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Chapter 01 - Introduction to Accounting and Business
Indicate whether the statement is true or false. 1. A merchandising business buys products from other businesses to sell to customers. a. True b. False 2. The role of accounting is to provide many different users with financial information to make economic decisions. a. True b. False 3. Accounting information users need reports about the economic activities and condition of businesses. a. True b. False 4. Managerial accounting information is used by external and internal users equally. a. True b. False 5. Senior executives cannot be criminally prosecuted for the wrongdoings they commit on behalf of the companies where they work. a. True b. False 6. Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to the management. a. True b. False 7. Proper ethical conduct implies that you only consider what's in your best interest. a. True b. False 8. Some of the major fraudulent acts committed by senior executives started as what they considered to be small ethical lapses that grew out of control. a. True b. False 9. A business is an organization in which basic resources or inputs, such as materials and labor, are assembled and processed to provide outputs in the form of goods or services to customers. a. True b. False 10. Two factors that typically lead to ethical violations are relevance and timeliness of accounting information. a. True b. False
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Chapter 01 - Introduction to Accounting and Business 11. Financial accounting reports are relevant only to users within the business. a. True b. False 12. The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure. a. True b. False 13. The main objective for all business is to maximize unrealized profits. a. True b. False 14. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing entities. a. True b. False 15. The basic difference between manufacturing and merchandising companies is the completion level of the products they purchase for resale to customers. a. True b. False 16. An example of an external user of accounting information is the federal government. a. True b. False 17. Proprietorships are owned by one owner and provide only services to their customers. a. True b. False 18. About 90% of the businesses in the United States are organized as corporations. a. True b. False 19. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles. a. True b. False 20. The cost concept is the basis for entering the purchase price into the accounting records. a. True b. False 21. The unit of measurement concept requires that economic data be recorded in dollars. a. True b. False Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 22. If a building is appraised for $85,000, it is offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer would record the building at $85,000. a. True b. False 23. The financial statements of a proprietorship should include the owner's personal assets and liabilities. a. True b. False 24. No significant differences exist between the accounting standards issued by the FASB and the IASB. a. True b. False 25. Generally accepted accounting principles regulate how and what financial information is reported by businesses. a. True b. False 26. The IASB maintains an electronic database, called the Accounting Standards Codification, which contains all of the accounting standards that make up GAAP. a. True b. False 27. The accounting equation can be expressed as Assets – Liabilities = Owner's Equity. a. True b. False 28. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of owners. a. True b. False 29. The owner’s rights to the assets rank ahead of the creditors' rights to the assets. a. True b. False 30. If the liabilities owed by a business total $300,000 and owner's equity is equal to $300,000, then the assets also total $300,000. a. True b. False 31. If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the same period, the period's change in total liabilities was a $65,000 increase. a. True b. False 32. If total assets increased by $190,000 during a specific period and liabilities decreased by $10,000 during the same period, the period's change in total owner's equity was a $200,000 increase. Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business a. True b. False 33. If net income for a proprietorship was $50,000, the owner withdrew $20,000 in cash, and the owner invested $10,000 in cash, the capital of the owner increased by $40,000. a. True b. False 34. An account receivable is typically classified as a revenue. a. True b. False 35. An account receivable is a claim against a customer resulting from a sale on account. a. True b. False 36. Paying an account payable increases liabilities and decreases assets. a. True b. False 37. Receiving payments on an account receivable increases both equity and assets. a. True b. False 38. Cash withdrawals by owners decrease assets and increase equity. a. True b. False 39. Purchasing supplies on account increases liabilities and decreases equity. a. True b. False 40. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid. a. True b. False 41. Revenue is earned only when money is received. a. True b. False 42. Assets that are used up during the process of earning revenue are called expenses. a. True b. False 43. The excess of revenue over the expenses incurred in earning the revenue is called capital. a. True Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business b. False 44. There are four primary financial statements of a proprietorship: the income statement, the statement of owner's equity, the balance sheet, and the statement of cash flows. a. True b. False 45. An income statement is a summary of the revenues and expenses of a business as of a specific date. a. True b. False 46. A statement of owner's equity reports the changes in the owner's equity for a period of time. a. True b. False 47. The statement of cash flows consists of three sections: Cash Flows from (Used for) Operating Activities, Cash Flows from (Used for) Income Activities, and Cash Flows from (Used for) Equity Activities. a. True b. False 48. The balance sheet represents the accounting equation. a. True b. False 49. Net income and net profit do not mean the same thing. a. True b. False 50. The higher the ratio of liabilities to owner’s equity, the better able a company is to withstand poor business conditions and to pay its obligations to creditors. a. True b. False
Indicate the answer choice that best completes the statement or answers the question. 51. Profit is the difference between a. assets and liabilities b. the incoming cash and outgoing cash c. the assets purchased with cash contributed by the owner and the cash spent to operate the business d. the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services 52. Two common areas of accounting that respectively provide information to internal and external users are a. forensic accounting and financial accounting b. managerial accounting and financial accounting c. managerial accounting and environmental accounting Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business d. financial accounting and tax accounting systems 53. Which of the following best describes accounting? a. records economic data but does not communicate the data to users according to any specific rules b. is an information system that provides reports to users regarding economic activities and condition of a business c. is of no use by individuals outside of the business d. is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements 54. Which type of accountant typically practices as an individual or as a member of a public accounting firm? a. Certified Public Accountant b. Certified Payroll Professional c. Certified Internal Auditor d. Certified Management Accountant 55. Financial reports are used by a. management b. creditors c. investors d. All of these choices 56. Which of the following is a manufacturing business? a. General Motors b. Facebook c. American Airlines d. Target 57. Which of the following is a service business? a. Dell Inc. b. Wal-Mart Stores, Inc. c. Microsoft Corporation d. Facebook, Inc. 58. Which of the following groups of companies includes examples of merchandising businesses? a. Delta Air Lines, Marriott, Gap Inc. b. Gap Inc., Amazon, Nike Inc. c. GameStop, Sony, Dell d. GameStop, Best Buy, Gap Inc. 59. Which of the following groups is considered to be internal users of accounting information? a. employees and customers b. customers and vendors c. employees and managers d. government entities and banks Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 60. The following are examples of external users of accounting information except a. government entities b. customers c. creditors d. managers 61. Which of the following is the best description of accounting’s role in business? a. Accounting provides stockholders with information regarding the market value of the company’s stocks. b. Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company. c. Accounting helps in decreasing the credit risk of the company. d. Accounting is not responsible for providing any form of information to users. That is the role of the Information Systems Department. 62. Managerial accountants would be responsible for providing information regarding a. tax reports to government agencies b. profit reports to owners and management c. expansion of a product line report to management d. consumer reports to customers 63. Which of the following is not a certification for accountants? a. CIA b. CMA c. CISA d. IRS 64. Which of the following is not a role of accounting in business? a. to provide reports to users about the economic activities and conditions of a business b. to personally guarantee loans of the business c. to provide information to external users to determine the economic performance and condition of the business d. to assess the various informational needs of users and design an accounting system to meet those needs 65. Which of the following is a guideline for behaving ethically? I. Identify the consequences of a decision and its effect on others. II. Consider your obligations and responsibilities to those affected by the decision. III. Identify your decision based on personal standards of honesty and fairness. a. I and II b. II and III c. I and III d. I, II, and III 66. Which of the following would not normally operate as a service business? a. pet groomer b. grocer Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business c. lawn care company d. styling salon 67. Most businesses in the United States are a. proprietorships b. partnerships c. corporations d. cooperatives 68. Which of the following is not a business entity? a. entrepreneurship b. proprietorship c. partnership d. corporation 69. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a a. proprietorship b. corporation c. partnership d. governmental unit 70. Which of the following is true regarding a limited liability company? a. makes up 10% of business organizations in the United States b. combines the attributes of a partnership and a corporation c. provides tax and liability advantages to the owners d. All of these choices 71. On May 20, White Repair Service extended an offer of $108,000 for land that had been priced for sale at $140,000. On May 30, White Repair Service accepted the seller’s counteroffer of $115,000. On June 20, the land was assessed at a value of $95,000 for property tax purposes. On July 4, White Repair Service was offered $150,000 for the land by a national retail chain. At what value should the land be recorded in White Repair Service’s records? a. $108,000 b. $95,000 c. $140,000 d. $115,000 72. Which of the following is most likely to obtain large amounts of resources by issuing stock? a. partnership b. corporation c. proprietorship d. government entity 73. Which of the following is not a characteristic of a corporation? a. Corporations are organized as a separate legal taxable entity. Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business b. Ownership is divided into shares of stock. c. Corporations experience an ease in obtaining large amounts of resources by issuing stock. d. A corporation’s resources are limited to its individual owners’ resources. 74. The initials GAAP stand for a. general accounting procedures b. generally accepted plans c. generally accepted accounting principles d. generally accepted accounting practices 75. Within the United States, the dominant body in the primary development of accounting principles is the a. American Institute of Certified Public Accountants (AICPA) b. American Accounting Association (AAA) c. Financial Accounting Standards Board (FASB) d. Institute of Management Accountants (IMA) 76. The business entity concept means that a. the owner is part of the business entity b. an entity is organized according to state or federal statutes c. an entity is organized according to the rules set by the FASB d. the entity is an individual economic unit for which data are recorded, analyzed, and reported 77. For accounting purposes, the business entity should be considered separate from its owners if the entity is a. a corporation b. a proprietorship c. a partnership d. All of these choices 78. The objectivity concept requires that a. business transactions be consistent with the objectives of the entity b. the Financial Accounting Standards Board be fair and unbiased in its deliberations over new accounting standards c. accounting principles meet the objectives of the Securities and Exchange Commission d. amounts recorded in the financial statements be based on independently verifiable evidence 79. Karen Meyer owns and operates Crystal Cleaning Company. Recently, Meyer withdrew $10,000 from Crystal Cleaning, and she contributed $6,000, in her name, to the American Red Cross. The contribution of the $6,000 should be recorded on the accounting records of which of the following entities? a. Crystal Cleaning and the American Red Cross b. Karen Meyer's personal records and the American Red Cross c. Karen Meyer's personal records and Crystal Cleaning d. Karen Meyer's personal records, Crystal Cleaning, and the American Red Cross 80. Equipment with an estimated market value of $30,000 is offered for sale at $45,000. The equipment is acquired for $15,000 in cash and a note payable of $20,000 due in 30 days. The amount used in the buyer's accounting records to Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business record this acquisition is a. $30,000 b. $35,000 c. $15,000 d. $45,000 81. Which of the following is the authoritative body in the United States that has the primary responsibility for developing accounting principles? a. FASB b. IRS c. SEC d. AICPA 82. Which of the following concepts relates to separating the reporting of business and personal economic transactions? a. cost concept b. unit of measure concept c. business entity concept d. objectivity concept 83. Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost concept, at what amount should the land be recorded in the accounting records of Focus Company? a. $177,000 b. $212,000 c. $220,000 d. $232,000 84. Many countries outside the United States use financial accounting standards issued by the a. AICPA b. SEC c. IASB d. FASB 85. The unit of measure concept a. is only used in the financial statements of manufacturing companies b. is not important when applying the cost concept c. requires that different units be used for assets and liabilities d. requires that economic data be reported in yen in Japan or dollars in the United States 86. Which of the following is not true of accounting principles? a. Financial accountants follow generally accepted accounting principles (GAAP). b. Following GAAP allows accounting information users to compare one company to another. c. A new accounting principle can be adopted with stockholders' approval. d. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business principles. 87. The _____ concept requires a company to report its economic activities on a regular basis for a specific period. a. cost b. matching c. objectivity d. time period 88. The annual accounting period adopted by a company is called its a. calendar year b. fiscal year c. natural business year d. natural calendar year 89. The natural business year for most retail businesses ends on a. January 31 b. March 31 c. August 31 d. December 31 90. Which of the following is not a characteristic of a corporation? a. Corporations are organized as a separate legal taxable entity. b. Ownership is divided into shares of stock. c. Corporations experience an ease in obtaining large amounts of resources by issuing stock. d. A corporation’s resources are limited to its individual owners’ resources. 91. On May 7, Carpet Barn Company offered to pay $83,000 for land that had a selling price of $105,000. On May 15, Carpet Barn accepted a counteroffer of $95,000. On June 5, the land was assessed at a value of $115,000 for property tax purposes. On December 10, Carpet Barn Company was offered $135,000 for the land by another company. At what value should the land be recorded in Carpet Barn Company’s records? a. $95,000 b. $105,000 c. $115,000 d. $135,000 92. Donner Company is selling a piece of land adjacent to its business. An appraisal reported the market value of the land to be $120,000. Focus Company initially offered to buy the land for $107,000. The companies settled on a purchase price of $115,000. On the same day, another piece of land on the same block sold for $122,000. Under the cost concept, what amount will be used to record this transaction in Focus Company’s accounting records? a. $107,000 b. $115,000 c. $120,000 d. $122,000 93. Assets are Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business a. always lower than liabilities b. equal to liabilities less owner’s equity c. the same as expenses because they are acquired with cash d. financed by the owner and/or creditors 94. Debts owed by a business are referred to as a. accounts receivable b. expenses c. owner’s equity d. liabilities 95. The accounting equation may be expressed as a. Assets = Equities − Liabilities b. Assets + Liabilities = Owner's Equity c. Assets = Revenues − Liabilities d. Assets − Liabilities = Owner's Equity 96. Which of the following is not an asset? a. investments b. cash c. inventory d. owner’s equity 97. The assets and liabilities of a company are $128,000 and $84,000, respectively. Owner’s equity should equal a. $212,000 b. $44,000 c. $128,000 d. $84,000 98. If total liabilities decreased by $46,000 during a period of time and owner's equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets would be a a. $106,000 increase b. $14,000 increase c. $14,000 decrease d. $106,000 decrease 99. Which of the following is not a business transaction? a. make a sales offer b. sell goods for cash c. receive cash for services to be rendered later d. pay for supplies 100. A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to a. increase an asset, decrease another asset Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business b. decrease an asset, decrease a liability c. increase an asset, increase a liability d. increase an asset, increase owner's equity 101. Earning revenue a. increases assets, increases owner’s equity b. increases assets, decreases owner's equity c. increases one asset, decreases another asset d. decreases assets, increases liabilities 102. The monetary value charged to customers for the performance of services sold is called a(n) a. asset b. net income c. capital d. revenue 103. Revenues are reported when a. a contract is signed b. cash is received from the customer c. work is begun on the job d. work is completed on the job 104. Expenses are recorded when a. cash is paid for services rendered b. a bill is received in advance of services rendered c. assets are used in the process of earning revenue d. assets are purchased 105. Goods purchased on account for future use in the business, such as supplies, are called a. prepaid liabilities b. revenues c. prepaid expenses d. liabilities 106. The asset created by a business when it makes a sale on account is termed a. accounts payable b. prepaid expense c. unearned revenue d. accounts receivable 107. The debt created by a business when it makes a purchase on account is referred to as an a. account payable b. account receivable c. asset Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business d. expense payable 108. If total assets decreased by $88,000 during a period of time and owner's equity increased by $71,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities would be a(n) a. $17,000 increase b. $88,000 decrease c. $159,000 increase d. $159,000 decrease 109. Owner's withdrawals a. increase expenses b. decrease expenses c. increase cash d. decrease owner's equity 110. How does paying a liability in cash affect the accounting equation? a. assets increase; liabilities decrease b. assets increase; liabilities increase c. assets decrease; liabilities decrease d. liabilities decrease; owner's equity increases 111. How does receiving a bill to be paid next month for services received affect the accounting equation? a. assets decrease; owner's equity decreases b. assets increase; liabilities increase c. liabilities increase; owner's equity increases d. liabilities increase; owner's equity decreases 112. How does the purchase of equipment by signing a note affect the accounting equation? a. assets increase; assets decrease b. assets increase; liabilities decrease c. assets increase; liabilities increase d. assets increase; owner's equity increases 113. Land originally purchased for $30,000 is sold for $62,000 in cash. What is the effect of the sale on the accounting equation? a. assets increase by $62,000; owner's equity increases by $62,000 b. assets increase by $32,000; owner's equity increases by $32,000 c. assets increase by $62,000; liabilities decrease by $30,000; owner's equity increases by $32,000 d. assets increase by $30,000; no change in liabilities; owner's equity increases by $62,000 114. Which of the following accounts is a liability? a. Accounts Payable b. Accounts Receivable c. Wages Expense d. Service Revenue Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 115. Abbie Marson is the sole owner and operator of Great Plains Company. As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $940,000 and liabilities of $300,000. During Year 2, Marson invested an additional $73,000 and withdrew $33,000 from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $995,000 and liabilities were $270,000? a. $45,000 b. $50,000 c. $106,000 d. $370,000 116. Which of the following asset accounts is increased when a receivable is collected? a. Accounts Receivable b. Supplies c. Accounts Payable d. Cash 117. Transactions affecting owner's equity include a. owner's investments and payment of liabilities b. owner's investments, owner's withdrawals, earning of revenues, and incurrence of expenses c. owner's investments, earning of revenues, incurrence of expenses, and collection of accounts receivable d. owner's withdrawals, earning of revenues, incurrence of expenses, and purchase of supplies on account 118. Michael Anderson is starting a computer programming business and has deposited an initial investment of $15,000 into the business cash account. Identify how the accounting equation will be affected. a. increase in assets (Cash) and increase in liabilities (Accounts Payable) b. increase in assets (Cash) and increase in owner’s equity (Michael Anderson, Capital) c. increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and increase in assets (Accounts Receivable) 119. Gomez Service Company paid its first installment on a note payable of $2,000. How will this transaction affect the accounting equation? a. increase in liabilities (Notes Payable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in owner’s equity (Note Payable Expense) c. decrease in assets (Cash) and decrease in assets (Notes Receivable) d. decrease in assets (Cash) and decrease in liabilities (Notes Payable) 120. Ramon Ramos has withdrawn $750 from Ramos Repair Company’s cash account to deposit in his personal account. How does this transaction affect Ramos Repair Company’s accounting equation? a. increase in assets (Accounts Receivable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) c. decrease in assets (Cash) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) 121. Which of the following is not a business transaction? a. Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service. Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business b. Erin provided services to customers earning fees of $600. c. Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month. d. Erin pays her monthly personal credit card bill. 122. Which of the following is a business transaction? a. purchase inventory on account b. plan advertising for upcoming sale c. give employees a raise beginning next month d. submit estimate for construction project 123. The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n) a. statement of cash flows b. statement of owner's equity c. income statement d. balance sheet 124. Which of the following financial statements reports information as of a specific date? a. income statement b. statement of owner's equity c. statement of cash flows d. balance sheet 125. Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The statement of owner's equity (OE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement. In what order are these three statements prepared? a. I,OE, B b. B, I, OE c. OE, I, B d. B,OE, I 126. Liabilities are reported on the a. income statement b. statement of owner's equity c. statement of cash flows d. balance sheet 127. Cash investments made by the owner to the business are reported on the statement of cash flows in the a. financing activities section b. investing activities section c. operating activities section d. supplemental statement 128. The year-end balance of the owner's capital account appears on a. both the statement of owner's equity and the income statement Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business b. only the statement of owner's equity c. both the statement of owner's equity and the balance sheet d. both the statement of owner's equity and the statement of cash flows 129. A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing the a. income statement b. balance sheet c. statement of cash flows d. statement of retained earnings 130. If an owner wanted to know how money flowed into and out of the company, which financial statement would the owner use? a. income statement b. statement of cash flows c. balance sheet d. statement of retained earnings 131. The Assets section of the balance sheet normally presents assets in a. alphabetical order b. the order of largest to smallest dollar amounts c. the order in which they will be converted into cash or used in operations d. the order of smallest to largest dollar amounts 132. All of the following are general-purpose financial statements except a(n) a. balance sheet b. income statement c. statement of owner’s equity d. cash budget 133. All of the following statements regarding the ratio of liabilities to owner’s equity are true except a. a ratio of 1 indicates that liabilities equal owner’s equity b. corporations can use this ratio but substitute total stockholders’ equity for total owner’s equity c. the higher this ratio, the better able a business is to withstand poor business conditions and pay creditors d. the lower this ratio, the better able a business is to withstand poor business conditions and pay creditors 134. Given the following data: Dec. 31,Year 2 Total liabilities $128,250 Total owner’s equity 95,000
Dec. 31,Year 1 $120,000 80,000
Compute the ratio of liabilities to owner’s equity for each year. Round to two decimal places. a. 1.50 and 1.07, respectively b. 1.35 and 1.50, respectively c. 1.07 and 1.19, respectively Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business d. 1.19 and 1.35, respectively
Match each of the following businesses with the type of business that best describes it. Each letter may be used more than once. a. Service business b. Manufacturing business c. Merchandising business 135. A hospital 136. A dressmaking company 137. A supermarket 138. A modular homebuilder 139. A health club and spa 140. A tax preparation firm 141. A law firm 142. A men’s clothing store 143. A book publisher 144. An automobile dealer Match each of the following companies with the type of business that best describes it. Each letter may be used more than once. a. Service business b. Merchandising business c. Manufacturing business 145. Dillard's 146. Time Warner Cable 147. General Motors 148. Redbox 149. American Airlines 150. Sony 151. Best Buy Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 152. Banana Republic 153. H&R Block Match each of the following users of accounting information to the type of user: internal or external. Each letter may be used more than once. a. Internal user b. External user 154. Payroll manager 155. Bank 156. President’s secretary 157. Internal Revenue Service 158. Raw material vendors 159. Social Security Administration 160. Health insurance provider 161. Managerial accountant Match each of the following characteristics with the form of business entity that it best describes. Each letter may be used more than once. a. Proprietorship b. Partnership c. Corporation d. Limited liability company (LLC) 162. Comprises 70% of business entities in the United States 163. Generates 90% of business revenues 164. Owned by two or more individuals 165. Organized as a separate legal taxable entity 166. Easy and cheap to organize 167. Often used as an alternative to a partnership 168. Used by large business 169. Has the ability to obtain large amounts of resources 170. Offers tax and legal liability advantages for owners Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business Match each of the following accounts with the account type that best describes it. Each letter may be used more than once. a. Asset b. Liability c. Owner's equity 171. Accounts payable 172. Wages expense 173. Joan Smith, Capital 174. Accounts Receivable 175. Joan Smith, Drawing 176. Land Match each transaction with its effect on the accounting equation. Each letter may be used more than once. a. Increase assets, increase liabilities b. Increase liabilities, decrease owner’s equity c. Increase assets, increase owner’s equity d. No effect e. Decrease assets, decrease liabilities f. Decrease assets, decrease owner’s equity 177. Received cash for services provided 178. Paid the utility bill 179. Investment of land by owner 180. Paid part of an amount owed to a creditor 181. Paid cash for the purchase of a one-year insurance policy 182. Received payment from a customer on account 183. Cash withdrawal by owner 184. Provided a service to a customer on account 185. Purchased supplies on credit 186. Paid wages 187. Cash investment by owner 188. Borrowed money from a bank Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 189. Purchased equipment for cash 190. Received cash for providing services to customers 191. Used up supplies that were already on hand Match each of the following items to its effect on owner’s equity. Each letter may be used more than once. a. Increases owner’s equity b. Decreases owner’s equity 192. Fees earned 193. Wages expense 194. Withdrawals 195. Lawn care revenue 196. Additional investment in the business 197. Supplies expense Match each of the following characteristics with the financial statement that it best describes. Each letter may be used more than once. a. Income statement b. Balance sheet c. Statement of owner’s equity d. Statement of cash flows 198. Reports as of a specific date 199. The first statement prepared 200. Has three sections: operating, investing, and financing 201. Reports only revenues and expenses 202. The second statement prepared 203. A formal presentation of the accounting equation 204. The connecting link between the income statement and balance sheet Match each of the following items to the financial statement(s) where it can be found. Each letter may be used more than once. a. Balance sheet b. Income statement c. Statement of cash flows d. Statement of owner’s equity Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 205. Increase in owner's equity 206. Revenues 207. Supplies 208. Land 209. Accounts payable 210. Accounts receivable 211. Operating activities 212. Wages expense 213. Fees earned 214. Net increase in cash Match each of the following activities to the section in which it would be reported on the statement of cash flows. Each letter may be used more than once. a. Cash Flows from (Used for) Operating Activities b. Cash Flows from (Used for) Investing Activities c. Cash Flows from (Used for) Financing Activities d. Does not appear on the statement of cash flows 215. Cash paid for building 216. Cash paid to suppliers 217. Cash paid to owner for personal use 218. Cash received from customers 219. Cash received from owner as additional investment in the business 220. Cash received from sale of a building 221. Borrowed cash from a bank
222. Discuss internal and external users of accounting information. What areas of accounting provide them with information? Give an example of the type of report each type of user might use. 223. Companies like Enron, WorldCom, and Tyco International, Ltd. have been caught in the midst of ethical lapses that led to fines, firings, and criminal and/or civil prosecution. List and briefly describe three factors that are responsible for what went wrong in these companies. 224. List the five steps in the process by which accounting provides information to users. Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 225. What is the major difference between the objective of financial accounting and the objective of managerial accounting? 226. Give the major disadvantage of disregarding the cost concept and constantly revaluing assets based on appraisals and opinions. 227. Explain the meaning of the business entity concept. 228. Darnell Company purchased $88,000 of computer equipment from Joseph Company. Darnell Company paid for the equipment using cash that had been obtained from the initial investment by Donnie Darnell. Which entity or entities (Darnell Company, Joseph Company, and Donnie Darnell) should record the transaction involving the computer equipment on their accounting records? 229. Bob Johnson is the sole owner of Johnson’s Carpet Cleaning Service. Bob purchased a personal automobile for $10,000 cash plus he took out a loan for $20,000 in his name. Describe how this transaction is related to the business entity concept. 230. Discuss the characteristics of a limited liability company (LLC). 231. Explain the meaning of: (a) the objectivity concept (b) the unit of measure concept 232. Dave Ryan is the owner and operator of Ryan's Arcade. At the end of its accounting period, December 31, Ryan’s Arcade has assets of $450,000 and liabilities of $125,000. Using the accounting equation, determine the following amounts: (a) owner’s equity as of December 31 of the current year (b) owner’s equity as of December 31 at the end of the next year, assuming that assets increased by $65,000 and liabilities increased by $35,000 during the year 233. Krammer Company has liabilities equal to one-fourth of the total assets. Krammer’s owner’s equity is $45,000. Using the accounting equation, what is the amount of liabilities for Krammer? 234. Determine the missing amount for each of the following: Assets (a) $30,000 53,000
Liabilities $38,000 (b) 32,000
Owner's Equity $45,000 22,000 (c)
235. Determine the missing amount designated with an “X” for each of the following: (a) (b) (c)
Assets $78,500 X 49,500
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Liabilities $37,600 53,280 X
Owner’s Equity X $145,000 34,000
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Chapter 01 - Introduction to Accounting and Business
236. Use the accounting equation to answer each of the following independent questions. (a) At the beginning of the year, Norton Company's assets were $75,000 and its owner’s equity was $38,000. During the year, assets increased by $18,000 and liabilities increased by $4,000. What was the owner’s equity at the end of the year? (b) At the beginning of the year, Turpin Industries had liabilities of $44,000 and owner’s equity of $66,000. If assets increased by $10,000 and liabilities decreased by $5,000, what was the owner’s equity at the end of the year? 237. The accountant for Scott Industries prepared the following list of accounting equation element balances from the company’s records for the year ended December 31: Fees earned Accounts receivable Equipment Accounts payable Salaries and wages expense Income tax payable Notes payable
$165,000 14,000 64,000 12,000 40,000 5,000 20,000
Cash Selling expenses Scott, capital Interest revenue Prepaid rent Income tax expense Rent expense
$30,000 44,000 27,000 3,000 2,000 18,000 20,000
Determine the total assets at the end of the current year for Scott Industries. 238. The accountant for Scott Industries prepared the following list of accounting equation element balances from the company’s records for the year ended December 31: Fees earned Accounts receivable Equipment Accounts payable Salaries and wages expense Income tax payable Notes payable
$165,000 14,000 64,000 12,000 40,000 5,000 20,000
Cash Selling expenses Scott, capital Interest revenue Prepaid rent Income tax expense Rent expense
$30,000 44,000 27,000 3,000 2,000 18,000 20,000
Determine the total liabilities at the end of the current year for Scott Industries. 239. The accountant for Scott Industries prepared the following list of accounting equation element balances from the company’s records for the year ended December 31: Fees earned Accounts receivable Equipment Accounts payable Salaries and wages expense Income tax payable Notes payable
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$165,000 14,000 64,000 12,000 40,000 5,000 20,000
Cash Selling expenses Scott, capital Interest revenue Prepaid rent Income tax expense Rent expense
$30,000 44,000 27,000 3,000 2,000 18,000 20,000
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Chapter 01 - Introduction to Accounting and Business Based on the information for Scott Industries, is it profitable? Explain your answer. 240. On July 1 of the current year, the assets and liabilities of John Wong, DVM, are as follows: Cash, $27,000; Accounts Receivable, $12,300; Supplies, $3,100; Land, $35,000; Accounts Payable, $13,900. What is the amount of owner's equity (John Wong’s capital) as of July 1 of the current year? 241. Ting Hsu is the owner of Hsu’s Financial Services. At the end of its accounting period, December 31, of Year 1, Hsu’s has assets of $575,000 and owner’s equity of $335,000. Using the accounting equation and considering each case independently, determine the following amounts: (a) Hsu’s liabilities as of December 31 of Year 1. (b) Hsu’s liabilities as of December 31 of Year 2, assuming that assets increased by $56,000 and owner’s equity decreased by $32,000. (c) Net income or net loss during Year 2, assuming that as of December 31, Year 2, assets were $592,000, liabilities were $450,000, and there were no additional investments or withdrawals. 242. Martin Blair is the owner and operator of Martin Consultants. At December 31 of the current year, Martin Consultants has assets of $430,000 and liabilities of $205,000. Using the accounting equation and considering each case independently, determine the following: (a) Martin Blair, capital, as of December 31. (b) Martin Blair, capital, as of December 31 of the next year, assuming that assets increased by $12,000 and liabilities increased by $15,000. (c) Martin Blair, capital, as of December 31 of the next year, assuming that assets decreased by $8,000 and liabilities increased by $14,000. 243. Daniels Company is owned and operated by Thomas Daniels. The following selected transactions were completed by Daniels Company during May: 1. Received cash from owner as additional investment, $55,000. 2. Paid creditors on account, $7,000. 3. Billed customers for services on account, $2,565. 4. Received cash from customers on account, $8,450. 5. Paid cash to owner for personal use, $2,500. 6. Paid the utility bill, $160. Indicate the effect of each transaction on the accounting equation by: (a) Accounting equation element type: (A) assets, (L) liabilities, (OE) owner’s equity, (R) revenue, and (E) expense b) Name of accounting equation element c) The amount of the transaction d) The direction of change (increase or decrease) in the account affected Note: Each transaction has two entries. Entry Entry Accounting Name of Accounting Name of Equation Accounting Increase or Equation Accounting Amount Element Equation Decrease Element Equation Amount (c) (c) Type Element (d) Type Element (a) (b) (a) (b)
Increase or Decrease (d)
1 2 3 Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 4 5 6 244. Collins Landscape Company purchased various landscaping supplies on account to be used for landscape designs for its customers. How will this business transaction affect the accounting equation? 245. Shiny Kar Company had the following transactions. For each transaction, show the effect on the accounting equation by putting the amount and direction (+, –, or NC for no change) in each box of the following table. Assets Liabilities
Owner’s Equity
(a) Shiny Kar withdrew $500 cash for food (b) Shiny Kar Company sold 2 cars for a total of $55,000 on account (c) The cost of the cars sold in (b) above was $40,000 (d) Shiny Kar received a $35,000 payment for a car previously sold on account (e) Shiny Kar paid $450 for advertising (f) Shiny Kar purchased $150 of cleaning supplies on account 246. Ramirez Company received its first electric bill in the amount of $60 which will be paid next month. How will this transaction affect the accounting equation? 247. Simpson Auto Body Repair purchased $20,000 of machinery. The company paid $8,000 in cash at the time of the purchase and signed a promissory note for the remainder to be paid in four monthly installments. (a) How will the purchase affect the accounting equation? (b) How will the payment of the first monthly installment affect the accounting equation (ignore interest)? 248. Indicate how the following transactions affect the accounting equation. (a) The purchase of supplies on account (b) The purchase of supplies for cash (c) A withdrawal by the owner to pay personal expenses (d) Revenues received in cash (e) Sale made on account 249. (a) A vacant lot acquired for $83,000 cash is sold for $127,000 in cash. What is the effect of the sale on the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity? (b) Assume that the seller owes $52,000 for the land. After receiving the $127,000 cash in (a), the seller pays the $52,000 owed. What is the effect of the payment on the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity? 250. Austin Land Company sold land for $85,000 in cash. The land was originally purchased for $65,000. At the time of the sale, $40,000 was still owed to Regions Bank. After the sale, Austin Land Company paid off the loan. Explain the effect of the sale and the payoff of the loan on the accounting equation. 251. There are four transactions that affect owner’s equity. Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business (a) What are the two types of transactions that increase owner’s equity? (b) What are the two types of transactions that decrease owner’s equity? 252. Given the following: Beginning capital Ending capital Owner's withdrawals
$58,000 30,000 25,000
Determine net income or net loss. 253. The following selected transactions are completed by a proprietorship. Indicate the effects of each transaction on assets, liabilities, and owner's equity by inserting "+" for increase and "−" for decrease in the appropriate columns at the right. If appropriate, you may insert more than one symbol in a column. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)
Received cash from owner as an additional investment Purchased supplies on account Paid rent for the current month Received cash for services sold to customers Paid cash to creditor for purchases in (b) Billed customers for services sold on account Received cash on account from customers Owner withdrew cash for personal use Recorded the cost of supplies used during the year Paid wages Purchased a truck for cash
A _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
L _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
OE _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
254. The following selected transactions are completed by a proprietorship. Indicate the effects of each transaction on assets, liabilities, and owner's equity by inserting "+" for increase and "−" for decrease in the appropriate columns at the right. If appropriate, you may insert more than one symbol in a column. (a) (b) (c) (d) (e)
Received cash from owner as initial investment Purchased supplies, paying cash Paid creditors on account Received cash from customers on account Paid utilities expense
A _____ _____ _____ _____ _____
L _____ _____ _____ _____ _____
OE _____ _____ _____ _____ _____
255. The following selected transactions are completed by a proprietorship. Indicate the effects of each transaction on assets, liabilities, and owner's equity by inserting "+" for increase and "−" for decrease in the appropriate columns at the right. If appropriate, you may insert more than one symbol in a column. (a) (b) (c) (d) (e)
Paid rent expense Purchased supplies on account Received cash for providing services to customers Billed customers for services on account Paid cash to owner for personal use
A _____ _____ _____ _____ _____
L _____ _____ _____ _____ _____
OE _____ _____ _____ _____ _____
256. The following selected transactions are completed by a proprietorship. Indicate the effects of each transaction on Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business assets, liabilities, and owner's equity by inserting "+" for increase and "−" for decrease in the appropriate columns at the right. If appropriate, you may insert more than one symbol in a column. (a) (b) (c) (d) (e)
Purchased land with cash Received cash from customers on account Determined the amount of supplies used this month Received cash from owner as additional investment Paid miscellaneous expense
A _____ _____ _____ _____ _____
L _____ _____ _____ _____ _____
OE _____ _____ _____ _____ _____
257. Use the following data for Flagger Company to prepare an income statement for the year ended December 31: Fees earned Accounts receivable Equipment Accounts payable Salaries and wages expense Income tax payable Notes payable
$168,000 14,000 42,000 12,000 40,000 5,000 20,000
Cash Selling expenses Flagger, capital Rent expense Prepaid rent Income tax expense
$30,000 44,000 36,000 51,000 2,000 18,000
258. The assets and liabilities of Thompson Computer Services at March 31, the end of the current year, and its revenue and expenses for the year follow. The capital of the owner was $180,000 at April 1, the beginning of the current year. Mr. Thompson invested an additional $25,000 in the business during the year. Accounts payable Accounts receivable Cash Fees earned Land Building
$ 2,000 10,340 21,420 73,450 47,000 157,630
Miscellaneous expense Office expense Supplies Wages expense Drawing
$ 1,030 1,240 1,670 23,550 16,570
Prepare an income statement for the current year ended March 31. 259. The assets and liabilities of Thompson Computer Services at March 31, the end of the current year, and its revenue and expenses for the year follow. The capital of the owner was $180,000 at April 1, the beginning of the current year. Mr. Thompson invested an additional $25,000 in the business during the year. Accounts payable Accounts receivable Cash Fees earned Land Building
$ 2,000 10,340 21,420 73,450 47,000 157,630
Miscellaneous expense Office expense Supplies Wages expense Drawing
$ 1,030 1,240 1,670 23,550 16,570
Prepare a statement of owner’s equity for Thompson Computer Services for the current year ended March 31. 260. The assets and liabilities of Thompson Computer Services at March 31, the end of the current year, and its revenue and expenses for the year follow. The capital of the owner was $180,000 at April 1, the beginning of the current year. Mr. Thompson invested an additional $25,000 in the business during the year. Accounts payable Accounts receivable Powered by Cognero
$ 2,000 10,340
Miscellaneous expense Office expense
$ 1,030 1,240 Page 28
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Chapter 01 - Introduction to Accounting and Business Cash Fees earned Land Building
21,420 73,450 47,000 157,630
Supplies Wages expense Drawing
1,670 23,550 16,570
Prepare a balance sheet for Thompson Computer Services for the current year ended March 31. 261. A summary of cash flows for Linda's Design Services for the year ended December 31 is as follows: Cash receipts: Cash received from customers Cash received from additional investment by owner
$83,990 25,000
Cash payments: Cash paid for expenses and supplies Cash paid for land Cash paid to owner for personal use
$27,410 47,000 5,000
Cash balance as of January 1
$40,600
Prepare a statement of cash flows for Linda's Design Services for the year ended December 31. 262. What information does the income statement give to business users? 263. What are the three sections of the statement of cash flows? 264. Name and describe the four primary financial statements for a proprietorship. 265. A summary of cash flows for Evelyn's Event Planning for the year ended December 31 is as follows: Cash receipts: Cash received from customers Cash received from bank loan
$57,360 15,000
Cash payments: Cash paid for expenses and supplies Cash paid for equipment Cash paid to the owner for personal use
$21,600 18,070 12,000
Cash balance as of January 1
$15,580
Prepare a statement of cash flows for Evelyn's Event Planning for the year ended December 31. 266. The assets and liabilities of Rocky's Day Spa at December 31 and its expenses for the year follow. The capital of the owner was $68,000 at January 1. The owner invested an additional $10,000 during the year. Net income for the year is $45,625. Accounts payable Accounts receivable Cash Fees earned Spa furniture and equipment Powered by Cognero
$ 4,375 Spa operating expense 8,490 Office expense 13,980 Spa supplies ??? Wages expense 56,000 Drawing
$23,760 2,470 9,230 26,580 38,170 Page 29
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Chapter 01 - Introduction to Accounting and Business Computers
2,130
Prepare an income statement for the current year ended December 31. 267. The assets and liabilities of Rocky's Day Spa on December 31 and its revenue and expenses for the year follow. The capital of the owner was $68,000 on January 1. The owner invested an additional $10,000 during the year. Accounts payable Accounts receivable Cash Fees earned Spa furniture and equipment Computers
$ 4,375 Spa operating expense 8,490 Office expense ??? Spa supplies 98,435 Wages expense 56,000 Drawing 2,130
$23,760 2,470 9,230 26,580 38,170
Prepare a balance sheet for the year ended December 31. 268. The assets and liabilities of Rocky's Day Spa on December 31 and its revenue and expenses for the year follow. The capital of the owner is $68,000 on January 1. The owner invested an additional $10,000 during the year. Accounts payable Accounts receivable Cash Fees earned Spa furniture and equipment Computers
$ 4,375 Spa operating expense 8,490 Office expense 13,980 Spa supplies 98,435 Wages expense 56,000 Drawing 2,130
$23,760 2,470 9,230 26,580 38,170
Prepare a statement of owner’s equity for the current year ended December 31. 269. Explain the interrelationship between the balance sheet and the statement of cash flows. 270. From the following list of items taken from Lamar’s accounting records, identify those that would appear on the income statement. (a) (b) (c) (d) (e) (f) (g)
Rent expense Land Capital Fees earned Withdrawal Wages expense Investment
271. Identify which of the following items would appear on a balance sheet. (a) (b) (c) (d) (e) (f) (g)
Cash Fees earned Joe Brown, capital Wages payable Rent expense Prepaid advertising Land
272. For each of the following, determine the amount of net income or net loss for the year. Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business (a) (b) (c) (d)
Revenues for the year totaled $71,300 and expenses totaled $35,500. The owner made an additional investment of $15,000 during the year. Revenues for the year totaled $220,500 and expenses totaled $175,000. The owner withdrew $40,000 during the year. Revenues for the year totaled $149,000 and expenses totaled $172,000. The owner invested an additional $12,000 and withdrew $16,000 during the year. Revenues for the year totaled $198,150 and expenses totaled $174,200. The owner withdrew $35,000 during the year.
273. The total assets and total liabilities of Paul’s Pools, a proprietorship, at the beginning and at the end of the current fiscal year are as follows: Total assets Total liabilities (a) (b)
(c)
(d)
January 1 $280,000 205,000
December 31 $475,000 130,000
Determine the amount of net income earned during the year. The owner did not invest any additional assets in the business during the year and made no withdrawals. Determine the amount of net income during the year. The assets and liabilities at the beginning and end of the year are unchanged from the given amounts. However, the owner withdrew $53,000 in cash during the year (no additional investments). Determine the amount of net income earned during the year. The assets and liabilities at the beginning and end of the year are unchanged from the given amounts. However, the owner invested an additional $35,000 in cash in the business in June of the current fiscal year (no withdrawals). Determine the amount of net income earned during the year. The assets and liabilities at the beginning and end of the year are unchanged from the given amounts. However, the owner invested an additional $12,000 in cash in August of the current fiscal year and made 12 monthly cash withdrawals of $1,500 each during the year.
274. The following selected transaction data of a business are for September. Determine the following amounts for September: (a) total revenue, (b) total expenses, (c) net income. Service sales charged to customers on account during September Cash received from cash customers for services performed in September Cash received from customers on account during September: Services performed and charged to customers prior to September Services performed and charged to customers during September Expenses incurred prior to September and paid during September Expenses incurred and paid in September Expenses incurred in September but not paid in September Expenses for supplies used and insurance (not given) applicable to September
$33,000 28,000 13,000 18,000 6,500 36,250 5,000 2,000
275. On March 1, the amount of Richard Cook's capital in Richard’s Catering Company was $150,000. During March, he withdrew $31,000 from the business. The amounts of the various assets, liabilities, revenues, and expenses are as follows: Accounts payable Accounts receivable Cash Fees earned Powered by Cognero
$10,250 45,950 23,840 64,950 Page 31
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Chapter 01 - Introduction to Accounting and Business Insurance expense Land Miscellaneous expense Prepaid insurance Rent expense Salary expense Supplies Supplies expense Utilities expense
1,275 85,400 1,210 3,000 9,000 20,300 900 525 2,800
Prepare (a) an income statement for March, (b) a statement of owner's equity for March, and (c) a balance sheet as of March 31. 276. Harris Designers began operations on April 1. The following financial statements are for Harris Designers for the month ended April 30 (the first month of operations). Determine the missing amounts for letters (a) through (o). Harris Designers Income Statement For the Month Ended April 30 Fees earned Expenses: Wages expense Rent expense Supplies expense Utilities expense Miscellaneous expense Total expenses Net income
$27,000 $5,250 (a) 4,600 400 1,250
Harris Designers Statement of Owner's Equity For the Month Ended April 30 Lori Harris, capital, April 1 Investment on April 1 Net income for April Withdrawals Increase in owner's equity Lori Harris, capital, April 30
$
(b) (c)
$
0
$35,000 (d) (6,000) (e) $38,100
Harris Designers Balance Sheet April 30 Assets Cash Supplies Land
$
(f) 8,100 (g)
Total assets
$55,900
Liabilities Accounts payable Owner's Equity Lori Harris, capital Total liabilities and owner's equity
$(h) (i) $(j)
Harris Designers Statement of Cash Flows For the Month Ended April 30 Cash flows from (used for) operating activities: Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business Cash received from customers Cash paid for expenses and to Net cash flows from operating activities Cash flows from (used for) investing activities: Cash paid for acquisition of land Cash flows from (used for) financing activities: Cash received as owner's investment Cash withdrawal by owner Net cash flows from financing activities Net increase in cash Cash balance, April 1 Cash balance, April 30
$23,000 (4,200) $18,800 (17,000) $
(k) (l) $ $
(m) (n) 0 (n)
Hint: Use the interrelationships among the financial statements to solve this problem. 277. Using the following data for Heavenly Futures Company, prepare an income statement for the month ended August 31. Telephone expense Cash Accounts payable Jason Heavenly, drawing Fees earned Rent expense Supplies Accounts receivable Computer equipment Jason Heavenly, capital (August 1) Wages expense Utilities expense Notes payable Office expense
$ 1,150 3,000 1,540 800 15,700 1,400 140 1,500 20,000 14,320 4,800 750 2,400 420
278. Using the following data for Bright Futures Company, prepare a statement of owner’s equity for the month ended August 31. Telephone expense Cash Accounts payable Jason Bright, drawing Fees earned Rent expense Supplies Accounts receivable Computer equipment Jason Bright, capital (August 1) Wages expense Utilities expense Notes payable Office expense Powered by Cognero
$ 1,150 3,000 1,540 800 15,700 1,400 140 1,500 20,000 14,320 4,800 750 2,400 420 Page 33
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Chapter 01 - Introduction to Accounting and Business 279. Eric Wood, CPA, was organized on January 1 as a proprietorship. List the errors that you find in the following financial statements and prepare corrected statements. Eric Wood, CPA Income Statement For the Three Months Ended March 31 Fees earned Expenses: Salary expense Rent expense Advertising expense Utilities expense Miscellaneous expense Answering service expense Supplies expense Total expenses Net income
$42,000 $9,735 5,200 3,950 3,225 4,000 2,550 4,000 28,000 $14,000
Eric Wood, CPA Statement of Owner's Equity March 31 Eric Wood, capital, January 1 Investment on January 1 $20,000 Net income for the three months 14,000 Withdrawals (5,000) Increase in owner's equity Eric Wood, capital, March 31
Assets Land Cash Accounts payable Supplies Total assets
$
0
31,000 $31,000
Balance Sheet For the Three Months Ended March 31 Owner's Equity $13,000 Eric Wood, capital 10,860 Liabilities 2,670 Accounts receivable 925 $33,225 Total liabilities and owner's equity
$31,000 2,225 $33,225
280. Using the following data for Bright Futures Company, prepare a balance sheet in report form as of August 31. Telephone expense Cash Accounts payable Jason Bright, drawing Fees earned Rent expense Supplies Accounts receivable Computer equipment Jason Bright, capital (August 1) Wages expense Utilities expense Powered by Cognero
$ 1,150 3,000 1,540 800 15,700 1,400 140 1,500 20,000 14,320 4,800 750 Page 34
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Chapter 01 - Introduction to Accounting and Business Notes payable Office expense
2,400 420
281. Using the following data for Awesome Travel Services, prepare an income statement, a statement of owner’s equity, and a balance sheet for the year ended (or as of) December 31. Accounts payable Accounts receivable Cash Computer equipment Fees earned Rent expense
$12,000 14,000 18,000 21,000 78,000 10,000
J. Trendsetter, capital (January 1) Supplies Income tax expense Utilities expense Wages expense Supplies expense
$10,000 1,000 1,300 8,000 25,000 1,700
There were no additional investments or withdrawals by J. Trendsetter during the year. 282. Given the following data: Dec. 31,Year 2 Total liabilities $128,250 Total owner’s equity 95,000
Dec. 31,Year 1 $120,000 80,000
(a) Compute the ratio of liabilities to owner’s equity for each year. (b) Has the creditors’ risk increased or decreased from December 31, Year 1, to December 31, Year 2? 283. Company G has a ratio of liabilities to stockholders’ equity of 0.12 and 0.28 for Year 1 and Year 2, respectively. In contrast, Company M has a ratio of liabilities to stockholders’ equity of 1.13 and 1.29 for the same period. REQUIRED: Based on this information, which company's creditors are more at risk and why? Should the creditors of either company fear the risk of nonpayment? 284. The following data were taken from Miller Company’s balance sheet: Total liabilities Total owner’s equity
Dec. 31, Year 2 $150,000 75,000
Dec. 31, Year 1 $105,000 60,000
(a) Compute the ratio of liabilities to owner’s equity. Round your answer to one decimal place. (b) Has the creditors’ risk increased or decreased from December 31, Year 1, to December 31, Year 2?
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Chapter 01 - Introduction to Accounting and Business Answer Key 1. True 2. True 3. True 4. False 5. False 6. True 7. False 8. True 9. True 10. False 11. False 12. True 13. False 14. False 15. True 16. True 17. False 18. False 19. True 20. True 21. True 22. False 23. False 24. False 25. True Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 26. False 27. True 28. True 29. False 30. False 31. False 32. True 33. True 34. False 35. True 36. False 37. False 38. False 39. False 40. False 41. False 42. True 43. False 44. True 45. False 46. True 47. False 48. True 49. False 50. False 51. d Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 52. b 53. b 54. a 55. d 56. a 57. d 58. d 59. c 60. d 61. b 62. c 63. d 64. b 65. d 66. b 67. a 68. a 69. b 70. d 71. d 72. b 73. d 74. c 75. c 76. d Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 77. d 78. d 79. b 80. b 81. a 82. c 83. b 84. c 85. d 86. c 87. d 88. b 89. a 90. d 91. a 92. b 93. d 94. d 95. d 96. d 97. b 98. b 99. a 100. b 101. a 102. d Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 103. d 104. c 105. c 106. d 107. a 108. d 109. d 110. c 111. d 112. c 113. b 114. a 115. a 116. d 117. b 118. b 119. d 120. b 121. d 122. a 123. c 124. d 125. a 126. d 127. a Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 128. c 129. a 130. b 131. c 132. d 133. c 134. b 135. a 136. b 137. c 138. b 139. a 140. a 141. a 142. c 143. b 144. c 145. b 146. a 147. c 148. a 149. a 150. c 151. b 152. b 153. a Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 154. a 155. b 156. a 157. b 158. b 159. b 160. b 161. a 162. a 163. c 164. b 165. c 166. a 167. d 168. c 169. c 170. d 171. b 172. c 173. c 174. a 175. c 176. a 177. c 178. b Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 179. c 180. e 181. d 182. d 183. f 184. c 185. a 186. f 187. c 188. a 189. d 190. c 191. f 192. a 193. b 194. b 195. a 196. a 197. b 198. b 199. a 200. d 201. a 202. c 203. b 204. c Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business 205. d 206. b 207. a 208. a 209. a 210. a 211. c 212. b 213. b 214. c 215. b 216. a 217. c 218. a 219. c 220. b 221. c 222. Internal users of accounting information include managers and employees. The area of accounting that provides internal users with information is called managerial accounting or management accounting. An example of a report that might be used internally is a customer profitability report. External users of accounting information include customers, creditors, banks, and government entities. These users are not directly involved in managing or operating the business. The area of accounting that provides external users with information is called financial accounting. General-purpose financial statements are one type of financial accounting report that is distributed to external users. 223. The three factors are: (1) individual character, (2) firm culture, and (3) lack of laws and enforcement. Honesty, integrity, and fairness in the face of pressure to hide the truth are important characteristics of an ethical businessperson. The behavior and attitude of senior management set the firm’s culture. In firms like Enron, senior managers created a culture of greed and indifference to the truth. That culture flowed down to lower-level managers, who took shortcuts and lied to cover financial frauds. The lack of laws and enforcement has been blamed as a contributing factor to financial reporting abuses. As a result, new laws such as the Sarbanes-Oxley Act (SOX) established a new oversight body for the accounting profession, known as the Public Company Accounting Oversight Board (PCAOB), and established standards Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business to enhance corporate accountability, financial disclosures, and independence. 224. 1. Identify users. 2. Assess users’ information needs. 3. Design the accounting information system to meet users’ needs. 4. Record economic data about business activities and events. 5. Prepare accounting reports for users. 225. The objective of financial accounting is to provide information for the decision-making needs of external users. The objective of managerial accounting is to provide information for internal users. 226. Accounting reports would become unstable and unreliable. 227. The business entity concept limits the economic data in an accounting system to data related directly to the activities of the business. In other words, the business is viewed as an entity separate from its owners, creditors, or other businesses. 228. Darnell Company and Joseph Company 229. Under the business entity concept, economic data are limited to the direct activities of the business. The business is viewed as separate from its owner. Therefore, when Bob buys a personal automobile, it is not listed on the books of Johnson’s Carpet Cleaning Service, unless Bob invests it in the business. In this case, the loan is a personal debt and not a liability of the company, and the cash is from Bob’s personal account and not the company’s account. 230. A limited liability company (LLC) combines the attributes of a partnership and a corporation. It is often used as an alternative to a partnership because it has tax and legal liability advantages for owners. 231. (a) The objectivity concept requires that the amounts recorded in the accounting records be based on objective evidence. In exchanges between a buyer and a seller, both try to get the best price. Only the final agreed-upon amount is objective enough to be recorded in the accounting records. (b) The unit of measure concept requires that economic data be recorded in dollars. Money is a common unit of measurement for entering financial data and preparing reports. 232. (a) $325,000 ($450,000 − $125,000) (b) $355,000 [($450,000 + $65,000) − ($125,000 + $35,000)] 233. Assets = Liabilities + Owner’s Equity 4x = x + $45,000 3x = $45,000 x = $15,000 in liabilities 234. (a) $83,000 ($38,000 + $45,000) (b) $8,000 ($30,000 – $22,000) (c) $21,000 ($53,000 – $32,000) 235. (a) $40,900 ($78,500 − $37,600) (b) $198,280 ($53,280 + $145,000) (c) $15,500 ($49,500 − $34,000) 236. (a) $75,000 − $38,000 = $37,000 beginning of year liabilities ($75,000 + $18,000) − ($37,000 + $4,000) = $52,000 end-of-year owner’s equity Powered by Cognero
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Chapter 01 - Introduction to Accounting and Business (b) $44,000 + $66,000 = $110,000 beginning of year assets ($110,000 + $10,000) − ($44,000 − $5,000) = $81,000 end-of-year owner’s equity 237. $110,000 ($30,000 Cash + $14,000 Accounts Receivable + $64,000 Equipment + $2,000 Prepaid Rent = $110,000) 238. $37,000 ($12,000 Accounts Payable + $5,000 Income Taxes Payable + $20,000 Notes Payable = $37,000) 239. Yes, Scott Industries is profitable. ($165,000 Fees Earned + $3,000 Interest Revenue) − ($40,000 Salaries and Wages Expense + $44,000 Selling Expenses + $18,000 Income Tax Expense + $20,000 Rent Expense) = $46,000 Net Income Scott Industries had net income for the period of $46,000. Since revenues exceeded expenses for the period, the company would be considered profitable. 240. $63,500 ($27,000 Cash + $12,300 Accounts Receivable + $3,100 Supplies + $35,000 Land − $13,900 Accounts Payable = $63,500) 241. (a) $575,000 − $335,000 = $240,000 (b) ($575,000 + $56,000) − ($335,000 − $32,000) = $328,000 (c) $592,000 − $450,000 = $142,000 owner's equity (Year 2) $335,000 − $142,000 = $193,000 net loss 242. (a) $430,000 − $205,000 = $225,000 (b) ($430,000 + $12,000) − ($205,000 + $15,000) = $222,000 (c) ($430,000 − $8,000) − ($205,000 + $14,000) = $203,000 243. Entry Entry Accounting Name of Accounting Name of Increase Increase Equation Accounting Equation Accounting or or Element Equation Amount Element Equation Amount (c) Decrease Type (c) Decrease Type Element Element (d) (d) (a) (b) (a) (b) 1 A Cash $55,000 Increase OE Capital $55,000 Increase A Cash $7,000 Decrease L Accounts $7,000 Decrease 2 Payable A Accounts $2,565 Increase R Fees $2,565 Increase 3 Receivable Earned A Cash $8,450 Increase A Accounts $8,450 Decrease 4 Receivable 5 A Cash $2,500 Decrease OE Drawing $2,500 Increase A Cash $160 Decrease E Utilities $160 Increase 6 Expense 244. Increase assets (Supplies) and increase liabilities (Accounts Payable) 245. (a)
Assets −$500
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Liabilities NC
Owner’s Equity −$500 Page 46
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Chapter 01 - Introduction to Accounting and Business (b) (c) (d) (e) (f)
+$55,000 −$40,000 NC −$450 +$150
NC NC NC NC +$150
+$55,000 −$40,000 NC −$450 NC
246. Increase liabilities (Accounts Payable) and decrease owner’s equity (Utilities Expense) 247. (a) Increase total assets by a net amount of $12,000 (increase Machinery, $20,000 and decrease Cash, $8,000) and increase liabilities by $12,000 (Notes Payable, $12,000) (b) Decrease assets by $3,000 (decrease Cash,$3,000) and decrease liabilities by $3,000 (Notes Payable,$3,000) 248. (a) Assets increase; liabilities increase (b) No effect (c) Assets decrease; owner's equity decreases (d) Assets increase; owner’s equity increases (e) Assets increase; owner’s equity increases 249. (a) (1) Total assets increased $44,000 (2) No change in liabilities (3) Owner’s equity increased $44,000 (b) (1) Total assets decreased $52,000 (2) Total liabilities decreased $52,000 (3) No change in owner’s equity 250. Total assets decrease $20,000 (Cash increases by $45,000; Land decreases by $65,000) Total liabilities decrease $40,000 (Note payoff to Regions) Owner's equity increases $20,000 (Sales price − Cost of the land) 251. (a) Additional investment by the owner and increase in revenues (b) Withdrawal made by the owner and increase in expenses 252. Ending capital Beginning capital Decrease in capital Withdrawals Net loss
$ 30,000 58,000 $(28,000) (25,000) $ (3,000)
253. (a) (b) (c) (d) (e) (f) (g)
A + + − + − + +,−
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L
OE +
+ − + − + Page 47
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Chapter 01 - Introduction to Accounting and Business (h) (i) (j) (k)
− − − +,−
− − −
254. (a) (b) (c) (d) (e)
A + +,− − −,+ −
L
OE +
− −
255. (a) (b) (c) (d) (e)
A − + + + −
L
A −, + +, − − + −
L
OE −
+ + + −
256. (a) (b) (c) (d) (e)
OE − − + −
257. Flagger Company Income Statement For the Year Ended December 31 Fees earned Expenses: Rent expense Selling expenses Salary and wages expense Income tax expense Total expenses Net income
$168,000 $51,000 44,000 40,000 18,000 153,000 $ 15,000
258. Thompson Computer Services Income Statement For the Year Ended March 31 Fees earned Expenses: Wages expense Office expense Powered by Cognero
$73,450 $23,550 1,240 Page 48
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Chapter 01 - Introduction to Accounting and Business Miscellaneous expense Total expenses Net income
1,030 25,820 $47,630
259. Thompson Computer Services Statement of Owner’s Equity For the Year Ended March 31 Thompson, capital, April 1 Additional investment by owner during year Net income for the year Withdrawals Increase in owner’s equity Thompson, capital, March 31
$180,000 $25,000 47,630 (16,570) 56,060 $236,060
260.
Assets Cash Accounts receivable Supplies Land Building Total assets
Thompson Computer Services Balance Sheet March 31 Liabilities $ 21,420 Accounts payable 10,340 1,670 47,000 Owner’s Equity 157,630 Thompson capital Total liabilities and $238,060 owner’s equity
$ 2,000
236,060 $238,060
261. Linda's Design Services Statement of Cash Flows For the Year Ended December 31 Cash flows from (used for) operating activities: Cash received from customers
$83,990
Cash paid for expenses and supplies
(27,410) $ 56,580
Net cash flows from operating activities Cash flows from (used for) investing activities:
(47,000)
Cash paid for land Cash flows from (used for) financing activities: Cash received from owner as investment
$25,000
Cash withdrawal by owner
(5,000)
Net cash flows from financing activities Net increase in cash Powered by Cognero
20,000 $29,580 Page 49
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Chapter 01 - Introduction to Accounting and Business Cash balance, January 1
40,600
Cash balance, December 31
$70,180
262. The income statement reports the revenues and expenses for a period of time. The result is either a net income or a net loss. 263. Cash Flows from (Used for) Operating Activities, Cash Flows from (Used for) Investing Activities, and Cash Flows from (Used for) Financing Activities 264. 1. Income statement: A summary of the revenue and expenses for a specific period of time, such as a month or a year. 2. Statement of owner’s equity: A summary of the changes in the owner’s equity that have occurred during a specific period of time such as a month or a year. 3. Balance sheet: A list of the assets, liabilities, and owner’s equity as of a specific date, usually at the close of the last day of a month or a year. 4. Statement of cash flows: A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year. 265. Evelyn's Event Planning Statement of Cash Flows For the Year Ended December 31 Cash flows from (used for) operating activities: Cash received from customers $57,360 (21,600) Cash paid for expenses and supplies Net cash flows from operating activities $35,760 Cash flows from (used for) investing activities: Cash paid for equipment Cash flows from (used for) financing activities: Cash received from bank loan Cash withdrawals by owner Net cash flows from financing activities Net increase in cash Cash balance, January 1 Cash balance, December 31
(18,070)
$15,000 (12,000) 3,000 $20,690 15,580 $36,270
266. Rocky's Day Spa Income Statement For the Year Ended December 31 Fees earned Expenses: Wages expense Spa operating expense Powered by Cognero
$98,435 $26,580 23,760 Page 50
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Chapter 01 - Introduction to Accounting and Business Office expense Total expenses Net income
2,470 52,810 $45,625
267.
Assets Cash Accounts receivable Spa supplies Computers Spa furniture and equipment Total assets
Rocky's Day Spa Balance Sheet December 31 Liabilities $13,980 Accounts payable 8,490 9,230 2,130 Owner’s Equity 56,000 $89,830
Owner's capital Total liabilities and owner’s equity
$ 4,375
85,455 $89,830
268. Rocky's Day Spa Statement of Owner’s Equity For the Year Ended December 31 Owner's capital, January 1 Additional investment by owner during year $ 10,000 Net income for the year 45,625 Withdrawals (38,170) Increase in owner’s equity Owner's capital, December 31
$68,000
17,455 $85,455
269. The cash reported on the balance sheet is also reported as the end-of-period cash on the statement of cash flows. 270. (a), (d), (f) 271. (a), (c), (d), (f), (g) 272. (a) $35,800 net income ($71,300 − $35,500) (b) $45,500 net income ($220,500 − $175,000) (c) $(23,000) net loss ($149,000 − $172,000) (d) $23,950 net income ($198,150 − $174,200) 273. (a) Owner's equity at end of year ($475,000 − $130,000) Owner's equity at beginning of year ($280,000 − $205,000) Net income (b) Increase in owner's equity as in (a) Add withdrawals Net income Powered by Cognero
$345,000 75,000 $270,000 $270,000 53,000 $323,000 Page 51
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Chapter 01 - Introduction to Accounting and Business (c) Increase in owner's equity as in (a) Deduct additional investment Net income
$270,000 35,000 $235,000
(d) Increase in owner's equity as in (a) Add withdrawals ($1,500 × 12) Deduct additional investment Net income
$270,000 18,000 (12,000) $276,000
274. (a) $61,000 ($33,000 + $28,000) (b) $43,250 ($36,250 + $5,000 + $2,000) (c) $17,750 ($61,000 − $43,250) 275. (a) Richard’s Catering Company Income Statement For the Month Ended March 31 Fees earned Expenses: Salary expense Rent expense Utilities expense Insurance expense Supplies expense Miscellaneous expense Total expenses Net income
$64,950 $20,300 9,000 2,800 1,275 525 1,210 35,110 $29,840
(b) Richard’s Catering Company Statement of Owner's Equity For the Month Ended March 31 Richard Cook, capital, March 1 Net income for the month $29,840 Withdrawals (31,000) Decrease in owner's equity Richard Cook, capital, March 31
$150,000
(1,160) $148,840
(c) Richard’s Catering Company Balance Sheet March 31 Assets Liabilities Cash $ 23,840 Accounts payable Accounts receivable 45,950 Prepaid insurance 3,000 Owner's Equity Supplies 900 Richard Cook, capital Land 85,400 Total liabilities and Total assets $159,090 owner's equity Powered by Cognero
$ 10,250
148,840 $159,090 Page 52
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Chapter 01 - Introduction to Accounting and Business 276. (a) $6,400 (b) $17,900 (c) $9,100 (d) $9,100 (e) $38,100 (f) $30,800 (g) $17,000 (h) $17,800 (i) $38,100 (j) $55,900 (k) $35,000 (l) $6,000 (m) $29,000 (n) $30,800 277. Heavenly Futures Company Income Statement For the Month Ended August 31 Fees earned Expenses: Wages expense Rent expense Telephone expense Utilities expense Office expense Total expenses Net income
$15,700 $4,800 1,400 1,150 750 420 8,520 $ 7,180
278. Bright Futures Company Statement of Owner’s Equity For the Month Ended August 31 Jason Bright, capital, August 1 Net income for August $7,180 Withdrawals (800) Increase in owner’s equity Jason Bright, capital, August 31
$14,320
6,380 $20,700
279. Errors in the Eric Wood, CPA, financial statements include the following: (1)
(2) (3) (4)
Miscellaneous expense is incorrectly listed after utilities expense on the income statement. Miscellaneous expense should be listed as the last expense, regardless of the amount. The operating expenses are incorrectly added. Instead of $28,000, the total should be $32,660. Because operating expenses are incorrectly added, the net income is incorrect. It should be listed as $9,340. The statement of owner's equity should be for a period of time instead of a specific date. That is, the statement of owner's equity should be reported "For the Three Months Ended March 31."
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Chapter 01 - Introduction to Accounting and Business (5)
Because the net income was incorrect, the increase in owners' equity and the balance in Eric Wood, Capital are incorrect. They should both be shown as $24,340. (6) The name of the company is missing from the balance sheet heading. (7) The balance sheet should be as of "March 31," not "For the Three Months Ended March 31." (8) Cash, not land, should be the first asset listed on the balance sheet. (9) Accounts payable is incorrectly listed as an asset on the balance sheet. Accounts payable should be listed as a liability. (10) Liabilities should be listed on the balance sheet ahead of owner's equity. (11) Accounts receivable is incorrectly listed as a liability on the balance sheet. Accounts receivable should be listed as an asset. (12) The assets do not total to $33,225 as shown, making the balance sheet out of balance. Correctly prepared financial statements for Eric Wood, CPA, are as follows: Eric Wood, CPA Income Statement For the Three Months Ended March 31 Fees earned Expenses: Salary expense Rent expense Supplies expense Advertising expense Utilities expense Answering service expense Miscellaneous expense Total expenses Net income
$42,000 $9,735 5,200 4,000 3,950 3,225 2,550 4,000 32,660 $ 9,340
Eric Wood, CPA Statement of Owner's Equity For the Three Months Ended March 31 Eric Wood, capital, January 1 Investment on January 1 Net income for three months Withdrawals Increase in owner's equity Eric Wood, capital, March 31
$
0
$20,000 9,340 (5,000) 24,340 $24,340 Eric Wood, CPA Balance Sheet March 31
Assets Cash Accounts receivable Supplies Land Powered by Cognero
$10,860 2,225 925 13,000
Liabilities Accounts payable $ 2,670 Owner's Equity Eric Wood, capital 24,340 Page 54
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Chapter 01 - Introduction to Accounting and Business Total assets
$27,010
Total liabilities and $27,010 owner's equity
280. Bright Futures Company Balance Sheet August 31 Assets Cash Accounts receivable Supplies Computer equipment Total assets
$ 3,000 1,500 140 20,000 $24,640
Liabilities Accounts payable Notes payable Total liabilities Owner's Equity Jason Bright, capital Total liabilities and owner’s equity
$ 1,540 2,400 $ 3,940 20,700 $24,640
281. Awesome Travel Services Income Statement For the Year Ended December 31 Fees earned Expenses: Expenses: Wages expense Rent expense Utilities expense Supplies expense Income tax expense Total expenses Net income
$78,000
$25,000 10,000 8,000 1,700 1,300
Awesome Travel Services Statement of Owner’s Equity For the Year Ended December 31 J. Trendsetter, capital, January 1 Net income for the year J. Trendsetter, capital, December 31
Assets Cash Accounts receivable Supplies Computer equipment Powered by Cognero
Awesome Travel Services Balance Sheet December 31 Liabilities $18,000 Accounts payable 14,000 1,000 Owner’s Equity 21,000 J. Trendsetter, capital
46,000 $32,000
$10,000 32,000 $42,000
$12,000
42,000 Page 55
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Chapter 01 - Introduction to Accounting and Business Total assets
$54,000 Total liabilities and owner’s equity
$54,000
282. (a) Dec. 31, Year 2 Total liabilities $128,250 Total owner’s equity 95,000 Ratio of liabilities to owner’s equity 1.35 ($128,250/$95,000)
Dec. 31,Year 1 $120,000 80,000 1.50 ($120,000/$80,000)
(b) Decreased 283. Company M’s creditors are more at risk than are Company G’s creditors. The lower the ratio of liabilities to stockholders' equity, the better able the company is to withstand poor business conditions and pay its obligations to creditors. Without additional information, it appears that the creditors of either company are well protected against the risk of nonpayment, because the ratios are relatively low for both. However, the fact that both ratios are increasing over the period should be monitored for downturns in business conditions. 284. (a) Dec. 31, Year 2: $150,000/$75,000 = 2.0 Dec. 31, Year 1: $105,000/$60,000 = 1.8 (b) Increased
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Chapter 02 - Analyzing Transactions
Indicate whether the statement is true or false. 1. Accounts are records of increases and decreases in individual financial statement items. a. True b. False 2. A chart of accounts is a listing of accounts that make up the journal. a. True b. False 3. The chart of accounts should be the same for each business. a. True b. False 4. Accounts payable are accounts that you expect will be paid to you. a. True b. False 5. Consuming goods and services in the process of generating revenues results in expenses. a. True b. False 6. Prepaid expenses are an example of an expense. a. True b. False 7. The unearned revenue account is an example of a liability. a. True b. False 8. The drawing account is an expense. a. True b. False 9. Accounts in the ledger are usually maintained in alphabetical order. a. True b. False 10. Depending on the account title, the right side of the account is referred to as the credit side. a. True b. False 11. To determine the balance in an account, always subtract credits from debits. a. True b. False Powered by Cognero
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Chapter 02 - Analyzing Transactions 12. An account in its simplest form has three parts to it: a title, an increase side, and a decrease side. a. True b. False 13. The T account got its name because it resembles the letter “T.” a. True b. False 14. The right side of a T account is known as a debit and the left side is known as a credit. a. True b. False 15. A debit entry to the cash account will increase the account. a. True b. False 16. A credit entry to the cash account will increase the account. a. True b. False 17. The cash account will always be debited. a. True b. False 18. The recording of cash receipts to the cash account will be done by debiting the account. a. True b. False 19. The recording of cash payments from the cash account is done by entering the amount as a credit. a. True b. False 20. The balance of an account can be determined by adding all of the debits, adding all of the credits, and adding the amounts together. a. True b. False 21. Liabilities are debts owed by the business entity. a. True b. False 22. The accounts payable account is listed in the chart of accounts as an asset. a. True b. False 23. A drawing account represents the amount of withdrawals made by the owner. Powered by Cognero
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Chapter 02 - Analyzing Transactions a. True b. False 24. Revenues are equal to the difference between cash receipts and cash payments. a. True b. False 25. Expenses result from using up assets or consuming services in the process of generating revenues. a. True b. False 26. Owner’s equity will be reduced by the amount in the drawing account. a. True b. False 27. When an owner invests assets in the business, the capital account increases due to revenue being earned. a. True b. False 28. When an account receivable is collected in cash, the total assets of the business increase. a. True b. False 29. When an account payable is paid with cash, the owner's equity in the business decreases. a. True b. False 30. For a month's transactions for a typical medium-sized business, the salary expense account is likely to have only credit entries. a. True b. False 31. A debit is abbreviated as Db and a credit is abbreviated as Cr. a. True b. False 32. When a business purchases supplies on account, no entry should be made until the invoice is paid. a. True b. False 33. For a month's transactions for a typical medium-sized business, the accounts payable account is likely to have only credit entries. a. True b. False 34. Withdrawals decrease owner's equity and are listed on the income statement as a deduction from revenue. Powered by Cognero
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Chapter 02 - Analyzing Transactions a. True b. False 35. The normal balance of revenue accounts is a credit. a. True b. False 36. The normal balance of an expense account is a credit. a. True b. False 37. The normal balance of the drawing account is a debit. a. True b. False 38. Expense accounts are increased by credits. a. True b. False 39. The normal balance of a capital account is a debit. a. True b. False 40. Revenue accounts are increased by credits. a. True b. False 41. Liability accounts are increased by debits. a. True b. False 42. Journalizing transactions using the double-entry bookkeeping system will eliminate fraud. a. True b. False 43. Transactions are listed in the journal chronologically. a. True b. False 44. Journalizing is the process of entering amounts in the ledger. a. True b. False 45. The process of recording a transaction in the journal is called journalizing. a. True b. False Powered by Cognero
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Chapter 02 - Analyzing Transactions 46. Transactions are initially entered into a record called a journal. a. True b. False 47. The double-entry accounting system records each transaction twice. a. True b. False 48. The increase side of an account is also the side of the normal balance. a. True b. False 49. Journal entries include both debit and credit accounts for each transaction. a. True b. False 50. A transaction that is recorded in the journal is called a journal entry. a. True b. False 51. Assets are increased with debits and decreased with credits. a. True b. False 52. Liabilities are increased with debits and decreased with credits. a. True b. False 53. Debits will increase unearned revenues and revenues. a. True b. False 54. All owner’s equity accounts record increases to the accounts with credits. a. True b. False 55. Journalizing always eliminates fraudulent activity. a. True b. False 56. Journal entries can have more than two accounts as long as the debits equal the credits. a. True b. False 57. Normal account balances are on the increase side of the accounts. Powered by Cognero
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Chapter 02 - Analyzing Transactions a. True b. False 58. The process of transferring data from the journal to the ledger accounts is called posting. a. True b. False 59. The posting reference notation used in the ledger is the account number. a. True b. False 60. The posting reference notation used in the journal is the page number. a. True b. False 61. A notation in the Post. Ref. column of the general journal indicates that the amount has been posted to the ledger. a. True b. False 62. The order of the flow of accounting data is (1) record in the ledger, (2) record in the journal, and (3) prepare the financial statements. a. True b. False 63. The process of transferring the debits and credits from the journal entries to the accounts is known as posting. a. True b. False 64. Postings made to four-column account forms show a new balance after each entry. a. True b. False 65. A group of related accounts that make up a complete unit is called a trial balance. a. True b. False 66. A trial balance determines the accuracy of the numbers. a. True b. False 67. Even when a trial balance is in balance, there may be errors in the individual accounts. a. True b. False 68. The totals at the bottom of the trial balance and the totals at the bottom of the balance sheet both show equality and Powered by Cognero
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Chapter 02 - Analyzing Transactions balancing and therefore should be equal. a. True b. False 69. A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a balance sheet. a. True b. False 70. If the trial balance is in balance, it can be assumed that all journal entries were posted correctly and no errors were made. a. True b. False 71. Posting the credit part of a journal entry to the wrong account will cause the trial balance totals to be unequal. a. True b. False 72. The erroneous arrangement of digits, such as writing $45 as $54, is called a slide. a. True b. False 73. Journalizing a transaction with both the debit and the credit for $69 instead of $96 will cause the trial balance to be out of balance. a. True b. False 74. The erroneous moving of an entire number one or more spaces to the right or left, such as writing $85 as $850, is called a transposition. a. True b. False
Indicate the answer choice that best completes the statement or answers the question. 75. Accounts a. do not reflect money amounts b. are not used by entities that manufacture products c. are records of increases and decreases in individual financial statement items d. are only used by large entities with many transactions 76. Accounts are classified in the ledger a. chronologically b. alphabetically c. in accordance with their appearance in the financial statements d. with the accounts used most often listed first 77. Which of the following accounts is an owner's equity account? Powered by Cognero
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Chapter 02 - Analyzing Transactions a. Cash b. Accounts Payable c. Prepaid Insurance d. Ross Morris, Capital 78. The gross increases in owner's equity attributable to business activities are called a. assets b. liabilities c. revenues d. expenses 79. A chart of accounts is a. the same as a balance sheet b. usually a listing of accounts in alphabetical order c. usually a listing of accounts in financial statement order d. used in place of a ledger 80. The debit side of an account a. depends on whether the account is an asset, liability, or owner's equity b. can be either side of the account depending on how the accountant set up the system c. is the right side of the account d. is the left side of the account 81. An account is said to have a debit balance if a. the amount of the debits exceeds the amount of the credits b. there are more entries on the debit side than on the credit side c. there are more entries on the credit side than on the debit side d. the first entry of the accounting period was posted on the debit side 82. Which side of the account increases the cash account? a. credit b. neither a debit nor a credit c. debit d. either a debit or a credit 83. Which statement(s) concerning cash is (are) true? a. Cash will always have more debits than credits. b. Cash will never have a credit balance. c. Cash is increased by debiting. d. All of these choices. 84. Which of the following is true about T accounts? a. The left side of a T account is called the debit side. b. The left side of a T account is called the credit side. Powered by Cognero
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Chapter 02 - Analyzing Transactions c. The right side of a T account is called the debit side. d. Transactions are first recorded in T accounts and then posted to the journal. 85. A cash payment is recorded in the cash account as a. neither a debit nor a credit b. a credit c. a debit d. either a debit or a credit 86. A list of the accounts used by a business is called the a. journal b. chart of accounts c. T chart d. debit listing 87. In the chart of accounts, the balance sheet accounts are normally listed in which order? a. liabilities, assets, owner’s equity b. assets, liabilities, owner’s equity c. owner’s equity, assets, liabilities d. assets, owner’s equity, liabilities 88. In which order are the accounts listed in the chart of accounts? a. assets, expenses, liabilities, owner’s equity, revenues b. owner's equity, assets, liabilities, revenues, expenses c. assets, liabilities, owner’s equity, revenues, expenses d. assets, liabilities, revenues, expenses, owner's equity 89. Which are the parts of the T account? a. title, date, total b. date, debit side, credit side c. title, debit side, credit side d. title, debit side, total 90. The chart of accounts is designed to a. alphabetize the accounts to make reading easier for financial statement users b. organize accounts in order of dollar amount to simplify the accounting information for users c. summarize the transactions and determine ending account balances d. meet the information needs of a company's managers and other users of its financial statements 91. Which group of accounts is comprised of only assets? a. Cash, Accounts Payable, Buildings b. Accounts Receivable, Revenue, Cash c. Prepaid Expenses, Buildings, Patents d. Unearned Revenue, Prepaid Expenses, Cash Powered by Cognero
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Chapter 02 - Analyzing Transactions 92. Which of the following is true about assets? a. Assets include both physical and intangible items. b. Assets include only physical items. c. Assets are the personal property of the owner of the company. d. Assets are the result of selling products or services to customers. 93. Which of the following is not considered to be a liability? a. Wages Payable b. Accounts Receivable c. Unearned Revenue d. Accounts Payable 94. Which of the following statements is not true about liabilities? a. Liabilities are debts owed to outsiders. b. Account titles of liabilities often include the term “payable.” c. Cash received before a service is performed creates a liability. d. Liabilities do not include wages owed to employees of the company. 95. Owner’s equity will be reduced by all of the following except a. revenues b. expenses c. withdrawals d. All of these choices 96. Expenses can result from a. increasing owner’s equity b. consuming services c. using up liabilities d. purchasing assets 97. Assume that you are creating a chart of accounts for a company. Each account number will have two digits. The first digit indicates the major account group to which the account belongs. Which of the following correctly identifies the major account groups typically represented by the numbers 1 through 5? a. 1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Expenses, 5-Revenues b. 1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Revenues, 5-Expenses c. 1-Assets, 2-Owner’s Equity, 3-Revenues, 4-Expenses, 5-Drawing d. 1-Owner’s Equity, 2-Drawing, 3-Revenues, 4-Expenses 98. The following accounts appear in the ledger of Monroe Entertainment Co. All accounts have normal balances. Accounts Payable Accounts Receivable Prepaid Insurance Cash Drawing Powered by Cognero
$1,500 1,800 2,000 3,200 1,200
Fees Earned Insurance Expense Land Wages Expense Capital
$3,600 1,300 3,000 1,400 8,800 Page 10
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Chapter 02 - Analyzing Transactions Total assets are a. $10,000 b. $8,000 c. $9,700 d. $9,800 99. The balance of an account is determined by a. adding all of the debits to all of the credits b. always subtracting the debits from the credits c. always subtracting the credits from the debits d. adding all of the debits, adding all of the credits, and then subtracting the smaller sum from the larger sum 100. Which of the following types of accounts have a normal credit balance? a. assets and liabilities b. liabilities and expenses c. revenues and capital d. capital and drawing 101. Which of the following groups of accounts have a normal debit balance? a. revenues, liabilities, and capital b. capital and assets c. liabilities and capital d. assets and expenses 102. Which of the following statements is not a purpose for the journal? a. to show increases and decreases in accounts b. to show a chronological order by date c. to show a complete transaction in one place d. to help locate errors 103. A credit signifies a decrease in a. assets b. liabilities c. capital d. revenue 104. A debit signifies a decrease in a. assets b. expenses c. drawing d. revenues 105. Which of the following applications of the rules of debit and credit is true? a. decrease Prepaid Insurance with a credit and the normal balance is a credit Powered by Cognero
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Chapter 02 - Analyzing Transactions b. increase Accounts Payable with a credit and the normal balance is a debit c. increase Equipment with a debit and the normal balance is a debit d. decrease Cash with a debit and the normal balance is a credit 106. Which of the following describes the classification and normal balance of the fees earned account? a. asset, credit b. liability, credit c. owner's equity, debit d. revenue, credit 107. The classification and normal balance of the accounts payable account are a. asset, credit balance b. liability, credit balance c. owner's equity, credit balance d. revenue, credit balance 108. The classification and normal balance of the drawing account are a. expense, credit balance b. expense, debit balance c. liability, credit balance d. owner's equity, debit balance 109. Which of the following accounts are debited to record increases? a. assets and liabilities b. drawing and liabilities c. expenses and liabilities d. assets and expenses 110. In which of the following types of accounts are increases recorded by credits? a. revenues and liabilities b. drawing and assets c. liabilities and drawing d. expenses and liabilities 111. In which of the following types of accounts are decreases recorded by debits? a. assets b. liabilities c. expenses d. drawing 112. In which of the following types of accounts are decreases recorded by credits? a. liabilities b. owner's equity c. assets Powered by Cognero
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Chapter 02 - Analyzing Transactions d. revenues 113. A credit balance in which of the following accounts would likely indicate an error? a. Fees Earned b. Salary Expense c. Janet James, Capital d. Accounts Payable 114. A debit balance in which of the following accounts would likely indicate an error? a. Salaries Expense b. Notes Payable c. Edgar Martin, Drawing d. Supplies 115. Which of the following entries records the payment of an account payable? a. debit Cash; credit Accounts Payable b. debit Accounts Receivable; credit Cash c. debit Cash; credit Supplies Expense d. debit Accounts Payable; credit Cash 116. Which of the following entries records the investment of cash by Taylor Thomas, owner of a proprietorship? a. debit Taylor Thomas, Capital; credit Accounts Receivable b. debit Cash; credit Taylor Thomas, Capital c. debit Taylor Thomas, Drawing; credit Cash d. debit Cash; credit Taylor Thomas, Drawing 117. Which of the following entries records the withdrawal of cash by Sally Anderson, owner of a proprietorship, for personal use? a. debit Sally Anderson, Capital; credit Cash b. debit Sally Anderson, Drawing; credit Cash c. debit Salaries Expense; credit Cash d. debit Salaries Expense; credit Salaries Payable 118. Office supplies were sold by Janer's Cleaning Service at cost to another repair shop, with cash received. Which of the following entries for Janer's Cleaning Service records this transaction? a. Office Supplies, debit; Cash, credit b. Office Supplies, debit; Accounts Payable, credit c. Cash, debit; Office Supplies, credit d. Accounts Payable, debit; Office Supplies, credit 119. Office supplies purchased by Janer's Cleaning Service on account were returned. Which of the following entries for Janer's Cleaning Service records this transaction? a. Cash, debit; Office Supplies, credit b. Office Supplies, debit; Accounts Receivable, credit c. Accounts Payable, debit; Office Supplies, credit Powered by Cognero
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Chapter 02 - Analyzing Transactions d. Office Supplies, debit; Accounts Payable, credit 120. Cash was paid by Janer's Cleaning Service to creditors on account. Which of the following entries for Janer's Cleaning Service records this transaction? a. Cash, debit; Debbi Janer, Capital, credit b. Accounts Payable, debit; Cash, credit c. Accounts Receivable, debit; Cash, credit d. Accounts Payable, debit; Accounts Receivable, credit 121. The process of initially recording a business transaction is called a. closing b. posting c. journalizing d. balancing 122. Which of the following entries records the acquisition of office supplies on account? a. Office Supplies, debit; Cash, credit b. Cash, debit; Office Supplies, credit c. Office Supplies, debit; Accounts Payable, credit d. Accounts Receivable, debit; Office Supplies, credit 123. Which of the following abbreviations is correct? a. Debit, “Dr”; Credit, “Cd” b. Debit, “Db”; Credit, “Cr” c. Debit, “Db”; Credit, “Cd” d. Debit, “Dr”; Credit, “Cr” 124. Which of the following is not a correct rule of debits and credits? a. Assets, expenses, and withdrawals are increased by debits. b. Assets are decreased by credits and have a normal debit balance. c. Liabilities, revenues, and owner’s equity are increased by credits. d. The normal balance for revenues and expenses is a credit. 125. Gently Laser Clinic purchased laser equipment for $8,500 and paid $2,250 down, with the remainder to be paid later. The correct journal entry would be a. Equipment 2,250 Cash 2,250 b. Cash 2,250 Accounts Payable 6,250 Equipment 8,500 c. Equipment Expense 8,500 Accounts Payable 2,250 Cash 6,250 d. Equipment 8,500 Accounts Payable 6,250 Powered by Cognero
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Chapter 02 - Analyzing Transactions Cash
2,250
126. A transaction can first be found in the accounting records in the a. chart of accounts b. income statement c. balance sheet d. journal 127. The process of recording a transaction in the journal is called a. ledgerizing b. journalizing c. posting d. summarizing 128. Joshua Scott invests $40,000 into his new business. How would this transaction be entered in the journal? a. Cash 40,000 Joshua Scott, Capital 40,000 Invested cash in business. b. Cash 40,000 Joshua Scott, Loan 40,000 Invested cash in business. c. Joshua Scott, Capital 40,000 Cash 40,000 Invested cash in business. d. Joshua Scott, Loan 40,000 Cash 40,000 Invested cash in business. 129. May
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Cash Scott Clark, Capital Invested cash in business.
22,000 22,000
This journal entry will a. increase Capital and decrease Cash b. increase Cash and decrease Capital c. increase Cash and increase Capital d. decrease Cash and decrease Capital 130. May
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Land Cash Purchased land for business. What effects does this journal entry have on the accounts? a. increase Cash and increase Land b. increase Land and decrease Cash Powered by Cognero
105,000 105,000
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Chapter 02 - Analyzing Transactions c. decrease Cash and decrease Land d. increase Cash and decrease Land 131. Mar.
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Accounts Payable Cash Paid creditors on account. What effects does this journal entry have on the accounts? a. decrease Accounts Payable, increase Cash b. increase Cash, decrease Accounts Payable c. increase Accounts Payable, increase Cash d. decrease Accounts Payable, decrease Cash
800 800
132. Which of the following accounts would be increased with a credit? a. Land; Accounts Payable; Drawing b. Accounts Payable; Unearned Revenue; Collins, Capital c. Collins, Capital; Accounts Receivable; Unearned Revenue d. Cash; Accounts Receivable; Collins, Capital 133. In accordance with the debit and credit rules, which of the following is true? a. Debits increase assets. b. Credits increase assets. c. Debits increase both assets and capital. d. Credits increase both assets and liabilities. 134. All of the following accounts are increased with a debit except a. Unearned Revenue b. Land c. Accounts Receivable d. Cash 135. Which of the following owner’s equity accounts follows the same debit and credit rules as liabilities? a. expense accounts only b. drawing accounts only c. revenue accounts only d. expense and drawing accounts 136. The payment for the monthly rent will require which of the following entries? a. debit Cash and debit Rent Expense b. credit Cash and credit Rent Expense c. debit Rent Expense and credit Cash d. credit Rent Expense and debit Cash 137. Expenses follow the same debit and credit rules as a. revenues Powered by Cognero
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Chapter 02 - Analyzing Transactions b. the drawing account c. the capital account d. liabilities 138. Which of the following transactions increases owner’s equity? a. Earn revenue b. Withdraw money for personal use c. Pay expenses d. Receive cash from customers on account 139. Which of the following transactions increases owner’s equity? a. Purchase supplies on account b. Provide services on account c. Receive cash from customers on account d. Receive utility bill to be paid next month 140. Which of the following groups of accounts is increased with a debit? a. assets, liabilities, owner’s equity b. assets, drawing, expenses c. assets, revenues, expenses d. assets, liabilities, revenues 141. Which of the following groups of accounts is increased with a credit? a. capital, revenues, expenses b. assets, capital, revenues c. liabilities, capital, revenues d. None of these choices. 142. Which of the following is true regarding normal balances of accounts? a. All accounts have a normal debit balance. b. The normal balance of all accounts will have either a positive or negative balance. c. Accounts that have a normal debit balance will only have debit entries, never credit entries. d. The normal balance is on the increase side of the account. 143. Which of the following is not true with a double-entry accounting system? a. The accounting equation remains in balance. b. The sum of all debits is always equal to the sum of all credits in each journal entry. c. Each business transaction will have two debits. d. Every transaction affects at least two accounts. 144. Mar.
6 Cash Unearned Fees ???????????? What is the best explanation for this journal entry? Powered by Cognero
2,500 2,500
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Chapter 02 - Analyzing Transactions a. Received cash for services performed. b. Received cash for services to be performed in the future. c. Paid cash in advance for services to be performed. d. Performed services for which cash is owed. 145. Apr.
14
Equipment 15,000 Cash 5,000 Notes Payable 10,000 ???????????? Which is the best explanation for this journal entry? a. Purchased equipment; paid cash of $5,000, with the remainder to be paid in the future. b. Purchased equipment; paid cash of $10,000, with the remainder to be received in the future. c. Purchased equipment with cash. d. Purchased equipment on account. 146. A debit may signify a(n) a. decrease in asset accounts b. decrease in liability accounts c. increase in the capital account d. decrease in the drawing account 147. Which of the following entries records the payment of an insurance premium covering the next year? a. debit Prepaid Insurance; credit Cash b. debit Insurance Payable; credit Accounts Receivable c. debit Accounts Payable; credit Cash d. debit Cash; credit Prepaid Insurance 148. Which of the following entries records the payment of insurance for the current month? a. Cash, debit; Insurance Expense, credit b. Insurance Expense, debit; Cash, credit c. Insurance Expense, debit; Accounts Receivable, credit d. Prepaid Insurance, debit; Cash, credit 149. Which of the following entries records the receipt of cash from clients on account? a. Accounts Payable, debit; Fees Earned, credit b. Accounts Receivable, debit; Fees Earned, credit c. Accounts Receivable, debit; Cash, credit d. Cash, debit; Accounts Receivable, credit 150. Which of the following entries records the collection of cash from cash customers? a. Fees Earned, debit; Cash, credit b. Fees Earned, debit; Accounts Receivable, credit c. Cash, debit; Fees Earned, credit Powered by Cognero
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Chapter 02 - Analyzing Transactions d. Accounts Receivable, debit; Fees Earned, credit 151. Which of the following entries records the receipt of cash for two months' rent? The cash was received in advance of providing the service. a. Prepaid Rent, debit; Rent Revenue, credit b. Cash, debit; Unearned Rent, credit c. Cash, debit; Prepaid Rent, credit d. Cash, debit; Rent Expense credit 152. A client has a massage and asks the company bookkeeper to mail her the bill. The bookkeeper should make which entry to record the invoice? a. no entry until the cash is received b. Fees Earned, debit; Accounts Receivable, credit c. Cash, debit; Fees Earned, credit d. Accounts Receivable, debit; Fees Earned, credit 153. The process of transferring the debits and credits from the journal entries to the accounts is called a. sliding b. transposing c. journalizing d. posting 154. The posting process will include the transfer of which of the following data from the journal to the ledger? a. date, amount (debit or credit) b. date, amount (debit or credit), journal page number c. amount (debit or credit), account number d. date, amount (debit or credit) account number 155. The Posting Reference columns are used to trace transactions from the ledger to the journal. What will be entered in the Posting Reference column of (1) the journal and (2) the ledger? a. (1) the amount of the debit or credit and (2) the journal page number b. (1) the journal page number and (2) the date of the transaction c. (1) the journal page number and (2) the account number d. (1) the account number and (2) the journal page number 156. The chart of accounts for Corning Company includes the following: Account Name Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Corning, Capital Corning, Drawing Fees Earned Powered by Cognero
Account Number 11 13 15 21 24 31 32 41 Page 19
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Chapter 02 - Analyzing Transactions Salaries Expense Rent Expense
54 56
Page 3 of the journal contains the following entry: Prepaid Insurance Cash
1,530 1,530
What is the posting reference that will be found in the cash account? a. 11 b. 15 c. 3 d. 13 157. The chart of accounts for Corning Company includes the following: Account Name
Account Number 11 13 15 21 24 31 32 41 54 56
Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Corning, Capital Corning, Drawing Fees Earned Salaries Expense Rent Expense Page 3 of the journal contains the following entry: Prepaid Insurance Cash
1,530 1,530
What is the posting reference that will be found in the prepaid insurance account? a. 11 b. 15 c. 3 d. 13 158. The chart of accounts for Corning Company includes the following: Account Name Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Powered by Cognero
Account Number 11 13 15 21 24 Page 20
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Chapter 02 - Analyzing Transactions Corning, Capital Corning, Drawing Fees Earned Salaries Expense Rent Expense
31 32 41 54 56
Page 3 of the journal contains the following entry: Prepaid Insurance Cash
1,530 1,530
What posting references will be found in the journal entry? a. 15, 11 b. 15, 3 c. 11, 3 d. 3, 15 159. The chart of accounts for Miguel Company includes the following: Account Name
Account Number 11 13 15 21 24 31 32 41 54 56
Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Miguel, Capital Miguel, Drawing Fees Earned Salaries Expense Rent Expense Page 3 of the journal contains the following transaction: Cash Fees Earned
640 640
What posting references will be found in the journal entry? a. 41, 3 b. 3, 11 c. 11, 41 d. 11, 3 160. The chart of accounts for Miguel Company includes the following: Account Name Cash Accounts Receivable Prepaid Insurance Accounts Payable Powered by Cognero
Account Number 11 13 15 21 Page 21
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Chapter 02 - Analyzing Transactions Unearned Revenue Miguel, Capital Miguel, Drawing Fees Earned Salaries Expense Rent Expense
24 31 32 41 54 56
Page 5 of the journal contains the following transaction: Salaries Expense Cash
525 525
What is the posting reference that will be found in the salaries expense account? a. 5 b. 11 c. 54 d. 21 161. Proof that the dollar amount of the debits equals the dollar amount of the credits in the ledger means a. all of the information from the journal was correctly transferred to the ledger b. all accounts have their correct balances in the ledger c. only the journal is accurate; the ledger may be incorrect d. only that the debit dollar amounts equal the credit dollar amounts 162. That the total dollar amount of the debits equals the total dollar amount of the credits in the ledger accounts can be verified through a(n) a. chart of accounts b. trial balance c. income statement d. balance sheet 163. Randomly listed steps for preparing a trial balance are as follows: (1) Verify that the total of the Debit column equals the total of the Credit column. (2) List the accounts from the ledger and enter their debit or credit balance in the Debit or Credit column of the trial balance. (3) List the name of the company, the title of the trial balance, and the date the trial balance is prepared. (4) Total the Debit and Credit columns of the trial balance. What is the proper order of these steps? a. (3), (2), (4), (1) b. (2), (3), (4), (1) c. (3), (2), (1), (4) d. (4), (3), (2), (1) 164. A trial balance is prepared to a. prove that there were no errors made in recording transactions into the journal b. prove that no errors were made in posting to the ledger Powered by Cognero
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Chapter 02 - Analyzing Transactions c. prove that each account balance is correct d. discover errors that affect the equality of debits and credits 165. The following accounts appear in the ledger of Monroe Entertainment Co. All accounts have normal balances. Accounts Payable Accounts Receivable Cash Kim Monroe, Drawing Prepaid Insurance
$1,500 1,800 3,200 1,200 2,000
Fees Earned Insurance Expense Kim Monroe, Capital Land Wages Expense
$3,600 1,300 8,800 3,000 1,400
When a trial balance is prepared, the total of the debits will be a. $13,900 b. $11,200 c. $12,700 d. $9,700 166. Which of the following is an internal report that will determine if debit balances equal credit balances in the ledger? a. chart of accounts b. income statement c. trial balance d. account reconciliation 167. An overpayment error was discovered in computing and paying the wages of a Jamison Tree Trimming employee. When Jamison receives cash from the employee for the amount of the overpayment, which of the following entries will Jamison make? a. Cash, debit; Wages Expense, credit b. Wages Payable, debit; Wages Expense, credit c. Wages Expense, debit; Cash, credit d. Cash, debit; Wages Payable, credit 168. If the two totals of a trial balance are not equal, it could be due to a. failure to record a transaction b. recording the same erroneous amount for both the debit and the credit parts of a transaction c. an error in determining the account balances, such as a balance being incorrectly computed d. recording the same transaction more than once 169. When a transposition error is made on the trial balance, the difference between the debit and credit totals on the trial balance will be a. zero b. twice the amount of the transposition c. one-half the amount of the transposition d. divisible by 9 170. Which of the following errors would cause the trial balance totals to be unequal? a. A transaction was not posted. Powered by Cognero
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Chapter 02 - Analyzing Transactions b. A payment of $67 for insurance was posted as a debit of $76 to Prepaid Insurance and a credit of $76 to Cash. c. A payment of $4,450 to a creditor was posted as a debit of $4,500 to Accounts Payable and a credit of $450 to Cash. d. Cash received from customers on account was posted as a debit of $720 to Cash and a credit of $720 to Accounts Payable. 171. Which of the following errors will cause the trial balance totals to be unequal? a. posting the debit portion of a journal entry incorrectly when the credit portion of the entry is correctly posted b. failure to record a transaction or to post a transaction c. recording the same transaction more than once d. recording the same erroneous amount for both the debit and the credit parts of a transaction 172. The trial balance is out of balance and the accountant suspects that a transposition or slide error has occurred. What will the accountant do to confirm this suspicion? a. Determine the amount of the error and look for that amount on the trial balance. b. Determine the amount of the error and divide by 2, then look for that amount on the trial balance. c. Determine the amount of the error and refer to the journal entries for that amount. d. Determine the amount of the error and divide by 9. If the result is evenly divided, then this type of error is likely. 173. The purchase of supplies on account was recorded and posted as a debit to Supplies for $500 and a credit to Accounts Receivable for $500. The correcting entry would include a a. credit to Accounts Receivable for $500 b. credit to Accounts Receivable for $1,000 c. credit to Accounts Payable for $500 d. credit to Accounts Payable for $1,000 174. Which of the following is not a useful step in finding errors on the trial balance? a. Determine the difference between debits and credits and look for the amount. b. Determine the difference between debits and credits and change any account to make the trial balance correct. c. Determine the difference between debits and credits, divide the amount by 2, and look for the amount. d. Determine the difference between debits and credits, divide the amount by 9, and if it divides evenly, look for a transposition or slide error. 175. Which of the following statements regarding a horizontal analysis is false? a. A horizontal analysis is used to compare an item in a current statement with the same item in prior statements. b. A horizontal analysis can be performed on a balance sheet and income statement, but not on a statement of cash flows. c. If Fees Earned in Year 1 is $125,000 and Fees Earned in Year 2 is $143,750, a horizontal analysis will indicate a 15% increase over this period. d. When two statements are compared in horizontal analysis, the earlier statement is used as the base for computing the amount and the percent of change. 176. McNally Industries has a condensed income statement as shown. Year 2 Powered by Cognero
Year 1 Page 24
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Chapter 02 - Analyzing Transactions Sales Total operating expenses Net income
$198,000 163,000 $ 35,000
$165,500 147,500 $ 18,000
Using horizontal analysis, compute the amount and percent change for sales. Round to one decimal place. a. $32,500, 19.6% b. $18,000, 10.9% c. $35,000, 17.7% d. $17,000, 9.4% 177. Richardson Company has a condensed income statement as shown. Sales Total operating expenses Net income
Year 2 $150,000 133,000 $ 17,000
Year 1 $165,500 147,500 $ 18,000
Using horizontal analysis, compute the amount and percent change for sales. Round to one decimal place. a. $(17,000), (11.3%) b. $(15,500), (10.3%) c. $(18,000), (10.9%) d. $(15,500), (9.4%)
Match each of the following accounts with its proper account group. a. Assets b. Liabilities c. Owner's Equity d. Revenue e. Expenses 178. Unearned Rent 179. Prepaid Insurance 180. Fees Earned 181. Patents 182. Chris Clark, Drawing Match each of the following accounts to the side of the T account on which its normal balance would appear. a. Debit side b. Credit side 183. John Smith, Capital Powered by Cognero
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Chapter 02 - Analyzing Transactions 184. Accounts Receivable 185. Accounts Payable 186. Fees Earned 187. Copyrights 188. Utilities Expense 189. Notes Payable 190. Unearned Revenues 191. John Smith, Drawing Match each of the following transactions to its effect on the accounting equation. A letter may be used more than once, and not all letters will be used. a. Assets, Dr.; Assets, Cr. b. Assets, Dr.; Owner's Equity (Investment), Cr. c. Assets, Dr.; Liabilities, Cr. d. Assets, Dr.; Owner’s Equity (Revenue), Cr. e. Liabilities, Dr.; Assets, Cr. f. Owner’s Equity (Drawing), Dr.; Assets, Cr. g. Owner’s Equity (Expense), Dr.; Assets, Cr. h. Owner’s Equity (Expense), Dr.; Liabilities, Cr. 192. Paid $725 to a vendor for supplies purchased previously on account. 193. Performed $850 of services and billed the customer. 194. Paid utility bill of $395. 195. Withdrew $145 of supplies for personal use. 196. Paid $315 in salaries. 197. Collected $730 from customers on account. Several types of errors can be made during the journalizing and posting process. Match each of the following errors with an error type. a. Trial balance preparation errors b. Account balance errors c. Posting errors 198. Balance incorrectly computed 199. Debit or credit posting omitted Powered by Cognero
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Chapter 02 - Analyzing Transactions 200. Wrong amount posted to an account 201. Column incorrectly added 202. Balance entered on wrong side of account 203. Amount incorrectly entered on trial balance 204. Balance entered in wrong column or omitted 205. Debit posted as credit, or vice versa
206. The chart of accounts classifies the accounts to make identification of the accounts easier. Describe the numbering system businesses use in setting up the chart of accounts. 207. On January 1, Cassie Harris established a catering service. She would like to open the following accounts in the general ledger. List the accounts in the order in which they should appear in the ledger and propose a two-digit account numbering scheme that is consistent with the rules of a proper chart of accounts. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.
Cash Supplies Equipment Accounts Payable Cassie Harris, Capital Wages Expense Rent Expense Truck Utilities Expense Cassie Harris, Drawing Truck Expense Prepaid Insurance Fees Earned Miscellaneous Expense Insurance Expense Notes Payable Accounts Receivable
208. On January 31, the cash account balance was $96,750. During January, cash receipts totaled $305,000 and cash payments totaled $375,880. Determine the cash balance on January 1. 209. Organize the following accounts into the usual sequence of a chart of accounts. Alecia Morris, Capital Alecia Morris, Drawing Accounts Payable Accounts Receivable Cash Fees Earned Miscellaneous Expense Prepaid Rent Powered by Cognero
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Chapter 02 - Analyzing Transactions Salaries Expense Unearned Revenue 210. Compute the following: (a)
Determine the cash receipts for April based on the following data: Cash payments during April Cash account balance, April 1 Cash account balance, April 30
(b)
$63,000 25,500 31,750
Determine the cash received from customers on account during April based on the following data: Accounts receivable account balance, April 1 Accounts receivable account balance, April 30 Fees billed to customers during April
$22,500 15,250 45,000
211. The following select accounts are from the ledger of Garrison Company. For each account, indicate the following: (a) The type of account, using the following abbreviations Asset - A Revenue - R Liability - L Expense - E None of these choices - N (b) The side of the T account in which an increase entry would appear (Dr. or Cr.) Type of Account _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
Account (1) Supplies (2) Notes Receivable (3) Fees Earned (4) Garrison, Drawing (5) Accounts Payable (6) Salaries Expense (7) Garrison, Capital (8) Accounts Receivable (9) Equipment (10) Notes Payable
Increase Side ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
212. All nine transactions for Dalton Survey Company for September, the first month of operations, are recorded in the following T accounts:
(1) (7) (9)
Cash 20,000 (3) 6,900 (5) 4,700 (6) (8)
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7,500 2,600 5,500 2,000
Michael Dalton, Capital (1) 20,000
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Chapter 02 - Analyzing Transactions
(4)
Accounts Receivable 4,900 (9) 4,700
Michael Dalton, Drawing (8)
2,000
(3)
Supplies 7,500
Fees Earned (4) (7)
(2)
Equipment 4,500
Operating Expenses 5,500
(5)
Accounts Payable 2,600 (2)
(6)
4,900 6,900
4,500
Indicate the following for each debit and credit: (a) (b)
The type of account affected (asset, liability, capital, drawing, revenue, or expense). The effect on the account, using "+" for increase and "−" for decrease.
Present your answers in the following form: Transaction
Account Debited Type Effect
Account Credited Type Effect
213. On June 1, the cash account balance was $96,750. During June, cash receipts totaled $305,000 and the June 30 balance was $75,880. Determine the cash payments made during June. 214. On September 1, Erika Company purchased land for $47,500 cash. Provide the journal entry for this transaction. 215. On October 10, Nickle Company purchased supplies for $1,800 on account. On October 25, Nickle Company paid the invoice. Journalize the entries required for these transactions 216. On October 17, Nickle Company purchased a building and a plot of land for $750,000. The building was valued at $500,000, while the land carried a value of $250,000. Nickle paid $300,000 down in cash and signed a note payable for the balance. Journalize the entry required for this transaction. 217. On November 1, Nickle Company made a cash payment of $200,000 on a note payable that was generated in the purchase of a building and land. Journalize the entry required for this transaction. 218. On January 7, Damien Lawson invested $45,000 cash to initiate the operation of his business, JumpStart. Journalize the entry required for this transaction. 219. On January 8, Jumpstart purchased several pieces of office equipment at a clearance price of $20,000, paying cash. The equipment was originally priced at $35,000. Journalize the entry required for this transaction. 220. On August 30, JumpStart paid the following expenses: rent, $2,300; utilities, $525; wages, $1,750, and miscellaneous, $275. Journalize these payments as one entry. Powered by Cognero
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Chapter 02 - Analyzing Transactions 221. On October 30, Damien Lawson withdraws $3,330 from JumpStart for personal use. Journalize this event. 222. Several transactions are shown, with the accounting equation stated to the right side of each. Use the following identification codes to indicate the effects of each transaction on the accounting equation. Write your answers in the space provided under the accounting equation. You need an identification code for each element of the accounting equation. An example is given before the first transaction. I - Increase
D - Decrease
NE - No Effect Assets
Example John Smith invests in his new business by giving it his personal drill press valued at $3,500. (a) Cash sales are made. (b) Equipment is purchased on credit. (c) Payment is made for the equipment purchased on credit in (b). (d) The company sold excess supplies to another company on credit. (e) Cash is collected from customers for accounts receivable balances.
I
=
Liabilities
NE
+
Owner’s Equity
I
223. Increases and decreases in various types of accounts follow. In each case, indicate by "Dr." or "Cr." (a) whether the change in the account would be recorded as a debit or a credit and (b) whether the normal balance of the account is a debit or a credit.
(1) Increase in Denice Dickenson, Capital (2) Increase in Denice Dickenson, Drawing (3) Decrease in Accounts Receivable (4) Increase in Notes Payable (5) Increase in Accounts Payable (6) Decrease in Supplies (7) Decrease in Salaries Expense (8) Increase in Accounts Receivable (9) Increase in Cash (10) Decrease in Land
(a) Recorded As ________ ________ ________ ________ ________ ________ ________ ________ ________ ________
(b) Normal Balance _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
224. Journalize the following selected transactions for Long Company’s first month of operations in a two-column Powered by Cognero
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Chapter 02 - Analyzing Transactions journal, identifying each entry by letter. Omit explanations. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Received $18,000 from Katie Long, owner, as an investment in the business. Purchased equipment for $27,000, paying $10,000 in cash and giving a note payable for the remainder. Paid $2,300 for rent for April. Purchased $1,500 of supplies on account. Recorded $9,800 of fees earned on account. Received $7,500 in cash for fees earned. Paid $1,200 to creditors on account. Paid wages of $3,425. Received $7,900 from customers on account. Recorded owner's withdrawal of $1,875.
225. On January 12, JumpStart purchased $870 in office supplies. (a) Journalize this transaction as if JumpStart paid cash. (b) Journalize this transaction as if JumpStart made the purchase on account. (c) Assuming Jumpstart made the purchase on account, journalize the full payment on January 18. 226. On November 10, JumpStart provides $2,900 in services to clients. At the time of service, the clients paid $600 in cash and put the balance on account. (a) Journalize this event. (b) On November 20, JumpStart's clients paid an additional $900 on their accounts due. Journalize this event. (c) Compute the accounts receivable balance on November 30. 227. Journalize the transaction for the purchase of a truck on April 4 for $85,700, paying $15,000 cash and the remainder on account. Omit explanation. 228. Journalize the following selected transactions for January. Explanations may be omitted. Jan.
1 2 3 4 5 6 7 8
Received cash from the investment made by the owner, $14,000. Received cash for providing accounting services, $9,500. Billed customers on account for providing services, $4,200. Paid advertising expense, $700. Received cash from customers on account, $2,500. Owner withdrew $1,010. Received telephone bill, $900. Paid telephone bill, $900.
229. On December 1, JumpStart provides $2,800 in services to clients. (a) Journalize this event as if the clients had paid cash at the time the services were rendered. (b) Journalize this event as if the clients received the services on account. (c) Assuming that the clients received the services on account, journalize $1,200 in payments received from the clients on December 30. 230. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and Powered by Cognero
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Chapter 02 - Analyzing Transactions credit entries when recording business transactions during the month. Also, indicate the normal balance of each account. 1. 2. 3.
Fees Earned Utilities Expense Accounts Payable
4. 5. 6.
Supplies Cash Accounts Receivable
231. On October 12, fees earned on account were $14,600. Journalize this transaction. Omit explanation. 232. Journalize the following five transactions for Nexium & Associates, Inc. Omit explanations. Mar. 1 Invoiced client for services provided on account, $800. 9
Purchased office furniture ($1,060) and office supplies ($160) on account from Corner Office, Inc., receiving an invoice for $1,220.
15
Paid Corner Office, Inc. for the furniture and office supplies delivered on March 9.
23
Paid utility bill for the month, $430.
31
Paid salaries of $850 are paid to employees.
233. Journalize the following selected transactions of Mirmax Rentals. Omit explanations. Aug. 1 Purchased two new saws on credit at $425 each. The saws are added to Mirmax’s rental inventory. Payment is due in 30 days. 8
Accepted advance deposits of $125 for tool rentals that will be applied to the cash rental when the tools are returned.
20
Charged customers $1,250 on account for tool rentals. Payment is due within 30 days.
31
Paid utility bill for the month, $180.
31
Received $600 in payments from the customers that were billed for rentals on August 20.
234. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (d), each identified by a number, are listed. Following this list are the transactions that occurred during the first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15. 17. 18. 21. 22. 31. 32. 41.
Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Merry Walker, Capital Merry Walker, Drawing Fees Earned
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Chapter 02 - Analyzing Transactions 51. 52. 53. 54. 55 59.
Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Miscellaneous Expense
Transactions Account(s) Debited Account(s) Credited a. Merry transferred cash from a personal bank account to an account to be used for the business. b. Paid rent for the period of January 3 to the end of the month. c. Purchased truck for $30,000 with a cash down payment of $5,000 and the remainder on a note. d. Purchased equipment on account. 235. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (e), each identified by a number, are listed. Following this list are the transactions that occurred in Walker’s first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15. 17. 18. 21. 22. 31. 32. 41. 51. 52. 53. 54. 55 56. 59.
Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Insurance Expense Miscellaneous Expense
Transactions Account(s) Debited Account(s) Credited a. Purchased supplies for cash. b. Paid the annual premiums on property and casualty insurance. c. Received cash for a job previously recorded on account. d. Paid a creditor a portion of the amount owed for equipment previously purchased on account. e. Received cash for a completed Powered by Cognero
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Chapter 02 - Analyzing Transactions job. 236. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (f), each identified by a number, are listed. Following this list are the transactions that occurred in Walker’s first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15 17. 18. 21. 22. 31. 32. 41. 51. 52 53. 54. 55. 56. 57.
Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Insurance Expense Miscellaneous Expense
Transactions Account(s) Debited a. Recorded jobs completed on account and sent invoices to customers. b. Received an invoice for truck expenses to be paid in February. c. Paid utilities expense d. Received cash from customers on account. e. Paid employee wages. f. Withdrew cash for personal use.
Account(s) Credited
237. On January 1, Merry Walker established a catering service. The accounts to use for transactions (a) through (f), each identified by a number, are listed. Following this list are the transactions that occurred in Walker’s first month of operations. For each transaction, indicate the accounts that should be debited and credited by their account number(s). 11. 12. 14. 15 17. 18. 21. 22. 23 31.
Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Accounts Payable Notes Payable Unearned Revenue Merry Walker, Capital
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Chapter 02 - Analyzing Transactions 32. 41. 51. 52 53. 54. 55. 56. 57.
Merry Walker, Drawing Fees Earned Wages Expense Supplies Expense Rent Expense Utilities Expense Truck Expense Insurance Expense Miscellaneous Expense
Transactions Account(s) Debited Account(s) Credited a. Purchased supplies on account. b. Paid the invoice previously recorded in transaction (a). c. Bought a three-year insurance policy and paid in full. d. Received $7,000 from a contract to perform accounting services over the next two years. 238. The following two situations are independent of each other. (a) On June 1, the cash account balance was $45,750. During June, cash payments totaled $243,910, and the June 30 balance was $53,200. Determine the cash receipts during June and show your calculation. (b) On March 1, the supplies account balance was $1,800. During March, supplies of $2,450 were purchased, and supplies of $630 were on hand as of March 31. Determine the supplies expense for March and show your calculation. 239. The bookkeeper for Brockton Industries prepared the following journal entries and posted the entries to the general ledger as indicated in the T accounts presented. Assume that the dollar amounts and the descriptions of the entries are correct. July
3
11
12
25
Accounts Receivable Service Revenue Customers were billed for services completed.
1,000
Cash Accounts Receivable Payment is received from a customer billed for services on July 3.
500
Office Supplies Accounts Payable Purchased office supplies on credit; payment is due in 30 days.
600
Office Furniture Cash Payment is made for office furniture received on July 25.
700
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1,000
500
600
700
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Chapter 02 - Analyzing Transactions 7/3
Accounts Receivable 1,000
7/11
Cash 500 7/25
7/12
Office Supplies 600
7/3
700
Service Revenue 1,000 7/11
7/12
Accounts Payable 600
7/25
Office Furniture 700
500
Required If you assume that all journal entries have been recorded correctly, use the given information to: (1) Identify the postings to the general ledger that were made incorrectly. (2) Describe how each incorrect posting should have been made. 240. Journalize the entries to correct the following errors: (a)
A purchase of supplies for $500 on account was recorded and posted as a debit to Supplies for $200 and as a credit to Accounts Receivable for $200.
(b)
A receipt of $2,500 for fees earned was recorded and posted as a debit to Fees Earned for $2,500 and a credit to Cash for $2,500.
241. On November 30, Damien Lawson is informed by his accountant that $550 of a transaction recording the purchase of office supplies was really office equipment. Prepare the journal entry to correct this situation. 242. The following errors took place in journalizing and posting transactions: (a)
A withdrawal of $5,000 by Stan Norton, owner of the business, was recorded as a debit to Office Expense and a credit to Cash.
(b)
A receipt of $7,800 cash from a customer on account was recorded as a debit to Cash and a credit to Fees Earned.
Journalize the entries to correct the errors. Omit the explanations. 243. For each of the following errors, considered individually, indicate whether the error would cause the trial balance totals to be unequal. If the error would cause the trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much. (a)
Payment of a cash withdrawal of $6,800 was journalized and posted as a debit of $8,600 to Salaries Expense and a credit of $8,600 to Cash.
(b)
A fee of $9,780 earned was debited to Accounts Receivable for $7,980 and credited to Fees Earned for $9,780.
(c)
A payment of $3,000 to a creditor was posted as a credit of $3,000 to Accounts Payable and a credit of $3,000 to Cash.
244. The unadjusted trial balance for Dawson Designs Co. follows. Required Powered by Cognero
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Chapter 02 - Analyzing Transactions (1) Identify the errors in the trial balance. All accounts have normal balances. (2) Prepare a corrected trial balance.
Cash Accounts Receivable Prepaid Insurance Equipment Accounts Payable Salaries Payable Tim Dawson, Capital Tim Dawson, Drawing Service Revenue Salary Expense Miscellaneous Expense
Dawson Designs Co. Unadjusted Trial Balance For the Month of January Debit Balances 23,000
Credit Balances 49,700
11,300 150,500 6,050 4,250 110,000 18,500 236,600 98,930 4,970 424,020
424,020
245. Prepare a trial balance, listing the following accounts in proper sequence. The accounts (all normal balances) were taken from the ledger of Sophie Designs Co. on April 30. Accounts Payable Accounts Receivable Cash Equipment Fees Earned Miscellaneous Expense Rent Expense
$ 4,100 3,450 6,700 14,500 45,245 850 11,500
Salary Expense Sophie Dawson, Capital Sophie Dawson, Drawing Supplies Supplies Expense Utilities Expense
$14,000 17,800 7,500 3,125 1,700 4,000
246. The following trial balance was prepared for Winslow’s Auto Body on April 30. (a) List the errors in the trial balance. Assume all accounts have normal balances. (b) What would be the new totals in the Debit and Credit columns after errors are corrected? What would be the balance of Accounts Receivable? Winslow’s Auto Body Trial Balance For Month Ending April 30 Debit Balances Cash Accounts Receivable Supplies Equipment Prepaid Insurance Accounts Payable Thad Winslow, Capital Thad Winslow, Drawing Fees Earned Salary Expense Powered by Cognero
Credit Balances 19,475 ? 1,000
15,000 500 2,500 17,000 1,000 49,600 14,500 Page 37
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Chapter 02 - Analyzing Transactions Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense
9,000 1,400 3,900 250 55,000
81,575
247. Answer the following questions for each of the errors listed, considered individually: (a) (b) (c)
Did the error cause the trial balance totals to be unequal? What is the amount of the difference between the trial balance totals (where applicable)? Which of the trial balance totals, debit or credit, is the larger (where applicable)?
Present your answers in columnar form, using the following headings: Error Totals Difference in Totals Larger of Totals (identifying number) (equal or unequal) (amount) (debit or credit) Errors: (1) A withdrawal of $3,000 cash by the owner was recorded by a debit of $3,000 to Salary Expense and a credit of $3,000 to Cash. (2) A $650 purchase of supplies on account was recorded as a debit of $1,650 to Equipment and a credit of $1,650 to Accounts Payable. (3) A purchase of equipment for $3,450 on account was not recorded. (4) An $870 receipt on account was recorded as an $870 debit to Cash and a $780 credit to Accounts Receivable. (5) A payment of $1,530 cash on account was recorded only as a credit to Cash. (6) Cash sales of $8,500 were recorded as a credit of $8,500 to Cash and a credit of $8,500 to Fees Earned. (7) The debit to record a $4,000 cash receipt on account was posted twice; the credit was posted once. (8) The credit to record a $300 cash payment on account was posted twice; the debit was posted once. (9) The debit balance of $7,400 in Accounts Receivable was recorded in the trial balance as a debit of $7,200. 248. Exhibit 2-1 All nine transactions for Ralston Sports Co. for September, the first month of operations, are recorded in the following T accounts: (1) (7) (9)
(4)
Cash 25,000 (3) 11,900 (5) 9,700 (6) (8) Accounts Receivable 9,900 (9)
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James Ralston, Capital (1)
12,500 7,600 10,500 7,000
25,000
James Ralston, Drawing 9,700
(8) 7,000
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Chapter 02 - Analyzing Transactions Supplies (3)
(2)
(5)
Fees Earned (4) (7)
12,500
Equipment 9,500
Accounts Payable 7,600 (2)
9,900 11,900
Operating Expenses (6) 10,500
9,500
Refer to Exhibit 2-1. Prepare a trial balance, listing the accounts in their proper order. 249. Lewis Company has the following condensed income statement: Sales Wages expense Rent expense Utilities expense Total operating expenses Net income
Year 2 $178,400 $100,000 33,000 30,000 $163,000 $ 15,400
Year 1 $162,500 $ 92,500 30,000 25,000 $147,500 $ 15,000
Required Prepare a horizontal analysis of Lewis Company’s income statements. Comment on the changes as favorable or unfavorable. 250. Nebraska Technologies has the following condensed income statement: Year 2 Sales Wages expense Rent expense Utilities expense Total operating expenses Net income
Year 1 $158,400 $ 80,000 28,000 30,000 $138,000 $ 20,400
$162,500 $ 92,500 30,000 25,000 $147,500 $ 15,000
Required Prepare a horizontal analysis of Nebraska Technologies' income statements. Comment on the changes as favorable or unfavorable.
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Chapter 02 - Analyzing Transactions Answer Key 1. True 2. False 3. False 4. False 5. True 6. False 7. True 8. False 9. False 10. False 11. False 12. True 13. True 14. False 15. True 16. False 17. False 18. True 19. True 20. False 21. True 22. False 23. True 24. False 25. True Powered by Cognero
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Chapter 02 - Analyzing Transactions 26. True 27. False 28. False 29. False 30. False 31. False 32. False 33. False 34. False 35. True 36. False 37. True 38. False 39. False 40. True 41. False 42. False 43. True 44. False 45. True 46. True 47. False 48. True 49. True 50. True 51. True Powered by Cognero
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Chapter 02 - Analyzing Transactions 52. False 53. False 54. False 55. False 56. True 57. True 58. True 59. False 60. False 61. True 62. False 63. True 64. True 65. False 66. False 67. True 68. False 69. False 70. False 71. False 72. False 73. False 74. False 75. c 76. c Powered by Cognero
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Chapter 02 - Analyzing Transactions 77. d 78. c 79. c 80. d 81. a 82. c 83. c 84. a 85. b 86. b 87. b 88. c 89. c 90. d 91. c 92. a 93. b 94. d 95. a 96. b 97. b 98. a 99. d 100. c 101. d 102. d Powered by Cognero
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Chapter 02 - Analyzing Transactions 103. a 104. d 105. c 106. d 107. b 108. d 109. d 110. a 111. b 112. c 113. b 114. b 115. d 116. b 117. b 118. c 119. c 120. b 121. c 122. c 123. d 124. d 125. d 126. d 127. b Powered by Cognero
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Chapter 02 - Analyzing Transactions 128. a 129. c 130. b 131. d 132. b 133. a 134. a 135. c 136. c 137. b 138. a 139. b 140. b 141. c 142. d 143. c 144. b 145. a 146. b 147. a 148. b 149. d 150. c 151. b 152. d 153. d Powered by Cognero
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Chapter 02 - Analyzing Transactions 154. b 155. d 156. c 157. c 158. a 159. c 160. a 161. d 162. b 163. a 164. d 165. a 166. c 167. a 168. c 169. d 170. c 171. a 172. d 173. c 174. b 175. b 176. a 177. d 178. b Powered by Cognero
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Chapter 02 - Analyzing Transactions 179. a 180. d 181. a 182. c 183. b 184. a 185. b 186. b 187. a 188. a 189. b 190. b 191. a 192. e 193. d 194. g 195. f 196. g 197. a 198. b 199. c 200. c 201. a 202. b 203. a 204. a Powered by Cognero
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Chapter 02 - Analyzing Transactions 205. c 206. A chart of accounts is set up by assigning two-digit numbers to each of the accounts for use as references. The first digit indicates the major account group of the ledger in which the account is located. Accounts beginning with 1 represent assets; 2, liabilities; 3, owner's equity; 4, revenue; 5, expenses. The second digit indicates the location of the account within its group. Large companies may have additional digits to accommodate a large number of accounts. 207. 11 Cash 12 Accounts Receivable 13 Supplies 14 Prepaid Insurance 15 Equipment 16 Truck 21 Accounts Payable 22 Notes Payable 31 Cassie Harris, Capital 32 Cassie Harris, Drawing 41 Fees Earned 51 Wages Expense 52 Rent Expense 53 Utilities Expense 54 Truck Expense 55 Insurance Expense 56 Miscellaneous Expense 208. ? + $305,000 − $375,880 = $96,750 Cash balance at January 1 = $167,630 209. Cash Accounts Receivable Prepaid Rent Accounts Payable Unearned Revenue Alecia Morris, Capital Alecia Morris, Drawing Fees Earned Salaries Expense Miscellaneous Expense 210. (a) $69,250 ($31,750 + $63,000 − $25,500) (b) $52,250 ($22,500 + $45,000 − $15,250) 211. (1) (2) (3) (4) (5) (6) Powered by Cognero
Type of Account A A R N L E
Increase Side Dr. Dr. Cr. Dr. Cr. Dr. Page 48
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Chapter 02 - Analyzing Transactions (7) (8) (9) (10)
N A A L
Cr. Dr. Dr. Cr.
212. Transaction (1) (2) (3) (4) (5) (6) (7) (8) (9)
Account Debited Type asset asset asset asset liability expense asset drawing asset
Effect + + + + − + + + +
Account Credited Type capital liability asset revenue asset asset revenue asset asset
Effect + + − + − − + − −
213. $75,880 = $96,750 + $305,000 − ? Cash Payments = $325,870 214. Sept. 1 Land
47,500 Cash
47,500 Purchased land for the company.
215. Oct. 10
Oct. 25
Supplies Accounts Payable Purchased supplies on account.
1,800
Accounts Payable Cash Paid creditor on account.
1,800 1,800
216. Oct. 17 Building Land Cash Notes Payable Purchased building and land with cash down payment.
500,000 250,000 300,000 450,000
217. Nov. 1 Notes Payable Cash Made payment on note payable. 218. Jan. 7
Cash Damien Lawson, Capital
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1,800
200,000 200,000
45,000 45,000 Page 49
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Chapter 02 - Analyzing Transactions Invested cash in business. 219. Jan. 8
Office Equipment Cash Purchased office equipment.
220. Aug. 30
221. Oct. 30
20,000 20,000
Rent Expense Utilities Expense Wages Expense Miscellaneous Expense Cash Paid expenses.
2,300 525 1,750 275 4,850
Damien Lawson, Drawing 3,330 Cash Withdrew cash for personal use.
3,330
222.
(a)
Cash sales are made.
(b)
Equipment is purchased on credit. Payment is made for the equipment purchased on credit in (b). The company sold excess supplies to another company on credit. Cash is collected from customers for accounts receivable balances.
(c)
(d)
(e)
Owner’s Equity
Assets
= Liabilities +
I
NE
I
I
I
NE
D
D
NE
NE
NE
NE
NE
NE
NE
223.
(1) (2) (3) (4) (5) (6) (7) (8) Powered by Cognero
(a) Recorded As Cr. Dr. Cr. Cr. Cr. Cr. Cr. Dr.
(b) Normal Balance Cr. Dr. Dr. Cr. Cr. Dr. Dr. Dr. Page 50