ch3 quiz

Posting is the step that produces the financial statements. accumulates the effects of journalized transactions in the individual ledger accounts. normally occurs before journalizing. enters transaction data in the journal. transfers ledger transaction data to the journal.

accumulates the effects of journalized transactions in the individual ledger accounts. Solution: Companies journalize transactions. Each journal entry summarizes a certain transaction or adjusting entry. Next, companies post the journal entries to the ledger. The procedure of transferring journal entry amounts to the ledger accounts is called posting. Posting is a required step in the recording process. If it is not done, the ledger's account balances will not be correct.

An accountant has debited an asset account for $900 and credited a liability account for $1,200. There is one missing part of the transaction. Which of the following can be the missing part of the transaction? Debit a different asset account for $300. None of these can be a correct way to complete the transaction. Credit a different liability account for $300. All of these can be a correct way to complete the transaction. Credit a stockholders' equity account for $300.

Debit a different asset account for $300. Solution: The basic accounting equation is assets equal liabilities plus equity. It must stay in balance meaning total assets must equal total liabilities plus total stockholders' equity, and this relation must be maintained in every transaction. If a transaction debited assets by $900 then assets increased by $900. If that same transaction also credited a liability account by $1,200 then it increased liabilities by $1,200. The missing part of the transaction must cause assets to equal liabilities plus equity. Acceptable options include (1) increasing (i.e., debiting) a different asset account for $300, (2) decreasing (i.e., debiting) a different liability for $300, and (3) decreasing (i.e., debiting) an equity account for $300.

If cash is received in advance from a customer assets will decrease and liabilities will decrease. assets will increase and liabilities will decrease. retained earnings will increase and assets will increase. liabilities will increase and assets will increase. stockholders' equity will decrease and assets will increase.

liabilities will increase and assets will increase. Solution: Receiving cash in advance means that the business receives cash from a customer before the company provides the merchandise or services being sold to the customer. This creates an obligation or a liability to the company. We call this liability "unearned revenue." Liabilities increase and assets (i.e., cash) increase.

At the start of the month, a corporation reported retained earnings of $154,000. During the month, it incurred expenses of $20,000, earned revenues of $35,000, received $25,000 of cash from stockholders in exchange for additional common stock, and paid dividends of $3,000. What is the balance in retained earnings at the end of the month?

$166,000 credit Solution: Ending retained earnings = Beginning retained earnings + revenues for the current period - expenses for the current period - dividends for the current period. Ending retained earnings = $154,000 + $35,000 - 20,000 − 3,000 = $166,000 Retained earnings normally has a credit balance. This is a profitable company, so its retained earnings balance would be a credit balance. Note: selling (i.e., issuing) additional common stock to shareholders in exchange for cash increases stockholders' equity and assets; it does not affect net income or retained earnings.

At the start of the current year, investors contribute $10,000 to a newly formed corporation. During the year, the corporation earned revenues of $45,000, paid expenses of $22,000, and paid dividends to the owners of $5,000. It also borrowed $10,000 by issuing a note. At the end of the year, the balance in retained earnings will be

$18,000 credit. Solution: Ending retained earnings = Beginning retained earnings + Revenues - Expenses - Dividends Ending retained earnings = $0 + 45,000 - 22,000 - 5,000 = $18,000 Retained earnings is an equity account; it normally has a credit balance. Note: This is the company's first-year so its beginning retained earnings is zero. Also, certain transactions do not affect retained earnings, such as borrowing money by issuing a note.

At the start of the month, a company reported a $34,000 debit balance in its cash account. During the month, the company debited cash for $30,000 and credits cash for $42,000. At the end of the month, the cash account has a

$22,000 debit balance. Solution: The ending cash balance equals the beginning cash balance plus cash receipts occurring during the period minus cash payments occurring during the period. The ending cash balance = $34,000 + 30,000 − 42,000 = $22,000.

A company has the following accounts and account balances at the end of its first year: Accounts payable, $3,000 Cash, $15,000 Common stock, Not given Dividends, $1,000 Expenses, $14,000 Notes payable, $4,000 Prepaid insurance, $3,000 Revenues, $23,000 What is the balance of its common stock account at the end of the first year?

$3,000 Solution:The basic accounting equation (i.e., Assets = Liabilities + Equity) must stay in balance. The accounting equation can be expanded as follows: Assets = Liabilities + Common stock + Retained earnings Wilson's assets include cash and prepaid insurance (i.e., 15,000 + 3,000 = 18,000). Wilson's liabilities include accounts payable and notes payable (i.e., 3,000 + 4,000 = 7,000). This is Wilson Company's first year. Its retained earnings at the start of the first year is zero. Retained earnings increases y net income and it decreases by dividends. Wilson's retained earnings at the end of the first year equals retained earnings at the start of the current year plus current-year net income minus current year dividends (i.e., 0 + 23,000 - 14,000 - 1,000 = 8,000). Assets = liabilities + retained earnings + common stockCommon stock = Assets - liabilities - retained earnings Common stock = 18,000 - 7,000 - 8,000 Common stock = 3,000

A company's financial records report the following accounts and balances at the end of the year: Accounts payable$ 3,000 Accounts receivable 3,700 Cash 13,100 Common stock 4,600 Dividends 1,200 Interest expense 17,500 Notes payable 4,200 Prepaid insurance 1,700 Retained earnings 1,400 Service revenue 24,000 What would the company show as its total credits on its trial balance?

$37,200 Solution: Certain accounts normally have debit balances, including assets, expenses, and dividends. This company's accounts that have debit balances include its assets (i.e., accounts receivable, cash, prepaid insurance, accounts receivable), expenses (i.e., interest expense), and dividends. These sum to $37,200 (i.e., 3,700 + 13,100 + 1,200 + 1,700 + 17,500 = 37,200). Other accounts normally have credit balances, including liabilities, equities, and revenues. This company's accounts that have credit balances include its liabilities (i.e., accounts payable, notes payable), equities (i.e., common stock, retained earnings), and revenues (i.e., service revenue). These sum to $37,200 (i.e., 3,000 + 4,600 + 4,200 + 1,400 + 24,000 = 37,200).Note: total debits equal total credits.

A company started the year with $30,000 in its common stock account and a credit balance in retained earnings of $20,000. During the year, the company earned net income of $44,000 and declared and paid $3,000 of dividends. In addition, the company sold additional common stock amounting to $10,000. As a result, the amount of its retained earnings at the end of the year would be

$61,000 Solution Ending retained earnings = Beginning retained earnings + net income - dividendsEnding retained earnings = 36,000 + 124,000 - 6,000 = 154,000

An account is a part of a company's financial information system and is described by all except which one of the following? An account has a debit and credit side. An account is a source document. The credit side is the right side of the account's T-account. The debit side is the left side of the account's T-account. An account consists of three parts with one part being the account's title.

An account is a source document. Solution: An account has three basic parts: (1) a title (such as "cash" or accounts payable"), (2) a debit side (i.e., left-side column for recording account balance changes), and (3) a credit side (i.e., a right-side column for recording account balance changes). Source documents are the information sources used to record changes to account balances (e.g., invoices are source documents). Accounts are not source document.

Which of the following is true with regards to the dividends account? It is neither a revenue nor an expense account and it normally has a credit balance. It is neither a revenue nor an expense account and it normally has a debit balance. It is an expense account and it normally has a credit balance. It is a revenue account and it normally has a credit balance. It is an expense account and it normally has a debit balance.

It is neither a revenue nor an expense account and it normally has a debit balance. Solution: The normal balance of any account is the side which increases that account. Debits increase assets, expenses, and dividends. The normal balance of assets, expenses, and dividends is a debit balance. Credits increase liabilities, equities, and revenues. The normal balance of liabilities, equities, and revenues is a credit balance.E,3,3,1

On April1, a company hires a new employee who will start to work a week later. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?

No, hiring an employee is an important event; however it is not an economic event that should be recorded.

After a business transaction has been analyzed and recorded in the journal, the next step in the recording process is to do which of the following? Prepare a trial balance Record the information in the ledger Prepare a post-closing trial balance Prepare the financial statements Prepare a bank reconciliation

Record the information in the ledger Solution:The recording process does steps in a certain order. The first step is to analyze each transaction in terms of its effects on the accounts. This begins with examining a source document that provides evidence of a transaction or event that needs to be recorded. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter the transaction information in the journal (i.e., journalize the transaction). Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger).

A trial balance will not balance if a 500 receipt of a customer's advance payment for services was recorded as a $500 debit to Cash and a $500 credit to Service Revenue. a $50 cash dividend was debited to Dividends for $500 and credited to cash for $50. a $50 cash purchase of supplies was posted twice. a $500 collection of cash was not posted. a $500 payment of an account payable was debited to Accounts Payable for $50 and credited to Cash for $50.

a $50 cash dividend was debited to Dividends for $500 and credited to cash for $50. Solution: A trial balance lists accounts and their balances at a given point in time. A purpose of the trial balance is to confirm that the total of the debit balances equals the total of the credit balances. However, a trial balance has limits. A trial balance helps uncover certain errors, such as recording a different amount debited than the amount credited, omitting part of a journal entry or recording the entire journal entry using only debits (or using only credits). A trial balance does not prove that all transactions have been recorded nor does it proves that transactions have been recorded correctly. For example, a trial balance will confirm that total debit balances equal total credit balances even if a transaction were recorded twice or if it was not recorded even once. Both total debits and total credits would be wrong by the same amount. Another error not uncovered by a trial balance is recording a transaction in the wrong accounts.

A company issues a note payable in exchange for cash. This transaction will immediately affect the - income statement, balance sheet, and retained earnings statement only. - balance sheet and cash flows statement only. - income statement, retained earnings statement, cash flows statement, and balance sheet. - income statement and cash flows statement only. - income statement only.

balance sheet and cash flows statement only. Solution:When issuing a note payable in exchange for cash, the company issuing the note collects cash (which increases its assets) and increases the liabilities. Collecting cash also appears on the cash flows statement. Issuing a note payable does not affect income statement accounts (e.g., revenues and expenses). Issuing a note also does not affect retained earnings.

A certain company records wages only when it pays them. Recording the payment of wages increases stockholders' equity and decreases stockholders' equity. decreases assets and decreases stockholders' equity. increases assets and increases stockholders' equity. increases assets and decreases assets. decreases assets and decreases liabilities.

decreases assets and decreases stockholders' equity. Solution: When employees earn wages, the company incurs wage expense. Since the company records wages (i.e., wage expense) when it pays employees their wages, this transaction reduces assets (e.g., it reduces cash) and it reduces stockholders' equity (i.e., it increases wage expense which reduces retained earnings and stockholders' equity).

The effects of purchasing supplies on account on the basic accounting equation are to - decrease assets and decrease stockholders' equity. - increase assets and increase liabilities. - increase liabilities and increase stockholders' equity. - decrease assets and decrease liabilities. - increase assets and decrease assets by the same amount. Total assets do not change.

increase assets and increase liabilities. Solution: Basic accounting equation: Assets = Liabilities + Stockholders' Equity Purchasing supplies on account increases supplies (i.e., increases assets) and increases a liability account called accounts payable. Thus, asset increase and liabilities increase.

If a previously unrecorded expense is recorded when it is paid with cash recording the the transaction will decrease expenses and increase liabilities. increase expenses and decrease expenses by an equal amount. increase expenses and increase liabilities. increase expenses and increase retained earnings. increase expenses and decrease assets.

increase expenses and decrease assets. Solution: When an expense is paid with cash, cash (i.e., assets) will be decreased and expenses will be increased. Increasing expenses will reduce net income which reduces retained earnings. Liabilities will not be affected. For example, when a company pays a previously unrecorded insurance bill, it will decrease cash and increase its "insurance expense."

Borrowing cash by signing a note payable decreases the payer's liabilities and increases its stockholders' equity decreases the payer's assets and increases its liabilities. decreases the payer's assets and liabilities. decreases the payer's assets and stockholders' equity. increases the payer's assets and liabilities.

increases the payer's assets and liabilities. Borrowing cash by signing a note (i.e., issuing a note) indicates that assets increased (i.e., cash increased) and liabilities increased (i.e., notes payable increased).

If a trial balance's two columns equal one another, it indicates

the mathematical equality of debits and credits.