Chapter 2

10. Which of the following statements is incorrect? A) Expenses increase stockholders' equity. B) Expenses have normal debit balances. C) Expenses decrease stockholders' equity. D) Expenses are a negative factor in the computation of net income.

A

11. Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for $1,000, a credit to a liability account for $600. Which of the following would be the correct way to complete the recording of the transaction? A) Credit an asset account for $400. B) Credit another liability account for $400. C) Credit the retained earnings account for $400. D) Debit the retained earnings account for $400.

A

15. At October 1, 2018, Padilla Industries had an accounts payable balance of $40,000. During the month, the company made purchases on account of $33,000 and made payments on account of $48,000. At October 31, 2018, the accounts payable balance is A) $25,000. B) $41,000. C) $55,000. D) $121,000.

A

20. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the A) journal, and transfer the information to the ledger accounts. B) ledger, and transfer the information to the journal. C) book of accounts, and transfer the information to the journal. D) book of original entry, and transfer the information to the journal.

A

26. The usual order of accounts in the general ledger is A) assets, liabilities, common stock, retained earnings, dividends, revenues, and expenses. B) assets, liabilities, dividends, common stock, retained earnings, expenses, and revenues. C) liabilities, assets, common stock, retained earnings, revenues, expenses, and dividends. D) common stock, retained earnings, assets, liabilities, dividends, expenses, and Revenues.

A

9. When a company distributes dividends A) it doesn't have to be cash, it could be another asset. B) the dividends account will be increased with a credit. C) the retained earnings account will be directly increased with a debit. D) the dividends account will be decreased with a debit.

A

1. An account is a part of the financial information system and is described by all except which one of the following? A) An account has a debit and credit side. B) An account is a source document. C) An account may be part of a manual or a computerized accounting system. D) An account has a title.

B

13. Chik Chik Company showed the following balances at the end of its first year: Cash $ 6,000 Prepaid insurance 9,400 Accounts receivable 7,000 Accounts payable 5,600 Notes payable 8,400 Common stock 2,800 Dividends 1,400 Revenues 44,000 Expenses 35,000 What did Chik Chik Company show as total credits on its trial balance? A) $51,400 B) $60,800 C) $62,200 D) $70,200

B

14. At December 1, 2018, Cursive Company's accounts receivable balance was $1,800. During December, Cursive had revenues on account of $7,200 and collected accounts receivable of $6,000. At December 31, 2018, the accounts receivable balance is A) $600 debit. B) $3,000 debit. C) $600 credit. D) $3,000 credit

B

16. At September 1, 2018, Promise Ring Co. reported stockholders' equity of $156,000. During the month, Promise Ring generated revenues of $38,000, incurred expenses of $21,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the amount of stockholders' equity at September 30, 2018? A) $166,000 B) $171,000 C) $173,000 D) $176,000

B

17. The usual sequence of steps in the transaction recording process is: A) journal ? analyze ? ledger. B) analyze ? journal ? ledger. C) journal ? ledger ? analyze. D) ledger ? journal ? analyze.

B

18. The first step in the recording process is to A) prepare financial statements. B) analyze each transaction for its effect on the accounts. C) post to a journal. D) prepare a trial balance.

B

2. Credits A) decrease both assets and liabilities. B) decrease assets and increase liabilities. C) increase both assets and liabilities. D) increase assets and decrease liabilities.

B

22. A journal is not useful for A) disclosing in one place the complete effect of a transaction. B) preparing financial statements. C) providing a record of transactions. D) locating and preventing errors.

B

23. A complete journal entry does not show A) the date of the transaction. B) the new balance in the accounts affected by the transaction. C) a brief explanation of the transaction. D) the accounts and amounts to be debited and credited.

B

24. On June 1, 2018 Ted Leo buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will A) use two journal entries. B) make a compound entry. C) make a simple entry. D) list the credit entries first, which is proper form for this type of transaction.

B

28. Posting A) should be performed in account number order. B) accumulates the effects of journalized transactions in the individual accounts. C) involves transferring all debits and credits on a journal page to the trial balance. D) is accomplished by examining ledger accounts and seeing which ones need updating.

B

30. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates A) no errors have been made. B) no errors can be discovered. C) that all accounts reflect correct balances. D) the mathematical equality of the accounting equation.

B

31. Which of the following rules is incorrect? A) Credits decrease the dividends account. B) Debits increase the common stock account. C) Credits increase revenue accounts. D) Debits decrease liability accounts.

B

34. Which of the following is incorrect regarding a trial balance? A) It proves that the debits equal the credits after posting. B) It proves that the company has recorded all transactions. C) A trial balance uncovers errors in journalizing and posting. D) A trial balance is useful in the preparation of financial statements

B

4. Which one of the following represents the expanded basic accounting equation? A) Assets = Liabilities + Common stock + Retained Earnings + Dividends - Revenues - Expenses. B) Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings + Revenues. C) Assets - Liabilities - Dividends = Common stock + Retained Earnings + Revenues - Expenses. D) Assets = Revenues + Expenses - Liabilities.

B

7. Which of the following is not true of the terms debit and credit? A) They can be abbreviated as Dr. and Cr. B) They can be interpreted to mean increase and decrease. C) They can be used to describe the balance of an account. D) They can be interpreted to mean left and right.

B

8. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording? A) A debit balance in the dividends account B) A credit balance in an expense account C) A credit balance in a liabilities account D) A credit balance in a revenue account

B

12. In the first month of operations for Gallowsbird Industries, the total of the debit entries to the cash account amounted to $36,000 ($16,000 investment by stockholders and revenues of $20,000). The total of the credit entries to the cash account amounted to $22,000 (purchase of equipment $8,000 and payment of expenses $14,000). At the end of the month, the cash account has a(n) A) $6,000 credit balance. B) $6,000 debit balance. C) $14,000 debit balance. D) $14,000 credit balance.

C

19. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n) A) cash register sales tape. B) bill. C) advertising brochure. D) check.

C

27. Camper Van Company purchased equipment for $2,600 cash. As a result of this event, A) stockholders' equity decreased by $2,600. B) total assets increased by $2,600. C) total assets remained unchanged. D) stockholders' equity decreased and total assets increased by $2,600

C

21. Transactions in a journal are recorded in A) account number order. B) dollar amount order. C) alphabetical order. D) chronological order.

D

25. Which of the following journal entries is recorded correctly and in the standard format? A) Salaries and Wages Expense 500 Cash 1,500 Advertising Expense 1,000 B) Salaries and Wages Expense 500 Advertising Expense 1.000 Cash 1,500 C) Cash 1,500 Salaries and Wages Expense 500 Advertising Expense 1,000 D) Salaries and Wages Expense 500 Advertising Expense 1,000 Cash 1,500

D

29. The steps in preparing a trial balance include all of the following except A) listing the account titles and their balances. B) totaling the debit and credit columns. C) proving the equality of the two columns. D) transferring journal amounts to ledger accounts.

D

3. A credit is not the normal balance for which account listed below? A) Common stock account B) Revenue account C) Liability account D) Dividends account

D

32. Which of the following statements is false? A) Revenues increase stockholders' equity. B) Revenues have normal credit balances. C) Revenues are a positive factor in the computation of net income. D) Revenues are increased by debits.

D

33. Which of the following is false about a journal? A) It discloses in one place the complete effects of a transaction. B) It provides a chronological record of transactions. C) It helps to prevent or locate errors because debit and credit amounts for each entry can be readily compared. D) It keeps in one place all the information about changes in specific account balances.

D

5. Which of the following correctly identifies normal balances of accounts? A) Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Debit Expenses Credit B) Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Credit Expenses Credit C) Assets Credit Liabilities Debit Stockholders' Equity Debit Revenues Credit Expenses Debit D) Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Credit Expenses Debit

D

6. An accountant has debited an asset account for $1,300 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction? A) Credit an asset account for $800. B) Credit another liability account for $800. C) Credit a Stockholders' account for $800. D) Debit a Stockholders' account for $800.

D