Test Bank forAccounting 27th Edition by Carl Warren, James M. Reeve, Jonathan Duchac by digitaldownload87

TEST BANK Accounting 27th Edition by Carl Warren, James M. Reeve, Jonathan Duchac

TABLE OF CONTENTS: Chapter 1 - Introduction to Accounting and Business Chapter 2 - Analyzing Transactions Chapter 3 - The Adjusting Process Chapter 4 - Completing the Accounting Cycle Chapter 5 - Accounting Systems Chapter 6 - Accounting for Merchandising Businesses Chapter 7 – Inventories Chapter 8 - Internal Control and Cash Chapter 9 – Receivables Chapter 10 - Long-Term Assets: Fixed and Intangible Chapter 11 - Current Liabilities and Payroll Chapter 12 - Accounting for Partnerships and Limited Liability Companies Chapter 14 - Long-Term Liabilities: Bonds and Notes Chapter 15 - Investments and Fair Value Accounting Chapter 16 - Statement of Cash Flows Chapter 17 - Financial Statement Analysis

Chapter 18 - Introduction to Managerial Accounting Chapter 19 - Job Order Costing Chapter 20 - Process Cost Systems Chapter 21 - Cost-Volume-Profit Analysis Chapter 22 – Budgeting Chapter 23 - Evaluating Variances from Standard Costs Chapter 24 - Decentralized Operations Chapter 25 - Differential Analysis, Product Pricing, and Activity-Based Costing Chapter 26 - Capital Investment Analysis

Chapter 1 - Introduction to Accounting and Business True / False 1. A merchandising business buys products from other businesses to sell to customers. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/7/2017 11:04 AM 2. The role of accounting is to provide many different users with financial information to make economic decisions. a. True b. False ANSWER: POINTS: DIFFICULTY: QUESTION TYPE:

True 1 Moderate Bloom's: Remembering True / False

HAS VARIABLES: LEARNING OBJECTIVES:

False ACCT.WARD.18.01-01 - 01-01

ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Chapter 1 - Introduction to Accounting and Business 3. Accounting information users need reports about the economic activities and condition of businesses. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 4. Managerial accounting information is used by external and internal users equally. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.25 - Managerial Characteristics/Terminology ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 2

5. Senior executives cannot be criminally prosecuted for the wrongdoings they commit on behalf of the companies where they work. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:32 AM 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 ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 3

7. Proper ethical conduct implies that you only consider what's in your best interest. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 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 ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:36 AM

Page 4

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 ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.BB.06 - Resource Management BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:45 PM 10. Two factors that typically lead to ethical violations are relevance and timeliness of accounting information. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 5

11. Financial accounting reports are relevant only to users within the business. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/19/2017 4:31 PM 12. The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.20 - Accounting for Corporations ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 6

13. The main objective for all business is to maximize unrealized profits. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 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 ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 7

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 ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 16. Proprietorships are owned by one owner and provide only services to their customers. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 8

17. About 90% of the businesses in the United States are organized as corporations. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 18. The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 9

19. The cost concept is the basis for entering the purchase price into the accounting records. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 20. The unit of measurement concept requires that economic data be recorded in dollars. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 10

21. 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 ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:45 AM 22. The financial statements of a proprietorship should include the owner's personal assets and liabilities. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 11

23. No significant differences exist between the accounting standards issued by the FASB and the IASB. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 24. Generally accepted accounting principles regulate how and what financial information is reported by businesses. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 12

25. The accounting equation can be expressed as Assets – Liabilities = Owner's Equity. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 26. 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 ANSWER: POINTS: DIFFICULTY:

True 1 Challenging Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 13

27. The owner’s rights to the assets rank ahead of the creditors' rights to the assets. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 28. 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 ANSWER: RATIONALE: POINTS: DIFFICULTY:

False Assets = Liabilities + Owner's Equity = $300,000 + $300,000 = $600,000 1 Moderate Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 14

29. 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 ANSWER: RATIONALE:

False Assets = Liabilities + Owner's Equity –$30,000 = Liabilities + (–$35,000) Liabilities = +$5,000

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 30. 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. a. True b. False ANSWER: RATIONALE:

True Assets = Liabilities + Owner’s Equity +$190,000 = –$10,000 + Owner’s Equity Owner’s Equity = +$200,000

POINTS: DIFFICULTY:

Page 15

31. 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 ANSWER: RATIONALE:

True Increase in Capital = Net Income for the Year – Withdrawals + Additional Investment by Owner = $50,000 – $20,000 + $10,000 = $40,000 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 32. An account receivable is typically classified as a revenue. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 16

33. An account receivable is a claim against a customer resulting from a sale on account. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.12 - Receivables Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 34. Paying an account payable increases liabilities and decreases assets. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 17

35. Receiving payments on an account receivable increases both equity and assets. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 36. Cash withdrawals by owners decrease assets and increase equity. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 18

37. Purchasing supplies on account increases liabilities and decreases equity. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 38. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 19

39. Revenue is earned only when money is received. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 40. Assets that are used up during the process of earning revenue are called expenses. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 20

41. The excess of revenue over the expenses incurred in earning the revenue is called capital. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 42. The primary financial statements of a proprietorship are the income statement, statement of owner's equity, and balance sheet. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 21

43. An income statement is a summary of the revenues and expenses of a business as of a specific date. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 44. A statement of owner's equity reports the changes in the owner's equity for a period of time. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 22

45. The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 46. The balance sheet represents the accounting equation. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 23

47. Net income and net profit do not mean the same thing. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 48. An example of an external user of accounting information is the federal government. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/18/2017 8:40 AM DATE MODIFIED: 1/19/2017 4:32 PM

Page 24

Multiple Choice 49. Profit is the difference between a. the assets purchased with cash contributed by the owner and the cash spent to operate the business b. the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services c. the incoming cash and outgoing cash d. assets and liabilities ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 50. Two common areas of accounting that respectively provide information to internal and external users are a. managerial accounting and financial accounting b. financial accounting and tax accounting systems c. managerial accounting and environmental accounting d. forensic accounting and financial accounting ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 25

51. 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 of no use by individuals outside of the business c. is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements d. is an information system that provides reports to users regarding economic activities and condition of a business ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Evaluating QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 52. Which type of accountant typically practices as an individual or as a member of a public accounting firm? a. Certified Management Accountant b. Certified Internal Auditor c. Certified Payroll Professional d. Certified Public Accountant ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Evaluating QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 26

53. Financial reports are used by a. investors b. management c. creditors d. All of these choices ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:06 AM 54. Which of the following is a manufacturing business? a. Facebook b. General Motors c. American Airlines d. Target ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Evaluating QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 27

55. Which of the following is a service business? a. Dell Computers b. Walmart c. Microsoft d. Facebook ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Evaluating QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/19/2017 2:48 PM 56. Which of the following groups of companies includes examples of merchandising businesses? a. GameStop, Sony, Dell b. Gap Inc., Amazon, Nike Inc. c. GameStop, Best Buy, Gap Inc. d. Delta Air Lines, Marriott, Gap Inc. ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Evaluating QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:24 AM

Page 28

57. Which of the following groups is considered to be internal users of accounting information? a. employees and managers b. customers and vendors c. government entities and banks d. employees and customers ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:25 AM 58. The following are examples of external users of accounting information except a. government entities b. creditors c. customers d. managers ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 29

59. Which of the following is the best description of accounting’s role in business? a. Accounting helps in decreasing the credit risk of the company. b. Accounting provides stockholders with information regarding the market value of the company’s stocks. c. Accounting is not responsible for providing any form of information to users. That is the role of the Information Systems Department. d. Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company. ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Evaluating QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 60. Managerial accountants would be responsible for providing information regarding a. consumer reports to customers b. profit reports to owners and management c. expansion of a product line report to management d. tax reports to government agencies ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.25 - Managerial Characteristics/Terminology ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 30

61. Which of the following is not a certification for accountants? a. CMA b. CISA c. CIA d. IRS ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 62. Which of the following is not a role of accounting in business? a. to provide information to external users to determine the economic performance and condition of the business b. to provide reports to users about the economic activities and conditions of a business c. to personally guarantee loans of the business d. to assess the various informational needs of users and design an accounting system to meet those needs ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:31 AM

Page 31

63. 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. II and III b. I and II c. I and III d. I, II, and III ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:33 AM 64. Which of the following would not normally operate as a service business? a. grocer b. lawn care company c. styling salon d. pet groomer ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 32

65. Most businesses in the United States are a. cooperatives b. proprietorships c. corporations d. partnerships ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 LOCAL STANDARDS: United States - OH - Default City - ACBSP: APC-03-Business Forms United States - OH - Default City - AICPA: FN-Measurement ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:35 AM

Page 33

67. An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a a. corporation b. partnership c. proprietorship d. governmental unit ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 68. Which of the following is true regarding a limited liability company? a. combines the attributes of a partnership and a corporation b. makes up 10% of business organizations in the United States c. provides tax and liability advantages to the owners d. All of these choices ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:46 PM

Page 34

69. 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. $95,000 b. $108,000 c. $115,000 d. $140,000 ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 70. Which of the following is most likely to obtain large amounts of resources by issuing stock? a. corporation b. partnership c. proprietorship d. government entity ANSWER: POINTS: DIFFICULTY:

Page 35

71. Which of the following is not a characteristic of a corporation? a. A corporation’s resources are limited to its individual owners’ resources. b. Corporations experience an ease in obtaining large amounts of resources by issuing stock. c. Ownership is divided into shares of stock. d. Corporations are organized as a separate legal taxable entity. ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.ACBSP.APC.20 - Accounting for Corporations ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 72. The initials GAAP stand for a. generally accepted accounting principles b. generally accepted plans c. generally accepted accounting practices d. general accounting procedures ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.1-02 - 01 - 02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:40 AM

Page 36

73. Within the United States, the dominant body in the primary development of accounting principles is the a. Financial Accounting Standards Board (FASB) b. American Accounting Association (AAA) c. Institute of Management Accountants (IMA) d. American Institute of Certified Public Accountants (AICPA) ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 74. 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. the entity is an individual economic unit for which data are recorded, analyzed, and reported d. an entity is organized according to the rules set by the FASB ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 37

75. For accounting purposes, the business entity should be considered separate from its owners if the entity is a. a proprietorship b. a partnership c. a corporation d. All of these choices ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:41 AM 76. The objectivity concept requires that a. business transactions be consistent with the objectives of the entity b. amounts recorded in the financial statements be based on independently verifiable evidence c. accounting principles meet the objectives of the Securities and Exchange Commission d. the Financial Accounting Standards Board be fair and unbiased in its deliberations over new accounting standards ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:42 AM

Page 38

77. 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. Karen Meyer's personal records and the American Red Cross b. Crystal Cleaning and the American Red Cross c. Karen Meyer's personal records, Crystal Cleaning, and the American Red Cross d. Karen Meyer's personal records and Crystal Cleaning ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 78. 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 record this acquisition is a. $15,000 b. $30,000 c. $35,000 d. $45,000 ANSWER: RATIONALE:

c Amount in Buyer's Accounting Records = Amount Paid in Cash + Amount Paid through Note Payable = $15,000 + $20,000 = $35,000 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 39

79. Which of the following is the authoritative body in the United States that has the primary responsibility for developing accounting principles? a. FASB b. AICPA c. SEC d. IRS ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:45 AM 80. Which of the following concepts relates to separating the reporting of business and personal economic transactions? a. objectivity concept b. business entity concept c. unit of measure concept d. cost concept ANSWER: POINTS: DIFFICULTY:

Page 40

81. 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. $232,000 b. $177,000 c. $220,000 d. $212,000 ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:45 AM 82. Many countries outside the United States use financial accounting standards issued by the a. AICPA b. SEC c. IASB d. FASB ANSWER: POINTS: DIFFICULTY:

Page 41

83. The unit of measure concept a. requires that different units be used for assets and liabilities b. requires that economic data be reported in yen in Japan or dollars in the United States c. is not important when applying the cost concept d. is only used in the financial statements of manufacturing companies ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 84. Which of the following is not true of accounting principles? a. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles. b. Following GAAP allows accounting information users to compare one company to another. c. Financial accountants follow generally accepted accounting principles (GAAP). d. A new accounting principle can be adopted with stockholders' approval. ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 42

85. Assets are a. always lower than liabilities b. the same as expenses because they are acquired with cash c. financed by the owner and/or creditors d. equal to liabilities less owner’s equity ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 86. Debts owed by a business are referred to as a. expenses b. liabilities c. accounts receivable d. owner’s equity ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:47 AM

Page 43

87. The accounting equation may be expressed as a. Assets − Liabilities = Owner's Equity b. Assets = Equities − Liabilities c. Assets + Liabilities = Owner's Equity d. Assets = Revenues − Liabilities ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 88. Which of the following is not an asset? a. owner’s equity b. investments c. inventory d. cash ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 44

89. The assets and liabilities of a company are $128,000 and $84,000, respectively. Owner’s equity should equal a. $128,000 b. $84,000 c. $44,000 d. $212,000 ANSWER: RATIONALE:

c Assets = Liabilities + Owner's Equity $128,000 = $84,000 + Owner's Equity Owner's Equity = $44,000 POINTS: 1 DIFFICULTY: Easy Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 90. 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. $14,000 increase b. $106,000 increase c. $106,000 decrease d. $14,000 decrease ANSWER: RATIONALE:

a Assets = Liabilities + Owner's Equity = –$46,000 + $60,000 = $14,000 Change in Assets = +$14,000 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:49 AM

Page 45

91. Which of the following is not a business transaction? a. make a sales offer b. pay for supplies c. sell goods for cash d. receive cash for services to be rendered later ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 92. 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, increase owner's equity b. decrease an asset, decrease a liability c. increase an asset, decrease another asset d. increase an asset, increase a liability ANSWER: RATIONALE:

b Assets = Liabilities + Owner's Equity Asset (Cash) decreases by $7,000 Liability (Accounts Payable) decreases by $7,000 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 46

93. Earning revenue a. increases assets, decreases owner's equity b. increases assets, increases owner’s equity c. increases one asset, decreases another asset d. decreases assets, increases liabilities ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 94. The monetary value charged to customers for the performance of services sold is called a(n) a. revenue b. net income c. capital d. asset ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 47

95. Revenues are reported when a. cash is received from the customer b. work is begun on the job c. work is completed on the job d. a contract is signed ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 96. Expenses are recorded when a. a bill is received in advance of services rendered b. cash is paid for services rendered c. assets are used in the process of earning revenue d. assets are purchased ANSWER: POINTS: DIFFICULTY:

Page 48

97. Goods purchased on account for future use in the business, such as supplies, are called a. revenues b. prepaid expenses c. liabilities d. prepaid liabilities ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 98. The asset created by a business when it makes a sale on account is termed a. accounts payable b. accounts receivable c. prepaid expense d. unearned revenue ANSWER: POINTS: DIFFICULTY:

Page 49

99. The debt created by a business when it makes a purchase on account is referred to as an a. asset b. account payable c. expense payable d. account receivable ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 100. 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. $88,000 decrease b. $159,000 decrease c. $159,000 increase d. $17,000 increase ANSWER: RATIONALE:

b Assets = Liabilities + Owner's Equity –$88,000 = Liabilities + $71,000 Liabilities = –$159,000 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 9:53 AM

Page 50

101. Owner's withdrawals a. decrease expenses b. increase expenses c. decrease owner's equity d. increase cash ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 102. How does paying a liability in cash affect the accounting equation? a. liabilities decrease; owner's equity increases b. assets increase; liabilities increase c. assets increase; liabilities decrease d. assets decrease; liabilities decrease ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 51

103. How does receiving a bill to be paid next month for services received affect the accounting equation? a. assets increase; liabilities increase b. assets decrease; owner's equity decreases c. liabilities increase; owner's equity decreases d. liabilities increase; owner's equity increases ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 104. 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 ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 STATE STANDARDS: United States - OH - ICPA: FN-Measurement ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 52

105. 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 $30,000; no change in liabilities; owner's equity increases by $62,000 b. assets increase by $62,000; owner's equity increases by $62,000 c. assets increase by $32,000; owner's equity increases by $32,000 d. assets increase by $62,000; liabilities decrease by $30,000; owner's equity increases by $32,000 ANSWER: RATIONALE:

c Net Change in Assets = Increase in Cash – Decrease in Land = $62,000 – $30,000 = +$32,000 Change in Owner's Equity = +$32,000 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 106. Which of the following accounts is a liability? a. Accounts Payable b. Accounts Receivable c. Service Revenue d. Wages Expense ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/19/2017 2:52 PM

Page 53

107. 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. $370,000 b. $45,000 c. $106,000 d. $50,000 ANSWER: RATIONALE:

b Assets = Liabilities + Owner's Equity Owner's Equity (Year 1) = $940,000 – $300,000 = $640,000 Owner's Equity (Year 2) = $995,000 – $270,000 = $725,000 Increase in Owner's Equity = Owner's Equity (Year 2) – Owner's Equity (Year 1) = $725,000 – $640,000 = $85,000 Net Income during Year 2 = Increase in Owner's Equity – Additional Investment + Withdrawals = $85,000 – $73,000 + $33,000 = $45,000

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 54

108. Which of the following asset accounts is increased when a receivable is collected? a. Accounts Payable b. Supplies c. Cash d. Accounts Receivable ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/19/2017 2:51 PM 109. 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 withdrawals, earning of revenues, incurrence of expenses, and purchase of supplies on account d. owner's investments, earning of revenues, incurrence of expenses, and collection of accounts receivable ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 55

110. 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 assets (Accounts Receivable) b. increase in assets (Cash) and increase in liabilities (Accounts Payable) c. increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and increase in owner’s equity (Michael Anderson, Capital) ANSWER: RATIONALE:

d Assets = Liabilities + Owner's Equity Assets (Cash) increase by $15,000 Owner's equity increases by $15,000 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 56

111. Gomez Service Company paid its first installment on a note payable of $2,000. How will this transaction affect the accounting equation? a. decrease in assets (Cash) and decrease in owner’s equity (Note Payable Expense) b. decrease in assets (Cash) and decrease in liabilities (Notes Payable) c. increase in liabilities (Notes Payable) and decrease in assets (Cash) d. decrease in assets (Cash) and decrease in assets (Notes Receivable) ANSWER: RATIONALE:

b Assets = Liabilities + Owner's Equity Assets (Cash) decrease by $2,000 Liabilities (Notes Payable) decrease by $2,000 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 57

112. 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. increase in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) c. decrease in assets (Cash) and decrease in liabilities (Accounts Payable) d. decrease in assets (Cash) and decrease in owner’s equity (Owner’s Withdrawal) ANSWER: RATIONALE:

d Assets = Liabilities + Owner's Equity Assets (Cash) decrease by $750 Owner's equity decreases by $750 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 113. Which of the following is not a business transaction? a. Erin provided services to customers earning fees of $600. b. Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month. c. Erin pays her monthly personal credit card bill. d. Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service. ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 58

114. Which of the following is a business transaction? a. plan advertising for upcoming sale b. give employees a raise beginning next month c. submit estimate for construction project d. purchase inventory on account ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/19/2017 4:16 PM 115. 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. prior period statement b. statement of owner's equity c. balance sheet d. income statement ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 59

116. Which of the following financial statements reports information as of a specific date? a. balance sheet b. statement of cash flows c. statement of owner's equity d. income statement ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 117. 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. OE, I, B b. B, I, OE c. I,OE, B d. B,OE, I ANSWER: POINTS: DIFFICULTY:

Page 60

118. Liabilities are reported on the a. balance sheet b. statement of cash flows c. statement of owner's equity d. income statement ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 119. Cash investments made by the owner to the business are reported on the statement of cash flows in the a. supplemental statement b. investing activities section c. operating activities section d. financing activities section ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 61

120. The year-end balance of the owner's capital account appears in a. both the statement of owner's equity and the income statement 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 ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 121. 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. statement of cash flows c. balance sheet d. statement of retained earnings ANSWER: POINTS: DIFFICULTY:

Page 62

122. If an owner wanted to know how money flowed into and out of the company, which financial statement would the owner use? a. statement of cash flows b. income statement c. balance sheet d. statement of retained earnings ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 123. The assets section of the balance sheet normally presents assets in a. the order of largest to smallest dollar amounts b. the order of smallest to largest dollar amounts c. alphabetical order d. the order in which they will be converted into cash or used in operations ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 63

124. All of the following statements regarding the ratio of liabilities to owner’s equity are true except a. the higher this ratio, the better able a business is to withstand poor business conditions and pay creditors b. the lower this ratio, the better able a business is to withstand poor business conditions and pay creditors c. corporations can use this ratio but substitute total stockholders’ equity for total owner’s equity d. a ratio of 1 indicates that liabilities equal owner’s equity ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-06 - 01-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 64

125. 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. 1.07 and 1.19, respectively b. 1.35 and 1.50, respectively c. 1.50 and 1.07, respectively d. 1.19 and 1.35, respectively ANSWER: RATIONALE:

b Ratio of Liabilities to Owner’s Equity = Total Liabilities/Total Owner's Equity Dec. 31, Year 2 $128,250/$95,000 1.35

Dec. 31, Year 1 $120,000/$80,000 1.50

POINTS: DIFFICULTY:

1 Challenging Bloom's Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-06 - 01-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 65

126. All of the following are general-purpose financial statements except a(n) a. balance sheet b. statement of owner’s equity c. cash budget d. income statement ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/18/2017 10:29 AM DATE MODIFIED: 1/19/2017 4:33 PM Matching Match the following business types with each business listed below. Each may be used more than once. a. Service business b. Manufacturing business c. Merchandising business DIFFICULTY:

Easy Bloom's: Remembering QUESTION TYPE: Matching HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:47 PM 127. A hospital ANSWER: a POINTS: 1

Page 66

128. A dressmaking company ANSWER: b POINTS: 1 129. A supermarket ANSWER: c POINTS: 1 130. A modular homebuilder ANSWER: b POINTS: 1 131. A health club and spa ANSWER: a POINTS: 1 132. A tax preparation firm ANSWER: a POINTS: 1 133. A law firm ANSWER: a POINTS: 1 134. A men’s clothing store ANSWER: c POINTS: 1 135. A book publisher ANSWER: b POINTS: 1 136. An automobile dealer ANSWER: c POINTS: 1 Match the following characteristics with the form of business entity that best describes it. Each may be used more than once. a. Proprietorship b. Partnership c. Corporation d. Limited liability company (LLC) DIFFICULTY:

Easy Bloom's: Remembering

Page 67

QUESTION TYPE: Matching HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 137. Generates 90% of business revenues ANSWER: c POINTS: 1 138. Easy and cheap to organize ANSWER: a POINTS: 1 139. Often used as an alternative to a partnership ANSWER: d POINTS: 1 140. Owned by two or more individuals ANSWER: b POINTS: 1 141. Used by large business ANSWER: c POINTS: 1 142. Organized as a separate legal taxable entity ANSWER: c POINTS: 1 143. Has the ability to obtain large amounts of resources ANSWER: c POINTS: 1 144. Comprises 70% of business entities in the United States ANSWER: a POINTS: 1 145. Offers tax and legal liability advantages for owners ANSWER: d POINTS: 1 Copyright Cengage Learning. Powered by Cognero.

Page 68

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 DIFFICULTY:

Moderate Bloom's: Understanding QUESTION TYPE: Matching HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:47 PM 146. Provided a service to a customer on account ANSWER: c POINTS: 1 147. Cash investment by owner ANSWER: c POINTS: 1 148. Used up supplies that were already on hand ANSWER: f POINTS: 1 149. Paid part of an amount owed to a creditor ANSWER: e POINTS: 1 150. Paid wages ANSWER: f POINTS: 1 151. Paid cash for the purchase of a one-year insurance policy ANSWER: d POINTS: 1

Page 69

152. Received utility bill to be paid next month ANSWER: b POINTS: 1 153. Received cash for providing services to customers ANSWER: c POINTS: 1 154. Investment of land by owner ANSWER: c POINTS: 1 155. Cash withdrawal by owner ANSWER: f POINTS: 1 156. Purchased supplies on credit ANSWER: a POINTS: 1 157. Received cash for services provided ANSWER: c POINTS: 1 158. Received payment from a customer on account ANSWER: d POINTS: 1 159. Borrowed money from a bank ANSWER: a POINTS: 1 160. Purchased equipment for cash ANSWER: d POINTS: 1 Match each of the following characteristics with the financial statement that best describes it. Each may be used more than once. a. Income statement b. Balance sheet c. Statement of owner’s equity d. Statement of cash flows DIFFICULTY: QUESTION TYPE:

Easy Bloom's: Remembering Matching

Page 70

HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:48 PM 161. The second statement prepared ANSWER: c POINTS: 1 162. The connecting link between the income statement and balance sheet ANSWER: c POINTS: 1 163. Reports only revenues and expenses ANSWER: a POINTS: 1 164. A formal presentation of the accounting equation ANSWER: b POINTS: 1 165. The first statement prepared ANSWER: a POINTS: 1 166. Reports as of a specific date ANSWER: b POINTS: 1 167. Has three sections: operating, investing and financing ANSWER: d POINTS: 1

Page 71

Subjective Short Answer 168. 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. ANSWER:

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. POINTS: 1 DIFFICULTY: Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 72

169. 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. ANSWER:

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 to enhance corporate accountability, financial disclosures, and independence. POINTS: 1 DIFFICULTY: Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.20 - Accounting for Corporations ACCT.AICPA.BB.03 - Legal ACCT.AICPA.FN.03 - Measurement BUSPROG: Ethics DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:49 PM

Page 73

170. List the five steps in the process by which accounting provides information to users. ANSWER:

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. POINTS: 1 DIFFICULTY: Moderate Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 74

171. For each of the following companies, identify whether they are a service, merchandising, or manufacturing business. A. B. C. D. E. F. G. H. I.

Dillard's Time Warner Cable General Motors Blockbuster Applebee’s Sony Best Buy Banana Republic H&R Block

ANSWER: A. B. C. D. E. F. G. H. I.

Merchandising Service Manufacturing Service Service/Manufacturing Manufacturing Merchandising Merchandising Service

POINTS: DIFFICULTY:

1 Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.1-01 - 01 - 01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 10:43 AM

Page 75

172. Identify each of the following as either internal or external users of accounting information. A. B. C. D. E. F. G. H.

Payroll manager Bank President’s secretary Internal Revenue Service Raw material vendors Social Security Administration Health insurance provider Managerial accountant

ANSWER: A. B. C. D. E. F. G. H.

Internal External Internal External External External External Internal

POINTS: DIFFICULTY:

1 Moderate Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 76

173. What is the major difference between the objective of financial accounting and the objective of managerial accounting? ANSWER:

The objective of financial accounting is to provide information for the decisionmaking needs of external users. The objective of managerial accounting is to provide information for internal users. POINTS: 1 DIFFICULTY: Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-01 - 01-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 174. Give the major disadvantage of disregarding the cost concept and constantly revaluing assets based on appraisals and opinions. ANSWER: POINTS: DIFFICULTY:

Accounting reports would become unstable and unreliable. 1 Moderate Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 77

175. 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? ANSWER: POINTS: DIFFICULTY:

$95,000 1 Easy Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 176. 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 the accounting records? ANSWER: POINTS: DIFFICULTY:

$115,000 1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 10:45 AM

Page 78

177. Explain the meaning of the business entity concept. ANSWER:

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. POINTS: 1 DIFFICULTY: Moderate Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 178. 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? ANSWER: POINTS: DIFFICULTY:

Darnell Company and Joseph Company 1 Challenging Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 79

179. 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. ANSWER:

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. POINTS: 1 DIFFICULTY: Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 10:47 AM 180. Discuss the characteristics of a limited liability company (LLC). ANSWER:

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. POINTS: 1 DIFFICULTY: Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.BB.01 - Industry ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 80

181. Explain the meaning of: (a) the objectivity concept (b) the unit of measure concept ANSWER:

(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. POINTS: 1 DIFFICULTY: Moderate Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-02 - 01-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 10:52 AM

182. Dave Ryan is the owner and operator of Ryan's Arcade. At the end of its accounting period, December 31, Ryan’s Arcade ha $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 ANSWER:

(a)

$325,000 ($450,000 − $125,000)

(b)

$355,000 [($450,000 + $65,000) − ($125,000 + $35,000)]

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM Copyright Cengage Learning. Powered by Cognero.

Page 81

183. 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? ANSWER:

Assets = Liabilities + Owner’s Equity 4x = x + $45,000 3x = $45,000 x = $15,000 in liabilities POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 10:53 AM 184. 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)

(a) $83,000 ($38,000 + $45,000) (b) $8,000 ($30,000 – $22,000) (c) $21,000 ($53,000 – $32,000) POINTS: 1 DIFFICULTY: Easy Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 10:53 AM ANSWER:

Page 82

185. Determine the missing amount designated with an “X” for each of the following:

(a) (b) (c)

ANSWER:

Assets $78,500 X 49,500

Liabilities $37,600 53,280 X

Owner’s Equity X $145,000 34,000

(a) $40,900 ($78,500 − $37,600) (b) $198,280 ($53,280 + $145,000)

(c) $15,500 ($49,500 − $34,000) POINTS: 1 DIFFICULTY: Easy Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 10:58 AM

Page 83

186. Use the accounting equation to answer each of the independent questions below. (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? ANSWER:

(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

(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 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:51 PM

Page 84

187. 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? ANSWER:

$63,500 ($27,000 Cash + $12,300 Accounts Receivable + $3,100 Supplies + $35,000 Land − $13,900 Accounts Payable = $63,500) POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:52 PM 188. 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. ANSWER:

(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 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:53 PM Copyright Cengage Learning. Powered by Cognero.

Page 85

189. Indicate whether each of the following accounts represents an asset, liability, or owner's equity: (a) (b) (c) (d) (e) (f)

Accounts Payable Wages Expense Capital Accounts Receivable Withdrawal Land

(a) liability (b) owner’s equity (c) owner’s equity (d) asset (e) owner’s equity (f) asset POINTS: 1 DIFFICULTY: Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM ANSWER:

Page 86

190. 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. ANSWER:

(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 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:54 PM

Page 87

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 taxes payable Notes payable

$165,000 14,000 64,000 12,000 40,000 5,000 20,000

Cash Selling expenses Scott, capital Interest income Prepaid rent Income taxes expense Rent expense

$30,000 44,000 27,000 3,000 2,000 18,000 20,000

191. Determine the total assets at the end of the current year for Scott Industries. ANSWER:

$110,000 ($30,000 Cash + $14,000 Accounts Receivable + $64,000 Equipment + $2,000 Prepaid Rent = $110,000)

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False PREFACE NAME: Scott Industries LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:55 PM

Page 88

192. Determine the total liabilities at the end of the current year for Scott Industries. $37,000 ($12,000 Accounts Payable + $5,000 Income Taxes Payable + $20,000 Notes Payable = $37,000)

ANSWER:

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False PREFACE NAME: Scott Industries LEARNING OBJECTIVES: ACCT.WARD.18.01-03 - 01-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:55 PM 193. Based on the information for Scott Industries, is it profitable? Explain your answer. ANSWER:

($165,000 Fees Earned + $3,000 Interest Income) − ($40,000 Salaries and Wages Expense + $44,000 Selling Expenses + $18,000 Income Taxes 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. POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False PREFACE NAME: Scott Industries LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 1:57 PM 194. 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. Copyright Cengage Learning. Powered by Cognero.

Page 89

2. 3. 4. 5. 6.

Paid creditors on account, $7,000. Billed customers for services on account, $2,565. Received cash from customers on account, $8,450. Paid cash to owner for personal use, $2,500. Received the utility bill, $160, to be paid next month.

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 Increase or Element Equation Amount Decrease Element Equation Amount Decrease (c) (c) Type Element (d) Type Element (d) (a) (b) (a) (b) 1 2 3 4 5 6 ANSWER:

Entry Entry Accounting Name of Accounting Name of Increase Increase Equation Accounting Equation Accounting or Element Equation Amount Element Equation Amount Decrease Decrease (c) (c) Type Element Type Element (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 Earned $2,565 Increase 3 Receivable A Cash $8,450 Increase A Accounts $8,450 Decrease 4 Receivable 5 A Cash $2,500 Decrease OE Drawing $2,500 Increase L Accounts $160 Increase E Utilities $160 Increase 6 Payable Expense

Page 90

POINTS: DIFFICULTY:

1 Challenging Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 2:51 PM 195. 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? ANSWER: POINTS: DIFFICULTY:

Increase assets (Supplies) and increase liabilities (Accounts Payable) 1 Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 91

196. 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 table below.

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

ANSWER: (a) (b) (c) (d) (e) (f)

Assets −$500 +$55,000 −$40,000 NC −$450 +$150

Liabilities NC NC NC NC NC +$150

Owner’s Equity −$500 +$55,000 −$40,000 NC −$450 NC

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 2:03 PM

Page 92

197. Ramierez 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? ANSWER:

Increase liabilities (Accounts Payable) and decrease owner’s equity (Utilities Expense) POINTS: 1 DIFFICULTY: Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 198. 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)? ANSWER:

(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) POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 93

199. 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 ANSWER:

(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 POINTS: 1 DIFFICULTY: Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 94

200. (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? ANSWER:

(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 POINTS: 1 DIFFICULTY: Easy Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:17 AM 201. 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. ANSWER:

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) POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 2:04 PM Copyright Cengage Learning. Powered by Cognero.

Page 95

202. There are four transactions that affect owner’s equity. (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? ANSWER:

(a) Additional investment by the owner and increase in revenues (b) Withdrawal made by the owner and increase in expenses POINTS: 1 DIFFICULTY: Easy Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 203. Identify each of the following as an (1) increase to owner's equity or a (2) decrease to owner's equity. (a) (b) (c) (d) (e) (f)

Fees earned Wages expense Withdrawals Lawn care revenue Investment Supplies expense

(a) 1 (b) 2 (c) 2 (d) 1 (e) 1 (f) 2 POINTS: 1 DIFFICULTY: Easy Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:20 AM ANSWER:

Page 96

204. Given the following: Beginning capital Ending capital Owner withdrawal

$58,000 30,000 25,000

Calculate net income or net loss. ANSWER:

Ending capital Beginning capital Decrease in capital Less withdrawals Net loss

$30,000 58,000 $28,000 25,000 $ 3,000

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:21 AM

Page 97

205. Selected transactions completed by a proprietorship are described below. 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) (l) (m) (n) (o)

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 Returned some defective supplies purchased in (b) Paid insurance premiums in advance Paid cash to creditor for purchases in (b) Charged customers for services sold on account Paid cash to a customer as a refund for an overcharge Received cash on account from customers Owner withdrew cash for personal use Recorded the cost of supplies used during the year Received invoice for electricity used Paid wages Purchased a truck for cash

A _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

L _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

OE _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

A L OE (a) + + (b) + + (c) − − (d) + + (e) − − (f) +,− (g) − − (h) + + (i) − − (j) +,− (k) − − (l) − − (m) + − (n) − − (o) +,− POINTS: 1 DIFFICULTY: Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM ANSWER:

Page 98

206. The accountant for Flagger Company 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 taxes payable Notes payable

$165,000 14,000 42,000 12,000 40,000 5,000 20,000

Cash Selling expenses Flagger, capital Interest income Rent expense Prepaid rent Income taxes expense

$30,000 44,000 36,000 3,000 51,000 2,000 18,000

Prepare an income statement for Flagger Company in good form. ANSWER: Flagger Company Income Statement For the Year Ended December 31 Revenues: Fees earned Interest income Expenses: Rent expense Selling expenses Salary and wages expense Income taxes expense Total expenses Net income

$165,000 3,000

$168,000

$ 51,000 44,000 40,000 18,000 153,000 $ 15,000

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-04 - 01-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:22 AM

Page 99

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 are listed below. 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

207. Prepare an income statement for the current year ended March 31. ANSWER: Thompson Computer Services Income Statement For the Year Ended March 31 Fees earned

$73,450

Expenses: Wages expense

$23,550

Office expense

1,240

Miscellaneous expense

1,030

Total expenses Net income

25,820 $47,630

POINTS: DIFFICULTY:

Page 100

208. Prepare a statement of owner’s equity for Thompson Computer Services for the current year ended March 31. ANSWER: Thompson Computer Services Statement of Owner’s Equity For the Year Ended March 31 Thompson, capital, April 1

$180,000

Additional investment by owner during year

$ 25,000

Net income for the year

47,630

Withdrawals

(16,570)

Increase in owner’s equity

56,060

Thompson, capital, March 31

$236,060

POINTS: DIFFICULTY:

Page 101

209. Prepare a balance sheet for Thompson Computer Services for the current year ended March 31. ANSWER:

Assets

Thompson Computer Services Balance Sheet March 31 Liabilities

Cash

$ 21,420 Accounts payable

$ 2,000

Accounts receivable

10,340

Supplies

1,670

Land

47,000

Building

157,630 Thompson capital

236,060

Total assets

Total liabilities and $238,060 owner’s equity

$238,060

Owner’s Equity

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False PREFACE NAME: Thompson Computer Services LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 2:05 PM 210. A summary of cash flows for Linda's Design Services for the year ended December 31 is shown below. Cash receipts: Cash received from customers Cash received from additional investment by owner

$83,990 25,000

Cash payments: Cash paid for expenses Cash paid for land Cash paid for supplies Drawing

$27,000 47,000 410 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. Copyright Cengage Learning. Powered by Cognero.

Page 102

ANSWER: Linda's Design Services Statement of Cash Flows For the Year Ended December 31 Cash flows from operating activities: Cash received from customers

$83,990

Cash payments for expenses and supplies

(27,410) $ 56,580

Net cash flow from operating activities Cash flows from investing activities:

(47,000)

Cash paid for land Cash flows from financing activities: Cash investment received from owner

$25,000

Cash withdrawal by owner

(5,000)

Net cash flow from financing activities

20,000

Net increase in cash during year

$29,580

Cash as of January 1

40,600

Cash as of December 31

$70,180

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 2:07 PM

Page 103

211. What information does the income statement give to business users? ANSWER:

The income statement reports the revenues and expenses for a period of time. The result is either a net income or a net loss. POINTS: 1 DIFFICULTY: Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 212. What are the three sections of the statement of cash flows? ANSWER: POINTS: DIFFICULTY:

operating activities, investing activities, and financing activities 1 Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:34 AM 213. Match the following items to the financial statement where they can be found. (Hint: Some of the items can be found on more than one financial statement.) A. Balance sheet B. Income statement C. Statement of cash flows D. Statement of owner’s equity

1. 2. 3. 4. 5. 6.

Item Withdrawals Revenues Supplies Land Accounts payable Accounts receivable

Page 104

7. 8. 9. 10.

Operating activities Wages expense Net income Cash

ANSWER:

Answer 1. D (If Cash, also C) 2. B 3. A 4. A

Item Withdrawals Revenues Supplies Land

5. A

Accounts payable

6. A

Accounts receivable

7. C

Operating activities

8. B

Wages expense

9. D & B (if using the indirect method, also Net income C) 10. A & C

Cash

POINTS: DIFFICULTY:

1 Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:35 AM

Page 105

214. Name and describe the four primary financial statements for a proprietorship. ANSWER:

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. POINTS: 1 DIFFICULTY: Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 215. A summary of cash flows for Evelyn's Event Planning for the year ended December 31 is shown below. Cash receipts: Cash received from customers Cash received from bank loan

$57,360 15,000

Cash payments: Cash paid for operating expenses Cash paid for equipment Cash paid for party supplies Drawing

$12,120 18,070 9,480 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. ANSWER: Evelyn's Event Planning Statement of Cash Flows For the Year Ended December 31 Cash flows from operating activities: Copyright Cengage Learning. Powered by Cognero.

Page 106

Cash received from customers Cash payments for expenses and supplies

$57,360 (21,600) $35,760

Net cash flow from operating activities Cash flows from investing activities: Cash paid for equipment Cash flows from financing activities: Cash received from bank loan Cash withdrawals by owner Net cash flow from financing activities Net increase in cash during year Cash as of January 1 Cash as of December 31

(18,070)

$15,000 (12,000) 3,000 $20,690 15,580 $36,270

POINTS: DIFFICULTY:

Page 107

216. The assets and liabilities of Rocky's Day Spa at December 31 and its expenses for the year are listed below. 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 Computers

$ 4,375 Spa operating expense 8,490 Office expense 13,980 Spa supplies ??? Wages expense 56,000 Drawing 2,130

$23,760 2,470 9,230 26,580 38,170

Prepare an income statement for the current year ended December 31. ANSWER: Rocky's Day Spa Income Statement For the Year Ended December 31 Fees earned Expenses:

$98,435 Wages expense Spa operating expense Office expense Total expenses

Net income

$26,580 23,760 2,470 52,810 $45,625

POINTS: DIFFICULTY:

Page 108

217. The assets and liabilities of Rocky's Day Spa on December 31 and its revenue and expenses for the year are listed below. 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. ANSWER:

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

POINTS: DIFFICULTY:

Page 109

218. The assets and liabilities of Rocky's Day Spa on December 31 and its revenue and expenses for the year are listed below. 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. ANSWER: Rocky's Day Spa Statement of Owner’s Equity For the Year Ended December 31 $68,000

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

17,455

Owner's capital, December 31

$85,455

POINTS: DIFFICULTY:

Page 110

219. Explain the interrelationship between the balance sheet and the statement of cash flows. ANSWER:

The cash reported on the balance sheet is also reported as the end-of-period cash on the statement of cash flows. POINTS: 1 DIFFICULTY: Moderate Bloom's: Understanding QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM 220. 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

ANSWER: POINTS: DIFFICULTY:

(a), (d), (f) 1 Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 111

221. 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

ANSWER: POINTS: DIFFICULTY:

(a), (c), (d), (f), (g) 1 Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:43 AM

Page 112

222. Indicate whether each of the following activities would be reported on the statement of cash flows as an operating activity, an investing activity, or a financing activity, or if it does not appear on the cash flow statement. (a) (b) (c) (d) (e) (f) (g)

Cash paid for building Cash paid to suppliers Cash paid for owner's withdrawal Cash received from customers Cash received from the owner's investment Cash received from the sale of a building Borrowed cash from a bank

(a) Investing (b) Operating (c) Financing (d) Operating (e) Financing (f) Investing (g) Financing POINTS: 1 DIFFICULTY: Moderate Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:44 AM ANSWER:

Page 113

223. For each of the following, determine the amount of net income or net loss for the year. (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.

(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) POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM ANSWER:

224. 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 December 31 $280,000 $475,000 205,000 130,000

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 amounts presented above. 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 amounts presented above. 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 amounts presented above. However, the owner invested an additional $12,000 in cash in August of the

Page 114

current fiscal year and made 12 monthly cash withdrawals of $1,500 each during the year.

ANSWER:

(a) Owner's equity at end of year ($475,000 − $130,000)

$345,000

Owner's equity at beginning of year ($280,000 − $205,000)

75,000

Net income

$270,000

(b) Increase in owner's equity as in (a) Add withdrawals Net income

$270,000 53,000 $323,000

$270,000 35,000 $235,000

(d) Increase in owner's equity as in (a) Add withdrawals ($1,500 × 12)

$270,000 18,000 $288,000 12,000 $276,000

Deduct additional investment Net income POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:46 AM

Page 115

225. Selected transaction data of a business for September are summarized below. Determine the following amounts for September: (a) total revenue, (b) total expenses, (c) net income. $33,000 28,000

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 included above) applicable to September

13,000 18,000 6,500 36,250 5,000 2,000

(a) $61,000 ($33,000 + $28,000) (b) $43,250 ($36,250 + $5,000 + $2,000) (c) $17,750 ($61,000 − $43,250) POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM ANSWER:

226. 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 Insurance expense Land Miscellaneous expense Prepaid insurance Rent expense Salary expense Supplies Supplies expense Utilities expense Copyright Cengage Learning. Powered by Cognero.

$10,250 45,950 23,840 64,950 1,275 85,400 1,210 3,000 9,000 20,300 900 525 2,800 Page 116

Present, in good form, (a) an income statement for March, (b) a statement of owner's equity for March, and (c) a balance sheet as of March 31. ANSWER:

(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

QUESTION TYPE: HAS VARIABLES: LEARNING OBJECTIVES:

$ 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

$159,090

owner's equity

Total assets POINTS: DIFFICULTY:

Liabilities $ 10,250

148,840 $159,090

1 Challenging Bloom's: Applying Subjective Short Answer False ACCT.WARD.18.01-05 - 01-05

Page 117

ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:49 AM 227. Harris Designers began operations on April 1. The financial statements for Harris Designers are shown below 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 $

(b) (c)

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

$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

Harris Designers Statement of Cash Flows For the Month Ended April 30 Cash flows from operating activities: Cash received from customers Cash payments for expenses and payments to Copyright Cengage Learning. Powered by Cognero.

$(h) (i) $(j)

$23,000

Page 118

creditors Net cash flow from operating activities Cash flows from investing activities:

(4,200) $18,800 (17,000)

Cash payments for acquisition of land Cash flows from financing activities: Cash received as owner's investment

$ (k) (l)

Cash withdrawal by owner

(m)

Net cash flow from financing activities Net increase in cash and April 30 cash balance

(n)

Place your answers in the space provided below. Hint: Use the interrelationships among the financial statements to solve this problem. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n)

___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________

ANSWER:

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n)

POINTS: DIFFICULTY:

1 Challenging

$6,400 $17,900 $9,100 $9,100 $38,100 $30,800 $17,000 $17,800 $38,100 $55,900 $35,000 $6,000 $29,000 $30,800

Page 119

Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 11:57 AM

Page 120

228. Using the following accounting equation elements and their balances, prepare, in good form, an income statement for Heavenly Futures Company 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

$ 1,150 3,000 1,540 800 15,700 1,400 140 1,500 20,000 14,320 4,800

Utilities expense

750

Notes payable

2,400

Office expense

420

ANSWER: 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

POINTS: DIFFICULTY:

Page 121

229. Using the following accounting equation elements and their balances, prepare, in good form, a statement of owner’s equity for Bright Futures Company 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

$ 1,150 3,000 1,540 800 15,700 1,400 140 1,500 20,000 14,320 4,800 750 2,400 420

ANSWER: Bright Futures Company Statement of Owner’s Equity For the Month Ended August 31 Jason Bright, capital, August 1 $14,320 Net income for August $7,180 Withdrawals

800

Increase in owner’s equity Jason Bright, capital, August 31

6,380 $20,700

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 2:42 PM 230. Eric Wood, CPA, was organized on January 1 as a proprietorship. List the errors that you find in the following financial statements and prepare the corrected statements for the three months ended March 31. Eric Wood, CPA Copyright Cengage Learning. Powered by Cognero.

Page 122

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 Net income for the three months Withdrawals Increase in owner's equity Eric Wood, capital, March 31

Assets Land Cash Accounts payable Supplies Total assets

ANSWER:

$20,000 14,000 (5,000) 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

Errors in the Eric Wood, CPA, financial statements include the following: (1)

(5)

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." Because the net income was incorrect, the increase in owners' equity and the

Page 123

(2) (3) (4)

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 shown below. 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

$20,000

Net income for three months

9,340

Withdrawals

(5,000)

Increase in owner's equity

24,340

Eric Wood, capital, March 31

$24,340 Eric Wood, CPA Balance Sheet March 31

Page 124

Assets Cash

Liabilities $10,860

Accounts payable

Accounts receivable

2,225

Supplies

925

Land

13,000

Total assets

$27,010

$ 2,670

Owner's Equity Eric Wood, capital

24,340

Total liabilities and owner's equity $27,010

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 2/20/2017 2:14 PM 231. Using the following accounting equation elements and their balances, prepare, in good format a balance sheet in report form for Bright Futures Company 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

$ 1,150 3,000 1,540 800 15,700 1,400 140 1,500 20,000 14,320 4,800 750 2,400 420

ANSWER: Bright Futures Company Balance Sheet August 31 Assets Cash Copyright Cengage Learning. Powered by Cognero.

$ 3,000 Page 125

Accounts receivable Supplies Computer equipment Total assets

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 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-05 - 01-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 3/15/2017 5:00 PM

$ 1,540 2,400 $ 3,940 20,700 $24,640

232. The accounting equation elements and their balances of Awesome Travel Services at December 31 are listed below. There were no additional investments or withdrawals by J. Trendsetter during the year. 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 taxes expense Utilities expense Wages expense Supplies expense

$10,000 1,000 1,300 8,000 25,000 1,700

Prepare an income statement, statement of owner’s equity, and a balance sheet as of December 31. ANSWER: Awesome Travel Services Income Statement For the Year Ended December 31 $78,000

Fees earned Expenses:

Wages expense

$25,000

Rent expense

10,000 Page 126

Utilities expense

8,000

Supplies expense

1,700

Income taxes expense

1,300 46,000

Total expenses

$32,000

Net income 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

$10,000 32,000 $42,000

Awesome Travel Services Balance Sheet December 31 Assets

Liabilities

Cash

$18,000

Accounts receivable

14,000

Supplies

1,000

Owner’s Equity

Computer equipment Total assets

21,000

J. Trendsetter, capital

42,000

$54,000

Total liabilities and owner’s equity

$54,000

Accounts payable

$12,000

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.1-05 - 01 - 05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/19/2017 4:35 PM

Page 127

233. Schultz Tax Services, a tax preparation business, had the following transactions during the month of June: 1. Received cash for providing accounting services, $3,000. 2. Billed customers on account for providing services, $7,000. 3. Paid advertising expense, $800. 4. Received cash from customers on account, $3,800. 5. Owner made a withdrawal, $1,500. 6. Received telephone bill, $220. 7. Paid telephone bill, $220.

Based on the information given above, calculate the balance of cash at June 30. Use the following reconciliation. Cash, June 1

$25,000

Plus cash receipts for June

____________

Minus cash payments for June ____________ Cash, June 30

____________

ANSWER: Cash, June 1 $25,000 Plus cash receipts for June 6,800 Minus cash payments for June 2,520 Cash, June 30 $29,280 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-06 - 01-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.24 - Statement of Cash Flows ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 1:43 PM

Page 128

234. 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? ANSWER:

(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 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-06 - 01-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 8:27 AM

Page 129

235. 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? ANSWER:

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. POINTS: 1 DIFFICULTY: Moderate Bloom's: Analyzing QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-06 - 01-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 1:43 PM

Page 130

236. 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? ANSWER:

(a) 12/31/Year 2: $150,000/$75,000 = 2.0 12/31/Year 1: $105,000/$60,000 = 1.8

(b) Increased POINTS: 1 DIFFICULTY: Moderate Bloom's: Analyzing QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.01-06 - 01-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:49 PM DATE MODIFIED: 1/18/2017 1:44 PM

Page 131

Chapter 2 - Analyzing Transactions True / False 1. Accounts are records of increases and decreases in individual financial statement items. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/6/2017 5:17 PM 2. A chart of accounts is a listing of accounts that make up the journal. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 1

Chapter 2 - Analyzing Transactions 3. The chart of accounts should be the same for each business. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 4. Accounts payable are accounts that you expect will be paid to you. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - OH - FN-Measurement ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 2

Chapter 2 - Analyzing Transactions 5. Consuming goods and services in the process of generating revenues results in expenses. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 6. Prepaid expenses are an example of an expense. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-04-Cash vs. Accrual ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 3

Chapter 2 - Analyzing Transactions 7. The unearned revenue account is an example of a liability. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-04-Cash vs. Accrual ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:25 AM 8. The drawing account is an expense. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:25 AM

Page 4

Chapter 2 - Analyzing Transactions 9. Accounts in the ledger are usually maintained in alphabetical order. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 10. Depending on the account title, the right side of the account is referred to as the credit side. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 5

Chapter 2 - Analyzing Transactions 11. To determine the balance in an account, always subtract credits from debits. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 12. An account in its simplest form has three parts to it: a title, an increase side, and a decrease side. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 6

Chapter 2 - Analyzing Transactions 13. The T account got its name because it resembles the letter “T.” a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 14. The right-hand side of a T account is known as a debit and the left-hand side is known as a credit. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:26 AM

Page 7

Chapter 2 - Analyzing Transactions 15. Debiting the cash account will increase the account. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 16. A credit to the cash account will increase the account. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 8

Chapter 2 - Analyzing Transactions 17. The cash account will always be debited. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 18. The recording of cash receipts to the cash account will be done by debiting the account. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 9

Chapter 2 - Analyzing Transactions 19. The recording of cash payments from the cash account is done by entering the amount as a credit. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 20. The balance of an account can be determined by adding all of the debits, adding all of the credits, and adding the amounts together. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:27 AM

Page 10

Chapter 2 - Analyzing Transactions 21. Liabilities are debts owed by the business entity. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-03-Business Forms ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 22. The accounts payable account is listed in the chart of accounts as an asset. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-16-Current Liabilities Repor - APC-16-Current Liabilities Reporting ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 11

Chapter 2 - Analyzing Transactions 23. A drawing account represents the amount of withdrawals made by the owner. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-03-Business Forms ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 24. Revenues are equal to the difference between cash receipts and cash payments. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 12

Chapter 2 - Analyzing Transactions 25. Expenses result from using up assets or consuming services in the process of generating revenues. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 26. Owner’s equity will be reduced by the amount in the drawing account. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-03-Business Forms ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.03 - Business Forms ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 13

Chapter 2 - Analyzing Transactions 27. When an owner invests assets in the business, the capital account increases due to revenue being earned. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 28. When an account receivable is collected in cash, the total assets of the business increase. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 14

Chapter 2 - Analyzing Transactions 29. When an account payable is paid with cash, the owner's equity in the business decreases. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-16-Current Liabilities Repor - APC-16-Current Liabilities Reporting ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 30. For a month's transactions for a typical medium-sized business, the salary expense account is likely to have only credit entries. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 15

Chapter 2 - Analyzing Transactions 31. A debit is abbreviated as Db and a credit is abbreviated as Cr. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-05-Accounting Cycle ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 32. When a business receives a bill from the utility company, no entry should be made until the invoice is paid. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-16-Current Liabilities Repor - APC-16-Current Liabilities Reporting ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 16

Chapter 2 - Analyzing Transactions 33. For a month's transactions for a typical medium-sized business, the accounts payable account is likely to have only credit entries. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-09-Financial Statements ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 17

Chapter 2 - Analyzing Transactions 35. The normal balance of revenue accounts is a credit. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 36. The normal balance of an expense account is a credit. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 18

Chapter 2 - Analyzing Transactions 37. The normal balance of the drawing account is a debit. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 38. Expense accounts are increased by credits. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 19

Chapter 2 - Analyzing Transactions 39. The normal balance of a capital account is a debit. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.2-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 40. Revenue accounts are increased by credits. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 20

Chapter 2 - Analyzing Transactions 41. Liability accounts are increased by debits. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 21

Chapter 2 - Analyzing Transactions 43. Transactions are listed in the journal chronologically. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 44. Journalizing is the process of entering amounts in the ledger. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 22

Chapter 2 - Analyzing Transactions 45. The process of recording a transaction in the journal is called journalizing. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 46. Transactions are initially entered into a record called a journal. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 23

Chapter 2 - Analyzing Transactions 47. The double-entry accounting system records each transaction twice. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 48. The increase side of an account is also the side of the normal balance. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 24

Chapter 2 - Analyzing Transactions 49. Journal entries include both debit and credit accounts for each transaction. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 50. A transaction that is recorded in the journal is called a journal entry. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 25

Chapter 2 - Analyzing Transactions 51. Assets are increased with debits and decreased with credits. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 52. Liabilities are increased with debits and decreased with credits. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 26

Chapter 2 - Analyzing Transactions 53. Debits will increase unearned revenues and revenues. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-04-Cash vs. Accrual ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 54. All owner’s equity accounts record increases to the accounts with credits. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 27

Chapter 2 - Analyzing Transactions 55. Journalizing always eliminates fraudulent activity. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-01-Purpose ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 56. Journal entries can have more than two accounts as long as the debits equal the credits. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 28

Chapter 2 - Analyzing Transactions 57. Normal account balances are on the increase side of the accounts. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 58. The process of transferring data from the journal to the ledger accounts is called posting. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:29 AM

Page 29

Chapter 2 - Analyzing Transactions 59. The posting reference notation used in the ledger is the account number. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:30 AM 60. The posting reference notation used in the journal is the page number. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 30

Chapter 2 - Analyzing Transactions 61. A notation in the Post. Ref. column of the general journal indicates that the amount has been posted to the ledger. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:20 AM 62. The order of the flow of accounting data is (1) record in the ledger, (2) record in the journal, and (3) prepare the financial statements. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 STATE STANDARDS: United States - IN - APC-05-Accounting Cycle ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:32 AM

Page 31

Chapter 2 - Analyzing Transactions 63. The process of transferring the debits and credits from the journal entries to the accounts is known as posting. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 64. Postings made to standard account forms show a new balance after each entry. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 32

Chapter 2 - Analyzing Transactions 65. A group of related accounts that make up a complete unit is called a trial balance. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 STATE STANDARDS: United States - IN - APC-09-Financial Statements ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 66. A trial balance determines the accuracy of the numbers. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 STATE STANDARDS: United States - IN - APC-09-Financial Statements ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 33

Chapter 2 - Analyzing Transactions 67. Even when a trial balance is in balance, there may be errors in the individual accounts. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 STATE STANDARDS: United States - IN - APC-09-Financial Statements ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 68. The totals at the bottom of the trial balance and the totals at the bottom of the balance sheet both show equality and balancing and therefore should be equal. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 34

Chapter 2 - Analyzing Transactions 69. A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a balance sheet. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 STATE STANDARDS: United States - IN - APC-09-Financial Statements ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 70. If the trial balance is in balance, it can be assumed that all journal entries were posted correctly and no errors were made. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 35

Chapter 2 - Analyzing Transactions 71. Posting a part of a transaction to the wrong account will cause the trial balance totals to be unequal. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 36

Chapter 2 - Analyzing Transactions 73. Journalizing a transaction with both the debit and the credit for $69 instead of $96 will cause the trial balance to be out of balance. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 STATE STANDARDS: United States - IN - APC-09-Financial Statements ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 74. The erroneous moving of an entire number one or more spaces to the right or left, such as writing $85 as $850, is called a transposition. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 37

Chapter 2 - Analyzing Transactions Multiple Choice 75. Accounts a. do not reflect money amounts b. are not used by entities that manufacture products c. are records of increases and decreases in individual financial statement items d. are only used by large entities with many transactions ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-01-Purpose ACCREDITING STANDARDS: ACCT.ACBSP.APC.01 - Purpose ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 76. Accounts are classified in the ledger a. chronologically b. alphabetically c. in accordance with their appearance in the financial statements d. with the accounts used most often listed first ANSWER: POINTS: DIFFICULTY:

Page 38

Chapter 2 - Analyzing Transactions 77. Which of the following accounts is an owner's equity account? a. Cash b. Accounts Payable c. Prepaid Insurance d. Ross Morris, Capital ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 78. The gross increases in owner's equity attributable to business activities are called a. assets b. liabilities c. revenues d. expenses ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 39

Chapter 2 - Analyzing Transactions 79. A chart of accounts is a. the same as a balance sheet b. usually a listing of accounts in alphabetical order c. usually a listing of accounts in financial statement order d. used in place of a ledger ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-09-Financial Statements ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 80. The debit side of an account a. depends on whether the account is an asset, liability, or owner's equity b. can be either side of the account depending on how the accountant set up the system c. is the right side of the account d. is the left side of the account ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 40

Chapter 2 - Analyzing Transactions 81. An account is said to have a debit balance if a. the amount of the debits exceeds the amount of the credits b. there are more entries on the debit side than on the credit side c. there are more entries on the credit side than on the debit side d. the first entry of the accounting period was posted on the debit side ANSWER: POINTS: DIFFICULTY:

a 1 Challenging Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 82. Which side of the account increases the cash account? a. credit b. neither a debit nor a credit c. debit d. either a debit or a credit ANSWER: POINTS: DIFFICULTY:

Page 41

Chapter 2 - Analyzing Transactions 83. Which statement(s) concerning cash is (are) true? a. Cash will always have more debits than credits. b. Cash will never have a credit balance. c. Cash is increased by debiting. d. All of these choices. ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:35 AM 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. c. The right side of a T account is called the debit side. d. Transactions are first recorded in T accounts and then posted to the journal. ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 42

Chapter 2 - Analyzing Transactions 85. A cash payment is recorded in the cash account as a. neither a debit nor a credit b. a credit c. a debit d. either a debit or a credit ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 43

Chapter 2 - Analyzing Transactions 87. In the chart of accounts, the balance sheet accounts are normally listed in which order? a. liabilities, assets, owner’s equity b. assets, liabilities, owner’s equity c. owner’s equity, assets, liabilities d. assets, owner’s equity, liabilities ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 88. In which order are the accounts listed in the chart of accounts? a. assets, expenses, liabilities, owner’s equity, revenues b. owner's equity, assets, liabilities, revenues, expenses c. assets, liabilities, owner’s equity, revenues, expenses d. assets, liabilities, revenues, expenses, owner's equity ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 44

Chapter 2 - Analyzing Transactions 89. Which are the parts of the T account? a. title, date, total b. date, debit side, credit side c. title, debit side, credit side d. title, debit side, total ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 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 ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 45

Chapter 2 - Analyzing Transactions 91. Which group of accounts is comprised of only assets? a. Cash, Accounts Payable, Buildings b. Accounts Receivable, Revenue, Cash c. Prepaid Expenses, Buildings, Patents d. Unearned Revenue, Prepaid Expenses, Cash ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:39 AM 92. Which of the following is true about assets? a. Assets include both physical and intangible items. b. Assets include only physical items. c. Assets are the personal property of the owner of the company. d. Assets are the result of selling products or services to customers. ANSWER: POINTS: DIFFICULTY:

a 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:42 AM

Page 46

Chapter 2 - Analyzing Transactions 93. Which of the following is not considered to be a liability? a. Wages Payable b. Accounts Receivable c. Unearned Revenue d. Accounts Payable ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:43 AM 94. Which of the following statements is not true about liabilities? a. Liabilities are debts owed to outsiders. b. Account titles of liabilities often include the term “payable.” c. Cash received before a service is performed creates a liability. d. Liabilities do not include wages owed to employees of the company. ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 47

Chapter 2 - Analyzing Transactions 95. Owner’s equity will be reduced by all of the following except a. revenues b. expenses c. withdrawals d. All of these choices ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:45 AM 96. Expenses can result from a. increasing owner’s equity b. consuming services c. using up liabilities d. purchasing assets ANSWER: POINTS: DIFFICULTY:

b 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 48

Chapter 2 - Analyzing Transactions 97. Assume that you are creating a chart of accounts for a company. Each account number will have two digits. The first digit indicates the major account group to which the account belongs. Which of the following correctly identifies the major account groups typically represented by the numbers 1 through 5? a. 1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Expenses, 5-Revenues b. 1-Assets, 2-Liabilities, 3-Owner’s Equity, 4-Revenues, 5-Expenses c. 1-Assets, 2-Owner’s Equity, 3-Revenues, 4-Expenses, 5-Drawing d. 1-Owner’s Equity, 2-Drawing, 3-Revenues, 4-Expenses ANSWER: POINTS: DIFFICULTY:

Page 49

Chapter 2 - Analyzing Transactions 98. The accounts in the ledger of Monroe Entertainment Co. are listed below. All accounts have normal balances. Accounts Payable Accounts Receivable Prepaid Insurance Cash Drawing

$1,500 1,800 2,000 3,200 1,200

Fees Earned Insurance Expense Land Wages Expense Capital

$3,600 1,300 3,000 1,400 8,800

Total assets are a. $10,000 b. $8,000 c. $9,700 d. $9,800 ANSWER: RATIONALE:

a Total Assets = Accounts Receivable + Prepaid Insurance + Cash + Land = $1,800 + $2,000 + $3,200 + $3,000 = $10,000 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 8:50 AM

Page 50

Chapter 2 - Analyzing Transactions 99. The balance of an account is determined by a. adding all of the debits to all of the credits b. always subtracting the debits from the credits c. always subtracting the credits from the debits d. adding all of the debits, adding all of the credits, and then subtracting the smaller sum from the larger sum ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 100. Which of the following types of accounts have a normal credit balance? a. assets and liabilities b. liabilities and expenses c. revenues and capital d. capital and drawing ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 51

Chapter 2 - Analyzing Transactions 101. Which of the following groups of accounts have a normal debit balance? a. revenues, liabilities, and capital b. capital and assets c. liabilities and capital d. assets and expenses ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 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 ANSWER: POINTS: DIFFICULTY:

Page 52

Chapter 2 - Analyzing Transactions 103. A credit may signify a a. decrease in assets b. decrease in liabilities c. decrease in capital d. decrease in revenue ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 104. A debit signifies a decrease in a. assets b. expenses c. drawing d. revenues ANSWER: POINTS: DIFFICULTY:

Page 53

Chapter 2 - Analyzing Transactions 105. Which of the following applications of the rules of debit and credit is true? a. decrease Prepaid Insurance with a credit and the normal balance is a credit b. increase Accounts Payable with a credit and the normal balance is a debit c. increase Equipment with a debit and the normal balance is a debit d. decrease Cash with a debit and the normal balance is a credit ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 106. Which of the following describes the classification and normal balance of the fees earned account? a. asset, credit b. liability, credit c. owner's equity, debit d. revenue, credit ANSWER: POINTS: DIFFICULTY:

Page 54

Chapter 2 - Analyzing Transactions 107. The classification and normal balance of the accounts payable account are a. asset, credit balance b. liability, credit balance c. owner's equity, credit balance d. revenue, credit balance ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:00 AM 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 ANSWER: POINTS: DIFFICULTY:

Page 55

Chapter 2 - Analyzing Transactions 109. Which of the following accounts are debited to record increases? a. assets and liabilities b. drawing and liabilities c. expenses and liabilities d. assets and expenses ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 110. In which of the following types of accounts are increases recorded by credits? a. revenues and liabilities b. drawing and assets c. liabilities and drawing d. expenses and liabilities ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 56

Chapter 2 - Analyzing Transactions 111. In which of the following types of accounts are decreases recorded by debits? a. assets b. liabilities c. expenses d. drawing ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 112. In which of the following types of accounts are decreases recorded by credits? a. liabilities b. owner's equity c. assets d. revenues ANSWER: POINTS: DIFFICULTY:

Page 57

Chapter 2 - Analyzing Transactions 113. A credit balance in which of the following accounts would likely indicate an error? a. Fees Earned b. Salary Expense c. Janet James, Capital d. Accounts Payable ANSWER: POINTS: DIFFICULTY:

b 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:05 AM 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 ANSWER: POINTS: DIFFICULTY:

Page 58

Chapter 2 - Analyzing Transactions 115. Which of the following entries records the payment of an account payable? a. debit Cash; credit Accounts Payable b. debit Accounts Receivable; credit Cash c. debit Cash; credit Supplies Expense d. debit Accounts Payable; credit Cash ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 116. Which of the following entries records the investment of cash by Taylor Thomas, owner of a proprietorship? a. debit Taylor Thomas, Capital; credit Accounts Receivable b. debit Cash; credit Taylor Thomas, Capital c. debit Taylor Thomas, Drawing; credit Cash d. debit Cash; credit Taylor Thomas, Drawing ANSWER: POINTS: DIFFICULTY:

Page 59

Chapter 2 - Analyzing Transactions 117. Which of the following entries records the payment of a bill for your insurance premium? a. debit Prepaid Insurance; credit Cash b. debit Insurance Payable; credit Accounts Receivable c. debit Accounts Payable; credit Cash d. debit Cash; credit Prepaid Insurance ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 118. Which of the following entries records the withdrawal of cash by Sally Anderson, owner of a proprietorship, for personal use? a. debit Sally Anderson, Capital; credit Cash b. debit Sally Anderson, Drawing; credit Cash c. debit Salaries Expense; credit Cash d. debit Salaries Expense; credit Salaries Payable ANSWER: POINTS: DIFFICULTY:

Page 60

Chapter 2 - Analyzing Transactions 119. Office supplies were sold by Janer's Cleaning Service at cost to another repair shop, with cash received. Which of the following entries for Janer's Cleaning Service records this transaction? a. Office Supplies, debit; Cash, credit b. Office Supplies, debit; Accounts Payable, credit c. Cash, debit; Office Supplies, credit d. Accounts Payable, debit; Office Supplies, credit ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 120. Office supplies purchased by Janer's Cleaning Service on account were returned. Which of the following entries for Janer's Cleaning Service records this transaction? a. Cash, debit; Office Supplies, credit b. Office Supplies, debit; Accounts Receivable, credit c. Accounts Payable, debit; Office Supplies, credit d. Office Supplies, debit; Accounts Payable, credit ANSWER: POINTS: DIFFICULTY:

Page 61

Chapter 2 - Analyzing Transactions 121. 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 ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:24 AM 122. The process of initially recording a business transaction is called a. closing b. posting c. journalizing d. balancing ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 62

Chapter 2 - Analyzing Transactions 123. Which of the following entries records the acquisition of office supplies on account? a. Office Supplies, debit; Cash, credit b. Cash, debit; Office Supplies, credit c. Office Supplies, debit; Accounts Payable, credit d. Accounts Receivable, debit; Office Supplies, credit ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 124. Which of the following entries records the payment of insurance for the current month? a. Cash, debit; Insurance Expense, credit b. Insurance Expense, debit; Cash, credit c. Insurance Expense, debit; Accounts Receivable, credit d. Prepaid Insurance, debit; Cash, credit ANSWER: POINTS: DIFFICULTY:

Page 63

Chapter 2 - Analyzing Transactions 125. Which of the following entries records the receipt of cash from clients on account? a. Accounts Payable, debit; Fees Earned, credit b. Accounts Receivable, debit; Fees Earned, credit c. Accounts Receivable, debit; Cash, credit d. Cash, debit; Accounts Receivable, credit ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 126. Which of the following entries records the collection of cash from cash customers? a. Fees Earned, debit; Cash, credit b. Fees Earned, debit; Accounts Receivable, credit c. Cash, debit; Fees Earned, credit d. Accounts Receivable, debit; Fees Earned, credit ANSWER: POINTS: DIFFICULTY:

Page 64

Chapter 2 - Analyzing Transactions 127. Which of the following entries records the receipt of cash for two months' rent? The cash was received in advance of providing the service. a. Prepaid Rent, debit; Rent Revenue, credit b. Cash, debit; Unearned Rent, credit c. Cash, debit; Prepaid Rent, credit d. Cash, debit; Rent Expense credit ANSWER: POINTS: DIFFICULTY:

b 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:32 AM 128. A client has a massage and asks the company bookkeeper to mail her the bill. The bookkeeper should make which entry to record the invoice? a. no entry until the cash is received b. Fees Earned, debit; Accounts Receivable, credit c. Cash, debit; Fees Earned, credit d. Accounts Receivable, debit; Fees Earned, credit ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:34 AM

Page 65

Chapter 2 - Analyzing Transactions 129. Which of the following abbreviations is correct? a. Debit, “Dr”; Credit, “Cd” b. Debit, “Db”; Credit, “Cr” c. Debit, “Db”; Credit, “Cd” d. Debit, “Dr”; Credit, “Cr” ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:24 AM 130. Which of the following is not a correct rule of debits and credits? a. Assets, expenses, and withdrawals are increased by debits. b. Assets are decreased by credits and have a normal debit balance. c. Liabilities, revenues, and owner’s equity are increased by credits. d. The normal balance for revenues and expenses is a credit. ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 66

Chapter 2 - Analyzing Transactions 131. Gently Laser Clinic purchased laser equipment for $8,500 and paid $2,250 down, with the remainder to be paid later. The correct entry would be a. Equipment 2,250 Cash 2,250 b. Cash 2,250 Accounts Payable 6,250 Equipment 8,500 c. Equipment Expense 8,500 Accounts Payable 2,250 Cash 6,250 d. Equipment 8,500 Accounts Payable 6,250 Cash 2,250 ANSWER: RATIONALE:

d Equipment Accounts Payable Cash

8,500 6,250 ($8,500 – $2,250) 2,250

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 67

Chapter 2 - Analyzing Transactions 132. The ____ is where a transaction can first be found in the accounting records. a. chart of accounts b. income statement c. balance sheet d. journal ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 133. The process of recording a transaction in the journal is called a. ledgerizing b. journalizing c. posting d. summarizing ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 68

Chapter 2 - Analyzing Transactions 134. Joshua Scott invests $40,000 into his new business. How would this transaction be entered in the journal in good form? a. Cash 40,000 Joshua Scott, Capital 40,000 Invested cash in business. b. Cash 40,000 Joshua Scott, Loan 40,000 Invested cash in business. c. Joshua Scott, Capital 40,000 Cash 40,000 Invested cash in business. d. Joshua Scott, Loan 40,000 Cash 40,000 Invested cash in business. ANSWER: POINTS: DIFFICULTY:

Page 69

Chapter 2 - Analyzing Transactions 135. May

Cash Scott Clark, Capital Invested cash in business.

22,000 22,000

This journal entry will a. increase Capital and decrease Cash b. increase Cash and decrease Capital c. increase Cash and increase Capital d. decrease Cash and decrease Capital ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:41 AM

Page 70

Chapter 2 - Analyzing Transactions 136. May

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 c. decrease Cash and decrease Land d. increase Cash and decrease Land

105,000 105,000

ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 71

Chapter 2 - Analyzing Transactions 137. Mar.

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

ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:43 AM 138. Which of the following accounts would be increased with a credit? a. Land; Accounts Payable; Drawing b. Accounts Payable; Unearned Revenue; Collins, Capital c. Collins, Capital; Accounts Receivable; Unearned Revenue d. Cash; Accounts Receivable; Collins, Capital ANSWER: POINTS: DIFFICULTY:

Page 72

Chapter 2 - Analyzing Transactions 139. In accordance with the debit and credit rules, which of the following is true? a. Debits increase assets. b. Credits increase assets. c. Debits increase both assets and capital. d. Credits increase both assets and liabilities. ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 140. All of the following accounts are increased with a debit except a. Unearned Revenue b. Land c. Accounts Receivable d. Cash ANSWER: POINTS: DIFFICULTY:

Page 73

Chapter 2 - Analyzing Transactions 141. 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 ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 142. The payment for the monthly rent will require which of the following entries? a. debit Cash and debit Rent Expense b. credit Cash and credit Rent Expense c. debit Rent Expense and credit Cash d. credit Rent Expense and debit Cash ANSWER: POINTS: DIFFICULTY:

Page 74

Chapter 2 - Analyzing Transactions 143. Expenses follow the same debit and credit rules as a. revenues b. the drawing account c. the capital account d. liabilities ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 144. Net income will result when a. revenues (credits) > expenses (debits) b. revenues (debits) > expenses (credits) c. expenses (credits) = revenues (debits) d. revenues (credits) = expenses (debits) ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 75

Chapter 2 - Analyzing Transactions 145. Which of the following will increase owner’s equity? a. expenses > revenues b. the owner draws money for personal use c. revenues > expenses d. cash is received from customers on account ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:48 AM 146. Which of the following situations increases owner’s equity? a. Supplies are purchased on account. b. Services are provided on account. c. Cash is received from customers on account. d. Utility bill will be paid next month. ANSWER: POINTS: DIFFICULTY:

Page 76

Chapter 2 - Analyzing Transactions 147. Which of the following groups of accounts is increased with a debit? a. assets, liabilities, owner’s equity b. assets, drawing, expenses c. assets, revenues, expenses d. assets, liabilities, revenues ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:50 AM 148. Which of the following groups of accounts increases with a credit? a. capital, revenues, expenses b. assets, capital, revenues c. liabilities, capital, revenues d. None of these choices ANSWER: POINTS: DIFFICULTY:

Page 77

Chapter 2 - Analyzing Transactions 149. Which of the following is true regarding normal balances of accounts? a. All accounts have a normal debit balance. b. The normal balance of all accounts will have either a positive or negative balance. c. Accounts that have a normal debit balance will only have debit entries, never credit entries. d. The normal balance is on the increase side of the account. ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 9:53 AM 150. Which of the following is not true with a double-entry accounting system? a. The accounting equation remains in balance. b. The sum of all debits is always equal to the sum of all credits in each journal entry. c. Each business transaction will have two debits. d. Every transaction affects at least two accounts. ANSWER: POINTS: DIFFICULTY:

Page 78

Chapter 2 - Analyzing Transactions 151. Mar.

6 Cash 2,500 Unearned Fees ???????????? What is the best explanation for this journal entry? a. Received cash for services performed. b. Received cash for services to be performed in the future. c. Paid cash in advance for services to be performed. d. Performed services for which cash is owed.

2,500

ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 10:04 AM

Page 79

Chapter 2 - Analyzing Transactions 152. Apr.

Equipment 15,000 Cash 5,000 Notes Payable 10,000 ???????????? Which is the best explanation for this journal entry? a. Purchased equipment; paid cash of $5,000, with the remainder to be paid in the future. b. Purchased equipment; paid cash of $10,000, with the remainder to be received in the future. c. Purchased equipment with cash. d. Purchased equipment on account. ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 10:06 AM 153. The process of transferring the debits and credits from the journal entries to the accounts is called a. sliding b. transposing c. journalizing d. posting ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM Copyright Cengage Learning. Powered by Cognero.

Page 80

Chapter 2 - Analyzing Transactions 154. The posting process will include the transfer of which of the following data from the journal to the ledger? a. date, amount (debit or credit) b. date, amount (debit or credit), journal page number c. amount (debit or credit), account number d. date, amount (debit or credit) account number ANSWER: POINTS: DIFFICULTY:

b 1 Challenging Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 10:07 AM 155. The Posting Reference columns are used to trace transactions from the ledger to the journal. What will be entered in the Posting Reference column of (1) the journal and (2) the ledger? a. (1) the amount of the debit or credit and (2) the journal page number b. (1) the journal page number and (2) the date of the transaction c. (1) the journal page number and (2) the account number d. (1) the account number and (2) the journal page number ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 10:08 AM

Page 81

Chapter 2 - Analyzing Transactions The chart of accounts for Corning Company includes the following: Account Name

Account Number 11 13 15 21 24 31 32 41 54 56

Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Corning, Capital Corning, Drawing Fees Earned Salaries Expense Rent Expense Page 3 of the journal contains the following entry: Prepaid Insurance Cash

1,530 1,530

156. What is the posting reference that will be found in the cash account? a. 11 b. 15 c. 3 d. 13 ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False PREFACE NAME: Corning Company LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 82

Chapter 2 - Analyzing Transactions 157. What is the posting reference that will be found in the prepaid insurance account? a. 11 b. 15 c. 3 d. 13 ANSWER: POINTS: DIFFICULTY:

a 1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False PREFACE NAME: Corning Company LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 83

Chapter 2 - Analyzing Transactions 159. The chart of accounts for Miguel Company includes the following: Account Name

Account Number 11 13 15 21 24 31 32 41 54 56

Cash Accounts Receivable Prepaid Insurance Accounts Payable Unearned Revenue Miguel, Capital Miguel, Drawing Fees Earned Salaries Expense Rent Expense Page 3 of the journal contains the following transaction: Cash Fees Earned

640 640

What posting references will be found in the journal entry? a. 41, 3 b. 3, 11 c. 11, 41 d. 11, 3 ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 10:10 AM

Page 84

Chapter 2 - Analyzing Transactions 160. 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 5 of the journal contains the following transaction: Salaries Expense Cash

525 525

What is the posting reference that will be found in the salaries expense account? a. 5 b. 11 c. 54 d. 21 ANSWER: POINTS: DIFFICULTY:

a 1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 10:11 AM

Page 85

Chapter 2 - Analyzing Transactions 161. Proof that the dollar amount of the debits equals the dollar amount of the credits in the ledger means a. all of the information from the journal was correctly transferred to the ledger b. all accounts have their correct balances in the ledger c. only the journal is accurate; the ledger may be incorrect d. only that the debit dollar amounts equal the credit dollar amounts ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 162. That the total dollar amount of the debits equals the total dollar amount of the credits in the ledger accounts can be verified through a(n) a. chart of accounts b. trial balance c. income statement d. balance sheet ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 10:12 AM

Page 86

Chapter 2 - Analyzing Transactions 163. Randomly listed below are the steps for preparing a trial balance: (1) Verify that the total of the Debit column equals the total of the Credit column. List the accounts from the ledger and enter their debit or credit balance in the Debit or (2) Credit column of the trial balance. List the name of the company, the title of the trial balance, and the date the trial balance (3) 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) ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 87

Chapter 2 - Analyzing Transactions 164. A trial balance is prepared to a. prove that there were no errors made in recording transactions into the journal b. prove that no errors were made in posting to the ledger c. prove that each account balance is correct d. discover errors that affect the equality of debits and credits ANSWER: POINTS: DIFFICULTY:

$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

Prepare a trial balance. The total of the debits is a. $13,900 b. $11,200 c. $12,700 d. $9,700 ANSWER:

a Monroe Entertainment Co.

RATIONALE:

Trial Balance Debit Balances Accounts Payable

1,500

Accounts Receivable

1,800

Prepaid Insurance

2,000

Cash

3,200

Drawing

1,200

Credit Balances

Page 88

Chapter 2 - Analyzing Transactions Fees Earned

3,600

Insurance Expense

1,300

Land

3,000

Wages Expense

1,400

Capital

8,800 13,900

13,900

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 166. Which of the following is an internal report that will determine if debit balances equal credit balances in the ledger? a. chart of accounts b. income statement c. trial balance d. account reconciliation ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 11:41 AM

Page 89

Chapter 2 - Analyzing Transactions 167. An overpayment error was discovered in computing and paying the wages of a Jamison Tree Trimming employee. When Jamison receives cash from the employee for the amount of the overpayment, which of the following entries will Jamison make? a. Cash, debit; Wages Expense, credit b. Wages Payable, debit; Wages Expense, credit c. Wages Expense, debit; Cash, credit d. Cash, debit; Wages Payable, credit ANSWER: POINTS: DIFFICULTY:

a 1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 11:42 AM 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 ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 90

Chapter 2 - Analyzing Transactions 169. When a transposition error is made on the trial balance, the difference between the debit and credit totals on the trial balance will be a. zero b. twice the amount of the transposition c. one-half the amount of the transposition d. divisible by 9 ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 170. Which of the following errors, each considered individually, would cause the trial balance totals to be unequal? a. A transaction was not posted. b. A payment of $67 for insurance was posted as a debit of $76 to Prepaid Insurance and a credit of $76 to Cash. c. A payment of $4,450 to a creditor was posted as a debit of $4,500 to Accounts Payable and a credit of $450 to Cash. d. Cash received from customers on account was posted as a debit of $720 to Cash and a credit of $720 to Accounts Payable. ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 91

Chapter 2 - Analyzing Transactions 171. Which of the following errors will cause the trial balance totals to be unequal? a. posting the debit portion of a journal entry incorrectly when the credit portion of the entry is correctly posted b. failure to record a transaction or to post a transaction c. recording the same transaction more than once d. recording the same erroneous amount for both the debit and the credit parts of a transaction ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 172. The trial balance is out of balance and the accountant suspects that a transposition or slide error has occurred. What will the accountant do to confirm this suspicion? a. Determine the amount of the error and look for that amount on the trial balance. b. Determine the amount of the error and divide by 2, then look for that amount on the trial balance. c. Determine the amount of the error and refer to the journal entries for that amount. d. Determine the amount of the error and divide by 9. If the result is evenly divided, then this type of error is likely. ANSWER: POINTS: DIFFICULTY:

Page 92

Chapter 2 - Analyzing Transactions 173. The purchase of supplies on account was recorded and posted as a debit to Supplies for $500 and a credit to Accounts Receivable for $500. The correcting entry would include a a. credit to Accounts Receivable for $500 b. credit to Accounts Receivable for $1,000 c. credit to Accounts Payable for $500 d. credit to Accounts Payable for $1,000 ANSWER: POINTS: DIFFICULTY:

c 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:25 PM 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. ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 93

Chapter 2 - Analyzing Transactions 175. Which of the following statements regarding a horizontal analysis is false? a. A horizontal analysis is used to compare an item in a current statement with the same item in prior statements. b. A horizontal analysis can be performed on a balance sheet and income statement, but not on a statement of cash flows. c. If Fees Earned in Year 1 is $125,000 and Fees Earned in Year 2 is $143,750, a horizontal analysis will indicate a 15% increase over this period. d. When two statements are compared in horizontal analysis, the earlier statement is used as the base for computing the amount and the percent of change. ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-05 - 02-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:28 PM

Page 94

Chapter 2 - Analyzing Transactions 176. McNally Industries has a condensed income statement as shown.

Sales Total operating expenses Net income

Year 2 $198,000

Year 1 $165,500

163,000

147,500

$ 35,000

$ 18,000

Using horizontal analysis, calculate the amount and percent change for sales. Round to one decimal place. a. $32,500, 19.6% b. $18,000, 10.9% c. $35,000, 17.7% d. $17,000, 9.4% ANSWER: RATIONALE:

a Change in Sales = Sales in Year 2 – Sales in Year 1 = $198,000 – $165,500 = $32,500 Percent Change in Sales = (Sales in Year 2 – Sales in Year 1)/Sales in Year 1 = ($198,000 – $165,500)/$165,500 = 19.6% POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-05 - 02-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:31 PM

Page 95

Chapter 2 - Analyzing Transactions 177. Richardson Company has a condensed income statement as shown. Year 2

Year 1

Sales

$150,000

$165,500

Total operating expenses

133,000

147,500

Net income

$ 17,000

$ 18,000

Using horizontal analysis, calculate the amount and percent change for sales. Round to one decimal place. a. $(17,000), (11.3%) b. $(15,500), (10.3%) c. $(18,000), (10.9%) d. $(15,500), (9.4%) ANSWER: RATIONALE:

d Change in Sales = Sales in Year 2 – Sales in Year 1 = $150,000 – $165,500 = – $15,500 Percent Change in Sales = (Sales in Year 2 – Sales in Year 1)/Sales in Year 1 = ($150,000 – $165,500)/$165,500 = –9.4%

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-05 - 02-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:35 PM

Page 96

Chapter 2 - Analyzing Transactions 178. A debit may signify a(n) a. decrease in asset accounts b. decrease in liability accounts c. increase in the capital account d. decrease in the drawing account ANSWER: POINTS: DIFFICULTY:

Page 97

Chapter 2 - Analyzing Transactions Matching Match each of the following accounts with its proper account group from the groups listed below. a. Assets b. Liabilities c. Owner's Equity d. Revenue e. Expenses DIFFICULTY:

Moderate Bloom's: Remembering QUESTION TYPE: Matching HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:38 PM 179. Unearned Rent ANSWER: b POINTS: 1 180. Prepaid Insurance ANSWER: a POINTS: 1 181. Fees Earned ANSWER: d POINTS: 1 182. Patents ANSWER: a POINTS: 1 183. Chris Clark, Drawing ANSWER: c POINTS: 1

Page 98

Chapter 2 - Analyzing Transactions For each of the following accounts, indicate whether its normal balance is on the credit side or the debit side of the T account. a. Credit side b. Debit side DIFFICULTY:

Moderate Bloom's: Remembering QUESTION TYPE: Matching HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 STATE STANDARDS: United States - OH - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 184. John Smith, Capital ANSWER: a POINTS: 1 185. Accounts Receivable ANSWER: b POINTS: 1 186. Accounts Payable ANSWER: a POINTS: 1 187. Interest Earned ANSWER: a POINTS: 1 188. Copyrights ANSWER: b POINTS: 1 Several types of errors can be made during the journalizing and posting process. Match the following with their best description. a. Trial balance preparation errors b. Account balance errors c. Posting errors DIFFICULTY: QUESTION TYPE:

Challenging Bloom's: Remembering Matching

Page 99

Chapter 2 - Analyzing Transactions HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 STATE STANDARDS: United States - IN - APC-06-Recording Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:39 PM 189. Balance incorrectly computed ANSWER: b POINTS: 1 190. Debit or credit posting omitted ANSWER: c POINTS: 1 191. Wrong amount posted to an account ANSWER: c POINTS: 1 192. Column incorrectly added ANSWER: a POINTS: 1 193. Balance entered on wrong side of account ANSWER: b POINTS: 1 194. Amount incorrectly entered on trial balance ANSWER: a POINTS: 1 195. Balance entered in wrong column or omitted ANSWER: a POINTS: 1 196. Debit posted as credit, or vice versa ANSWER: c POINTS: 1

Page 100

Chapter 2 - Analyzing Transactions Subjective Short Answer 197. The chart of accounts classifies the accounts to make identification of the accounts easier. Describe the numbering system businesses use in setting up the chart of accounts. ANSWER:

A chart of accounts is set up by assigning two-digit numbers to each of the accounts for use as references. The first digit indicates the major account group of the ledger in which the account is located. Accounts beginning with 1 represent assets; 2, liabilities; 3, owner's equity; 4, revenue; 5, expenses. The second digit indicates the location of the account within its group. Large companies may have additional digits to accommodate a large number of accounts.

POINTS: DIFFICULTY:

1 Moderate Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:40 PM 198. On January 1, Cassie Harris established a catering service. Listed below are accounts she would like to open 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

ANSWER:

11 Cash 12 Accounts Receivable

Page 101

Chapter 2 - Analyzing Transactions 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 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:40 PM 199. On January 31, the cash account balance was $96,750. During January, cash receipts totaled $305,000 and cash payments totaled $375,880. Determine the cash balance on January 1. ANSWER:

??? + $305,000 − $375,880 = $96,750 Cash balance at January 1 is $167,630 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:42 PM

Page 102

Chapter 2 - Analyzing Transactions 200. Organize the following accounts into the usual sequence of a chart of accounts. Miscellaneous Expense Accounts Payable Accounts Receivable Cash Alecia Morris, Capital Fees Earned Prepaid Rent Salaries Expense Unearned Revenue Alecia Morris, Drawing ANSWER:

Cash Accounts Receivable Prepaid Rent Accounts Payable Unearned Revenue Alecia Morris, Capital Alecia Morris, Drawing Fees Earned Salaries Expense Miscellaneous Expense POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 103

Chapter 2 - Analyzing Transactions 201. Calculate 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

$63,000 25,500 31,750

(b) Determine the cash received from customers on account during April based on the following data: Accounts receivable account balance, April 1 Accounts receivable account balance, April 30 Fees billed to customers during April ANSWER:

$22,500 15,250 45,000

(a)

$69,250 ($31,750 + $63,000 − $25,500)

(b)

$52,250 ($22,500 + $45,000 − $15,250)

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 202. Selected accounts from the ledger of Garrison Company appear below. For each account, indicate the following: (a) In the first column at the right, indicate the nature of each account, using the following abbreviations: Asset - A Liability - L None of the above - N

Revenue - R Expense - E

(b) In the second column, indicate the increase side of each account by inserting Dr. or Cr. Account (1) Supplies (2) Notes Receivable (3) Fees Earned Copyright Cengage Learning. Powered by Cognero.

Type of Account _______ _______ _______

Increase Side ________ ________ ________ Page 104

Chapter 2 - Analyzing Transactions (4) Garrison, Drawing (5) Accounts Payable (6) Salaries Expense (7) Garrison, Capital (8) Accounts Receivable (9) Equipment (10) Notes Payable

_______ _______ _______ _______ _______ _______ _______

________ ________ ________ ________ ________ ________ ________

Type of Account A A R N L E N A A L

ANSWER:

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:31 AM

Increase Side Dr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Dr. Cr.

203. All nine transactions for Dalton Survey Company for September, the first month of operations, are recorded in the following T accounts:

(1) (7) (9)

(4)

Cash 20,000 (3) 6,900 (5) 4,700 (6) (8)

7,500 2,600 5,500 2,000

Accounts Receivable 4,900 (9) 4,700 Supplies

Michael Dalton, Capital (1) 20,000

Michael Dalton, Drawing (8) 2,000 Fees Earned Page 105

Chapter 2 - Analyzing Transactions (3)

7,500

(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

ANSWER: Transaction (1) (2) (3) (4) (5) (6) (7) (8) (9)

Account Credited Type Effect Account Debited Type asset asset asset asset liability expense asset drawing asset

Account Credited Effect + + + + − + + + +

Type capital liability asset revenue asset asset revenue asset asset

Effect + + − + − − + − −

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:57 PM Copyright Cengage Learning. Powered by Cognero.

Page 106

Chapter 2 - Analyzing Transactions 204. On June 1, the cash account balance was $96,750. During June, cash receipts totaled $305,000 and the June 30 balance was $75,880. Determine the cash payments made during June. ANSWER:

$75,880 = $96,750 + $305,000 − ? Cash Payments = $325,870 POINTS: 1 DIFFICULTY: Bloom's: Applying Easy QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 12:58 PM 205. On September 1, Erika Company purchased land for $47,500 cash. Provide the journal entry for this transaction. ANSWER:

Sept. 1 Land

47,500 Cash

47,500 Purchased land for the company.

POINTS: DIFFICULTY:

Page 107

Chapter 2 - Analyzing Transactions 206. On October 10, Nickle Company purchased supplies for $1,800 on account. On October 25, Nickle Company paid the invoice. (a) Provide the journal entry for the purchase on account. (b) Provide the journal entry for the payment of the invoice. ANSWER:

(a) Oct. 10 Supplies Accounts Payable Purchased supplies on account.

(b) Oct. 25 Accounts Payable Cash Paid for supplies on account. POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 1:00 PM

1,800 1,800

207. 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. Provide the journal entry for this transaction. ANSWER:

Oct. 17 Building Land Cash Notes Payable Purchased building and land with cash down payment.

500,000 250,000 300,000 450,000

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 1:01 PM Copyright Cengage Learning. Powered by Cognero.

Page 108

Chapter 2 - Analyzing Transactions 208. 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. Provide the journal entry for this transaction. ANSWER:

Nov. 1 Notes Payable Cash Made payment on note payable.

200,000 200,000

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 1:02 PM 209. On January 7, Damien Lawson invests $45,000 to initiate the operation of his business, JumpStart. Provide the journal entry for this transaction. ANSWER:

Jan. 7 Cash Damien Lawson, Capital Invest cash in JumpStart.

45,000 45,000

POINTS: DIFFICULTY:

Page 109

Chapter 2 - Analyzing Transactions 210. On January 8, Damien Lawson transfers ownership of several pieces of office equipment to his new business, JumpStart. When new, these items were worth $72,500. The fair market value of the equipment is $60,000. Journalize this transfer. ANSWER:

Jan. 8

Office Equipment Damien Lawson, Capital Invested equipment in business.

60,000 60,000

While Damien may have paid $72,500 for this equipment some time in the past, it should be transferred into the company at fair market value (FMV), $60,000. POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 110

Chapter 2 - Analyzing Transactions 211. On August 30, JumpStart incurred the following expenses: Payment to the landlord for August rent, $2,300 Payment to Gas & Electric Company for August bill, $525 Payment of employee wages for the last half of August, $1,750 Payment of shopping center’s parking lot cleaning fee, $275 Journalize these payments as one compound journal entry. ANSWER:

Aug. 30

Rent Expense Utilities Expense Wages Expense Maintenance Expense Cash Paid expenses.

2,300 525 1,750 275 4,850

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 1:03 PM 212. On October 30, Damien Lawson withdraws $3,330 from JumpStart for personal use. Journalize this event. ANSWER:

Oct. 30

Damien Lawson, Drawing Cash Withdrew cash for personal use.

3,330 3,330

POINTS: DIFFICULTY:

Page 111

Chapter 2 - Analyzing Transactions 213. For the following, mark a “D” if the following account normally has a debit balance and mark a “C” if the following account normally has a credit balance. _____1. Notes Payable _____2. Mortgage Payable _____3. Drawing _____4. Accounts Receivable _____5. Capital _____6. Rent Revenue _____7. Unearned Income _____8. Utility Expense _____9. Automobiles ANSWER: POINTS: DIFFICULTY:

1.C 2.C 3.D 4.D 5.C 6.C 7.C 8.D 9.D 1 Easy Bloom's: Remembering QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 214. Several transactions are listed below, 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). Copyright Cengage Learning. Powered by Cognero.

Liabilities

___NE__

Owner’s Equity

__ ___

_ ____

_____

__ ___

_____ Page 112

Chapter 2 - Analyzing Transactions (d)

(e)

The company sold excess supplies to another company on credit. ________ Cash is collected from customers for accounts receivable balances. ________

________

ANSWER:

(a) (b)

(c)

(d)

(e)

Owner’s Equity

Assets

= Liabilities +

Cash sales are made.

Equipment is purchased on credit.

Payment is made for the equipment purchased on credit in (b).

NE_

The company sold excess supplies to another company on credit. ___NE___

___ NE

__ NE ___

Cash is collected from customers for accounts receivable balances. ___NE___

___ NE_

___ NE_ __

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic Copyright Cengage Learning. Powered by Cognero.

Page 113

Chapter 2 - Analyzing Transactions DATE CREATED: DATE MODIFIED:

1/16/2017 3:27 PM 1/19/2017 2:34 PM

215. Journalize the following five transactions for Nexium & Associates, Inc. Omit explanations. Mar. 1 Bills are sent to clients for services provided in February in the amount of $800. 9

Corner Office, Inc. delivers office furniture ($1,060) and office supplies ($160) to Nexium leaving an invoice for $1,220.

Payment is made to Corner Office, Inc. for the furniture and office supplies delivered on March 9.

A bill for $430 for electricity for the month of March is received and will be paid on its due date in April.

Salaries of $850 are paid to employees.

ANSWER:

Mar. 1

Accounts Receivable Service Revenue

800

9 Office Furniture Office Supplies Accounts Payable

1,060 160

15 Accounts Payable Cash

1,220

23 Electricity Expense Accounts Payable

430

31 Salaries Expense Cash

850

800

1,220

430

850

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 2:35 PM Copyright Cengage Learning. Powered by Cognero.

Page 114

Chapter 2 - Analyzing Transactions 216. Increases and decreases in various types of accounts are listed below. In each case, indicate by "Dr." or "Cr." (a) whether the change in the account would be recorded as a debit or a credit and (b) whether the normal balance of the account is a debit or a credit.

(1) Increase in Denice Dickenson, Capital (2) Increase in Denice Dickenson, Drawing (3) Decrease in Accounts Receivable (4) Increase in Notes Payable (5) Increase in Accounts Payable (6) Decrease in Supplies (7) Decrease in Salaries Expense (8) Increase in Accounts Receivable (9) Increase in Cash (10) Decrease in Land

ANSWER: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

(a) Recorded As ________ ________ ________ ________ ________ ________ ________ ________ ________ ________

(b) Normal Balance _______ _______ _______ _______ _______ _______ _______ _______ _______ _______

(a) Recorded As Cr. Dr. Cr. Cr. Cr. Cr. Cr. Dr. Dr. Cr.

(b) Normal Balance Cr. Dr. Dr. Cr. Cr. Dr. Dr. Dr. Dr. Dr.

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:31 AM 217. Record the following selected transactions for April in a two-column journal, identifying each entry by letter: (a)

Received $18,000 from Katie Long, owner.

Page 115

Chapter 2 - Analyzing Transactions (b) (c) (d) (e) (f) (g) (h) (i) (j)

Purchased equipment for $27,000, paying $10,000 in cash and giving a note payable for the remainder. Paid $2,300 for rent for April. Purchased $1,500 of supplies on account. Recorded $9,800 of fees earned on account. Received $7,500 in cash for fees earned. Paid $1,200 to creditors on account. Paid wages of $3,425. Received $7,900 from customers on account. Recorded owner's withdrawal of $1,875.

ANSWER:

(a) Cash Katie Long, Capital

18,000

(b) Equipment Cash Notes Payable

27,000

2,300

(d) Supplies Accounts Payable

1,500

(e) Accounts Receivable Fees Earned

9,800

(f) Cash Fees Earned

7,500

(g) Accounts Payable Cash

1,200

(h) Wages Expense Cash

3,425

(i) Cash Accounts Receivable

7,900

18,000

10,000 17,000

2,300

1,500

9,800

7,500

1,200

3,425

(j) Katie Long, Drawing 1,875 Cash POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement Copyright Cengage Learning. Powered by Cognero.

7,900

1,875

Page 116

Chapter 2 - Analyzing Transactions

DATE CREATED: DATE MODIFIED:

BUSPROG: Analytic 1/16/2017 3:27 PM 1/18/2017 10:17 PM

218. 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 placed it on account. (c) On January 18, JumpStart pays the amount due. Journalize this event. ANSWER:

(a) Jan. 12

(b) Jan. 12

Office Supplies Cash

870

Office Supplies Accounts Payable

870

Accounts Payable Cash

870

POINTS: DIFFICULTY:

Page 117

Chapter 2 - Analyzing Transactions 219. 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) Calculate the accounts receivable balance on November 30. ANSWER:

(a) Nov. 10

(b) Nov. 20

Cash Accounts Receivable Fees Earned

600 2,300

Cash Accounts Receivable

900

2,900

900

(c) Original invoice Less cash paid upon completion Original amount on accounts receivable Less November 20 payment Accounts receivable balance

$2,900 600 $2,300 900 $1,400

POINTS: DIFFICULTY:

Page 118

Chapter 2 - Analyzing Transactions 220. Prepare a journal entry for the purchase of a truck on April 4 for $85,700, paying $15,000 cash and the remainder on account. Omit explanation. Apr. 4

ANSWER:

Truck

85,700 Cash Accounts Payable

15,000 70,700

POINTS: DIFFICULTY:

1 Easy Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 2:42 PM 221. Journalize the following selected transactions for January. Explanations may be omitted. Jan.

Date

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. Description

Post. Ref.

Debit

Credit

Page 119

Chapter 2 - Analyzing Transactions

ANSWER: Date

POINTS: DIFFICULTY: QUESTION TYPE: HAS VARIABLES: LEARNING OBJECTIVES:

Description

Post. Ref.

Debit

Credit

Jan. 1 Cash Owner, Capital

14,000

2 Cash Revenues

9,500

3 Accounts Receivable Revenues

4,200

4 Advertising Expense Cash

700

5 Cash Accounts Receivable

2,500

6 Owner, Drawing Cash

1,010

7 Telephone Expense Accounts Payable

900

8 Accounts Payable Cash

900

14,000

9,500

4,200

700

2,500

1,010

900

1 Moderate Bloom's: Applying Subjective Short Answer False ACCT.WARD.18.02-02 - 02-02

Page 120

Chapter 2 - Analyzing Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 2:43 PM 222. 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 had placed this on account. (c) Assume that the clients paid $1,200 of the amount on account on December 30. Journalize this transaction. ANSWER:

(a)

(b) (c)

Dec. 1

Dec. 1 Dec. 30

Cash Fees Earned

2,800

Accounts Receivable Fees Earned Cash Accounts Receivable

2,800

2,800 1,200 1,200

POINTS: DIFFICULTY:

Page 121

Chapter 2 - Analyzing Transactions 223. Analyze the following transactions as to their effect on the accounting equation. (a) (b) (c) (d) (e) (f)

The company paid $725 to a vendor for supplies purchased previously on account. The company performed $850 of services and billed the customer. The company received a utility bill for $395 and will pay it next month. The owner of the company withdrew $145 of supplies for personal use. The company paid $315 in salaries to its employees. The company collected $730 of cash from its customers on account.

Some of the possible effects of a transaction on the accounting equation are listed below (1) (2) (3) (4) (5) (6) (7) (8)

Assets, Dr.; Assets, Cr. Assets, Dr.; Owner's Equity, Cr. Assets, Dr.; Liabilities, Cr. Assets, Dr.; Revenue, Cr. Liabilities, Dr.; Assets, Cr. Drawing, Dr.; Assets, Cr. Expense, Dr.; Assets, Cr. Expense, Dr.; Liabilities, Cr.

Put the appropriate letter next to each transaction. ANSWER:

Transaction (a) (b) (c) (d) (e) (f)

Effect on Accounting Equation 5 4 8 6 7 1

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:32 AM

Page 122

Chapter 2 - Analyzing Transactions 224. Prepare a journal entry on October 12 for the fees earned on account, $14,600. Omit explanation. ANSWER:

Oct. 12

Accounts Receivable Fees Earned

14,600 14,600

POINTS: DIFFICULTY:

Page 123

Chapter 2 - Analyzing Transactions 225. Journalize the five transactions for Mirmax Rentals described below. Aug. 1 Mirmax purchases two new saws on credit at $425 each. The saws are added to Mirmax’s rental inventory. Payment is due in 30 days. 8

Mirmax accepts advance deposits for tool rentals of $125 that will be applied to the cash rental when the tools are returned.

Mirmax receives a bill from Macon Utility Company for $180. Payment is due in 30 days.

Customers are charged $1,250 by Mirmax for tool rentals. Payment is due from the customers in 30 days.

Mirmax receives $600 in payments from the customers that were billed for rentals on August 20.

ANSWER:

Aug. 1

Equipment Accounts Payable

850

Cash

125

850

Unearned Revenue 15

125

Utilities Expense Accounts Payable

180

Accounts Receivable Rental Revenue

1,250

Cash

600 Accounts Receivable

180

1,250

600

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 2:46 PM 226. 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 Copyright Cengage Learning. Powered by Cognero.

Page 124

Chapter 2 - Analyzing Transactions are correct. July

7/3

Accounts Receivable Service Revenue Customers were billed for services completed.

1,000

Cash Accounts Receivable Payment is received from a customer billed for services on July 3.

500

Office Supplies Accounts Payable Purchased office supplies on credit; payment is due in 30 days.

600

Office Furniture Cash Payment is made for office furniture received on July 25.

700

Accounts Receivable 1,000

7/11

Cash 500 7/25

7/3

700

Office Supplies 7/12 600

1,000

500

600

700

Service Revenue 1,000 7/11 500 Accounts Payable 7/12 600 Office Furniture 7/25 700

Required If you assume that all journal entries have been recorded correctly, use the above information to: (1) Identify the postings to the general ledger that were made incorrectly. (2) Describe how the each incorrect posting should have been made. ANSWER:

POINTS: DIFFICULTY: QUESTION TYPE: HAS VARIABLES:

(1) The bookkeeper incorrectly posted the July 3, July 11, and 12 journal entries. (2) For the July 3 journal entry, the $1,000 credit to Service Revenue should have been posted to the Service Revenue account as a credit, not as a debit. For the July 11 journal entry, the $500 credit should be posted to Accounts Receivable, not to Service Revenue. For the July 12 journal entry, the $600 credit to Accounts Payable should have been posted as a credit, not as a debit. 1 Challenging Bloom's: Applying Subjective Short Answer False

Page 125

Chapter 2 - Analyzing Transactions LEARNING OBJECTIVES: ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 2:56 PM 227. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries when recording business transactions during the month. Also, indicate the normal balance of each account. 1. 2. 3.

Fees Earned Utilities Expense Accounts Payable

4. 5. 6.

Supplies Cash Accounts Receivable

ANSWER:

1. Credit entries only, normal credit balance 2. Debit entries only, normal debit balance 3. Both debit and credit entries, normal credit balance 4. Both debit and credit entries, normal debit balance 5. Both debit and credit entries, normal debit balance 6. Both debit and credit entries, normal debit balance POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 228. On January 1, Merry Walker established a catering service. Listed below are accounts to use for transactions (a) through (d), each identified by a number. Following this list are the transactions that occurred during the first month of operations. You are to indicate for each transaction the accounts that should be debited and credited by placing the account number(s) in the appropriate box. 1. 2. 3. 4. 5. 6. 7. 8.

Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Notes Payable Accounts Payable

Page 126

Chapter 2 - Analyzing Transactions 9. 10. 11. 12. 13. 14. 15. 16.

Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Truck Expense Miscellaneous Expense

Transactions Account(s) Debited Account(s) Credited a. Merry transferred cash from a personal bank account to an account to be used for the business. b. Paid rent for the period of January 3 to the end of the month. c. Purchased truck for $30,000 with a cash down payment of $5,000 and the remainder on a note. d. Purchased equipment on account. ANSWER:

Transactions a. b. c. d.

Account(s) Debited Account(s) Credited 1 9 13 1 6 1,7 5 8

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 2:57 PM 229. On January 1, Merry Walker established a catering service. Listed below are accounts to use for transactions (a) through (e), each identified by a number. Following this list are the transactions that occurred in Walker’s first month of operation. You are to indicate for each transaction the accounts that should be debited and credited by placing the account number(s) in the appropriate box. 1. 2. 3. 4.

Cash Accounts Receivable Supplies Prepaid Insurance

Page 127

Chapter 2 - Analyzing Transactions 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Equipment Truck Notes Payable Accounts Payable Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Truck Expense Miscellaneous Expense Insurance Expense

Transactions Account(s) Debited Account(s) Credited a. Purchased supplies for cash. b. Paid the annual premiums on property and casualty insurance. c. Received cash for a job previously recorded on account. d. Paid a creditor a portion of the amount owed for equipment previously purchased on account. e. Received cash for a completed job.

ANSWER:

Transactions a. b. c. d. e.

Account(s) Debited Account(s) Credited 3 1 4 1 1 2 8 1 1 11

POINTS: DIFFICULTY:

Page 128

Chapter 2 - Analyzing Transactions through (f), each identified by a number. Following this list are the transactions that occurred in Walker’s first month of operations. You are to indicate for each transaction the accounts that should be debited and credited by placing the account number(s) in the appropriate box. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Cash Accounts Receivable Supplies Prepaid Insurance Equipment Truck Notes Payable Accounts Payable Merry Walker, Capital Merry Walker, Drawing Fees Earned Wages Expense Rent Expense Utilities Expense Truck Expense Miscellaneous Expense Insurance Expense

Transactions Account(s) Debited Account(s) Credited a. Recorded jobs completed on account and sent invoices to customers. b. Received an invoice for truck expenses to be paid in February. c. Paid utilities expense d. Received cash from customers on account. e. Paid employee wages. f. Withdrew cash for personal use. ANSWER:

Transactions a. b. c. d. e. f.

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying Subjective Short Answer False ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03

QUESTION TYPE: HAS VARIABLES: LEARNING OBJECTIVES:

Account(s) Debited Account(s) Credited 2 11 15 8 14 1 1 2 12 1 10 1

Page 129

Chapter 2 - Analyzing Transactions ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 3:01 PM 231. Listed below are accounts to use for transactions (a) through (d), each identified by a number. Following this list are the transactions. You are to indicate for each transaction the accounts that should be debited and credited by placing the account number(s) in the appropriate box. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

Cash Accounts Receivable Office Supplies Land Interest Receivable Building Accumulated Depreciation—Building Depreciation Expense—Building Accounts Payable Interest Payable Insurance Payable Utilities Expense Notes Payable Prepaid Insurance Service Revenue Owner, Capital Insurance Expense Interest Expense Office Supplies Expense Unearned Service Revenue Owner, Drawing

Transactions Account(s) Debited Account(s) Credited a. Utility bill is received; payment will be made in 10 days. b. Paid the utility bill 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.

ANSWER:

Transactions a. b. c. d.

Account(s) Debited 12 9 14 1

Account(s) Credited 9 1 1 20 Page 130

Chapter 2 - Analyzing Transactions

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 3:04 PM 232. The following two situations are independent of each other. 1. 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. 2. On March 1, the supplies account balance was $1,800. During March, supplies of $2,450 were purchased, and supplies of $630 were on hand as of March 31. Determine the supplies expense for March and show your calculation. ANSWER:

1. $53,200 = $45,750 + Cash Receipts − $243,910 Cash Receipts = $251,360

2. $630 = $1,800 + $2,450 − Supplies Expense Supplies Expense = $3,620 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 3:09 PM

Page 131

Chapter 2 - Analyzing Transactions 233. Journalize the entries to correct the following errors: (a) (b)

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. A receipt of $2,500 from Fees Earned was recorded and posted as a debit to Fees Earned for $2,500 and a credit to Cash for $2,500.

ANSWER:

(a) Accounts Receivable Supplies

200

Supplies Accounts Payable

500

(b) Cash Fees Earned

200

500 5,000 5,000

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM 234. On November 30, Damien Lawson is informed by his accountant that $550 of a transaction recording the purchase of office supplies was really office equipment. Prepare the journal entry to correct this situation. ANSWER:

Nov. 30

Office Equipment Office Supplies

550 550

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/18/2017 10:17 PM

Page 132

Chapter 2 - Analyzing Transactions 235. The following errors took place in journalizing and posting transactions: a. b.

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. An accounts receivable payment for $7,800 was recorded as a debit to Cash and a credit to Fees Earned.

Journalize the entries to correct the errors. Omit the explanations.

ANSWER:

Stan Norton, Drawing Office Expense

5,000

Fees Earned Accounts Receivable

7,800

5,000

7,800

POINTS: DIFFICULTY:

Page 133

Chapter 2 - Analyzing Transactions 236. 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. b. c.

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. A fee of $9,780 earned was debited to Accounts Receivable for $7,980 and credited to Fees Earned for $9,780. 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.

a. The totals are equal. b. The totals are unequal. The credit total is higher by $1,800. c. The totals are unequal. The credit total is higher by $6,000. POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 3:12 PM ANSWER:

237. Below is the unadjusted trial balance for Dawson Designs Co. Required (1) Identify the errors in the trial balance. All accounts have normal balances. (2) Prepare a corrected trial balance.

Cash Accounts Receivable Prepaid Insurance Equipment Accounts Payable Salaries Payable Tim Dawson, Capital Tim Dawson, Drawing

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 Page 134

Chapter 2 - Analyzing Transactions Service Revenue Salary Expense Miscellaneous Expense

236,600 98,930 424,020

ANSWER:

4,970 424,020

(1) a. The Debit column is added incorrectly; the sum is actually $289,780. b. The trial balance should be dated January 31, rather than “For the Month of January” c. The Accounts Receivable balance should be in the Debit column. d. The Accounts Payable balance should be in the Credit column. e. The Tim Dawson, Drawing balance should be in the Debit column. f. The Miscellaneous Expense balance should be in the Debit column. (2) Dawson Designs Co. Unadjusted Trial Balance January 31 Debit Balances Credit Balances Cash 23,000 Accounts Receivable 49,700 Prepaid Insurance 11,300 Equipment 150,500 Accounts Payable 6,050 Salaries Payable 4,250 Tim Dawson, Capital 110,000 Tim Dawson, Drawing 18,500 Service Revenue 236,600 Salary Expense 98,930 Miscellaneous Expense 4,970 356,900 356,900

POINTS: DIFFICULTY:

Page 135

Chapter 2 - Analyzing Transactions 238. 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 Sophie Dawson, Capital Sophie Dawson, Drawing Equipment Miscellaneous Expense

$ 4,100 3,450 6,700 17,800 7,500 14,500 850

Rent Expense Salary Expense Fees Earned Supplies Supplies Expense Utilities Expense

$11,500 14,000 45,425 3,125 1,700 4,000

ANSWER: Sophie Designs Co. Trial Balance April 30

Cash Accounts Receivable Supplies Equipment Accounts Payable Sophie Dawson, Capital Sophie Dawson, Drawing Fees Earned Salary Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense

Debit Credit Balances Balances 6,700 3,450 3,125 14,500 4,100 17,800 7,500 45,425 14,000 11,500 4,000 1,700 850 67,325 67,325

POINTS: DIFFICULTY:

List the errors in the following trial balance. All accounts have normal balances.

Page 136

Chapter 2 - Analyzing Transactions (b)

What would be the new totals in the Debit and Credit columns after errors are corrected? What would be the balance of Accounts Receivable? Winslow’s Auto Body Trial Balance For Month Ending April 30 Debit Balances

Cash Accounts Receivable Supplies Equipment Prepaid Insurance Accounts Payable Thad Winslow, Capital Thad Winslow, Drawing Fees Earned Salary Expense Rent Expense Utilities Expense Supplies Expense Miscellaneous Expense

ANSWER:

Credit Balances 19,475 ? 1,000

15,000 500 2,500 17,000 1,000 49,600 14,500 9,000 1,400 3,900 250 55,000 (a) (1) (2) (3) (4) (5) (6) (7) (8) (9)

81,575

In the heading, the date should be April 30; not for a period of time. The Cash balance should be a debit. The Accounts Receivable balance is missing. The Supplies balance should be a debit. The Prepaid Insurance balance should be a debit and this account should follow Accounts Receivable. The Thad Winslow, Capital balance should be a credit. The Thad Winslow, Drawing balance should be a debit. Rent Expense should be a debit. The trial balance does not balance.

(b) The new total for credits would be $69,100 ($2,500 accounts payable + $49,600 fees earned + $17,000 capital). The debits would also total $69,100. Accounts receivable would be $3,075 ($69,100 total credits − $66,025 corrected debits). POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements Copyright Cengage Learning. Powered by Cognero.

Page 137

Chapter 2 - Analyzing Transactions

DATE CREATED: DATE MODIFIED:

ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 1/16/2017 3:27 PM 2/21/2017 9:36 AM

240. Answer the following questions for each of the errors listed below, 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.

ANSWER:

POINTS: DIFFICULTY:

Error (1) (2) (3) (4) (5) (6) (7) (8) (9)

Totals equal equal equal unequal unequal unequal unequal unequal unequal

Difference in Totals — — — $ 90 1,530 17,000 4,000 300 200

Larger of Totals — — — debit credit credit debit credit credit

1 Challenging

Page 138

Chapter 2 - Analyzing Transactions Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:37 AM 241. Set up T accounts for Cash; Accounts Receivable; Supplies; Accounts Payable; Clay Potter, Capital; Clay Potter, Drawing; Professional Fees; and Operating Expenses. (a)

In the T accounts, record the following transactions of Potter Pool Services for June, identifying each entry by number: (1) Potter invested $12,500 cash in the business. (2) Purchased supplies on account, $6,250. (3) Paid operating expenses, $5,500. (4) Billed clients for fees, $7,440. (5) Received cash from cash clients, $4,700. (6) Paid creditors on account, $1,400. (7) Received $3,100 from clients on account. (8) Withdrew $1,500 cash for personal use.

(b)

Prepare a trial balance as of June 30 for Potter Pool Services.

(c)

Assuming that supplies expense (which has not been recorded) amounts to $1,500 for June, determine the following: (1) Net income for the month. (2) Owner's equity as of June 30.

ANSWER:

(a) (1) (5) (7) Bal.

Cash 12,500 (3) 4,700 (6) 3,100 (8) 11,900

Accounts Receivable (4) 7,440 (7) Bal. 4,340

(2)

Supplies 6,250

Accounts Payable Copyright Cengage Learning. Powered by Cognero.

5,500 1,400 1,500

3,100

Clay Potter, Capital (1) 12,500

Clay Potter, Drawing (8) 1,500

Professional Fees (4) 7,440 (5) 4,700 Bal. 12,140 Operating Expenses Page 139

Chapter 2 - Analyzing Transactions (6)

1,400 (2) Bal.

6,250 4,850

(3)

5,500

(b) Potter Pool Services Trial Balance June 30

Cash Accounts Receivable Supplies Accounts Payable Clay Potter, Capital Clay Potter, Drawing Professional Fees Operating Expenses

Debit Credit Balances Balances 11,900 4,340 6,250 4,850 12,500 1,500 12,140 5,500 29,490 29,490

(c) (1) $5,140 ($12,140 − $5,500 − $1,500) (2) $16,140 ($12,500 + $5,140 − $1,500) POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-01 - 02-01 ACCT.WARD.18.02-02 - 02-02 ACCT.WARD.18.02-03 - 02-03 ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 1/19/2017 3:31 PM 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)

Cash 25,000 (3) 11,900 (5) 9,700 (6) (8)

12,500 7,600 10,500 7,000

James Ralston, Capital (1)

25,000

Page 140

Chapter 2 - Analyzing Transactions

(4)

9,900

Accounts Receivable (9)

James Ralston, Drawing 9,700

(8)

Supplies (3)

Fees Earned

12,500

Equipment (2)

7,000

(4)

9,900

(7)

11,900

Operating Expenses

9,500

(6)

10,500

Accounts Payable (5)

7,600(2)

9,500

Page 141

Chapter 2 - Analyzing Transactions 242. Refer to Exhibit 2-1. Prepare a trial balance, listing the accounts in their proper order. ANSWER: Ralston Sports Company Trial Balance September 30 Debit Credit Balances Balances Cash 9,000 Accounts Receivable 200 Supplies 12,500 Equipment 9,500 Accounts Payable 1,900 James Ralston, Capital 25,000 James Ralston, Drawing 7,000 Fees Earned 21,800 Operating Expenses 10,500 48,700 48,700 POINTS: DIFFICULTY:

1 Moderate Bloom's Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False PREFACE NAME: Exhibit 2-1 LEARNING OBJECTIVES: ACCT.WARD.18.02-04 - 02-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.05 - Accounting Cycle ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:38 AM

Page 142

Chapter 2 - Analyzing Transactions 243. Lewis Company has a condensed income statement as shown below. Year 2 $178,400 $100,000 33,000 30,000 $163,000 $ 15,400

Sales Wages expense Rent expense Utilities expense Total operating expenses Net income

Year 1 $162,500 $ 92,500 30,000 25,000 $147,500 $ 15,000

Required Prepare a horizontal analysis of Lewis Company’s income statements. Comment on the trends, both favorable and unfavorable.

Year 1

Increase/ Decrease Amount

Percent Change

Sales

$178,400 $162,500

$15,900

9.8%

Wages expense

$100,000 $ 92,500

$ 7,500

8.1

Year 2

ANSWER:

Rent expenses

33,000

30,000

3,000

10.0

Utilities expense

30,000

25,000

5,000

20.0

Total operating expenses

$163,000 $147,500

$15,500

10.5

Net income

$ 15,400

$ 400

2.7

$ 15,000

While the trend in sales revenue is favorable, it is not sufficient enough to offset the rising expenses, resulting in a positive but small and slowing increase in net income.

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Subjective Short Answer HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.02-05 - 02-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 1/16/2017 3:27 PM DATE MODIFIED: 2/21/2017 9:49 AM

Page 143

Chapter 2 - Analyzing Transactions 244. Nebraska Technologies has a condensed income statement as shown below. 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 trends, both favorable and unfavorable.

ANSWER: Sales Wages expense Rent expense Utilities expense Total operating expenses Net income

Year 2 $158,400 $ 80,000 28,000 30,000

Increase/Decrease Percent Year 1 Amount Change $162,500 $ (4,100) (2.5)% $ 92,500 $(12,500) (13.5) 30,000 (2,000) (6.7) 25,000 5,000 20.0

$138,000 $ 20,400

$147,500 $ 15,000

$ (9,500) $ 5,400

(6.4) 36.0

The trend in sales revenue is unfavorable, but that is more than offset by the declines in operating expenses, with the exception of utilities, which increased over the period. Despite the 2.5% drop in sales, the net effect was a favorable increase in net income of 36.0%, which was in large part spurred by the drop in wages expense. POINTS: DIFFICULTY:

Page 144

Chapter 3 - The Adjusting Process True / False 1. Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 2. Generally accepted accounting principles require the accrual basis of accounting. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 1

Chapter 3 - The Adjusting Process 3. The revenue recognition principle states that revenue should be recorded in the same period as the cash is received. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 4. The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 2

Chapter 3 - The Adjusting Process 5. The matching principle requires expenses be recorded in the same period that the related revenue is recorded. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 6. For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 3

Chapter 3 - The Adjusting Process 7. An example of deferred revenue is Unearned Rent. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 8. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 4

Chapter 3 - The Adjusting Process 9. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 10. The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 5

Chapter 3 - The Adjusting Process 11. Revenues and expenses should be recorded in the same period to which they relate. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 12. The matching principle supports matching expenses with the related revenues. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 6

Chapter 3 - The Adjusting Process 13. The updating of accounts when financial statements are prepared is called the adjusting process. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 14. Adjusting entries affect balance sheet accounts to the exclusion of income statement accounts. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 7

Chapter 3 - The Adjusting Process 15. Adjusting entries affect only expense and asset accounts. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 16. An adjusting entry would adjust revenue so it is reported when earned and not when cash is received. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 8

Chapter 3 - The Adjusting Process 17. An adjusting entry would adjust an expense account so the expense is reported when incurred. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 18. An adjusting entry to accrue an incurred expense will affect total liabilities. a. True b. False ANSWER: POINTS: DIFFICULTY:

Page 9

Chapter 3 - The Adjusting Process 19. The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and deferred revenue has never been recorded. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 20. Deferrals are recorded transactions that delay the recognition of an expense or revenue. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 10

Chapter 3 - The Adjusting Process 21. Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been incurred but not recorded. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 22. Unearned revenue is a liability. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 11

Chapter 3 - The Adjusting Process 23. A company pays an employee $3,000 for a five-day workweek, Monday–Friday. The adjusting entry on December 31, which is a Wednesday, is a debit to Wages Expense of $1,800, and a credit to Wages Payable of $1,800. a. True b. False ANSWER: RATIONALE:

True Wages Expense per Day = $3,000/5 = $600 Wages Expense for 3 days = $600 × 3 = $1,800 Debit Credit Dec. 31 Wages Expense 1,800 Wages Payable 1,800

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/17/2017 8:17 AM 24. A company realizes that the last two days' revenue for the month was billed but not recorded. The adjusting entry on December 31 is a debit to Accounts Receivable and a credit to Fees Earned. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Challenging Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 12

Chapter 3 - The Adjusting Process 25. If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and stockholders' equity will be understated for the period. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 26. A company pays $36,000 for 12 months' rent on October 1, recording the prepayment as an asset. The adjusting entry on December 31 is a debit to Rent Expense of $9,000, and a credit to Prepaid Rent of $9,000. a. True b. False ANSWER: RATIONALE:

True Rent Expense per Month = $36,000/12 = $3,000 Rent Expense from October 1 to December 31 = $3,000 × 3 = $9,000 Debit Credit Dec. 31 Rent Expense 9,000 Prepaid Rent 9,000

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 13

Chapter 3 - The Adjusting Process 27. A company receives $360 for a 12-month trade magazine subscription on August 1. The adjusting entry on December 31 is a debit to Unearned Subscription Revenue of $150 and a credit to Subscription Revenue of $150. a. True b. False ANSWER: RATIONALE:

True Unearned Subscription Revenue per Month = $360/12 = $30 Subscription Revenue from August 1 to December 31 = $30 × 5 = $150 Debit Credit Dec. 31 Unearned Subscription Revenue 150 Subscription Revenue 150

POINTS: DIFFICULTY:

1 Challenging Bloom’s: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 28. A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash of $2,500, and a credit to Ticket Revenue of $2,500. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM Copyright Cengage Learning. Powered by Cognero.

Page 14

Chapter 3 - The Adjusting Process 29. At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of the journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance applicable to future periods is $2,000. a. True b. False ANSWER: RATIONALE:

True Insurance Expense = Balance in Prepaid Insurance Account (prior to any adjustments) – Amount of Unexpired Insurance (applicable to future periods) = $6,000 – $2,000 = $4,000 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 30. If the adjustment to recognize expired insurance at the end of the period is inadvertently omitted, the assets at the end of the period will be understated. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 15

Chapter 3 - The Adjusting Process 31. If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be understated. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Challenging Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 32. The systematic allocation of land's cost to expense is called depreciation. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 16

Chapter 3 - The Adjusting Process 33. The difference between the balance of a fixed asset account and the balance of its related accumulated depreciation account is termed the book value of the asset. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 34. The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 17

Chapter 3 - The Adjusting Process 35. Accumulated depreciation accounts are liability accounts. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 36. Accumulated depreciation is reported on the income statement. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 18

Chapter 3 - The Adjusting Process 37. A contra asset account for Land will normally appear on the balance sheet. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 38. Depreciation Expense is reported on the balance sheet as an addition to the related asset. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 19

Chapter 3 - The Adjusting Process 39. A company depreciates its equipment $500 a year. The adjusting entry on December 31 is a debit to Depreciation Expense of $500 and a credit to Equipment of $500. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Applying QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 40. A fixed asset’s market value is reflected on the balance sheet. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 20

Chapter 3 - The Adjusting Process 41. If the adjustment for depreciation for the year is inadvertently omitted, the assets on the balance sheet at the end of the period will be understated. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Challenging Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-04 - 03-04 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM 42. Adjusting journal entries are dated on the last day of the period. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-05 - 03-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:52 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 21

Chapter 3 - The Adjusting Process 43. By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always be overstated. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Moderate Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-05 - 03-05 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 44. The financial statements are prepared from the unadjusted trial balance. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-06 - 03-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 22

Chapter 3 - The Adjusting Process 45. The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable. This error will be detected when the adjusted trial balance is prepared. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Understanding QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-06 - 03-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 46. The adjusted trial balance verifies that total debits equal total credits before the adjusting entries are prepared. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-06 - 03-06 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 23

Chapter 3 - The Adjusting Process 47. Vertical analysis compares each item in a financial statement with a total amount from the same statement. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-07 - 03-07 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 48. When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income. a. True b. False ANSWER: POINTS: DIFFICULTY:

False 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-07 - 03-07 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 24

Chapter 3 - The Adjusting Process 49. Vertical analysis is useful for analyzing financial statement changes over time. a. True b. False ANSWER: POINTS: DIFFICULTY:

True 1 Easy Bloom's: Remembering QUESTION TYPE: True / False HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-07 - 03-07 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM Multiple Choice 50. The revenue recognition principle a. is not in conflict with the cash method of accounting b. determines when revenue is credited to a revenue account c. states that revenue is not recorded until the cash is received d. controls all revenue reporting for the cash basis of accounting ANSWER: POINTS: DIFFICULTY:

Page 25

Chapter 3 - The Adjusting Process 51. The matching principle a. addresses the relationship between the journal and the balance sheet b. determines whether the normal balance of an account is a debit or credit c. requires that the dollar amount of debits equal the dollar amount of credits on a trial balance d. states that the revenues and related expenses should be reported in the same period ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 52. Using accrual accounting, revenue is recorded and reported only a. when cash is received without regard to when the services are rendered b. when the services are rendered without regard to when cash is received c. when cash is received at the time services are rendered d. if cash is received after the services are rendered ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 26

Chapter 3 - The Adjusting Process 53. Using accrual accounting, expenses are recorded and reported only a. when they are incurred, whether or not cash is paid b. when they are incurred and paid at the same time c. if they are paid before they are incurred d. if they are paid after they are incurred ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 54. The accounting principle upon which deferrals and accruals are based is a. matching b. cost c. price-level adjustment d. conservatism ANSWER: POINTS: DIFFICULTY:

Page 27

Chapter 3 - The Adjusting Process 55. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry? a. decreases the balance of an owner's equity account b. increases the balance of a liability account c. increases the balance of an asset account d. decreases the balance of an expense account ANSWER: POINTS: DIFFICULTY:

b 1 Challenging Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 56. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry? a. increases the balance of a contra asset account b. increases the balance of an asset account c. decreases the balance of an owner's equity account d. increases the balance of an expense account ANSWER: POINTS: DIFFICULTY:

Page 28

Chapter 3 - The Adjusting Process 57. Prior to the adjusting process, accrued expenses have a. not yet been incurred, paid, or recorded b. been incurred, have not been paid, but have been recorded c. been incurred but not paid and not recorded d. been paid but have not yet been incurred ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 58. Prior to the adjusting process, accrued revenue has a. been earned and cash received b. been earned and not recorded as revenue c. not been earned but recorded as revenue d. not been recorded as revenue but cash has been received ANSWER: POINTS: DIFFICULTY:

b 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 29

Chapter 3 - The Adjusting Process 59. Prepaid expenses have a. not yet been recorded as expenses but have been paid b. been recorded as expenses and paid c. been incurred and paid d. not yet been recorded as expenses ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 60. Deferred revenue is revenue that is a. earned and the cash has been received b. earned but the cash has not been received c. not earned and the cash has not been received d. not earned but the cash has been received ANSWER: POINTS: DIFFICULTY:

Page 30

Chapter 3 - The Adjusting Process 61. Adjusting entries are a. the same as correcting entries b. needed to bring accounts up to date and match revenue and expense c. optional under generally accepted accounting principles d. rarely needed in large companies ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 62. Adjusting entries affect at least one a. income statement account and one balance sheet account b. revenue and the dividends account c. asset and one owner’s equity account d. revenue and one owner’s equity account ANSWER: POINTS: DIFFICULTY:

Page 31

Chapter 3 - The Adjusting Process 63. The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is a. prepaid b. deferred c. accrued d. matched ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 64. Which of the following is not a characteristic of the accrual basis of accounting? a. Revenues and expenses are reported in the period in which cash is received or paid. b. Revenues are reported on the income statement in the period in which they are earned. c. The accrual basis of accounting supports the matching concept. d. Expenses are reported in the same period as the revenues to which they relate. ANSWER: POINTS: DIFFICULTY:

a 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 32

Chapter 3 - The Adjusting Process 65. Generally accepted accounting principles require that companies use the ____ of accounting. a. cash basis b. deferral basis c. accrual basis d. account basis ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 66. The cash basis of accounting records revenues and expenses when the cash is exchanged, while the accrual basis of accounting a. records revenues when they are earned and expenses when they are paid b. records revenues and expenses when they are incurred c. records revenues when cash is received and expenses when they are incurred d. records revenues and expenses when the company needs to apply for a loan ANSWER: POINTS: DIFFICULTY:

Page 33

Chapter 3 - The Adjusting Process 67. By matching revenue earned during the accounting period to related incurred expenses, a. net income or loss will always be underestimated b. net income or loss will always be overestimated c. net income or loss will be properly reported on the income statement d. net income or loss will not be determined ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 68. Adjusting entries always include a. only income statement accounts b. only balance sheet accounts c. the cash account d. at least one income statement account and one balance sheet account ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 34

Chapter 3 - The Adjusting Process 69. Prepaid expenses are eventually expected to become a. expenses when their future economic value expires or is used up b. revenues when services are performed c. expenses in the period when they are paid d. revenues when the liability is no longer owed ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 70. Which of the following is considered to be unearned revenue? a. theater tickets sold last month for yesterday’s performance b. theater tickets sold yesterday on credit for yesterday’s performance c. theater tickets that were not sold for the current performance d. theater tickets sold for next month’s performance ANSWER: POINTS: DIFFICULTY:

Page 35

Chapter 3 - The Adjusting Process 71. Which of the following is an example of accrued revenue? a. snow removal services that have been paid for three months in advance b. snow removal services that have been provided but have not been billed or paid c. an agreement that has been signed for snow removal services for the next three months d. snow removal services that have been provided and paid on the same day ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 72. Which of the following is considered to be an accrued expense? a. A computer technician installed the latest software updates and was paid on the same day. b. A computer technician has been paid in advance to install software updates as they become available. c. A computer technician has just signed an agreement with you regarding pricing for future work. d. A computer technician has installed the latest software updates, but you have not received an invoice or made payment. ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 36

Chapter 3 - The Adjusting Process 73. Which of the following accounts would likely be included in an accrual adjusting entry? a. Insurance Expense b. Prepaid Rent c. Interest Expense d. Unearned Rent ANSWER: POINTS: DIFFICULTY:

c 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 74. Which of the following accounts would likely be included in a deferral adjusting entry? a. Interest Revenue b. Unearned Revenue c. Salaries Payable d. Accounts Receivable ANSWER: POINTS: DIFFICULTY:

b 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 37

Chapter 3 - The Adjusting Process 75. If there is a balance in the prepaid rent account after adjusting entries are made, it represents a(n) a. deferral b. accrual c. revenue d. liability ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 76. If there is a balance in the unearned subscriptions account after adjusting entries are made, it represents a(n) a. deferral b. accrual c. dividend d. revenue ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 38

Chapter 3 - The Adjusting Process 77. The unexpired insurance at the end of the fiscal period represents a(n) a. accrued asset b. accrued liability c. accrued expense d. deferred expense ANSWER: POINTS: DIFFICULTY:

d 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 78. The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is a. depreciation b. deferral c. accrual d. inventory ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 39

Chapter 3 - The Adjusting Process 79. Which account would normally not require an adjusting entry? a. Wages Expense b. Accounts Receivable c. Accumulated Depreciation d. Cash ANSWER: POINTS: DIFFICULTY:

d 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 80. The account type and normal balance of Prepaid Expense would be a. revenue, credit b. expense, debit c. liability, credit d. asset, debit ANSWER: POINTS: DIFFICULTY:

d 1 Bloom's: Understanding Easy QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-01 - 03-01 ACCREDITING STANDARDS: ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 5:11 PM

Page 40

Chapter 3 - The Adjusting Process 81. The account type and normal balance of Unearned Revenue would be a. revenue, credit b. expense, debit c. liability, credit d. asset, debit ANSWER: POINTS: DIFFICULTY:

Page 41

Chapter 3 - The Adjusting Process 82. Buster Industries pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Tuesday is a. debit Salaries Payable, $12,000; credit Cash, $12,000 b. debit Salary Expense, $12,000; credit Dividends, $12,000 c. debit Salary Expense, $12,000; credit Salaries Payable, $12,000 d. debit Dividends, $12,000; credit Cash, $12,000 ANSWER: RATIONALE:

c Salary Expense per Day = $30,000/5 = $6,000 Salary Expense for 2 Days = $6,000 × 2 = $12,000 Debit Credit Salary Expense 12,000 Salaries Payable 12,000

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 42

Chapter 3 - The Adjusting Process 83. The entry to adjust the accounts for salaries accrued at the end of the accounting period is a. debit Salaries Payable; credit Cash b. debit Cash; credit Salaries Payable c. debit Salaries Payable; credit Salaries Expense d. debit Salaries Expense; credit Salaries Payable ANSWER: POINTS: DIFFICULTY:

d 1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 84. Data for an adjusting entry described as "accrued wages, $2,020" requires a a. debit to Wages Expense and a credit to Wages Payable b. debit to Wages Payable and a credit to Wages Expense c. debit to Accounts Receivable and a credit to Wages Expense d. debit to Dividends and a credit to Wages Payable ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Remembering QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 43

Chapter 3 - The Adjusting Process 85. Accrued revenues would affect _______ on the balance sheet. a. assets b. liabilities c. owner’s capital d. prepaid expenses ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 86. Accrued expenses affect ________ on the balance sheet. a. assets b. liabilities c. fixed assets d. prepaid expenses ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 44

Chapter 3 - The Adjusting Process 87. Fees payable would appear on the balance sheet as a(n) a. asset b. liability c. fixed asset d. unearned revenue ANSWER: POINTS: DIFFICULTY:

b 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 88. The following adjusting journal entry found in the journal is missing an explanation. Select the best explanation for the entry. Wages Expense 4,500 Wages Payable 4,500 ???????????????? a. Record payment of wages. b. Record wages paid last month. c. Record wages paid in advance. d. Record wages expense incurred and to be paid next month. ANSWER: POINTS: DIFFICULTY:

Page 45

Chapter 3 - The Adjusting Process 89. Which of the following is an example of an accrued expense? a. salary owed but not yet paid b. fees received but not yet earned c. supplies on hand d. a two-year premium paid on a fire insurance policy ANSWER: POINTS: DIFFICULTY:

a 1 Challenging Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 46

Chapter 3 - The Adjusting Process 90. A business pays biweekly salaries of $20,000 every other Friday for a 10-day period ending on that day. The adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a a. debit to Salary Expense of $8,000 b. debit to Salaries Payable of $8,000 c. credit to Salary Expense of $16,000 d. credit to Salaries Payable of $16,000 ANSWER: RATIONALE:

d Salary Expense per Day = $20,000/10 = $2,000 Salary Expense Accrued (on the second Wednesday of the pay period) = $2,000 × 8 days = $16,000 Debit Credit Salary Expense 16,000 Salaries Payable 16,000

POINTS: DIFFICULTY:

1 Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-02 - 03-02 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 47

Chapter 3 - The Adjusting Process 91. A business pays biweekly salaries of $20,000 every other Friday for a 10-day period ending on that day. The last payday of December is Friday, December 27. Assume the next pay period begins on Monday, December 30, and the proper adjusting entry is journalized at the end of the fiscal period (December 31). The entry for the payment of the payroll on Friday, January 10, includes a a. debit to Salary Expense of $16,000 b. debit to Salary Expense of $4,000 c. credit to Salaries Payable of $16,000 d. credit to Salaries Payable of $4,000 ANSWER: RATIONALE:

a Salary Expense per Day = $20,000/10 = $2,000 Number of Working Days (till January 10 from the previous pay day, December 27) = 2 days in December + 8 days in January = 10 days Salary Expense on January 10 = $2,000 × 8 days = $16,000 Salaries Payable = $2,000 × 2 days = $4,000 Debit Credit Jan. 10 Salary Expense 16,000 Salaries Payable 4,000 Cash 20,000

POINTS: DIFFICULTY:

Page 48

Chapter 3 - The Adjusting Process 92. The balance in the prepaid rent account before adjustment at the end of the year is $32,000, which represents four months' rent paid on December 1. The adjusting entry required on December 31 is a. debit Rent Expense, $8,000; credit Prepaid Rent, $8,000 b. debit Prepaid Rent, $24,000; credit Rent Expense, $8,000 c. debit Rent Expense, $24,000; credit Prepaid Rent, $8,000 d. debit Prepaid Rent, $8,000; credit Rent Expense, $8,000 ANSWER: RATIONALE:

a Rent Expense per Month = $32,000/4 = $8,000 Debit Credit Dec. 31 Rent Expense 8,000 Prepaid Rent 8,000 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 49

Chapter 3 - The Adjusting Process 93. The balance in the office supplies account on January 1 was $7,000, supplies purchased during January were $3,000, and the supplies on hand on January 31 were $2,000. The amount to be used for the appropriate adjusting entry is a. $4,300 b. $12,000 c. $5,000 d. $8,000 ANSWER: RATIONALE:

d Amount to Be Used for Appropriate Adjusting Entry = Balance in Office Supplies Account on January 1 + Supplies Purchased During January – Supplies on Hand at January 31 = $7,000 + $3,000 – $2,000 = $8,000 POINTS: 1 DIFFICULTY: Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 50

Chapter 3 - The Adjusting Process 94. Which of the following is the proper adjusting entry, based on a prepaid insurance account balance before adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30? a. debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000 b. debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000 c. debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000 d. debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000 ANSWER: RATIONALE:

d Insurance Expense = Prepaid Insurance Account Balance Before Adjustment – Unexpired Insurance = $14,000 – $3,000 = $11,000 Debit Credit Apr. 30 Insurance Expense 11,000 Prepaid Insurance 11,000

POINTS: DIFFICULTY:

1 Challenging Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM

Page 51

Chapter 3 - The Adjusting Process 95. The entry to adjust for the cost of supplies used during the accounting period is a. debit Supplies Expense; credit Supplies b. debit Owner’s Equity; credit Supplies c. debit Accounts Payable; credit Supplies d. debit Supplies; credit Owner’s Equity ANSWER: POINTS: DIFFICULTY:

a 1 Moderate Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 96. The supplies account had a balance of $4,400 at the beginning of the year and was debited during the year for $2,400, representing the total of supplies purchased during the year. If $400 of supplies are on hand at the end of the year, the supplies expense to be reported on the income statement for the year is a. $400 b. $2,000 c. $6,800 d. $6,400 ANSWER: RATIONALE:

d Supplies Expense (to be reported on the income statement for the year) = Balance of Supplies Account (at the beginning of the year) + Supplies Purchased (during the year) + Supplies on Hand (at the end of the year) = $4,400 + $2,400 – $400 = $6,400 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM Copyright Cengage Learning. Powered by Cognero.

Page 52

Chapter 3 - The Adjusting Process 97. Smokey Company purchases a one-year insurance policy on July 1 for $3,600. The adjusting entry on December 31 is a. debit Insurance Expense, $1,800; credit Prepaid Insurance, $1,800 b. debit Insurance Expense, $1,500; credit Prepaid Insurance, $1,500 c. debit Insurance Expense, $2,100; credit Prepaid Insurance, $2,100 d. debit Prepaid Insurance, $1,800; credit Cash, $1,800 ANSWER: RATIONALE:

a Insurance Expense (per month) = $3,600/12 = $300 Insurance Expense (from July 1 to December 31) = $300 × 6 = $1,800 Debit Credit Dec.31 Insurance Expense 1,800 Prepaid Insurance 1,800

POINTS: DIFFICULTY:

Page 53

Chapter 3 - The Adjusting Process 98. Gracie Company made a prepaid rent payment of $2,800 on January 1. The company’s monthly rent is $700. The amount of prepaid rent that would appear on the January 31 balance sheet after adjustment is a. $2,100 b. $700 c. $2,800 d. $1,400 ANSWER: RATIONALE:

a Amount of Prepaid Rent (that would appear on the January 31 balance sheet after adjustment) = Prepaid Rent Payment (on January 1) – Rent for January = $2,800 – $700 = $2,100 POINTS: 1 DIFFICULTY: Moderate Bloom's: Applying QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 99. The type of account and normal balance of Prepaid Insurance would be a. asset, credit b. asset, debit c. contra asset, credit d. contra asset, debit ANSWER: POINTS: DIFFICULTY:

Page 54

Chapter 3 - The Adjusting Process 100. The type of account and normal balance of Unearned Consulting Fees would be a. revenue, credit b. expense, debit c. liability, credit d. liability, debit ANSWER: POINTS: DIFFICULTY:

c 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 4:41 PM 101. Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for the amount of supplies a. still on hand b. purchased c. used d. required for the next accounting period ANSWER: POINTS: DIFFICULTY:

Page 55

Chapter 3 - The Adjusting Process 102. The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as a. stockholders' equity b. an asset c. a contra asset d. a liability ANSWER: POINTS: DIFFICULTY:

b 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 5:16 PM 103. Which of the following is an example of a prepaid expense? a. Supplies b. Accounts Receivable c. Unearned Subscription Revenue d. Unearned Fees ANSWER: POINTS: DIFFICULTY:

Page 56

Chapter 3 - The Adjusting Process 104. Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as a. an asset b. a liability c. a contra asset d. owner's equity ANSWER: POINTS: DIFFICULTY:

a 1 Easy Bloom's: Understanding QUESTION TYPE: Multiple Choice HAS VARIABLES: False LEARNING OBJECTIVES: ACCT.WARD.18.03-03 - 03-03 ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic DATE CREATED: 3/14/2017 4:53 PM DATE MODIFIED: 3/16/2017 5:18 PM 105. Prepaid rent, representing rent for the next six months' occupancy, would be reported on the tenant's balance sheet as a(n) a. asset b. liability c. owner's equity account d. contra liability ANSWER: POINTS: DIFFICULTY:

Page 57