Chapter 2

During the year, Jenco paid $12,000 of rent in advance. The beginning balance in the prepaid rent account was $4,000, and the ending balance is $1,000. What is the rent expense for the period?

$15,000

Bosworth Corp. pays salary expense during the year of $10,000. At the end of the year, an adjusting entry is made for accrued salaries in the amount of $2,000, which have not yet been recorded. The beginning balance in salaries payable is $1,000, and the ending balance is $3,000. What is the amount of salary expense on the income statement?

12,000

Goliath Corp. has beginning accounts receivable of $2,000. During the year, Goliath sold goods to customers on account for $10,000. During the year, Goliath also sold goods to customers for cash in the amount of $2,000. At the end of the year, the balance in Goliath's accounts receivable is $3,000. What is accrual basis sales for the year?

12000

Which of the following accounts would most likely use a subsidiary ledger?

Accounts receivable

Place the steps in the accounting process in the correct order.

Analyze the transaction record the transaction post from the journal to the general ledger prepare the unadjusted trial balance

Which transaction will require the following journal entry: debit Retained earnings for $1,000 and credit Cash for $1,000?

Declare and pay a dividend.

When are adjusting entries recorded?

At the end of a period when preparing financial statements.

Prepayments occur when:

Cash flow precedes expense recognition

Which of the following is an internal economic event?

Depreciating equipment

Which of the following is not a type of special journal?

Depreciation journal

Persimmon Company fails to record an accrual for salaries at year-end. What are the financial statement effects of this error?

Expense is understated. Net income is overstated. Liabilities are understated.

True or false: If a company makes end-of-year accruals, it must use reversing entries.

False

An individual invests $10,000 to open a new business. What is the effect on assets?

Increase in total assets

Galaxy Corporation issues 500 shares of $1 par value common stock for $5,000. What is the total effect on owners' equity?

Increases $5,000

Match each item with its classification on the income statement.

Interest expense matches Choice, Nonoperating item Nonoperating item Depreciation expense matches Choice, Operating item Operating item

Prepaid expenses are the cost of assets acquired in one accounting period and expensed in a future period

Prepaid expenses are the cost of acquired in one accounting period and in a future period

Which transaction would require the following journal entry: debit Accounts receivable for $3,500; credit Sales revenue for $3,500; debit Cost of goods sold for $2,000 and credit Inventory for $2,000?

Sale on account

The objective of an Enterprise Resource Planning (ERP) system is to create a customized software program that integrates the information of departments and functions of a company into a single computer system.

T

When a sales journal is used, at the end of the period the total amount sold on credit is debited to

accounts receivable

The total in the sales journal is posted to which accounts at the end of the period?

accounts receivable and sales

The balance sheet account that depreciation is recorded to is:

accumulated depreciation

The account balances shown in the trial balance include adjusting entries.

adjusted

An internal event (Select all that apply)

affects the company's financial position. does not involve an exchange transaction with another entity.

Accruals occur when cash flow comes:

after revenue recognition after expense recognition

A post-closing trial balance is prepared

after the closing process.

The purpose of a sales journal is to record

all credit sales

Interest earned, but not yet received is an example of:

an accrued receivable

Accrual accounting measures:

an entity's accomplishments and resource sacrifices during the period

At the end of the accounting period, before the adjusting entries are recorded:

an unadjusted trial balance is prepared

Accrued liabilities are costs incurred in an accounting period:

before a cash payment

An accrued receivable occurs when revenue is earned:

before cash flow

In a cash receipts journal, the debit column is for

cash

What account is debited when cash is collected from customers for a previous sale on account?

cash

In which special journal is receipt of customer payment on account recorded?

cash receipts

Cash basis accounting measures income based on

cash receipts and cash disbursements.

In which journal would cash sales most likely be recorded?

cash receipts journal

Which account is found on the statement of shareholders' equity?

common stock

A credit balance in the income summary account is closed with a entry to retained earnings.

credit

Each time a cash receipt from a customer is recorded in the cash receipts journal, a is posted to the accounts receivable subsidiary ledger.

credit

The adjusting journal entry required to record depreciation includes a(n)

credit

The normal balance in a contra asset account is

credit

The normal balance of the contra asset accumulated depreciation account is a(n)

credit

To accrue interest earned on a note receivable that has not yet been collected, _____ interest receivable and ______ interest revenue.

debit credit

On October 1, Year 1, Swift Corporation received $1,200 from customers for services to be performed evenly over the next 12 months. Swift recorded the original transaction in a balance sheet account. The adjusting journal entry on December 31, Year 1, will include which of the following entries?

debit deffered to $300

To accrue utilities expense at year-end that has not been paid,

debit utilities expense and credit utilities payable

A trial balance proves

debits balances equal credit balances

Londa Corporation pays employees $3,000 for the month. What is the effect on the balance sheet equation? (Select all that apply.)

decrease assets decrease owners' equity

The use of office supplies purchased on account in the previous month will have what effects on the balance sheet equation? (Select all that apply.)

decrease retained earningsdecrease assets

The two methods for preparing the statement of cash flows are the:

direct and indirect method

When a company declares a dividend, the temporary ______ account is often debited.

dividend

Prepaid expenses are:

expensed in a later period than cash was paid

Accrued liabilities are:

expenses incurred before cash was paid

True or false: An internal event involves an exchange between the company and a separate economic entity.

f

Bigelow Company purchases supplies on account. What are the effects on the balance sheet equation? (Select all that apply.)

increase assets increase liabilities

Pluto Corporation borrows $20,000 from the bank. What are the balance sheet effects of this transaction? (Select all that apply.)

increase liabilities increase assets

Ace Cleaning Services performs cleaning services for $2,000 cash. What are the effects on the balance sheet equation for Ace Cleaning Services? (Select all that apply.)

increase owners' equity increase cash

Accruing a receivable ______ accounts receivable on the balance sheet and ______ revenues on the income statement.

increases; increases

When special journals are used: (Select all that apply.)

individual transactions are not posted to the general ledger the recording process is simplified

A reversing entry is used:

most often with accruals. to simplify journal entries recorded during the new period. at the beginning of a reporting period.

A temporary purchases account is used when the inventory system is used.

periodic

The purchases account is debited to record purchases of inventory in a:

periodic inventory system

Special journals simplify the recording process by (Select all that apply.)

posting a total to the general ledger accounts on a periodic basis. utilizing individuals with specialized training in handling certain transactions.

Place the steps at the end of the accounting period in the correct order.

prepare an unadjusted trial balance record adjusting entries prepare an adjusted trial balance prepare financial statements close the temporary accounts

The balance sheet:

presents a company's financial position at a particular date

To adjust for rent used up during the year that was recorded to the prepaid rent account when paid for,

rent expense is debited, prepaid rent is credited

Special journals record:

repetitive transactions

Which of the following make up shareholders' equity of a corporation? (Select all that apply.)

retained earnings paid-in capital

The following accounts are closed to income summary with a credit entry

salaries expense depreciation expense cost of goods sold

Which of the following are cash inflows from investing activities?

sale of building sale of long-term investment

Carrie uses a sales journal to record sales. At the end of the period, the total amount sold is credited to which account?

sales

At the end of the period, the total cash receipts from customers are posted to the accounts receivable control account. Each individual customer receipt must also be posted to the

subsidiary ledger.

test

test

A reversing entry is used:

to simplify journal entries recorded during the new period. most often with accruals. at the beginning of a reporting period.

At the end of the period, an unadjusted balance, a listing of all accounts with their respective balances, is used to assist in the preparation of adjusting entries, financial statements, and closing entries.

trial

The purpose of the cash receipts journal is to record all cash receipts, regardless of the source.

true

Which account is a temporary account?

utility expense

Janet Company purchased supplies on account for $3,000. The journal entry required to record this transaction is

utilizing individuals with specialized training in handling certain transactions. posting a total to the general ledger accounts on a periodic basis.

The purpose of a post-closing trial balance is to

verify that closing entries were prepared and posted correctly.

Adjusting entries are recorded:

when the financial statements are prepared