Financial Accounting Chapter 2 Textbook Multiple Choice Questions

13. (LO 4) 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. A trial balance is a list of accounts with their balances at a given time. The other choices are incorrect because (b) the trial balance does not prove that journalized transactions are mathematically correct; (c) if a journal entry is posted twice, the trial balance will still balance; and (d) the trial balance does not prove that all transactions have been recorded.

12. (LO 3) Before posting a payment of $5,000, the Accounts Payable of Chola Corporation had a normal balance of $18,000. The balance after posting this transaction was: a. $13,000. b. $5,000. c. $23,000. d. Cannot be determined.

a. The balance is $13,000 ($18,000 normal balance − $5,000 payment), not (b) $5,000 or (c) $23,000. Choice (d) is incorrect because the balance can be determined.

7. (LO 2) Which of the following statements about a journal is false? a. It is not a book of original entry. 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 in one place the complete effect of a transaction.

a. The journal is a book of original entry. The other choices are true statements.

1. (LO 1) Which of the following statements about an account is true? a. The right side of an account is the debit, or increase, side. 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 left side of an account is the credit, or decrease, side.

b. An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. The other choices are incorrect because (a) the right side of the account is the credit side, not the debit side, and can be the increase or the decrease side, depending on the classification of the account; (c) there are also separate accounts for different stockholders' equity items; and (d) the left side of the account is the debit side, not the credit side, and can be either the decrease or the increase side, depending on the specific classification of the account.

6. (LO 1) Which of the following is not part of the recording process? a. Analyzing transactions. b. Preparing an income statement. c. Entering transactions in a journal. d. Posting journal entries.

b. Preparing an income statement is not part of the recording process. Choices (a) analyzing transactions, (c) entering transactions in a journal, and (d) posting journal entries are all part of the recording process.

9. (LO 3) The order of the accounts in the ledger is: a. assets, revenues, expenses, liabilities, common stock, dividends. b. assets, liabilities, common stock, dividends, revenues, expenses. c. common stock, assets, revenues, expenses, liabilities, dividends. d. revenues, assets, expenses, liabilities, common stock, dividends.

b. The correct order of the accounts in the ledger is assets, liabilities, common stock, dividends, revenues, expenses. The other choices are incorrect because they do not reflect this order. The order of the accounts in the ledger is (1) balance sheet accounts: assets, liabilities, and stockholders' equity accounts (common stock and dividends), and then (2) income statement accounts: revenues and expenses.

10. (LO 3) A ledger: a. contains only asset and liability accounts. b. should show accounts in alphabetical order. c. is a collection of the entire group of accounts maintained by a company. d. is a book of original entry.

c. A ledger is a collection of all the accounts maintained by a company. The other choices are incorrect because a ledger (a) contains all account types—assets, liabilities, stockholders' equity, revenue, and expense accounts—not just asset and liability accounts; (b) usually shows accounts in account number order, not alphabetical order; and (d) is not a book of original entry because entries made in the ledger come from the journals (the books of original entry).

2. (LO 1) 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. Debits increase assets but they decrease liabilities. The other choices are incorrect because debits (a) decrease, not increase, liabilities; (b) increase, not decrease, assets; and (d) increase, not decrease, assets and decrease, not increase, liabilities.

8. (LO 2) The purchase of supplies on account should result in: a. a debit to Supplies Expense and a credit to Cash. b. a debit to Supplies Expense and a credit to Accounts Payable. c. a debit to Supplies and a credit to Accounts Payable. d. a debit to Supplies and a credit to Accounts Receivable.

c. The purchase of supplies on account results in a debit to Supplies and a credit to Accounts Payable. The other choices are incorrect because the purchase of supplies on account results in (a) a debit to Supplies, not Supplies Expense, and a credit to Accounts Payable, not Cash; (b) a debit to Supplies, not Supplies Expense; and (d) a credit to Accounts Payable, not Accounts Receivable.

15. (LO 4) The trial balance of Stevens Corporation had accounts with the following normal balances: Cash $5,000, Service Revenue $85,000, Salaries and Wages Payable $4,000, Salaries and Wages Expense $40,000, Rent Expense $10,000, Common Stock $42,000, Dividends $13,000, and Equipment $61,000. In preparing a trial balance, based on these amounts only, the total in the debit column is: a. $116,000. b. $118,000. c. $129,000. d. $131,000.

c. The total debit column = $5,000 (Cash) + $40,000 (Salaries and Wages Expense) + $10,000 (Rent Expense) + $13,000 (Dividends) + $61,000 (Equipment) = $129,000, not (a) $116,000, (b) $118,000, or (d) $131,000.

14. (LO 4) 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. The trial balance will not balance in this case because the debit of $1,000 to Dividends is not equal to the credit of $100 to Cash. The other choices are incorrect because (a) if a correct journal entry is posted twice, the trial balance will still balance; (b) if the purchase of supplies on account is debited to Supplies and credited to Cash, Cash and Accounts Payable will be understated but the trial balance will still balance; and (d) since the debit and credit amounts are the same, the trial balance will still balance but both Accounts Payable and Cash will be overstated.

3. (LO 1) 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. A revenue account is increased by credits. The other choices are incorrect because a revenue account (a) is increased by credits, not debits; (b) is decreased by debits, not credits; and (c) has a normal balance of a credit, not a debit.

4. (LO 1) Accounts that normally have debit balances are: a. assets, expenses, and revenues. b. assets, expenses, and common stock. c. assets, liabilities, and dividends. d. assets, dividends, and expenses.

d. Assets, dividends, and expenses all have normal debit balances. The other choices are incorrect because (a) revenues have normal credit balances, (b) common stock has a normal credit balance, and (c) liabilities have normal credit balances.

11. (LO 3) 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. Posting transfers journal entries to ledger accounts. The other choices are incorrect because posting (a) occurs after journalizing, (b) transfers journal transaction data to the ledger, and (c) is not an optional step in the recording process.

5. (LO 1) The expanded accounting equation is: a. Assets + Liabilities = Common Stock + Retained Earnings + Revenues + Expenses + Dividends. b. Assets = Liabilities + Common Stock + Retained Earnings + Revenues − Expenses + Dividends. c. Assets = Liabilities − Common Stock − Retained Earnings − Revenues − Expenses − Dividends. d. Assets = Liabilities + Common Stock + Retained Earnings + Revenues − Expenses − Dividends.

d. The expanded accounting equation is Assets = Liabilities + Common Stock + Retained Earnings + Revenues − Expenses − Dividends. The other choices are therefore incorrect.