ACCT Chp. 3

account consists of three parts:

(1) the title of the account, (2) a left or debit side, and (3) a right or a credit side.

1. The principle that requires every business to be accounted for separately and distinctly from its owner or owners is known as the a. Objectivity Principle b. Business Entity Principle c. Going-Concern Principled. d. Revenue Recognition Principle.

1.b

10. A company produced net income for the year of $157,250. Its average equity for the period was $850,000. It's return on equity was: a. 5.4%. b. 18.5%. c. 185% d. 9.5%.

10.b

2. If a parcel of land is offered for sale at $45,000, is assessed for tax purposes at $20,000, is recognized by its purchasers as easily being worth $36,000, and is purchased for $34,000, the land should be recorded in the purchaser's books at: a. $20,000. b. $34,000 c. $36,000 d. $45,000.

2.b

3. The objectivity principle: a. Means that information is supported by independent, unbiased information. b. Means that information can be based on what the preparer thinks is true. c. Means that financial statements should contain information that is optimistic. d. All of the above.

3.a

4. The accounting process begins with: a. Analysis of business transactions and events. b. Preparing financial statements and other reports. c. Summarizing the recorded effect of business transactions. d. Ratio analysis of financial statements.

4.a

5. Unearned revenues are: a. Revenues that have been earned and received. b. Revenues that have been earned but not yet collected. c. Liabilities created by advance cash payments from customers for products or services. d. Increases to owners' equity.

5.c

6. An account balance is: a. The total of the credit side of an account. b. The total of the debit side of the account. c. The diff b/w the increases & decreases (including the beginning balance) recorded in the account. d. Unchanged by posting debits and credits to the account.

6.c

7. Of the following accounts, the one that normally has a credit balance is: a. Cash. b. Office Equipment. c. Sales Salaries Payable. d. Sales Salaries Expense.

7.c

8. If the liabilities of a business increased $13,000 during a period of time and the owners equity in the business decreased $3,000 during the same period, the assets of the business must have: a. Decreased $10,000. b. Decreased $16,000. c. Increased $10,000. d. Increased $12,000.

8.c

9. Crimson Company has assets of $100,000, liabilities of $10,000, and equity of $90,000. It buys office equipment on credit for $5,000. The effect of this transaction include: a. Assets increase by $5,000 and equity increases by $5,000. b. Assets increase by $5,000 and equity decreases by $5,000. c. Liabilities increase by $5,000 and equity decreases by $5,000. d. Assets increase by $5,000 and liabilities increase by $5,000.

9.d

T/F: posting normally occurs before journalizing

False

T/F: posting transfers ledger transaction data to the journal

False

T/F: posting transfers journal entries to ledger account

True

general ledger

a ledger that contains all asset, liability, stockholders' equity, revenue, and expense accounts

trial balance

a list of accounts and their balances at a given time

double-entry system

a system that records the two-sided effect of each transaction in appropriate accounts

A trial balance: a. is the same under IFRS and GAAP. b. proves that transactions are recorded correctly. c. proves that all transactions have been recorded. d. will not balance if a correct journal entry is posted twice.

a. is the same under IFRS and GAAP.

journal

an accounting record in which transactions are initially recorded in chronological order

Account

an individual accounting record of increases and decreases in a specific asset, liability, or stockholders' equity, revenue or expense item.

Which statement is correct regarding IFRS? a. IFRS reverses the rules of debits and credits, that is, debits are on the right and credits are on the left. b. IFRS uses the same process for recording transactions as GAAP. c. The chart of accounts under IFRS is different because revenues follow assets. d. None of the above statements are correct.

b. IFRS uses the same process for recording transactions as GAAP.

One difference between IFRS and GAAP is that: a. GAAP uses accrual-accounting concepts and IFRS uses primarily the cash basis of accounting. b. IFRS uses a different posting process than GAAP. c. IFRS uses more fair value measurements than GAAP. d. the limitations of a trial balance are different between IFRS and GAAP.

c. IFRS uses more fair value measurements than GAAP.

A trial balance will not balance if: a. a correct journal entry is posted twice. b. the purchase of supplies on account is debited to Supplies and credited to Cash. c. a $100 cash dividends is debited to the Dividends account for $1,000 and credited to Cash for $100. d. a $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45.

c. a $100 cash dividends is debited to the Dividends account for $1,000 and credited to Cash for $100.

Debits: a. increase both assets and liabilities. b. decrease both assets and liabilities. c. increase assets and decrease liabilities. d. decrease assets and increase liabilities.

c. increase assets and decrease liabilities

Stockholder's Equity =

common stock + retained earnings

Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and equity. c. assets, liabilities, and dividends. d. assets, dividends, and expenses.

d. assets, dividends, and expenses

Posting: a. normally occurs before journalizing. b. transfers ledger transaction data to the journal. c. is an optional step in the recording process. d. transfers journal entries to ledger accounts.

d. transfers journal entries to ledger accounts

(Debit/Credit--Increase/Decrease?) Pays $700 on account for the office furniture purchased on October 3.

debits: accounts payable decrease liabilities credits: cash decrease assets

Paid Golden Bear Company in full for equipment purchased on March 10.

debits: accounts payable credits: equipment

(Debit/Credit--Increase/Decrease?) Sells a house and lot for M.E. Graves; commissions due from Graves, $10,800 (not paid by Graves at this time).

debits: accounts receivable increases assets credits: service revenue increases revenues

Advertised the opening of the driving range and miniature golf course, paying advertising expenses of $1,200 cash.

debits: advertising expense credits: cash

(Debit/Credit--Increase/Decrease?) Stockholders invest $30,000 in exchange for common stock of the corporation.

debits: cash increase assets credits: common stock increase stockholders' equity

(Debit/Credit--Increase/Decrease?) Receives cash of $140 as commission for acting as rental agent renting an apartment.

debits: cash increases assets credits: service revenue increases revenues

Stockholders invested $50,000 cash in the business in exchange for common stock of the corporation.

debits: cash credits: common stock

Received $900 in cash from customers for golf services performed.

debits: cash credits: service revenue

Received golf fees of $1,600 in cash from customers for golf services performed.

debits: cash credits: service revenue

Sold 100 coupon books for $25 each in cash. Each book contains ten coupons that enable the holder to play one round of miniature golf or to hit one bucket of golf balls. (Hint: The revenue should not be recognized until the customers use the coupons.)

debits: cash credits: unearned service revenue

Paid a $500 cash dividend.

debits: dividends credits: cash

(Debit/Credit--Increase/Decrease?) Buys office furniture for $3,800, on account.

debits: equipment increases assets credits: accounts payable increases liabilities

Purchased golf clubs and other equipment for $5,500 from Golden Bear Company, payable in 30 days.

debits: equipment credits: accounts payable

Purchased Arnie's Golf Land for $38,000 cash. The price consists of land $23,000, building $9,000, and equipment $6,000. (Record this in a single entry.)

debits: land, buildings, equipment credits: cash

(Debit/Credit--Increase/Decrease?) Hires an administrative assistant at an annual salary of $36,000.

debits: no entry credits: no entry

Paid cash $2,400 for a 1-year insurance policy.

debits: prepaid insurance credits: cash

(Debit/Credit--Increase/Decrease?) Pays the administrative assistant $3,000 in salary for October.

debits: salaries & wages expense increase expenses credits:cash decrease assets

Paid salaries of $800.

debits: salaries & wages expense credits: cash

accounting transactions

events that require recording in the financial statements because they affect assets, liabilities, or stockholders' equity

Debits:

means left (left side of an account)

Credits:

means right (right side of an account)

Retained earnings =

revenues - expenses - dividends

ledger

the group of accounts maintained by a company

general journal

the most basic form of journal

journalizing

the procedure of entering transaction data in the journal

posting

the procedure of transferring journal entry amounts to the ledger accounts

accounting information system

the system of collecting and processing transaction data and communicating financial information to decision-makers