ACCT 2001 Chapter 3

If a company performed services to customers and received cash, then... a. Assets will increase b. Liability will increase c. Liability will decrease d. Stockholders' equity will decrease

a. Assets will increase

Your firm borrowed $2,000,000 in the form of debt and issued $500,000 of common stock to expand your firm. What would be the total impact of your journal entries? a. Debit Cash $2,500,000, Credit Common Stock $500,000 and Credit Notes Payable$2,000,000. b. Credit Cash $2,500,000, Debit Common Stock $500,000 and Credit Notes Payable $2,000,000. c. Credit Cash $2,500,000, Debit Common Stock $500,000 and Debit Notes Payable $2,000,000. d. Debit Cash $2,500,000, Credit Common Stock $2,000,000 and Notes Payable $500,00.

a. Debit Cash $2,500,000, Credit Common Stock $500,000 and Credit Notes Payable$2,000,000.

When a company performs a service for which it has not been paid, it will create a(n) a. account receivable. B : account payable. C : dividend. D : liability.

a. account receivable.

________ will increase when services are performed on account. a. Liabilities b. Stockholders' equity c. The tax burden d. The cost of doing business

b. Stockholders' equity

The payment of a liability A increases both cash and accounts payable. B decreases cash and increases accounts payable. c. decreases both cash and accounts payable. D increases cash and decreases accounts payable.

c. decreases both cash and accounts payable.

Which account normally have debit balances? a. Liabilities b. Common Stock c. Revenue d. Expense

d. Expense

There must be a corresponding increase in liabilities or an increase in stockholders' equity if total assets are __________.

increased

What is the basic form of an account?

T-Account

On December 30, Mega Industries pays employee salaries of $50,000 in cash. When posting the journal entries related to this transaction, Mega's accounting staff credits Cash for $50,000 and credits Accounts Payable for $50,000. Which of the following statements best describes the results of this posting? a. In Mega's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Accounts Payable account will be too high and the ending balance for the Salaries Expense account will be too low. B : In Mega's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Accounts Payable account will be too low and the ending balance for the Salaries Expense account will be too high. C : In Mega's general ledger, the ending balance for the Cash account will be too high, while the ending balance for the Accounts Payable account will be too low. D : In Mega's general ledger, the ending balance for the Cash account will be too low, while the ending balance for the Accounts Payable account will be too high.

a. In Mega's general ledger, the ending balance for the Cash account will be correct. However, the ending balance for the Accounts Payable account will be too high and the ending balance for the Salaries Expense account will be too low.

On February 2, Miles Inc. pays $800 to purchase a one-year insurance policy that will expire next year on January 31. Miles indicates this transaction in its books by recording an $800 reduction in cash and an $800 increase in expenses. Did Miles make the proper accounting entries? Why or why not? a. No, Miles did not make the proper accounting entries. Prepaid insurance is a liability, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 increase in prepaid insurance (a liability account). B : No, Miles did not make the proper accounting entries. Prepaid insurance is a liability, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 decrease in prepaid insurance (a liability account). C : Yes, Miles made the proper accounting entries. In order to keep the accounting equation in balance, the firm had to increase its expenses and thus decrease its stockholders' equity by the same amount as it decreased its assets. D : No, Miles did not make the proper accounting entries. Prepaid insurance is an asset, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 increase in prepaid insurance (also an asset account).

a. No, Miles did not make the proper accounting entries. Prepaid insurance is a liability, not an expense. Thus, the firm should have offset the $800 decrease in cash (an asset account) with an $800 increase in prepaid insurance (a liability account).

Why is it important to examine the effects of a business transaction prior to transferring the transaction amounts to the ledger accounts? a. The examination provides information concerning the nature of the transaction's effects on specific accounts. B : The examination provides a basis for completing the necessary business documents. C : The examination provides the name of the financial statements on which the transaction amounts will appear. D : The examination provides the account names to be used when the transaction is recorded in the ledger.

a. The examination provides information concerning the nature of the transaction's effects on specific accounts.

Which of the following is true in journalizing? a. Titles of accounts must appropriately describe the content of the account. B : The credit account is entered first and indented. C : The journal entry shows the new balance in the accounts affected by the transaction. D : The date of the transaction is not shown in a complete journal entry.

a. Titles of accounts must appropriately describe the content of the account.

Of the following sets of accounting entries, which one correctly records the purchase of a piece of equipment? a. a $5,000 decrease in cash, a $15,000 increase in notes payable, and a $20,000 increase in equipment, all entered on the same date B : a $15,000 increase in cash and a $15,000 decrease in equipment, both entered on the same date C : a $14,000 decrease in cash, a $4,000 increase in notes payable, and a $10,000 increase in equipment, all entered on the same date D : a $16,000 decrease in notes payable and a $16,000 increase in equipment, both entered on the same date

a. a $5,000 decrease in cash, a $15,000 increase in notes payable, and a $20,000 increase in equipment, all entered on the same date

Which of the following is included in the journal entry for equipment purchased for $20,000 by issuing a note for the purchase? a. credit to Notes Payable B : credit to Cash C : debit to Notes Receivable D : credit to Equipment

a. credit to Notes Payable

The dividends account ____________ by $6,000 when a company pays dividends of $6,000. a. increases b. decreases

a. increases

When journalizing a transaction, a short explanation is written a. on the line following each journal entry. B : at the bottom of the ledger. C : to separate the debit and credit entries. D : on the line preceding each journal entry.

a. on the line following each journal entry.

Which of the following accounting entries would you MOST expect to accompany a $9,000 decrease in cash, and why? A : A $9,000 increase in Service Revenue, because service revenue is a liability and any decrease in a firm's assets should be offset by an equal increase in the firm's liabilities plus stockholders' equity b. A $9,000 increase in Equipment , because cash is an asset, so an equal but opposite change to another asset account such as Equipment will offset the increase to the Cash account. C : A $9,000 increase in Unearned Service Revenue, because unearned service revenue is a liability and any decrease in a firm's assets should be offset by an equal increase in the firm's liabilities plus stockholders' equity D : A $9,000 increase in Common Stock, because common stock is part of stockholders' equity and any decrease in a firm's assets should be offset by an equal increase in the firm's liabilities plus stockholders' equity

b. A $9,000 increase in Equipment , because cash is an asset, so an equal but opposite change to another asset account such as Equipment will offset the increase to the Cash account.

Which of the following statements is true? A : A debit to an asset account indicates a credit was made to a liability account. b. A debit to an asset account indicates an increase in the asset. C : A debit to an asset account indicates an error. D : A debit to an asset account indicates a decrease in the asset.

b. A debit to an asset account indicates an increase in the asset.

For September 30th, Cathy's Catering's trial balance has a debit column totaling $110. The credit column totals $128, which of the following would explain this difference? A : Accounts payable balance of $18 listed in the trial balance as $81. b. Accounts receivable balance of $75 listed in the trial balance as $57. C : Notes payable balance of $25 listed in the trial balance $52. D : Cash balance of $51 listed in the trial balance $15.

b. Accounts receivable balance of $75 listed in the trial balance as $57.

Some of the balances on Carla's Cookies June 30th trial balance include Cash $100,000, Accounts Receivable $50,000, Equipment $25,000 and Accounts Payable $75,000. During the month of July, the company used cash to purchase $8,000 of equipment. How will this transaction affect the equipment account balance on the July 31st trial balance? A : A decrease of $8,000. b. An increase of $8,000. C : A decrease of $4,000.

b. An increase of $8,000.

During 2017, Hart Company buys $5,000 of equipment on account. The impact on the accounting equation is: a. An increase to assets and decrease to liabilities. b. An increase to assets and increase to liabilities. c. A decrease to assets and increase to liabilities d. An increase to assets and increase to equity.

b. An increase to assets and increase to liabilities.

Which of the following statements about credits is true? A : Credits increase assets and decrease liabilities. b. Credits decrease assets and increase liabilities. C : Credits increase both assets and liabilities. D : Credits decrease both assets and liabilities.

b. Credits decrease assets and increase liabilities.

On January 31, Cooper Consulting uses $12,000 in cash to pay its employee salaries. When posting the journal entries related to this transaction, Cooper's accounting staff debits both the Cash account and the Salaries Expense account for $12,000. Which of the following statements best describes the results of this posting? A : In Cooper's general ledger, the ending balance for the Cash account will be correct, while the ending balance for the Salaries Expense account will be too high. b. In Cooper's general ledger, the ending balance for the Cash account will be too high, while the ending balance for the Salaries Expense account will be correct. C : In Cooper's general ledger, the ending balance for the Cash account will be too low, while the ending balance for the Salaries Expense account will be correct. D : In Cooper's general ledger, the ending balance for the Cash account will be correct, while the ending balance for the Salaries Expense account will be too low.

b. In Cooper's general ledger, the ending balance for the Cash account will be too high, while the ending balance for the Salaries Expense account will be correct.

Which of the following describes the standard form of a journal entry? A : The credit account is entered first and indented. b. The debit account is entered first at the extreme left margin. C : The debit account is entered first and indented. D : The credit account is entered first at the extreme left margin.

b. The debit account is entered first at the extreme left margin.

After conducting a financial transaction, a company's accounting staff records a $1,000 decrease in a particular asset. In order for the accounting equation to balance, the accounting staff must also record which of the following things? A : a $1,000 increase in stockholder's equity b. a $1,000 increase in a different asset C : a $1,000 increase in a particular liability D : a $1,000 decrease in a different asset coupled with a $1,000 increase in a particular liability

b. a $1,000 increase in a different asset

Birch Tree Press issues common stock for $30,000 and uses $10,000 of the cash to purchase a new printer. As a result, A : assets will be unchanged. b. assets will be increased by $30,000. C : stockholders' equity will be reduced by $30,000. D : assets will be increased by $20,000.

b. assets will be increased by $30,000.

Because dividends reduce stockholders' equity, the normal balance of the Dividends account is a ___________ balance. a. credit b. debit

b. debit

The Dividends account A : is a stockholders' equity account, so is credited to increase it. b. is a stock holders' equity account, but is debited to increase it. C : is a liability, so is credited to increase it. D : is an asset, so is debited to increase it.

b. is a stock holders' equity account, but is debited to increase it.

From among the following errors, each considered individually, choose the one that would cause the trial balance to be out of balance. A : A transaction was not posted. B : A payment of $59 for supplies was posted as a debit of $95 to Supplies and a credit of $95 to Cash. c. A payment to a creditor was posted as a $148 debit to Accounts Payable and a debit of $148 to Cash. D : Cash of $530 received from a customer on account was posted as a debit of $350 to Cash and as a credit of $350 to Accounts Payable.

c. A payment to a creditor was posted as a $148 debit to Accounts Payable and a debit of $148 to Cash.

Which of the following is a true statement? a. Debits increase assets and revenues b. Debits decrease assets and revenues c. Credits decrease assets and increase revenues d. Credits decrease assets and revenues

c. Credits decrease assets and increase revenues

Which accounts normally have credit balances? a. Assets, Revenues, Expense b. Revenues, Dividends, Liabilities c. Revenues, Stockholders' Equity, Liabitlieis d. Assets, Common Stock, Retained Earnings

c. Revenues, Stockholders' Equity, Liabitlieis

Which of the following items are considered to be accounts? A : debits and credits B : revenues and expenses c. Service Revenue and Cash D : customers and creditors

c. Service Revenue and Cash

The first step in the recording process is to A : enter the transaction in the journal. B : enter the transaction in the ledger. c. analyze the transaction. D : enter the transaction in the tabular model.

c. analyze the transaction.

What is the usual order of accounts in the general ledger? A : liabilities, assets, revenues, expenses, and dividends B : common stock, retained earnings, assets, liabilities, dividends, expenses, and revenues c. assets, liabilities, revenues, and expenses D : assets, liabilities, expenses, and revenues

c. assets, liabilities, revenues, and expenses

Which of the following would be considered an economic event that requires an accounting transaction? the hiring of a new employee B : corporate decisions about new product lines c. the purchase of new computers D : creation of prototypes to accompany a bid for work

c. the purchase of new computers

Suppose that, as a firm, you have sought to raise capital and were able to do this by issuing $750,000 of common stock and taking on a $500,000 debt. What would your journal entries be? A : Debit Cash $750,000, Credit Common Stock $1,250,000 and Credit Notes Payable $500,000. B : Debit Cash $1,250,000, Credit Common Stock $500,000 and Credit Notes Payable $750,000. C : Debit Cash $750,000, Credit Common Stock $500,000 and Credit Notes Payable $1,250,000. d. Debit Cash $1,250,000, Credit Common Stock $750,000 and Credit Notes Payable $500,000.

d. Debit Cash $1,250,000, Credit Common Stock $750,000 and Credit Notes Payable $500,000.

Suppose that a firm issues a $5,000 note payable in exchange for $5,000 of equipment. What effect would this have on the Notes Payable account? A : It would increase the account as a debit. B : It would decrease the account as a credit. C : It would decrease the account as a debit. d. It would increase the account as a credit.

d. It would increase the account as a credit.

Which of the following describes the standard form of a journal entry? A : The credit account is entered first and indented. B : The debit account is entered first and indented. C : The credit account is entered first at the extreme left margin. d. The debit account is entered first at the extreme left margin.

d. The debit account is entered first at the extreme left margin.

During October, Blue Sky Inc. correctly enters a $10,000 credit to its Revenues account. What conclusions can be made based on this accounting entry? A : This entry indicates that Blue Sky recognized $10,000 in revenue in October, which likely means that the firm's net income and ending retained earnings increased while its stockholders' equity decreased. B : This entry indicates that Blue Sky lost $10,000 in revenue in October, which likely means that the firm's net income, ending retained earnings, and stockholders' equity all decreased. C : This entry indicates that Blue Sky lost $10,000 in revenue in October, which likely means that the firm's net income and ending retained earnings decreased while its stockholders' equity increased. d. This entry indicates that Blue Sky recognized $10,000 in revenue in October, which likely means that the firm's net income, ending retained earnings, and stockholders' equity all increased.

d. This entry indicates that Blue Sky recognized $10,000 in revenue in October, which likely means that the firm's net income, ending retained earnings, and stockholders' equity all increased.

Over the course of January, Gruber Products makes cash payments of $450, $940, $280, and $600 and receives cash payments of $520, $660, $690, and $540. If the Cash account started with a $0 balance, Gruber's Cash account balance at the end of January would have a A : debit balance of $210. B : credit balance of $210. C : credit balance of $140. d. debit balance of $140.

d. debit balance of $140.

If the trial balance has total debits equal to total credits, then... a. no irregularities occurred in the reporting process. b. no errors occurred in the recording process. c. all journal entries must have been posted. d. it is possible the wrong accounts were used in the journal entry.

d. it is possible the wrong accounts were used in the journal entry.

What is a T-account? A : a special account used instead of a trial balance B : a special account form used instead of the basic form C : a way of organizing information for current assets d. the basic form of an account that aligns information in three parts

d. the basic form of an account that aligns information in three parts

Which of the following steps is NOT included in preparing a trial balance? A : listing the account titles and their balances B : verifying the equality of the two columns C : totaling the debit and credit columns d. transferring journal amounts to ledger accounts

d. transferring journal amounts to ledger accounts

Irregular entries represent... a. an incorrect title in an entry. b. transposition of numbers in an entry. c. transactions that occur infrequently. d. an unethical misstatement.

d. an unethical misstatement.

What is a list of accounts and their balances at a given time called? a. trial balance B : income statement C : journal D : posting

a. trial balance

In which of the following cases will a trial balance not balance? A : when a correct journal entry is posted twice B : when a $300 payment on accounts payable is debited to Accounts Payable for $30 and credited to Cash for $30 c. when a $50 cash dividend is debited to Dividends for $500 and credited to Cash for $50 D : when a transaction is not posted at all

c. when a $50 cash dividend is debited to Dividends for $500 and credited to Cash for $50

On January 14, Welsford Agency purchased supplies of $500 on account. The entry to record the purchase will include a debit to A : Supplies Expense and a credit to Accounts Receivable. B : Supplies and a credit to Cash. C : Accounts Receivable and a credit to Supplies. d. Supplies and a credit to Accounts Payable.

d. Supplies and a credit to Accounts Payable.

Assets, expenses, and dividends normally have a ________ balance.

debit