner’s capital, and revenue account; recorded on the left side of a T-account. F. A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense item. G. A representation of a ledger account used to understand the effects of transactions. H. A list of accounts and their balances at a point in time. I. The process of transferring journal entry information to the ledger accounts. J. Identify and describe transactions and events entering the accounting system. Answer: 1. J; 2. E; 3. I; 4. C; 5. B; 6. D; 7. F; 8. A; 9. G; 10. H Difficulty: 1 Easy Topic: Analyzing and Recording Process; The Account and Its Analysis; Ledger and Chart of Accounts; Debits and Credits; Trial Balance Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.; 02-C2 Describe an account and its use in recording transactions.; 02-C3 Describe a ledger and a chart of accounts.; 02-C4 Define debits and credits and explain double-entry accounting.; 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 83 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 182) Provided below is a list of definitions and terms. Match them by placing the letter that identifies the best definition in the blank space next to each term. ____ 1. ____ 2. ____ 3. ____ 4. ____ 5. Debit Note payable Ledger Journal Debt ratio ____ 6. ____ 7. ____ 8. ____ 9. ____ 10. Chart of accounts Trial balance Credit Account balance Balance column account A. An increase in an asset, owner withdrawal, and expense account, and a decrease in a liability, owner’s capital, and revenue account; recorded on the left side of a Taccount. B. A decrease in an asset, owner withdrawal, and expense account, and an increase in a liability, owner’s capital, and revenue account; recorded on the right side of a Taccount. C. A written promise to pay a definite sum of money on a specified future date. D. The difference between total debits and total credits for an account including the beginning balance. E. A list of accounts and their balances at a point in time; the total debit balances should equal the total credit balances. F. A list of all accounts used by a company and the identification number assigned to each account. G. The ratio of total liabilities to total assets; used to reflect the risk associated with the company’s debts. H. An account with debit and credit columns for recording entries and another column for showing the balance of the account after each entry. I. A record of each transaction in one place that shows debits and credits for each transaction. J. A record containing all accounts of a company and their balances. Answer: 1. A; 2. C; 3. J; 4. I; 5. G; 6. F; 7. E; 8. B; 9. D; 10. H Difficulty: 1 Easy Topic: Debt Ratio; Analyzing and Recording Process; The Account and Its Analysis; Ledger and Chart of Accounts; Debits and Credits Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.; 02-C1 Explain the steps in processing transactions and the role of source documents.; 02-C2 Describe an account and its use in recording transactions.; 02-C3 Describe a ledger and a chart of accounts.; 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 84 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 183) Provided below is a list of definitions and terms. Match them by placing the letter that identifies the best definition in the blank space next to each term. ____ 1. General journal ____ 2. Chart of accounts ____ 3. Note receivable ____ 4. T-account ____ 5. Unearned revenues ____ 6. Compound journal entry ____ 7. Posting reference column ____ 8. Posting ____ 9. Account ____ 10. Trial Balance A. Represents a ledger account and is used to show the effects of transactions. B. The most flexible type of journal, it can be used to record any kind of transaction. C. A journal entry that affects at least three accounts. D. A written promise from a customer to pay a definite sum of money on a specified future date. E. A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense item. F. A list of all accounts used by a company and the identification number assigned to each account. G. The process of transferring journal entry information to the ledger. H. A list of accounts and their balances; the total debit balances should equal the total credit balances. I. A column in journals where individual account numbers are entered when entries are posted to ledger accounts. J. Liabilities created when customers pay in advance for services not yet performed. Answer: 1. B; 2. F; 3. D; 4. A; 5. J; 6. C; 7. I; 8. G; 9. E; 10. H Difficulty: 1 Easy Topic: Analyzing and Recording Process; The Account and Its Analysis; Ledger and Chart of Accounts; Debits and Credits Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.; 02-C2 Describe an account and its use in recording transactions.; 02-C3 Describe a ledger and a chart of accounts.; 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 85 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 184) Identify each of the following accounts as a revenue (R), expense (E), asset (A), liability (L), or equity (OE) by placing initials (R, E, A, L or OE) in the blanks. ____ 1. Salary Expense ____ 2. Cash ____ 3. Equipment ____ 4. Owner, Capital ____ 5. Fees Revenue ____ 6. Accounts Receivable ____ 7. Accounts Payable ____ 8. Owner, Withdrawals ____ 9. Supplies ____ 10. Unearned Revenue ____ 11. Prepaid Insurance ____ 12. Office Furniture Answer: 1. E; 2. A; 3. A; 4. OE; 5. R; 6. A; 7. L; 8. OE; 9. A; 10. L; 11. A; 12. A Difficulty: 2 Medium Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 86 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 185) Review the transactions below and identify with an “X” those that would be posted as a credit in the ledger (The first one has been done for you): __X_ 1. Salary Payable was increased. ____ 2. Cash was decreased ____ 3. Equipment was increased ____ 4. Owner, Capital was increased ____ 5. Salaries Expense was increased ____ 6. Accounts Receivable was decreased ____ 7. Unearned Revenue was increased ____ 8. Owner, Withdrawals was increased ____ 9. Supplies was increased ____ 10. Building was increased ____ 11. Utilities Expense was increased ____ 12. Service Revenue was increased Answer: __X_ 1. Salary Payable was increased. __X_ 2. Cash was decreased _____ 3. Equipment was increased __X_ 4. Owner, Capital was increased _____ 5. Salaries Expense was increased __X_ 6. Accounts Receivable was decreased __X_ 7. Unearned Revenue was increased _____ 8. Owner, Withdrawals was increased _____ 9. Supplies was increased _____ 10. Building was increased _____ 11. Utilities Expense was increased __X_ 12. Service Revenue was increased Difficulty: 2 Medium Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 87 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 186) The following accounts appear on either the Income Statement (IS) or Balance Sheet (BS). In the space to the left of each account, write IS or BS to identify the statement on which the account appears. ____ 1. Office Equipment ____ 2. Rent Expense ____ 3. Unearned Revenue ____ 4. Rent Expense ____ 5. Accounts Payable ____ 6. Owner, Capital ____ 7. Fees Revenue ____ 8. Cash ____ 9. Notes Receivable ____ 10. Wages Payable Answer: 1. BS; 2. IS; 3. BS; 4. IS; 5. BS; 6. BS; 7. IS; 8. BS; 9. BS; 10. BS Difficulty: 2 Medium Topic: Using a Trial Balance to Prepare Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 88 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 187) Miley Block is a building consultant. Shown below are (a) several accounts in her ledger with each account preceded by an identification number, and (b) several transactions completed by Block. Indicate the accounts debited and credited when recording each transaction by placing the proper account identification numbers to the right of each transaction. 1. 2. 3. 4. 5. 6. Accounts Payable Accounts Receivable Cash Consulting Fees Earned Office Supplies Office Supplies Expense Example: Completed consulting work for a client who will pay at a later date. A. Received cash in advance from a customer for designing a building B. Purchased office supplies on credit. C. Paid for the supplies purchased in B. D. Received the telephone bill of the business and immediately paid it. E. Paid for a 3-year insurance policy Answer: Debit A 3 B 5 C 1 D 7 E 12 7. 8. 9. 10. 11. 12. Telephone Expense Unearned Revenue Miley Block, Capital Miley Block, Withdrawals Insurance Expense Prepaid Insurance Debit Credit 2 4 Credit 8 1 3 3 3 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 89 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 188) Drew Castle is an insurance appraiser. Shown below are (a) several accounts in his ledger with each account preceded by an identification number, and (b) several transactions completed by Castle. Indicate the accounts debited and credited when recording each transaction by placing the proper account identification numbers to the right of each transaction. 1. Accounts Payable 2. Accounts Receivable 3. Appraisal Fees Earned 4. Cash 5. Insurance Expense 6. Office Equipment 7. Office Supplies 8. Office Supplies Expense 9. Prepaid Insurance 10. Salaries Expense 11. Telephone Expense 12. Unearned Appraisal Fees 13. Drew Castle, Capital 14. Drew Castle, Withdrawals Example: Completed an appraisal for a client who promised to pay at a later date. A. Received cash in advance for appraising a hail damage claim……………………….. B. Purchased office supplies on credit……… C. Drew Castle withdrew cash from the business for a personal vacation.……… D. Received the phone bill of the business and immediately paid it………… E. Paid the salary of the office assistant…. F. Paid for the supplies purchased in transaction B………………………….. G. Completed an appraisal for a client and immediately collected cash for the work performed…………………………… Debit Credit 2 3 90 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: A B C D E F G Debit 4 7 14 11 10 1 4 Credit 12 1 4 4 4 4 3 Difficulty: 3 Hard Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 189) List the steps in processing transactions. Answer: Business transactions and events are the starting point. Source documents are analyzed for the effects of the transactions and events on the accounting records. The information is recorded into the journal. The information is then posted to the accounts and a trial balance is prepared from the ledger balances. The final step is the preparation of financial statements for decision makers. Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communications / Keyboard Navigation AICPA: BB Industry; FN Decision Making 91 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 190) Describe what source documents are and the purpose they serve in a business. Answer: Source documents are the proof that transactions and events have occurred and should be recorded in the accounting records. They provide objective and reliable evidence about transactions and their amounts. Examples of source documents include checks, invoices, sales receipts, credit card statements, and bank statements. They can be in hard copy or electronic form. Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 191) What are the three groups of accounts shown on an unclassified balance sheet and define each group? Answer: Accounts are classified into three general groups: assets, liabilities and equity accounts. Assets are resources owned or controlled by a company. Liabilities are obligations to transfer assets or provide products or services to others. Equity is the owner’s claim on a company’s assets. Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 192) Explain the difference between a general ledger and a chart of accounts. Answer: A ledger is a record containing all of the accounts of a business and their balances. The chart of accounts is a list of all of the accounts a company uses and includes an identification number assigned to each account. A chart of accounts does not include account balances. Difficulty: 1 Easy Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 92 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 193) Explain debits and credits and their role in the accounting system of a business. Answer: Debit refers to the left side of an account and credit refers to the right side of an account. Debits and credits are part of the double-entry accounting system. This system is based on the concept that all transactions and events affect at least two accounts. The double entry system is organized around the accounting equation which states that assets = liabilities + equity. Assets, expenses, and the owner’s withdrawal account all have normal debit balances. Liabilities, revenues, and the owner’s capital account all have normal credit balances. Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Measurement 194) Explain the debt ratio and its use in analyzing a company’s financial condition. Answer: The debt ratio is calculated by dividing total liabilities by total assets. It reveals the percentage of the company’s assets that are financed by creditors. The higher the ratio, the more risk a company has in trying to repay the debt and interest. Difficulty: 2 Medium Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Risk Analysis 195) Explain the recording and posting processes. Answer: Information from business transactions and events is recorded in the journal in the form of journal entries. The journal entries include the date, the account titles, and debit and credit amounts. Journal entries may also include a further description of the transaction. During the posting process, the debit and credit amounts recorded in the journal are transferred to the individual accounts in the ledger. Difficulty: 2 Medium Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 93 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 196) What is a trial balance? What is its purpose? Answer: The trial balance is a list of all of the accounts in the ledger with balances at a point in time presented in debit and credit columns according to their balance. The purpose of the trial balance is to summarize the account totals and to verify the accuracy of the total debits and credits. If the total debits and credits are not equal, it indicates an error in the accounting records. However, even if debits do equal credits, it does not guarantee that no errors were made in recording and posting transactions. Difficulty: 1 Easy Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 197) Describe the link between a business’s income statement, the statement of owner’s equity, and the balance sheet. Answer: The income statement shows the amount of net income the company has earned. That income is carried to the statement of owner’s equity. The net income is added to the beginning owner’s equity, and owner’s withdrawals are subtracted to determine the ending owner’s equity. The ending owner’s equity is then reported on the balance sheet. Difficulty: 2 Medium Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Reporting 94 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 198) Identify by marking an X in the appropriate column, whether each of the following items would likely serve as a source document. The first one is done as an example. Ex. a. b. c. d. e. f. g. h. Yes No X Yes No X Credit card Credit card receipt Purchase order Invoice Balance sheet Bank statement Journal entry Telephone bill Employee earnings record Answer: Ex. a. b. c. d. e. f. g. h. Credit card Credit card receipt Purchase order Invoice Balance sheet Bank statement Journal entry Telephone bill Employee earnings record X X X X X X X X Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 95 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 199) Indicate whether a debit or credit entry would be required to record the following changes in each account. a. To decrease Cash b. To increase Owner, Capital c. To decrease Accounts Payable. d. To increase Salaries Expense. e. To decrease Supplies. f. To increase Revenue. g. To decrease Accounts Receivable. h. To increase Owner, Withdrawals. Answer: a. Credit, b. Credit, c. Debit, d. Debit, e. Credit, f. Credit, g. Credit, h. Debit Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 96 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 200) Using the following list of accounts and identification letters A through J, enter the type of account and its normal balance into the table below. The first item is filled in as an example: Type of Account Liability Equity X Normal Balance Debit Credit X Type of Account Asset Liability Equity X X X X X X X X X X Normal Balance Debit Credit X X X X X X X X X X Asset Homer, Capital Interest Payable Land Homer, Withdrawals Fees Earned Prepaid Rent Advertising Expense Unearned Rent Revenue Commissions Earned Notes Receivable Answer: Homer, Capital Interest Payable Land Homer, Withdrawals Fees Earned Prepaid Rent Advertising Expense Unearned Rent Revenue Commissions Earned Notes Receivable Difficulty: 2 Medium Topic: Accounts; Ledger and Chart of Accounts; Debits and Credits Learning Objective: 02-C2 Describe an account and its use in recording transactions.; 02-C3 Describe a ledger and a chart of accounts.; 02-C4 Define debits and credits and explain doubleentry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 97 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 201) Rowdy Bolton began Bolton Office Services in October and during that month completed these transactions: a. Invested $10,000 cash and $15,000 of computer equipment in the business. b. Paid $500 cash for an insurance premium covering the next 12 months. c. Completed office services for a customer and collected $1,000 cash. d. Paid $200 cash for office supplies. e. Paid $2,000 for October’s rent. Prepare journal entries to record the above transactions. Explanations are unnecessary. Answer: a. Cash Computer Equipment R. Bolton, Capital b. Prepaid Insurance Cash c. Cash Revenue d. Office Supplies Cash e. Rent Expense Cash 10,000 15,000 25,000 500 500 1,000 1,000 200 200 2,000 2,000 Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 98 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 202) JBL Company sends a $2,500 bill to a customer for services it provided during the month. Set up the necessary T-accounts below and show how this transaction would be recorded directly in those accounts. Answer: Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 203) NBC made a $2,500 payment on account, to satisfy a previously recorded account payable. Set up the necessary T-accounts below and show how this transaction would be recorded directly in those accounts. Answer: Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 99 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 204) Nelson Gomez (the owner) withdrew $100 cash from the business for personal use. Set up the necessary T-accounts below and show how this transaction would be recorded directly in those accounts. Answer: Difficulty: 2 Medium Topic: Analyzing Transactions Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 205) On December 3, the XFL Company paid $1,400 cash in salaries to employees. Prepare the general journal entry to record this transaction. Answer: 112/3 Salaries Expense Cash 1,400 1,400 Difficulty: 2 Medium Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 100 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 206) On February 5, Kirkland Co. purchased equipment that cost $35,000. The firm paid $5,000 cash and signed a long-term note payable for $30,000. Show the general journal entry to record this transaction. Answer: 2/5 Equipment Cash Note Payable 35,000 5,000 30,000 Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 207) Jarrod Automotive, owned and operated by Jarrod Johnson, began business in September of the current year. Jarrod, a mechanic, had no experience with recording business transactions. As a result, Jarrod entered all of September’s transactions directly into the ledger accounts. When he tried to locate a particular entry he found it confusing and time consuming. He has hired you to improve his accounting procedures. The accounts in his General Ledger follow: Prepare the general journal entries, in chronological order (a) through (e), from the T-account entries shown. Include a brief description of the probable nature of each transaction. 101 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: a. Sept. 1 Cash Equipment J. Jarrod, Capital To record initial investment. b. c. d. e. 4 9 11 15 Equipment Cash Notes Payable To record purchase of equipment, paying $550 in cash and paying a $2,000 note payable for the balance due. 4,200 800 5,000 2,550 550 2,000 Accounts Receivable Revenue To record credit sale of services. 275 Cash Revenue To record cash sale of services. 150 Cash Accounts Receivable To record collection from customer. 190 275 150 190 Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 102 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 208) Sarah’s Paralegal Services completed these transactions in February: a. Purchased office supplies on account, $300. b. Completed work for a client on credit, $500. c. Paid cash for the office supplies purchased in (a). d. Completed work for a client and received $800 cash. e. Received $500 cash for the work described in (b). f. Received $1,000 in advance from a client for services to be performed in March. Prepare journal entries to record the above transactions. Explanations are not necessary. Answer: a. Office Supplies Accounts Payable b. Accounts Receivable Services Revenue c. Accounts Payable Cash d. Cash Services Revenue e. Cash Accounts Receivable f. Cash Unearned Revenue 300 300 500 500 300 300 800 800 500 500 1,000 1,000 Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 103 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 209) Larry Matt completed these transactions during December of the current year: Dec. 1 Began a financial services practice by investing $15,000 cash and office equipment with a $5,000 value. 2 Purchased $1,200 of office equipment on credit. 3 Purchased $300 of office supplies on credit. Completed work for a client and immediately received payment of 4 $900 cash. 8 Completed work for Precept Paper Co. on credit, $1,700. 10 Paid for the supplies purchased on credit on December 3. 14 Paid for the annual $960 premium on an insurance policy. 18 Received payment in full from Precept Paper Co. for the work completed on December 8. 27 Larry withdrew $650 cash from the business to pay personal expenses. 30 Paid $175 cash for the December utility bills. Received $2,000 in advance from a client for services to be 30 performed next year. Prepare general journal entries to record these transactions. 104 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: Dec. 1 Cash Office Equipment L Matt, Capital Owner invested in business. 2 Office Equipment Accounts Payable Purchased office equipment and supplies on credit. 3 Office Supplies Accounts Payable 4 Cash Fees Earned Rendered services for cash. 15,000 5,000 20,000 1,200 1,200 300 300 900 900 8 Accounts Receivable Fees Earned Rendered services on account. 1,700 1,700 10 Accounts Payable Cash Paid amount owed for supplies 300 300 14 Prepaid Insurance Cash Paid insurance premium for one year. 960 960 18 Cash 1,700 Accounts Receivable Received payment on account. 1,700 27 L. Matt, Withdrawals Cash Owner withdrew cash. 650 650 30 Utility Expense Cash Paid utility bills. 175 175 30 Cash Unearned Fees 2,000 2,000 Received cash for services to be provided next year 105 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 210) Mary Sunny began business as Sunny Law Firm on November 1. Record the following November transactions by making entries directly to the T-accounts provided. Next, prepare a trial balance as of November 30. a) Mary invested $15,000 cash and a law library valued at $6,000. b) Purchased $7,500 of office equipment from John Bronx on credit. c) Completed legal work for a client and received $1,500 cash in full payment. d) Paid John Bronx $3,500 cash in partial payment of the amount owed. e) Completed $4,000 of legal work for a client on credit. f) Mary withdrew $2,000 cash from the business for personal use. g) Received $2,500 cash as partial payment for the legal work completed for the client in (e). h) Paid $2,500 cash for the secretary’s salary. 106 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: Sunny Law Firm Account Cash Accounts Receivable Law Library Office Equipment Accounts Payable M. Sunny, Capital M. Sunny, Withdrawal Legal Fees Earned Salaries Expense Totals Trial Balance November 30 Debit Credit $11,000 1,500 6,000 7,500 $ 4,000 21,000 2,000 5,500 2,500 $30,500 $30,500 107 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Difficulty: 3 Hard Topic: Analyzing Transactions; Journalizing and Posting Transactions; Preparing a Trial Balance Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P1 Record transactions in a journal and post entries to a ledger.; 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 211) Jerry’s Shop had the following assets and liabilities at the beginning and end of the current year: Assets Beginning of the year ……………………………… $114,000 End of the year ………………………………………. 135,000 Liabilities $68,000 73,000 If Jerry made no investments in the business and withdrew no assets during the year, what was the amount of net income earned by Jerry’s Shop? Answer: Beginning owner’s equity = $114,000 – $68,000 = $46,000 Ending owner’s equity = $135,000 – $73,000 = $62,000 Increase in owner’s equity = $62,000 – $46,000 = $16,000 Because there were no investments or withdrawals during the year, net income is $16,000. Difficulty: 3 Hard Topic: Analyzing Transactions; Using a Trial Balance to Prepare Financial Statements Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 108 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 212) Victor Services had the following assets and liabilities at the beginning and end of the current year: Assets Beginning of the year ……………………………… $114,000 End of the year ………………………………………. 135,000 Liabilities $68,000 73,000 If Victor invested $12,000 in the business during the year, but withdrew no assets during the year, what was the amount of net income earned by Victor Services? Answer: Beginning owner’s equity = $114,000 – $68,000 = $46,000 Ending owner’s equity = $135,000 – $73,000 = $62,000 Increase in owner’s equity = $62,000 – $46,000 = $16,000 Net income = $16,000 – $12,000 = $4,000 Difficulty: 3 Hard Topic: Analyzing Transactions; Financial Statements Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 213) Archer Co. had the following assets and liabilities at the beginning and end of the current year: Assets Beginning of the year ……………………………… $114,000 End of the year ………………………………………. 135,000 Liabilities $68,000 73,000 If the owner invested an additional $12,000 in the business and withdrew $5,000 during the year, what was the amount of net income earned by Archer Co.? Answer: Beginning owner’s equity = $114,000 – $68,000 = $46,000 Ending owner’s equity = $135,000 – $73,000 = $62,000 Increase in owner’s equity = $62,000 – $46,000 = $16,000 Net income = $16,000 – $12,000 + $5,000 = $9,000 Difficulty: 3 Hard Topic: Analyzing Transactions; Financial Statements Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 109 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 214) A company had total assets of $350,000, total liabilities of $101,500, and total equity of $248,500. Calculate the company’s debt ratio. Answer: Debt Ratio = Total Liabilities/ Total Assets = $101,500/$350,000 = 29% Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making; FN Risk Analysis 215) Jackson Advertising Co. had assets of $475,000; liabilities of $275,500; and equity of $199,500. Calculate its debt ratio. Answer: Debt Ratio = Total Liabilities/Total Assets = $275,500/$475,000 = 58% Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making; FN Risk Analysis 216) List the four steps in recording transactions. Answer: 1. Identify transactions and source documents. 2. Analyze transactions using the accounting equation. 3. Record journal entry. 4. Post entry to ledger. Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 110 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 217) Given each of the following errors, indicate on the table below the amount by which the trial balance will be out of balance and which trial balance column (debit or credit) will have the larger total as a result of the error. a. $100 debit to Cash was debited to the Cash account twice. b. $1,900 credit to Sales was posted as a $190 credit. c. $5,000 debit to Office Equipment was debited to Office Supplies. d. $625 debit to Prepaid Insurance was posted as a $62.50 debit. e. $520 credit to Accounts Payable was not posted. Error a. b. c. d. e. Amount Out of Balance ________ Column Having Larger Total Amount Out of Balance $100 $1,710 — $562.50 $520 Column With Larger Total Debit Debit — Credit Debit Answer: Error a. b. c. d. e. Difficulty: 3 Hard Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 111 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 218) After preparing an (unadjusted) trial balance at year-end, R. Chang of Chang Window Company discovered the following errors: 1. Cash payment of the $225 telephone bill for December was recorded twice. 2. Cash payment of a note payable was recorded as a debit to Cash and a debit to Notes Payable for $1,000. 3. A $900 cash withdrawal by the owner was recorded to the correct accounts as $90. 4. An additional investment of $5,000 cash by the owner was recorded as a debit to R, Chang, Capital and a credit to Cash. 5. A credit purchase of office equipment for $1,800 was recorded as a debit to the Office Equipment account with no offsetting credit entry. Using the form below, indicate whether the error would cause the trial balance to be out of balance by placing an X in either the yes or no column. Error 1. 2. 3. 4. 5. Answer: Error 1 2 3 4 5 Yes Yes No No X X X X X Difficulty: 3 Hard Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 112 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 219) The balances for the accounts of Milo’s Management Co. for the year ended December 31 are shown below. Each account shown had a normal balance. Accounts Payable….. Accounts Receivable… Cash………………… Office Supplies. Building……………. Supplies Expense…… D. Milo, Capital……….. Management Revenue. $ 6,500 Wages Expense……… 7,000 Rent Expense………… ? 1,200 125,000 21,500 Land…………………. 118,700 Unearned Management Fees 175,000 D. Milo, Withdrawals 36,000 6,000 50,000 4,000 48,000 Calculate the correct balance for Cash and prepare a trial balance. Answer: MILOS MANAGEMENT CO. Trial Balance December 31 Cash** Accounts Receivable Office Supplies Land Building Accounts Payable Unearned Management Fees D. Milo, Capital D. Milo, Withdrawal Management Revenue Wages Expense Rent Expense Supplies Expense Totals **Total credits Total debits (excluding cash) Cash $ 9,500 7,000 1,200 50,000 125,000 $ 6,500 4,000 118,700 48,000 175,000 36,000 6,000 21,500 $304,200 $304,200 294,700 $ 9,500 $304,200 Difficulty: 3 Hard Topic: Preparing a Trial Balance Learning Objective: 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 113 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 220) At year-end, Henry Laundry Service noted the following errors in its trial balance: 1. It understated the total debits to the Cash account by $500 when computing the account balance. 2. A credit sale for $311 was recorded as a credit to the revenue account, but the offsetting debit was not posted. 3. A cash payment to a creditor for $2,600 was never recorded. 4. The $680 balance of the Prepaid Insurance account was listed in the credit column of the trial balance. 5. A $24,900 van purchase was recorded as a $24,090 debit to Equipment and a $24,090 credit to Notes Payable. 6. A purchase of office supplies for $150 was recorded as a debit to Office Equipment. The offsetting credit entry was correct. 7. An additional investment of $4,000 by Del Henry was recorded as a debit to Del Henry, Capital and as a credit to Cash. 8. The cash payment of the $510 utility bill for December was recorded (but not paid) twice. 9. The revenue account balance of $79,817 was listed on the trial balance as $97,817. 10. A $1,000 cash withdrawal was recorded as a $100 debit to Del Henry, Withdrawal and $100 credit to cash. Using the form below, indicate whether each error would cause the trial balance to be out of balance, the amount of any imbalance, and whether a correcting journal entry is required. Error 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Would the error cause the trial balance to be out of balance? Yes No Amount of Imbalance Correcting Journal Entry Required Yes No 114 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: Error 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Would the error cause the trial balance to be out of balance? Yes No X X X X X X X X X X Amount of Imbalance $500 311 0 1,360 0 0 0 0 18,000 0 Correcting Journal Entry Required Yes No X X X X X X X X X X Difficulty: 3 Hard Topic: Journalizing and Posting Transactions; Preparing a Trial Balance Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.; 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 115 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 221) The following trial balance is prepared from the general ledger of HG’s Auto Maintenance. HG’S AUTO MAINTENANCE Trial Balance October 31 Cash Accounts receivable Supplies Shop equipment Office equipment Accounts payable Hal Griffin, Capital Hal Griffin, Withdrawals Repair fees earned Supplies expense Totals Debit $ 1,975 2,800 500 13,000 6,600 Credit $ 4,510 22,000 4,200 11,875 8,600 $37,675 $38,385 Because the trial balance did not balance, you decided to examine the accounting records. You found that the following errors had been made: 1. A purchase of supplies on account for $245 was posted as a debit to Supplies and as a debit to Accounts Payable. 2. An investment of $500 cash by the owner was debited to Hal Griffin, Capital and credited to Cash. 3. In computing the balance of the Accounts Receivable account, a debit of $600 was omitted from the computation. 4. One debit of $300 to the Hal Griffin, Withdrawals account was posted as a credit. 5. Office equipment purchased for $800 was posted to the Shop Equipment account. 6. One entire entry was not posted to the general ledger. The transaction involved the receipt of $125 cash for repair services performed for cash. Prepare a corrected trial balance for the HG’s Auto Maintenance as of October 31. 116 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Answer: HG’S AUTO MAINTENANCE Trial Balance October 31 Casha Accounts receivableb Supplies Shop equipmentc…………………………………… Office equipmentd…………………………………………. Accounts payablee………………………………………… Hal Griffin, Capitalf…………………………………… Hal Griffin, Withdrawalsg. ……………………………. Repair fees earnedh……………………………………… Supplies expense………………………………………..… Totals……………………………………………… Debit $ 3,100 3,400 500 12,200 7,400 Credit $ 5,000 23,000 4,800 12,000 8,600 $40,000 $40,000 aCash: Balance $1,975 + $1,000 (2) + 125 (#6) = $3,100 bAccounts Receivable: Bal. $2,800 + 600 (#3) = $3,400 cShop Equipment: Bal. $13,000 -800 (#5) = $12,200 dOffice Equipment: Bal. $6,600 + 800 (#5) = $7,400 eAccounts Payable: Bal $4,510 + 490 (#1) = $5,000 fHal Griffin, Capital: Bal. $22,000 + 1,000 (#2) = $23,000 gHal Griffin, Withdrawals: Bal. $4,200 + 600 (#4) = $4,800 hRepair fees earned: Bal $11,875 + 125 (#6) = $12,000 Difficulty: 3 Hard Topic: Analyzing Transactions; Preparing a Trial Balance Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.; 02-P2 Prepare and explain the use of a trial balance. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 117 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 222) Figgaro Company’s accounts and their balances, as of the end of August, are included below. All accounts have normal balances: Accounts receivable….. Equipment…………….. Service revenues earned. Rent expense………….. Office supplies……… Notes payable………… $36,000 59,000 75,000 3,600 1,500 22,000 Cash……………………. Advertising expense… Accounts payable……… J. Figgaro, Withdrawals.. Salaries expense……….. J. Figgaro, Capital…….. $27,000 5,000 31,000 24,000 30,000 58,100 a. Calculate net income. b. Determine the amount of owner’s equity to be shown on the August 31 balance sheet. Answer: A. $75,000 (3,600) (5,000) (30,000) $36,400 B. $58,100 36,400 (24,000) $70,500 Service revenues earned Rent expense Advertising expense Salaries expense Net income J. Figgaro, Capital (beginning) Net income J. Figgaro, Withdrawals J. Figgaro, Capital (ending) Difficulty: 3 Hard Topic: Using a Trial Balance to Prepare Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Reporting 118 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 223) Based on the following trial balance for Sally’s Salon, prepare an income statement, statement of owner’s equity, and a balance sheet. Sally Crawford made no additional investments in the company during the year. Cash Accounts receivable Beauty supplies Beauty shop equipment Accounts payable S. Crawford, Capital S. Crawford, Withdrawals Revenue earned Beauty supplies expense Rent expense Wages expense Totals Sally’s Salon Trial Balance December 31 $ 6,500 475 2,500 17,000 $ 745 21,155 36,000 72,000 3,425 6,000 22,000 $93,900 $93,900 Answer: Sally’s Salon Income Statement For Year Ended December 31 Revenue earned……………… Expenses: Beauty supplies expense…. Rent expense………………. Wages expense……………. Total expenses…………….. Net Income………………….. $72,000 $ 3,425 6,000 22,000 Sally’s Salon Statement of Owner’s Equity For Year Ended December 31 S. Crawford, Capital, January 1……………………. Plus: Net income………………………………………….. Less: Withdrawals by owner…………………………….. S. Crawford, Capital, December 31………………. 31,425 $40,575 $21,155 40,575 61,730 (36,000) $25,730 119 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Assets Cash…………………….. Accounts receivable……. Beauty supplies…………. Beauty shop equipment…. Total assets……………… Sally’s Salon Balance Sheet At December 31 Liabilities $ 6,500 Accounts payable………… 475 2,500 Equity 17,000 S. Crawford, Capital…… $26,475 Total liabilities and equity. $ 745 25,730 $26,475 Difficulty: 3 Hard Topic: Using a Trial Balance to Prepare Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Reporting 120 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 224) George Butler opened a business that provides day tugboat tours to tourists along the Mississippi River. Prepare journal entries to record the following transactions. May 1 May 2 May 3 May 4 May 5 May 10 May 12 May 19 May 22 May 25 May 31 May 31 Butler invested $20,000 cash and a tugboat valued at $90,000 in the business. Butler paid $3,000 cash for office equipment. Butler bought boating supplies costing $2,500 on credit. Butler paid $500 cash for the first month’s dock rental. Butler paid $1,800 cash for a six-month insurance policy. Butler gave a client a tour and immediately received $2,000 cash. Butler provided a $3,500 tour on credit, the customer agreed to pay within 10 days Butler paid for the boating supplies originally purchased on May 3. Butler receives payment on the account from the client entry on May 12. Butler received $2,750 cash for tours that he completed that day. Butler paid his crew member a salary of $1,000. Butler withdrew $2,000 cash for personal use. Answer: May 1 Cash……………………………………. 20,000 Tugboat………………………….……… 90,000 G. Butler, Capital…………………. Owner invested in business. 2 3 4 5 10 110,000 Office Equipment……………………….. 3,000 Cash……………………………… Purchased office equipment. 3,000 Boating Supplies…………………………. 2,500 Accounts Payable…….…………. Purchased supplies on account. 2,500 Rent Expense…………………………….. 500 Cash………..…………………….. Paid for dock rent. 500 Prepaid Insurance……………………….. 1,800 Cash………..……………………. Paid for six month insurance policy. 1,800 Cash……………………………………… 2,000 Tugboat Tour Revenue…….…… Recorded tour revenue. 2,000 121 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 12 19 22 25 31 31 Accounts Receivable……………………. 3,500 Tugboat Tour Revenue ……… Recorded tour revenue provided on account. 3,500 Accounts Payable……………………….. 2,500 Cash……..………….…………….. Paid on account. 2,500 Cash……………………………………… 3,500 Accounts Receivable…………….. Record collection on account. 3,500 Cash……………………………………… 2,750 Tugboat Tour Revenue …..…….. Recorded tour revenue. 2,750 Salary Expense………………………….. 1,000 Cash……………….…………….. Paid assistant’s salary. 1,000 G. Butler, Withdrawals………………… 2,000 Cash……………………………. Record owner’s withdrawals. 2,000 Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 122 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 225) Based on the following trial balance for Barry’s Automotive Shop, prepare an income statement, statement of owner’s equity, and a balance sheet. Barry made no additional investments in the company during the year. Barry’s Automotive Shop Trial Balance December 31 Cash Accounts receivable Supplies Repair shop equipment Service truck Accounts payable Barry, Capital Barry, Withdrawals Service revenue Supplies expense Rent expense Utilities expense Gas expense Wages expense Totals $ 12,500 1,500 500 27,000 33,000 $2,600 38,525 36,000 125,000 3,425 18,000 5,000 7,200 22,000 $166,125 $166,125 Answer: 123 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Barry’s Automotive Shop Balance Sheet December 31 Assets Cash Accounts receivable Supplies Repair shop equipment Service truck $ 12,500 1,500 500 27,000 33,000 Total assets $74,500 Liabilities Accounts payable $ 2,600 Equity Barry, Capital Total liabilities and equity 71,900 $74,500 Difficulty: 3 Hard Topic: Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 124 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 226) For each of the accounts in the following table (1) identify the type of account as an asset, liability, equity, revenue, or expense, and (2) identify the normal balance of the account. Account Type Normal Balance Account Type expense asset revenue liability equity liability expense revenue equity asset Normal Balance debit debit credit credit credit credit debit credit debit debit a. Wages Expense b. Accounts Receivable c. Commissions Earned d. Salaries Payable e. Owner, Capital f. Unearned Advertising Revenue g. Salaries Expense h. Subscription Revenue i. Owner, Withdrawal j. Prepaid Insurance Answer: a. Wages Expense b. Accounts Receivable c. Commissions Earned d. Salaries Payable e. Owner, Capital f. Unearned Advertising Revenue g. Salaries Expense h. Subscription Revenue i. Owner, Withdrawal j. Prepaid Insurance Difficulty: 2 Medium Topic: Ledger and Chart of Accounts; Debits and Credits Learning Objective: 02-C3 Describe a ledger and a chart of accounts.; 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 125 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 227) For each of the following accounts, identify whether a debit or credit yields the indicated change a. To increase Fees Earned b. To decrease Cash c. To decrease Unearned Revenue d. To increase Accounts Receivable e. To increase Owner, Capital f. To decrease Notes Payable g. To increase Prepaid Rent h. To increase Salaries Expense i. To increase Accounts Payable j. To decrease Prepaid Insurance Answer: a. To increase Fees Earned b. To decrease Cash c. To decrease Unearned Revenue d. To increase Accounts Receivable e. To increase Owner, Capital f. To decrease Notes Payable g. To increase Prepaid Rent h. To increase Salaries Expense i. To increase Accounts Payable j. To decrease Prepaid Insurance credit credit debit debit credit debit debit debit credit credit Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 126 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 228) Indicate on which financial statement each of the following items appears. Use I for income statement, E for statement of owner’s equity, and B for balance sheet. a. Fees Earned b. Cash c. Unearned Revenue d. Rent expense e. Accounts Receivable f. Notes Payable g. Prepaid Rent h. Salaries Expense i. Notes Payable j. Owner, Withdrawal Answer: a. Fees Earned b. Cash c. Unearned Revenue d. Rent expense e. Accounts Receivable f. Notes Payable g. Prepaid Rent h. Salaries Expense i. Notes Payable j. Owner, Withdrawal I B B I B B B I B E Difficulty: 2 Medium Topic: Using a Trial Balance to Prepare Financial Statements Learning Objective: 02-P3 Prepare financial statements from business transactions. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 127 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 229) Jason Hope opened a hotel. Prepare journal entries to record the following transactions. Hope uses the accounts Room Rental Revenue and Event Revenue. All expenses for special events are recorded as Event Expense. (Omit explanations.) June 1 June 25 June 30 June 30 Hope invested $400,000 cash into the business Hope purchased a hotel building for $800,000 and land for $100,000. Hope paid $250,000 in cash and signed note payable for $650,000. Paid $6,000 for a six month insurance policy on the hotel. Purchased supplies costing $4,000 on account. Received advance payments of $12,000 from customers that will be staying at the hotel in July. Payments will be refunded if the customer cancels within 7 days of their scheduled arrival time. Received cash payments of $13,000 from current customers staying at the hotel in June. Paid $2,000 cash for staff salaries. Paid $500 for maintenance expense. Received $10,000 payment for a wedding reception hosted that day. Paid $2,500 for catering expenses. Paid event expenses of $1,000 for table and chair rentals. Paid event expenses of $2,000 for flowers. Paid for the supplies purchased on June 5. Recorded an additional $5,000 cash received from current hotel customers for June. Paid $2,000 cash for staff salaries. The owner withdrew $4,000 for personal use. Answer: June 1 Cash June 2 June 3 June 5 June 10 June 14 June 15 June 16 June 17 June 18 June 18 June 19 June 24 400,000 J. Hope, Capital June 2 June 3 June 5 400,000 Land Building Cash Note Payable 100,000 800,000 Prepaid Insurance Cash 6,000 Supplies Accounts Payable 4,000 250,000 650,000 6,000 4,000 128 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. June 10 Cash 12,000 Unearned Rental Revenue June 14 Cash 12,000 13,000 Room Rental Revenue June 15 June 16 June 17 Salaries Expense Cash Maintenance Expense Cash Cash 13,000 2,000 2,000 500 500 10,000 Event Revenue June 18 June 18 June 19 June 24 June 25 10,000 Catering Expense Cash 2,500 Event Expense Cash 1,000 Event Expense Cash 2,000 Accounts Payable Cash 4,000 Cash 5,000 2,500 1,000 2,000 4,000 Room Rental Revenue June 30 June 30 5,000 Salaries Expense Cash 2,000 J. Hope, Withdrawals Cash 4,000 2,000 4,000 Difficulty: 3 Hard Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Measurement 129 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 230) For each of the following accounts, (1) identify the account as an asset, liability, equity, revenue, or expense, and (2) indicate the normal balance of the account. Account Title a. Prepaid Insurance b. Accounts Payable c. L. Roads, Capital d. Utilities Expense e. Land f. Services Revenue g. Notes Receivable h. Advertising Expense i. Unearned Revenue j. Service Revenue Answer: Account Title a. Prepaid Insurance b. Accounts Payable c. L. Roads, Capital d. Utilities Expense e. Land f. Services Revenue g. Notes Receivable h. Advertising Expense i. Unearned Revenue j. Service Revenue Account Type Account Type asset liability equity expense asset revenue asset expense liability revenue Normal Balance (Debit or Credit) Normal Balance debit credit credit debit debit credit debit debit credit credit Difficulty: 2 Medium Topic: Ledger and Chart of Accounts; Debits and Credits Learning Objective: 02-C3 Describe a ledger and a chart of accounts.; 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 130 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 231) The steps in the accounting process focus on analyzing and recording financial transactions and events within a company. Those steps are shown below. Using the number system of 1 as the first step and 4 as the last step in the process, number the steps in the correct order in which they would occur (1 thru 4). _____ Analyze transactions using the accounting equation. _____ Record journal entry. _____ Post entry to ledger. _____ Identify transactions and source documents. Answer: ___2__ Analyze transactions using the accounting equation. ___3__ Record journal entry. ___4__ Post entry to ledger. ___1__ Identify transactions and source documents. Difficulty: 1 Easy Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Remember AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Reporting 232) ________ and ________ are the starting points for the analyzing and recording process. Answer: Business transactions; Events Answers can appear in either order Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 233) The third step in the analyzing and recording process is to record each transaction chronologically in a ________. Answer: journal Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 131 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 234) The fourth step in the analyzing and recording process is to transfer (or post) entries from the journal to the ________. Answer: ledger Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 235) ________ documents identify and describe transactions and events entering the accounting system. Answer: Source Difficulty: 2 Medium Topic: Analyzing and Recording Process Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 236) Revenues and expenses are two categories of ________ accounts. Answer: equity Difficulty: 2 Medium Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Understand AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 237) The ________ is a collection of all accounts and their balances. Answer: general ledger (or ledger) Either answer is acceptable Difficulty: 1 Easy Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 132 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 238) In a seller’s accounting records, ________ are promises of payment waiting to be received from customers. Answer: Accounts receivable Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 239) Unearned revenue is classified as a(an) ________ on a business’s balance sheet. Answer: liability Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 240) The four categories of equity accounts are ________, ________, ________, and ________. Answer: owner, capital; owner, withdrawals; revenues; expenses (Answers can appear in any order) Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 241) A ________ is a list of all the accounts used by a company and their identification codes but does not contain the balances. Answer: chart of accounts Difficulty: 1 Easy Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 133 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 242) A record containing all the separate accounts for a company as well as all of their balances is called the ________. Answer: ledger Difficulty: 1 Easy Topic: Ledger and Chart of Accounts Learning Objective: 02-C3 Describe a ledger and a chart of accounts. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 243) ________ requires that each transaction affect, and be recorded in, at least two accounts. It also means that total amounts debited must equal total amounts credited for each transaction. Answer: double-entry accounting Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 244) The ________ is found by determining the difference between total debits and total credits for an account, including any beginning balance. Answer: account balance Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 245) Assets would be increased with a ________ entry and liabilities would be increased with a ________ entry. Answer: debit; credit (Answers need to appear in the order shown above) Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 134 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 246) Funky Music purchased $25,000 of equipment for cash. The asset account, Equipment, is ________ for $25,000 and the Cash account is ________ for $25,000. Answer: debited; credited (Answers need to appear in the order as shown above) Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Understand AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 247) Jackson Brown Footwear had total liabilities of $127.5 million and total assets of $375 million. Its debt ratio was ________. Answer: 34% Debt Ratio = Total Liabilities/Total Assets Debt Ratio = $127.5 million/$375 million = 34% Difficulty: 3 Hard Topic: Debt Ratio Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition. Bloom’s: Apply AACSB/Accessibility: Analytical Thinking / Keyboard Navigation AICPA: BB Industry; FN Decision Making 248) ________ is the process of transferring journal entry information from the journal to the ledger. Answer: Posting Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communications / Keyboard Navigation AICPA: BB Industry; FN Decision Making 249) A ________ gives a complete chronological record of each transaction in one place, and shows debits and credits for each transaction. Answer: journal Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 135 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 250) A more structured format that is similar to a T-account in that it has columns for debits and credits, but that is different in that it has columns for transaction date, explanation, and the account balance is the ________. Answer: balance column account Difficulty: 1 Easy Topic: The Account and Its Analysis Learning Objective: 02-C2 Describe an account and its use in recording transactions. Bloom’s: Remember AACSB/Accessibility: Communications / Keyboard Navigation AICPA: BB Industry; FN Decision Making 251) The posting process is the link between the ________ and the ________. Answer: journal; ledger (Answers can be recorded in either order) Difficulty: 1 Easy Topic: Journalizing and Posting Transactions Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger. Bloom’s: Remember AACSB/Accessibility: Communication / Keyboard Navigation AICPA: BB Industry; FN Decision Making 252) You increase the Service Revenue account on the ________ side of its account. Answer: right or credit Difficulty: 1 Easy Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communications / Keyboard Navigation AICPA: BB Industry; FN Decision Making 253) You decrease the Accounts Payable account on the ________ side of its account. Answer: left or debit Difficulty: 2 Medium Topic: Debits and Credits Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting. Bloom’s: Remember AACSB/Accessibility: Communications / Keyboard Navigation AICPA: BB Industry; FN Decision Making 136 Copyright 2019 © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.