ACG SUMMER CH 3 QUIZ QUESTIONS

In its first month of operations, a company's cash account has total debit entries amounting to $27,500 and total credit entries amounting to $24,900. At the end of the month, the cash account has a A: 27500 debit balance B: 0 balance C: 2600 debit balance D: 2600 credit balance E: 52400 debit balance

C: 2600 debit balance (27500-24900=2600 in debit)

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 consists of three parts with one part being the account's title. The debit side is the left side of the account's T-account. An account is a source document. The credit side is the right side of the account's T-account. An account has a debit and credit side.

C: An account is a source document. account has 3 parts: title, debit/left side, credit/right side

In recording an accounting transaction in a double-entry system A: there must be more than two accounts affected by a transaction. B: all of these. C: there must always be an account on one side of the accounting equation increased and an account on the other side of the accounting equation increased. D: the number of accounts debited must equal the number of accounts credited. E: the dollar amount of the debits must equal the dollar amount of the credits.

E: the dollar amount of the debits must equal the dollar amount of the credits. atleast 2 accounts must be affected by a transaciton but doesnt have to be more than 2. transactions dont always affect both sides of the account equation (A= L + E), and the number of accounts debited wont equal the number of amounts credited all the time. however, the dollar amount of debit and credit must be equal for the account to BALANCE

Posting is the process of transferring info from the A: trial balance to financial statements B: source documents to journal C: ledger to journal D: journal to ledger E: source documents to ledger

transferring journal entries to the ledger accounts

At the start of the month, a corporation reported retained earnings of $163,000. During the month, it earned revenues of $44,000, incurred expenses of $21,000, borrowed $10,000 by signing a note payable, and paid dividends of $2,000. What is the balance in retained earnings at the end of the month? $174,000 credit $184,000 credit $142,000 credit $166,000 credit $136,000 debit

b: $184,000 credit end retained earnings = beginning retained earnings + revenue - expenses - dividends 163000 + 44000 - 21000 - 2000 =184000 retained earnings is equity account which is credit balance

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 $38,900 $36,400 $32,600 $38,400

A: 37200 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.

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 is a source document. The debit side is the left side of the account's T-account. An account has a debit and credit side. The credit side is the right side of the account's T-account. An account consists of three parts with one part being the account's title.

A: 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 describes the classification and normal balance of the unearned revenue account? It is a liability account that normally has a credit balance. It is a revenue account that normally has a credit balance. It is an equity account that normally has a debit balance .It is a revenue account that normally has a debit balance. It is an asset account that normally has a debit balance.

A: It is a liability account that normally has a credit balance. unearned revenue is a liability and liabilities are increased by credits

The name given to entering transaction data in the journal is journalizing. listing. reconciling. chronicling. posting.

A: JOURNALIZING Solution:Transactions are recorded in chronological order in journals. This step is called journalizing. This step occurs before transferring the amounts to the ledger. Journals have the following features:1. Journals discloses the complete effect of each transaction in one place.2. Journals provide a chronological record of transactions.3. Journals help prevent errors because debits and credits can be readily compared.Journals do not display T-accounts, but ledgers do display T-accounts to help track the balance of each account.

On April 1, 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 recorded on April 1? Why or why not? No, hiring an employee is an important event; however it is not an economic event that should be recorded. None of these Yes, the company is now obligated to pay the employee, thus that event must be recorded. No, the financial position of the company has been changed, but cash has not yet been paid. Yes, failure to record the event would cause the financial statements to be misleading.

A: No, hiring an employee is an important event; however it is not an economic event that should be recorded. Solution:Paying the employees a wage decreases cash (i.e., decreases assets) and increases wages expense and an increase in expenses decreases retained earnings which is an equity account. How-ever, merely hiring an employee indicates that the employee has not yet performed any services for the company and has eared no wage. Certain events, such as hiring an employee, are not transactions.

A company purchases office equipment in exchange for cash. This transaction will immediately affect the 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, balance sheet, and retained earnings statement only. income statement only.

A: balance sheet and cash flows statement only. Solution:When purchasing equipment for cash, the company pays cash (which decreases its assets) and increases its equipment (which is an asset). Thus, assets increase and decrease by the same amount. This is an asset exchange affecting the balance sheet, such as affecting how much cash is reported on the balance sheet. This also affects the cash flows statement. It does not affect income statement accounts (e.g., revenues and expenses). It also does not affect retained earnings or the retained earnings statement.

The effects of a purchase of equipment for cash on the basic accounting equation are to increase assets and decrease assets by equal amounts. increase assets and increase stockholders' equity. decrease assets and decrease stockholders' equity .increase assets and increase liabilities. decrease assets and decrease liabilities.

A: increase assets and decrease assets by equal amounts. basic accounting equation : assets = liabilities + equity

The effects of stockholders investing cash in exchange for additional shares of stock on the basic accounting equation are to increase assets and increase stockholders' equity. decrease assets and decrease stockholders' equity increase assets and increase liabilities. increase liabilities and increase stockholders' equity. decrease assets and decrease liabilities.

A: increase assets and increase stockholders' equity. Solution:Basic accounting equation: Assets = Liabilities + Stockholders' Equity A purchase of equipment for cash is recorded as an increase in equipment (which is an asset) and a decrease in cash (which is an asset). Thus, an asset exchange occurs with one asset increasing and another decreasing.

The primary purpose of the trial balance is to prove the equality of the debit and credit amounts after posting. transfer journal entries to the ledger accounts. record year-end adjusting entries. make sure a journal entry is not posted twice. disclose the complete effect of a transaction in one place.

A: prove the equality of the debit and credit amounts after posting. Solution:A trial balance lists accounts and their balances at a given point in time. Accounts are listed in the same order that they appear in the ledger, including assets, liabilities, equities, dividends, revenues, and expenses. Account balances appear in either of two columns. The left-side column reports the debit balances and the right side column reports the credit balance. A company prepares a trial balance at the end of the accounting period and before it prepares its financial statements. 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 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 more. Both total debits and total credits would be wrong by the same amount.

If a previously unrecorded expense is recorded when it is paid with cash recording the the transaction will increase expenses and decrease assets. 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.

A: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."

A company began the year with $75,000 in its common stock account and a credit balance in retained earnings of $24,000. During the year, the company earned net income of $35,000 and declared and paid $10,000 of dividends. In addition, the company sold additional common stock amounting to $15,000. Based on this information, what is the ending total of stockholders' equity? $124,000 $139,000 $64,000 $149,000 $134,000

B: $139,000 common stock (75000 +15000) + retained earnings (24000+35000-10000)

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 $23,000 credit. $18,000 credit. $0. $23,000 debit. $18,000 debit.

B: 18000 CREDIT Solution:Ending retained earnings = Beginning retained earnings + Revenues - Expenses - DividendsEnding retained earnings = $0 + 45,000 - 22,000 - 5,000 = $18,000Retained 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.

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? All of these can be a correct way to complete the transaction. Debit a different asset account for $300. Credit a different liability account for $300. None of these can be a correct way to complete the transaction. Credit a stockholders' equity account for $300.

B: 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.

A trial balance would only help in detecting which one of the following errors? A journal entry that is posted twice For a given transaction, the account that should have been debited was debited but no account was credited A trial balance would help detect all of these errors. A debit to retained earnings was debited to common stock by mistake For a given transaction, the account that should have been debited was credited and the account that should have been credited was debited

B: For a given transaction, the account that should have been debited was debited but no account was credited -doesnt prove that all transactions have been recorded, it just shows if both sides are equal. so even if you post something twice or missed something, credit and debit would still be equal even tho you journaled it wrong

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

B: assets increase and liabilities increase. Solution: Receiving cash from a customer before the company provides the merchandise or performs services being sold to the customer creates an obligation or a liability to the company. We call this liability "unearned revenue." Liabilities increase and assets (i.e., cash) increase.

Paying a dividend decreases assets and liabilities. decreases assets and stockholders' equity .increases assets and stockholders' equity. decreases liabilities and increases stockholders' equity. increases stockholders' equity and decreases stockholders' equity by equal amounts.

B: decreases assets and stockholders' equity paying dividend means assets (cash) is decreased and dividends increase. dividends reduce retained earnings which is a stockholders equity accound

A list of accounts and their balances at a given time is called a(n) income statement. trial balance .journal. posting. chart of accounts.

B: trial balance

Prior to recording its closing entries, a company has the following accounts and account balances at the end of its first year: Accounts payable, $1,000 Cash, $15,000 Common stock, Not given Dividends, $2,000 Expenses, $15,000 Notes payable, $4,000 Prepaid insurance, $2,000 Revenues, $20,000 What is the balance of its common stock account at the end of the first year? $7,000 $3,000 $9,000 $13,000 $8,000

C: 9,000 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 earningsWilson's assets include cash and prepaid insurance (i.e., 15,000 + 2,000 = 17,000).Wilson's liabilities include accounts payable and notes payable (i.e., 1,000 + 4,000 = 5,000).This is Wilson Company's first year. Its retained earnings at the start of the first year is zero. Retained earnings increases by 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 + 20,000 - 15,000 - 2,000 = 3,000).Assets = liabilities + retained earnings + common stockCommon stock = Assets - liabilities - retained earningsCommon stock = 17,000 - 5,000 - 3,000Common stock = 9,000

Which of the following is the correct sequence of events in the recording process? Analyze a transaction; post it to the ledger; record it in the journal Post the transaction to the ledger; analyze the transaction; record it in the journal Analyze a transaction; record it in the journal; post it to the ledger None of the answer choices provides the correct sequence Record a transaction in the journal; analyze the transaction; post it to the ledger

C: Analyze a transaction; record it in the journal; post it to the ledger Solution:The recording process does steps in a certain order and the steps are called the accounting cycle. The first step is to identify & analyze each transaction using source documents to determine its effects on the company's accounts. Examples of source documents include a bill or invoice, a cash register document, and a sales slip. The second step is to enter or record the transaction in the journal (i.e., journalize the transaction); the journal is also called the book-of-original entry. Third, transfer the journal information to the appropriate accounts in the ledger (i.e., post it to the ledger). Fourth, after recording all of the transactions prepare a trial balance (also called an unadjusted trial balance).

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 purchase of supplies was posted twice. a $500 payment of an account payable was debited to Accounts Payable for $50 and credited to Cash for $500. a $50 cash dividend was debited to Dividends for $500 and credited to cash for $500. a $500 collection of cash was not posted.

C: a $500 payment of an account payable was debited to Accounts Payable for $50 and credited to Cash for $500. 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.

If a company receives cash from an owner in exchange for shares of the company's common stock, then assets increase and stockholders' equity decreases. assets increase and liabilities increase. assets increase and stockholders' equity increases. assets increase and liabilities decrease. assets decrease and liabilities increase.

C: assets increase and stockholders' equity increases. Solution:Receiving cash from stockholders as an investment in the company by stockholders is a contribution to capital. This transaction increases the company's cash by the amount of cash received and it increases the company's stockholders' equity (specifically, it increases the common stock account).

A company pays employees' salaries. This transaction will immediately affect the retained earnings statement and cash flows statement only. retained earnings statement, cash flows statement, and balance sheet only. balance sheet, income statement, retained earnings statement, and cash flows statement. income statement and retained earnings statement only. income statement and cash flows statement only.

C: balance sheet, income statement, retained earnings statement, and cash flows statement. paying cash to employees decreases cash which affects the balance sheet. the salaries expense lower net income on the income statement and expenses lower Retained earnings on the RE statement and balance sheet. paying salaries is cash outflow so it affects cash flow statement.

Paying an expense when it is incurred A: decreases assets and liabilities. B: increases liabilities and decreases stockholders' equity. C: decreases stockholders' equity and assets. D: decreases revenues and assets. E: decreases liabilities and increases stockholders' equity.

C: decreases stockholders' equity and assets. Paying indicates that assets decreased (i.e., cash was paid so it decreased). Expenses are the cost of assets consumed or services used in the process of generating revenues. Examples of expenses include rent expense, insurance expense, cost of goods sold, and interest expense. Expenses reduce net income, and they reduce retained earnings. Retained earnings is a stockholders' equity account so expenses reduce stockholders' equity.

At the start of the month, a corporation reported retained earnings of $163,000. During the month, it earned revenues of $44,000, incurred expenses of $21,000, borrowed $10,000 by signing a note payable, and paid dividends of $2,000. What is the balance in retained earnings at the end of the month? $166,000 credit $142,000 credit $136,000 debit $184,000 credit $174,000 credit

D: 184000 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 = $163,000 + $44,000 - 21,000 − 2,000 = $184,000 Retained earnings normally has a credit balance. This is a profitable company, so its retained earnings balance would be a credit balance. Note: signing a note increased notes payable (i.e., liabilities) and increased cash (i.e., assets); borrowing money did not affect net income or retained earnings.

During its first year, a corporation earned revenues of $135,000 and incurred expenses of $87,000. The corporation also paid cash dividends of $10,000 and purchased $25,000 of equipment in exchange for cash during the first year. What is the balance in the company's retained earnings account at the end of its first year? A debit balance of $33,000. A credit balance of $33,000 A credit balance of $23,000 A credit balance of $38,000 A debit balance of $38,000

D: A credit balance of $38,000 end retained earnings = beginning retained earnings + revenue - expenses - dividends 0 + 135000 - 87000 - 10000 = 38000 retained earnings has a credit balance, its an equity account

Payment of a dividend decreases cash and increases stockholders' equity. increases cash and increases stockholders' equity .increases expenses and decreases cash. decreases cash and decreases retained earnings. increases retained earnings and increases expenses.

D: decreases cash and decreases retained earnings. payment of dividends reduces cash and increases dividends. dividends closing at end of year will cause retained earnings to decrease

A company had a transaction that increased its assets by $3,000 and increased its liabilities by $3,000. This transaction could have been a repayment of a $3,000 account payable. payment of a $3,000 dividend. payment of $3,000 of salaries to officers. purchase of supplies for $3,000 on account. issuance of $3,000 common stock.

D: purchase of supplies for $3,000 on account. Solution The basic accounting equation is Assets = Liabilities + Equity; it must always balance.A $3,000 increase in assets combined with a $3,000 increase in liabilities keeps the accounting equation in balance. Purchasing assets on account increases assets and liabilities. For example, purchasing supplies on account means that the seller will be paid later.3,1,2

A company began the year with $122,000 in its common stock account and a credit balance in retained earnings of $44,000. During the year, the company earned net income of $64,000 and declared and paid $13,000 of dividends. In addition, the company sold additional common stock amounting to $28,000. Based on this information, what is the ending total of stockholders' equity? $258,000 $150,000 $217,000 $95,000 $245,000

E: $245,000 Ending contribution capital = Beginning contributed capital + additional stock issued Ending contributed capital = 122,000 + 28,000 = 150,000 Ending retained earnings = Beginning retained earnings + net income - dividends Ending retained earnings = 44,000 + 64,000 - 13,000 = 95,000 Total equity = contributed capital + retained earnings Total equity = 150,000 + 95,000 = 245,000

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? $38,900 $36,400 $32,600 $38,400 $37,200

E: $37,200 sum of debits = 3700 + 13100 + 1200 +1700 +17500 = 37200 sum of credits = 3000 + 4600 + 4200 +1400 +2400 = 37200 so debits = credits = 37200

Prior to recording its closing entries, a company has the following accounts and account balances at the end of its first year: Accounts payable, $3,000 Cash, $19,000 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 retained earnings at the start of its second year? $3,000 $7,000 $9,000 $13,000 $8,000

E: $8000 end retained earnings = beginning retained earnings + revenue - expenses - dividends 0 + 23000 - 14000 - 1000 =8000

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 $64,000 credit balance. $64,000 debit balance. $22,000 credit balance. $34,000 debit balance. $22,000 debit balance.

E: 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.