acg 2021 chapter 3 quiz

What does a general ledger of a company contain?

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

Which of the following best describes a chart of accounts

A chart of accounts is the list of the accounts in a given firm's ledger.

Which of these statements about a journal is false?

It contains only revenue and expense accounts.

What type of account is unearned revenue?

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.

On March 1, Freidman Company hires a new employee who will start to work on March 6. 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.

Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?

No, revenue cannot be recognized until the work is performed

Which of the following events is not recorded in a company's accounting records? -Issuing a note in exchange for cash -The owner withdraws cash for personal use. -A collection of cash in advance from a customer. -Discussing with a customer the services a company offers. -Performs services for a customer on account.

Discussing with a customer the services a company offers.

A trial balance would only help in detecting which one of the following errors?

For a given transaction, the account that should have been credited was credited but no account was debited

If a company records wages when it pays them, then recording the payment of wages

decreases assets and decreases stockholders' equity.

Employees have worked for one week and have earned $5,000 in wages. The company does not record wages until they are paid. Recording the payment of wages

decreases assets and decreases stockholders' equity. -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).

Paying a dividend

decreases assets and stockholders' equity. -Paying a dividend indicates that assets decreased (i.e., cash decreased) and dividends increased. Dividends represent a distribution from stockholders. Dividends reduce retained earnings. Retained earnings is a stockholders' equity account.

Payment of a dividend

decreases cash and decreases retained earnings.

Payment of a dividend

decreases cash and decreases retained earnings. -Payment of dividends reduces cash and increases dividends. Dividends is a temporary account that will be closed at the end of the period (such as a year) and closing it will cause retained earnings to decrease.

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the opposite manner?

dividends and retained earnings -Assets, expenses, and dividends are increased by dividends, and liabilities equities, and revenues are increased with credits. Dividends are increased with debits, and retained earnings are increased with credits

An investment by the stockholders in a company increases the company's

assets and stockholders' equity. -A cash investment from stockholders indicates that assets increased (i.e., cash increased) and stockholders' equity increased (i.e., common stock increased).

If a company borrows money from a bank, then

assets increase and liabilities increase -issuing a note means that the company is borrowing money and signing a note payable as evidence of the loan. When a company borrows money by issuing a note, it receives cash but it also creates an obligation or a liability. This, assets increase because cash increases, and liabilities increase because notes payable increases.

If a company receives cash from a customer before performing services for the customer, then

assets increase and liabilities increase.

If a company buys supplies on account, then

assets increase and liabilities increase. -Buying supplies indicates that supplies are acquired, and supplies are assets so assets increase. Buying "on account" indicates that cash has not been paid. Rather, a liability is created for the amount owed. This transaction increases an asset (i.e., supplies) and increases a liability (i.e., accounts payable). Stockholders' equity is not affected.

Powell Company provided consulting services and collected $500 for the services provided. As a result of this transaction

assets increased and decreased by the same amount. Total assets remained unchanged. -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. Total assets is unchanged.

Carpenter Company receives cash in advance from customers. This transaction will immediately affect the

balance sheet and cash flows statement only.

Carpenter Company pays the coming year's one-year insurance policy. This transaction will immediately affect the

balance sheet and cash flows statement only. -When a company pays the coming year's insurance policy, it decreases cash which affects the balance sheet and the cash flows statement. Payments of expenses that will benefit more than the current accounting period are recorded as assets called prepaids, such as prepaid insurance. This transaction is an asset exchange (i.e., cash is exchanged for prepaid insurance). There is no insurance expense until later when the policy expires.

Accounts with normal debit balances include

expenses and assets

Buying supplies in exchange for cash

increases assets and decreases assets.

Which of the following is evidence that a transaction has occurred that needs to be recording in a company's accounting records?

Source document

If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates -the mathematical equality of the accounting equation - no errors can be discovered by any means. -that all accounts reflect correct balances. -every transaction has been recorded. -no errors have been made

the mathematical equality of the accounting equation. -A trial balance where debits equal credits simply states the mathematical equality of the accounting equation. If the trial balance' debits equals credits, errors can still exist (e.g., perhaps a company's accountant forgot to record a transaction causing debits and credits to both be wrong by the same amount).

Accounts are listed on the trial balance in

the order that they appear in the ledger.

Paying for a one-year insurance policy that will expire next year

increases assets and decreases assets. -Paying for a one-year insurance policy reduces the company's cash so assets decrease. In exchange for the cash, the company receives insurance coverage that will benefit the company for the next 12 months, and that coverage is an asset. So, assets increase and decrease by equal amounts, and liabilities and stockholders' equity are not affected.

Issuing a 3-month, 10%, $10,000 note

increases assets and increases liabilities.

Accounts with normal credit balances include

liabilities and stockholders' equity. -Certain accounts normally have debit balances, including assets, expenses, and dividends. Liabilities, equities, and revenues normally have credit balances.

If cash is received from owners as an investment by stockholders

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

If an account is debited in the journal entry, then

that account will be debited in the ledger -Posting transfers journal entry amounts to ledger accounts. If the account is debited in the journal entry, that account will be debited in the posting process.

A trial balance will balance even if - a $1,000 journal entry was posted twice. -a $1,000 cash payment for supplies was debited to the Supplies account for $1,000 and credited to the Cash account for $100. -both accounts affected by a $1,000 transaction were debited. -None of these -the account that should be debited was credited and the account that should be credited was credited.

a $1,000 journal entry was posted twice. -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.

Posting

transfers journal entry amounts to ledger accounts

At the start of the month, Hawaii Inc. reported retained earnings of $136,000. During the month, Hawaii 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 the end of the month?

$142,000 credit -Ending retained earnings = Beginning retained earnings + revenues for the current period - expenses for the current period - dividends for the current period. Ending retained earnings = $136,000 + $20,000 - 12,000 − 2,000 = $142,000 Retained earnings normally has a credit balance. This is a profitable company, so its retained earnings balance would be a credit balance. Note: Purchasing equipment increased equipment (i.e., assets) and either decreased cash (i.e., assets) or increased notes payable (i.e., liabilities); purchasing equipment did not affect net income or retained earnings.

Jarrell Company began the year with $109,000 in its Common Stock account and a debit balance in Retained Earnings of $14,000. During the year, the company earned net income of $33,000 and declared and paid $5,000 of dividends. In addition, the company sold additional common stock amounting to $37,000. Based on this information, what is the ending stockholders' equity?

$160,000 -Ending retained earnings = Beginning retained earnings + net income - dividends. Ending retained earnings = $14,000 (debit balance) + $33,000 (i.e., credit Retained Earnings because of net income) - 5,000 (i.e., debit Retained Earnings because of dividends) = $14,000 (i.e., the $15,000 ending balance in Retained Earnings account is a credit balance). Ending common stock = beginning common stock + additional common stock issued Ending common stock = $109,000 + 37,000 = $146,000 Ending stockholders' equity = ending common stock + ending retained earnings. Ending stockholders' equity = $146,000 + $14,000 = $160,000

At the start of the month, Hawaii Inc. reported retained earnings of $154,000. During the month, Hawaii generated revenues of $35,000, incurred expenses of $20,000, 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 -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.

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

$2,600 debit balance.

At the start of the month, Acme Enterprises reported a $34,000 debit balance in its cash account. During the month, Acme collected cash of $30,000 and made disbursements of $42,000. At the end of the month, the cash balance is

$22,000 debit (ending cash balance = beginning cash balance + cash receipts occurring during the period - cash payments occurring during the period so 34,000 + 30,000 - 42,000 = 22,000)

Wilson Company has the following accounts and account balances at the end of its first year: Accounts payable, $3,000 Cash, $15,000 Common stock, ? 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 -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 stock Common stock = Assets - liabilities - retained earnings Common stock = 18,000 - 7,000 - 8,000 Common stock = 3,000

Barnes Company's financial records report the following accounts and balances at the end of the year: Accounts Payable..................... $ 3,200 Accounts Receivable................. 3,900 Cash............................................. 13,300 Common Stock........................... 4,800 Dividends.................................... 1,400 Interest expense........................ 17,700 Notes Payable............................ 4,400 Prepaid Insurance....................... 1,900 Retained earnings....................... 1,600 Service revenue....................... 24,200 What would the company show as its total credits on its trial balance?

$38,200 -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. -debit balances sum to $38,200 (i.e., 3,900 + 13,300 + 1,400 + 1,900 + 17,700 = 38,200). -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) -credit balances sum to $38,200 (i.e., 3,200 + 4,800 + 4,400 + 1,600 + 24,200 = 38,200).

Barnes Company's financial records report the following accounts and balances at the end of the year: Accounts Payable..................... $ 3,300 Accounts Receivable................. 4,000 Cash............................................. 14,500 Common Stock........................... 4,900 Dividends.................................... 400 Interest expense........................ 18,000 Notes Payable............................ 4,500 Prepaid Insurance....................... 2,000 Retained earnings....................... 1,700 Service revenue....................... 24,500 What would the company show as its total credits on its trial balance?

$38,900 -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 $38,900 (i.e., 4,000 + 14,500 + 400 + 2,000 + 18,000 = 38,900). 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 $38,900 (i.e., 3,300 + 4,900 + 4,500 + 1,700 + 24,500 = 38,900). Note: total debits equal total credits.

Jarrell Company began the year with $124,000 in its Common Stock account and a debit balance in Retained Earnings of $18,000. During the year, the company earned net income of $33,000 and declared and paid $6,000 of dividends. In addition, the company sold additional common stock amounting to $40,000. Based on this information, what is the ending Retained Earnings?

$9,000 Note: Retained earnings begins with a debit balance indicating the company has had a history of losses rather than profits. A debit balance rarely occurs except with new companies experiencing a slow start. This year's income eliminates is enough to eliminate the debit balance in retained earnings and change it to a credit balance. Ending retained earnings = Beginning retained earnings + net income - dividends. Ending retained earnings = $18,000 (debit) + 33,000 (i.e., credit Retained Earnings) - 6,000 (i.e., debit Retained Earnings) = $9,000 (i.e., credit balance in Retained Earnings).

A trial balance will not balance if -a $500 collection of cash was not posted. -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 $50 cash dividend was debited to Dividends for $500 and credited to cash for $50. -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.

If a company receives cash from an owner in exchange for shares of the company's common stock, then

-assets increase and stockholders' equity increases. -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).

What journal entry is recorded as a result of issuing stock to investors for cash?

A debit to Cash and a credit to Common Stock

What journal entry is recorded as a result of issuing a note when borrowing money from a bank?

A debit to Cash and a credit to Notes Payable

What journal entry is recorded as a result of performing services in exchange for cash?

A debit to Cash and a credit to Revenue -Performing services in exchange for cash indicates that the company has earned the revenue so it records it as Revenue. Cash is also received so the balance in cash increases.

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 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 has a debit and credit side. -An account is a source document.

An account is a source document.

Which of the following events is not recorded in a company's accounting records? - A cash investment is made into the business. -An employee is terminated. -A company provides services to a customer for cash. -Equipment is purchased on account. - The owner withdraws cash for personal use.

An employee is terminated -All of these events are transactions that affect the company's financial statements with one exception. Termination of an employee is not a recordable event in the accounting records. In the future, the company will have a lower salaries expense, but terminating one or more employees is not an event recorded among a company's accounts.

Which of the following is the correct sequence of events in the recording process?

Analyze a transaction; record it in the journal; post it to the ledger

Which accounts normally have debit balances?

Assets, dividends, and expenses -Certain accounts normally have debit balances, including assets, expenses, and dividends. Liabilities, equities, and revenues normally have credit balances.

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner?

Equipment and Selling Expense -Assets, expenses, and dividends are increased by dividends, and liabilities equities, and revenues are increased with credits. Equipment is an asset account, and advertising expense is an expense account; both are increased by debits.

Which pair of accounts follows the rules of debits and credits in relation to increases and decreases in the opposite manner?

Interest Expense and Salaries and Wages Payable

Transactions are initially recorded in chronological order in a __________ before they are transferred to the accounts.

Journal

Which of the following is the sequence of events for the recording process?

Journalize; post; prepare a trial balance

Which of the following is not a part of a complete journal entry?

The balance of each account affected by the transaction -The current balance of an account is not needed nor is it shown when making journal entries. The accounts involved and the debit and credit amounts being recorded must be identified in the journal entry. The date of a journal entry is required to maintain the chronology of the journal and the accounts. A brief explanation clarifies the reason the journal entry was made. Account balances are shown in the ledger—not the journal.

Carpenter Company buys supplies on account. This transaction will immediately affect the

balance sheet only -When buying equipment, the buyer acquires the equipment (which is an asset). Therefore, assets increase. The buyer did not pay for the equipment. Instead, the buyer purchased it on credit which is to say that the buyer promises to pay in the future. This is the same as buying "on account." The promise to pay in the future (and similarly buying on account) indicates the buyer increases its liabilities. Since assets and liabilities are both balance sheet accounts, this transaction affects only the balance sheet.

When a trial balance balances, it is an indication that

debits equal credits

Debits

increase assets and decrease liabilities.

The effects of issuing a note payable in exchange for cash on the basic accounting equation are to

increase assets and increase liabilities. -Basic accounting equation: Assets = Liabilities + Stockholders' Equity issuing a note payable for cash increases cash (which is an asset) and increases notes payable (which is a liability). Thus, assets increase and liabilities increase.

The effects of receiving cash from a customer in exchange for performing services on the basic accounting equation are to

increase assets and increase stockholders' 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.

If a previously unrecorded expense is recorded when it is paid with cash recording the the transaction will

increase expenses and decrease assets.

A trial balance

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

A revenue account

is increased by credits.

If cash is received in advance from a customer

liabilities will increase and assets will increase. -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.

If a transaction affected two accounts and total equity increased by $4,000, then

total assets must have increased by $4,000 or total liabilities must have decreased by $4,000.