Chapter 3

If an expense is paid with cash A.assets will decrease. B.retained earnings will increase. C.liabilities will increase. D.expenses will decrease.

A. assets will decrease. When an expense is paid with cash, cash (an asset) will be decreased.

Expenses decrease retained earnings. A.True B.False

A. True The costs that a firm incurs when operating its business cause retained earnings to decrease.

Which of the following is not one of the primary types of the financing activities in the statement of cash flows? A.Buying equipment B.Borrowing money C.Issuing shares of stock D.Paying dividends

A.Buying equipment Buying equipment is a part of the investing activities of a firm.

Which of these statements about a journal is false? A.It contains only revenue and expense accounts. B.It provides a chronological record of transactions. C.It helps to locate errors because the debit and credit amounts for each entry can be readily compared. D.It discloses the complete effect of a transaction in one place.

A.It contains only revenue and expense accounts. A journal contains entries affecting all accounts, not just revenue and expense accounts.

Which of the following is not a part of a complete journal entry? A.The balance of each account affected by the transaction B.The accounts and amounts to be debited and credited C.The date of the transaction D.A brief explanation of the transaction

A.The balance of each account affected by the transaction The current balance of an account is not needed when making journal entries.

Every transaction affects at least two accounts. A.True B.False

A.True There must be at least one debit, and one credit account.

Transactions are recorded in chronological order in the journal. A.True B.False

A.True The journal is an accounting record in which transactions are initially recorded in chronological order.

Which of the following is one of the issues that the SEC said should be considered in deciding if the United States should adopt IFRS? A.Whether IFRS is sufficiently developed and consistent in applications B.Whether IFRS modifies its structure to agree with current U.S. GAAP C.Whether IFRS will eliminate U.S. GAAP D.Whether U.S. citizens will vote to accept IFRS

A.Whether IFRS is sufficiently developed and consistent in applications A complete set of standards and consistent application is crucial.

During 2014, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity A.increased $40,000. B.decreased $140,000. C.decreased $40,000. D.increased $140,000.

A.increased $40,000. Since assets only decreased $50,000, and liabilities decreased by $90,000, stockholders' equity has to increase by $40,000 to keep the accounting equation balanced

Receipt of an unearned revenue A.increases an asset; increases a liability. B.increases an asset; increases a revenue. C.decreases a liability; increases stockholders' equity. D.decreases a revenue; increase stockholders' equity.

A.increases an asset; increases a liability. The liability will decrease when the service or product is provided and stockholders' equity will increase through net income into retained earnings.

A trial balance A.is a list of accounts with their balances at a given time. B.proves the mathematical accuracy of journalized transactions. C.will not balance if a correct journal entry is posted twice. D.proves that all transactions have been recorded.

A.is a list of accounts with their balances at a given time. A trial balance is a list of accounts with their balances at a given time.

Transactions are initially recorded in chronological order in a __________ before they are transferred to the accounts. A.journal B.register C.ledger D.T account

A.journal The transaction is first recorded in a journal, and then posted to a ledger.

If an account is debited in the journal entry, then A.that account will be debited in the ledger. B.that account will be credited in the ledger. C.that account will be both debited and credited in the ledger. D.The transactions will not balance.

A.that account will be debited in the ledger. If the account is debited in the journal entry, that account will be debited in the posting process.

What journal entry is recorded as a result of issuing stock to investors for cash? A.A debit to Common Stock and a credit to Cash B.A debit to Cash and a credit to Common Stock C.A debit to Cash and a credit to Retained Earnings D.A credit to Cash and a debit to Retained Earnings

B.A debit to Cash and a credit to Common Stock Issuing stock for cash is recorded by debiting Cash and crediting Common Stock.

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 consists of three parts. D.An account has a title.

B.An account is a source document. An account has three basic parts - a title, a debit side, and a credit side, but it is not a source document.

Which statement about an account is true? A.In its simplest form, an account consists of two parts. B.An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. C.There are separate accounts for specific assets and liabilities but only one account for stockholders' equity items. D.The right side of an account is the debit side.

B.An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. An account is an individual record of specific account detail.

Which of the following events is not recorded in the accounting records? A.Equipment is purchased on account. B.An employee is terminated. C.A cash investment is made into the business. D.The owner withdraws cash for personal use.

B.An employee is terminated. Termination of an employee is not a recordable event in the accounting records.

Which of the following is the correct sequence of events? A.Analyze a transaction; post it to the ledger; record it in the journal B.Analyze a transaction; record it in the journal; post it to the ledger C.Record a transaction in the journal; analyze the transaction; post it to the ledger D.None of the answer choices provides the correct sequence

B.Analyze a transaction; record it in the journal; post it to the ledger The sequence is to analyze the event, record it, and then post it to the ledger.

An account has $300 on the debit side and $900 on the credit side. How much is the account balance? A.Debit of $600 B.Credit of $600 C.Credit of $900 D.Debit of $1,200

B.Credit of $600 When credits are greater than debits, credits minus debits results in a credit balance of $600. The debit of $300 is subtracted from the credit of $900, which results in a credit of $600.

Assets are increased by credits. A.True B.False

B.False Assets are increased by debits, which are additions to the left side of the T-account.

Issuance of stock is an investing activity. A.True B.False

B.False Issuance of stock is a financing activity.

The entire group of accounts maintained by a company is referred to collectively as the journal. A.True B.False

B.False The entire group of accounts maintained by a company is referred to collectively as the ledger.

Every account has a left or credit side and a right or debit side. A.True B.False

B.False The left side is the debit side while the right side is the credit side.

In what section of the statement of cash flows would the purchase of office equipment for $10,000 cash appear? A.Operating activities B.Investing activities C.Financing activities D.In the notes to the statement of cash flows

B.Investing activities The purchase of long-lived assets is considered an investing activity.

Which of the following is the correct sequence of events? A.Prepare a trial balance; journalize; post B.Journalize; post; prepare a trial balance C.Post; journalize; prepare a trial balance D.Prepare a trial balance; post; journalize

B.Journalize; post; prepare a trial balance The proper sequence of events is to journalize the transaction, post the journal entries to the ledger, and prepare a trial balance

Which is not part of the recording process? A.Analyzing transactions B.Preparing a trial balance C.Entering transactions in a journal D.Posting transactions

B.Preparing a trial balance Posting transactions is the last step in the recording process.

Genesis Company buys equipment for $900 machine on credit. This transaction will immediately affect the A.income statement only. B.balance sheet only. C.income statement and retained earnings statement only. D.income statement, retained earnings statement, and balance sheet.

B.balance sheet only. When equipment is purchased on credit, assets are increased and liabilities are increased. These are both balance sheet accounts.

The effect on the basic accounting equation of performing services for cash are to A.increase assets and decrease stockholders' equity. B.increase assets and increase stockholders' equity. C.increase assets and increase liabilities. D.increase liabilities and increase stockholders' equity.

B.increase assets and increase stockholders' equity. When services are performed for cash, assets are increased and stockholders' equity is increased.

Which of the following differs somewhat under IFRS compared to U.S. GAAP? A.The trial balance B.name for the balance sheet. C.Definitions of assets and liabilities D.The double-entry accounting system

B.name for the balance sheet. The double-entry accounting system is the same under IFRS.

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.the new balance in the accounts affected by the transaction. A journal entry requires a date (for a chronological record), at least one debited account followed by at least one credited account, equal debit and credit values, and a brief explanation.

Accounts are listed on the trial balance in A.chronological order. B.the order that they appear in the ledger. C.alphabetical order. D.the order in which they are posted.

B.the order that they appear in the ledger. Accounts will appear in the trial balance in the same order that they appear in the ledger.

On. Jan. 10, Novis Company purchased manufacturing equipment for $80,000 cash. What kind of activity is this? A.Operating activity B.Financing activity C.Investing activity D.Accrual activity

C.Investing activity

What is evidence that a transaction has occurred? A.Journal B.Ledger C.Source document D.Anyone of the answer choices can be considered evidence.

C.Source document Only source documents represent evidence that a transaction has occurred.

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 dividend is debited to Dividends 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 dividend is debited to Dividends for $1,000 and credited to Cash for $100. The entry will cause the trial balance to be out of balance.

What does a general ledger of a company contain? A.Asset and liability accounts only B.Asset, and stockholders' equity accounts only C.All the asset, liability, stockholders' equity, revenue, and expense accounts D.Revenue and expense accounts only.

C.All the asset, liability, stockholders' equity, revenue, and expense accounts A general ledger lists all of the accounts of a company. These are the asset, liability, stockholders' equity, revenue, and expense accounts.

If total liabilities increase by $5,000 then A.assets decrease by $5,000. B.stockholders' equity increase by $5,000. C.assets increase by $5,000, or stockholders' equity decrease by $5,000. D.assets and stockholders' equity each increase by $2,500.

C.assets increase by $5,000, or stockholders' equity decrease by $5,000. accounting equation Assets = Liabilities + Stockholders' Equity. If assets increase on the left of equation and liabilities increase by the same amount on the right it will balance. stockholders' equity decreases on the right and liabilities increase by the same amount on the right equation will balance.

When a trial balance balances, it is an indication that A.all journal entries have been posted. B.the account balances are correct. C.debits equal credits. D.all transactions have been journalized.

C.debits equal credits. When the trial balance balances, it simply means that all of the debits equal all of the credits as term-43shown in the document.

Payment of a dividend A.increases expenses; decreases cash. B.decreases cash; increases stockholders' equity. C.decreases cash; decreases retained earnings. D.increases retained earnings; increases expenses.

C.decreases cash; decreases retained earnings. Payment of dividends reduces both cash and retained earnings.

Retained earnings is decreased by A.revenues. B.assets. C.expenses. D.owner's investments.

C.expenses The costs that a firm incurs when operating its business (expenses) cause retained earnings to decrease.

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. All assets increase with debits. All liabilities increase with credits.

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

C.liabilities will increase. A liability such as unearned revenue will increase and cash (an asset) will also increase.

At September 1, 2014, Five-O Inc. reported retained earnings of $136,000. During the month, Five-O generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the balance in retained earnings at September 30, 2014? A.$136,000 debit B.$8,000 credit C.$137,000 credit D.$142,000 credit

D.$142,000 credit First net income is calculated as revenues of $20,000 (Cr.) less expenses of $12,000, which is $8,000. Then the beginning balance of Retained Earnings, $136,000 (Cr.) plus net income of $8,000 less dividends of $2,000 (Dr.) results in the ending balance of retained earnings of $142,000 (Cr.).

Which accounts normally have debit balances? A.Assets, expenses, and revenues B.Assets, expenses, and retained earnings C.Assets, liabilities, and dividends D.Assets, dividends, and expenses

D.Assets, dividends, and expenses Assets, dividends and expenses have normal debit balances.

What is the appropriate order for a company's chart of accounts? A.Assets, liabilities, revenues, expenses, stockholders' equity B.Assets, revenues, expenses, liabilities, stockholders' equity C.Assets, liabilities, stockholders' equity, expenses, revenue D.Assets, liabilities, stockholders' equity, revenues, expenses

D.Assets, liabilities, stockholders' equity, revenues, expenses The order of the accounts in the chart of accounts follows the order of the sections of the balance sheet and income statement, namely assets, liabilities, stockholders' equity, revenues, and expenses.

What effects occur when an account payable is paid with cash? A.Decreases stockholders' equity and decreases liabilities B.Increases assets and decreases liabilities C.Decreases assets and increases stockholders' equity D.Decreases assets and decreases liabilities

D.Decreases assets and decreases liabilities Cash, an asset, will decrease. Accounts payable, a liability, will decrease.

Which statement is true concerning IFRS? A.IFRS will change the way transactions are recorded. B.IFRS will change the format of the trial balance. C.IFRS will cause companies to report less profit than under U.S. GAAP. D.IFRS may differ somewhat in principles from U.S. GAAP.

D.IFRS may differ somewhat in principles from U.S. GAAP. There may be some differences between IFRS and U.S. GAAP.

Where is the first place every transaction is recorded? A.In the ledger B.In the respective accounts C.In the basic accounting equation D.In the journal

D.In the journal An account is a specific location to record the information regarding individual accounts such as cash or accounts payable.

What type of account is unearned revenue? A.Asset B.Revenue C.Expense D.Liability

D.Liability The unearned revenue account is classified as a liability. Unearned revenues are payments for future services to be performed or goods to be delivered. Until a company performs the services or delivers the goods, the amount is owed to the party that made the payment.

If a company receives cash from a customer before performing services for the customer, then A.assets increase and liabilities decrease. B.assets increase and stockholders' equity increases. C.assets decrease and liabilities increase. D.assets increase and liabilities increase.

D.assets increase and liabilities increase. When cash is received from a customer, the asset Cash increases, not decreases, and a liability such as Unearned Revenues increases.

Accounts with normal debit balances include A.assets and liabilities. B.liabilities and expenses. C.stockholders' equity and revenues. D.expenses and assets.

D.expenses and assets. Expenses and assets both have normal debit balances.

A revenue account A.is increased by debits. B.is decreased by credits. C.has a normal balance of a debit. D.is increased by credits.

D.is increased by credits. Revenues are increased by credits.

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.

D.the mathematical equality of the accounting equation. A trial balance where debits equal credits simply states the mathematical equality of the accounting equation. Errors can still exist

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. Posting transfers journal entries to ledger accounts.

Accounts with normal credit balances include A.assets and liabilities. B.revenues and expenses. C.liabilities and stockholders' equity. D.revenues and assets.

c.liabilities and stockholders' equity. Liabilities and stockholders' equity accounts both have normal credit balances.