Chapter 3

The collection of accounts receivable is recorded by a: A) Debit to Cash and a debit to Accounts Receivable. B) Credit to Cash and a credit to Accounts Receivable. C) Debit to Cash and a credit to Accounts Receivable. D) Credit to Cash and a debit to Accounts Receivable.

C) Debit to Cash and a credit to Accounts Receivable.

Wilson Trucking, Incorporated reports these account balances at January 1, Year 2 (shown in alphabetical order): Accounts Payable $220,000 Accounts Receivable $200,000 Buildings $480,000 Capital Stock $680,000 Cash $160,000 Equipment $320,000 Land $400,000 Notes Payable $520,000 Retained Earnings $140,000 On January 5, Year 2, Wilson Trucking collected $175,000 of its accounts receivable, paid $150,000 on its accounts payable, and paid $11,000 on its note payable. In a trial balance prepared for Wilson Trucking on January 6, Year 2, the total of the debit column is:

$1,399,000 $25,000 (Accounts Receivable) + $480,000 (Building) + $174,000 (Cash) + $320,000 (Equipment) + $400,000 (Land) = $1,399,000

Wilson Trucking, Incorporated reports these account balances at January 1, Year 2 (shown in alphabetical order): Accounts Payable $220,000 Accounts Receivable $200,000 Buildings $480,000 Capital Stock $680,000 Cash $160,000 Equipment $320,000 Land $400,000 Notes Payable $520,000 Retained Earnings $140,000 On January 5, Year 2, Wilson Trucking collected $175,000 of its accounts receivable, paid $150,000 on its accounts payable, and paid $11,000 on its note payable. In a trial balance prepared for Wilson Trucking on January 1, Year 2, the total of the credit column is:

$1,560,000 $220,000 (Accounts Payable) + $680,000 (Common Stock) + $520,000 (Notes Payable) + $140,000 (Retained Earnings) = $1,560,000

Montauk Oil Company reports these account balances at December 31, Year 1: Accounts Payable $110,000 Land $200,000 Notes Payable $260,000 Equipment $160,000 Cash $80,000 Accounts Receivable $100,000 Buildings $240,000 Capital Stock $340,000 Retained Earnings $70,000 On January 2, Year 2, Montauk Oil collected $50,000 of its accounts receivable and paid $20,000 of its accounts payable. On January 3, Year 2, total liabilities are:

$350,000 Ending Accounts Payable balance = $110,000 − $20,000 = $90,000 Total Liabilities = $90,000 (Accounts Payable) + $260,000 (Notes Payable) = $350,000

Indirect Oil Company reports these account balances at December 31, Year 1: Accounts Payable $55,000 Land $100,000 Notes Payable $130,000 Equipment $80,000 Cash $40,000 Accounts Receivable $50,000 Buildings $120,000 Capital Stock $170,000 Retained Earnings $35,000 On January 2, Year 2, Indirect Oil collected $25,000 of its accounts receivable and paid $20,000 of its accounts payable. In a trial balance prepared at January 3, Year 2, the total of the debit column is:

$370,000 $100,000 (Land) + $80,000 (Equipment) + $45,000 (Cash: $40,000 + Receivable Collected $25,000 − Liability Paid $20,000) + $25,000 (Accounts Receivable: $50,000 − Amount Collected $25,000) + $120,000 (Buildings) = $370,000

Indirect Oil Company reports these account balances at December 31, Year 1: Accounts Payable $55,000 Land $100,000 Notes Payable $130,000 Equipment $80,000 Cash $40,000 Accounts Receivable $50,000 Buildings $120,000 Capital Stock $170,000 Retained Earnings $35,000 On January 2, Year 2, Indirect Oil collected $25,000 of its accounts receivable and paid $20,000 of its accounts payable. In a trial balance prepared at December 31, Year 1 the total of the debit column is:

$390,000 $100,000 (Land) + $80,000 (Equipment) + $40,000 (Cash) + $50,000 (Accounts Receivable) + $120,000 (Buildings) = $390,000

Wilson Trucking, Incorporated reports these account balances at January 1, Year 2 (shown in alphabetical order): Accounts Payable $220,000 Accounts Receivable $200,000 Buildings $480,000 Capital Stock $680,000 Cash $160,000 Equipment $320,000 Land $400,000 Notes Payable $520,000 Retained Earnings $140,000 On January 5, Wilson Trucking collected $175,000 of its accounts receivable, paid $150,000 on its accounts payable, and paid $11,000 on its note payable. On January 6, Year 2, total liabilities are:

$579,000 Ending Accounts Payable balance = $220,000 − $150,000 = $70,000 Ending Notes Payable balance = $520,000 − $11,000 = $509,000 Total Liabilities = $70,000 (Accounts Payable) + $509,000 (Notes Payable) = $579,000

The bookkeeper for Wood Manufacturing Company made the following journal entry to record a transaction that took place on January 30, Year 2: Debit Land $201,500 Buildings $84,500 Credit Cash $65,000 Notes Payable $221,000 Before the journal entry above, Wood had assets, liabilities, and owners' equity of $450,000, $100,000, and $350,000, respectively. What are total assets immediately after the above transaction occurs?

$671,000 Ending Total Assets = $450,000 (Beginning Assets) + $ 201,500 (increase in Land) + $84,500 (increase in Building) − $65,000 (decrease in Cash) = $671,000

The bookkeeper for Martin Supply Company made the following journal entry to record a transaction that took place on March 10, Year 2: Debit Accounts Receivable $30,000 Cash $21,000 Credit Equipment $51,000 Before the journal entry above, Martin had assets of $900,000; liabilities of $460,000; and owners' equity of $440,000. Total assets immediately after the above transaction has been recorded amount to:

$900,000 $900,000 (Beginning Assets) + $30,000 (Accounts Receivable) + $21,000 (Cash) − $51,000 (Equipment) = Ending Assets ($900,000). The journal entry both increases and decreases total assets by $51,000 so there is no effect on the total.

The sequence of accounting procedures used to record, classify, and summarize accounting information is called the: A) Accounting cycle B) Accounting period C) Accrual accounting D) Double-entry bookkeeping

A) Accounting cycle

The rules of debit and credit may be summarized as follows: A) Asset accounts are increased by debits, whereas, liabilities and owners' equity are increased by credits. B) The balance of a ledger account is increased by debit entries and is decreased by credit entries. C) Accounts on the left side of the balance sheet are increased by credits, whereas accounts on the right side of the balance sheet are increased by debits. D) The balance of a ledger account is increased by credit entries and is decreased by debit entries.

A) Asset accounts are increased by debits, whereas, liabilities and owners' equity are increased by credits.

Revenues increase owners' equity because: A) Revenues increase net income, which increases retained earnings. B) Revenues are recorded by a debit. C) Of the matching principle. D) The conservatism principle requires revenues be recognized with an increase to owners' equity.

A) Revenues increase net income, which increases retained earnings.

The realization principle indicates that revenue usually should be recognized and recorded in the accounting records: A) When goods are sold or services are rendered to customers. B) When cash is collected from customers. C) At the end of the accounting period. D) Only when the revenue can be matched by an equal dollar amount of expenses.

A) When goods are sold or services are rendered to customers.

Steps in the accounting cycle include (1) prepare financial statements, (2) post each journal entry to the appropriate ledger account, and (3) journalize transactions. Which of the following reflects the correct order of these steps? A) (1) prepare financial statements, (2) post each journal entry to the appropriate ledger account, and (3) journalize transactions. B) (3) journalize transactions, (2) post each journal entry to the appropriate ledger account, (1) prepare financial statements C) (2) post each journal entry to the appropriate ledger account, (1) prepare financial statements, (3) journalize transactions D) (3) journalize transactions, (1) prepare financial statements, (2) post each journal entry to the appropriate ledger account

B) (3) journalize transactions, (2) post each journal entry to the appropriate ledger account, (1) prepare financial statements

Black Systems sold and delivered modems to White Computers for $330,000 to be paid by White in three equal installments over the next three months. The journal entry made by Black Systems to record this transaction will include: A) A debit to Sales Revenue for $330,000 B) A debit to Accounts Receivable for $330,000 C) A debit to Accounts Receivable for $110,000 D) A debit to Cash for $330,000

B) A debit to Accounts Receivable for $330,000.

Transactions are recorded in the general journal in: A) Numerical order B) Chronological order C) Account number order D) Financial statement order

B) Chronological order

Net income is: A) The excess of debits over credits. B) The increase in owners' equity resulting from the profitable operations of the business. C) The excess of liabilities over assets. D) The increase in assets of a company during a year.

B) The increase in owners' equity resulting from the profitable operations of the business.

If a company purchases equipment on account: A) Assets will increase and owners' equity will also increase. B) Assets will increase and owners' equity will decrease. C) Assets will increase and owners' equity will remain unchanged. D) Assets will increase and liabilities will decrease.

C) Assets will increase and owners' equity will remain unchanged.

Bruno's Pizza Restaurant makes full payment of $8,300 on an account payable to Stella's Cheese Company Stella's would record this transaction with a: A) Debit to Accounts Payable for $8,300 B) Credit to Cash for $8,300 C) Credit to Accounts Receivable for $8,300 D) Credit to Accounts Payable for $8,300

C) Credit to Accounts Receivable for $8,300

Which of the following is not true regarding the general ledger account for Cash? A) The balance of the account indicates the amount of cash owned by the business on a particular date. B) Each debit entry in the Cash account represents a cash receipt. C) Debit entries are made before credit entries. D) Credit entries in the Cash account represent cash payments.

C) Debit entries are made before credit entries.

Which of the following would not appear on an income statement? A) Repair service revenue B) Insurance expense C) Dividends D) Net income

C) Dividends

The statement "This business produced net income of $520,000" is unclear because it failed to specify: A) The accounting method, that is, accrual or cash basis. B) Whether the amount earned is before or after expenses. C) The time period. D) The amount of cash withdrawn from the business by the owner.

C) The time period

Double-entry accounting is characterized by which of the following? A) Every transaction affects both an asset account and either a liability account or an owners' equity account. B) The number of general ledger accounts with debit balances is equal to the number with credit balances. C) The total dollar amount of debit entries posted to the general ledger is equal to the dollar amount of the credit entries. D) The number of debit entries posted to the general ledger equals the number of credit entries.

C) The total dollar amount of debit entries posted to the general ledger is equal to the dollar amount of the credit entries.

The purchase of office equipment at a cost of $7,600 with an immediate payment of $4,200 and agreement to pay the balance within 60 days is recorded by the purchaser with: A) A debit of $7,600 to Office Equipment, a debit of $4,200 to Accounts Receivable, and a credit of $3,400 to Accounts Payable. B) A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of $3,400 to Accounts Receivable. C) A debit of $3,400 to Accounts Receivable, a debit of $4,200 to Cash, and a credit of $7,600 to Office Equipment. D) A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of $3,400 to Accounts Payable.

D) A debit of $7,600 to Office Equipment, a credit of $4,200 to Cash, and a credit of $3,400 to Accounts Payable.

If the trial balance has a smaller debit balance than credit balance, it signifies: A) Assets are more than liabilities B) A profit C) A loss D) An error has been made

D) An error has been made

Which of the following accounts normally has a credit balance? A) Accounts receivable B) Cash C) Building D) Capital Stock

D) Capital Stock

The reason that revenue is recorded by a credit entry to a revenue account is: A) That revenue always involves a debit to the Cash account. B) Explained by the realization principle. C) Explained by the matching principle. D) That revenue increases owners' equity.

D) That revenue increases owners' equity

Master Equipment has a $17,400 liability to Arrow Paint Company When Master Equipment makes a partial payment of $7,600 on this liability, which of following occurs on Master's books? A) Retained earnings are debited $9,800. B) The Accounts Payable account is credited $9,800. C) The Cash account is debited $7,600. D) The Accounts Payable account is debited $7,600.

D) The Accounts Payable account is debited $7,600.

Which of the following errors would be disclosed by preparation of a trial balance? A) The collection of an account receivable was recorded by a debit to the Land account rather than to the Cash account. B) The collection of an account receivable for $219 was recorded by a $291 debit to Cash and a $291 credit to Accounts Receivable. C) The collection of a $365 account receivable was not recorded at all. D) The collection of a $325 account receivable was recorded by a $325 debit to Cash and a $325 debit to Accounts Receivable.

D) The collection of a $325 account receivable was recorded by a $325 debit to Cash and a $325 debit to Accounts Receivable.

If a company purchases equipment for cash: A) Assets will increase and owners' equity will also increase. B) Assets will increase and owners' equity will decrease. C) Assets will increase and owners' equity will remain unchanged. D) Total assets and owners' equity will remain unchanged.

D) Total assets and owners' equity will remain unchanged.