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Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

Financial Accounting, 1e Chapter 2: Analyzing and Recording Business Transactions

Test Item File 2.1-1. Account titles such as marketing expense and depreciation expense would be numbered starting with a 3.

Answer: False LO: 2-1 Difficulty: 1 EOC Ref: S2-4 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Reporting

2.1-2 A listing of all accounts in numerical order is called a chart of accounts.

Answer: True LO: 2-1 Difficulty: 1 EOC Ref: S2-4 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Reporting

2.1-3 An account numbered 321 would be considered a stockholders’ equity account as it begins with a

3.


2.1-4 The stockholders’ equity section would include the accounts such as retained earnings and revenues.



2.1-5 Items of value that a company owns are called stockholders’ equity.

Answer: False LO: 2-1 Difficulty: 1 EOC Ref: Vocabulary AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.1-6 Obligations that are owed to others due to past transactions are categorized as: A. stockholders’ equity. B. expenses. C. assets. D. liabilities.

Answer: D LO: 2-1 Difficulty: 1 EOC Ref: Vocabulary AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.1-7 Monies owed to a company on a written promise to pay a fixed amount of money by a certain date would be called a(n): A. note payable. B. note receivable. C. account payable. D. account receivable.

Answer: A LO: 2-1 Difficulty: 1 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.1-8 Items such as wages and interest that have been incurred, but not yet paid, are called: A. accrued assets. B. accrued liabilities. C. accrued revenues. D. accrued notes.

Answer: B LO: 2-1 Difficulty: 1 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.1-9 The order in which accounts appear in the chart of accounts is: A. liabilities, assets, revenues, stockholders’ equity, expenses. B. stockholders’ equity, expenses, revenue, liabilities, assets. C. assets, stockholders’ equity, revenues, expenses, liabilities. D. assets, liabilities, stockholders’ equity, revenues, expenses.

Answer: D LO: 2-1 Difficulty: 1 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.1-10 An account starting with a number 1 would indicate: A. an asset. B. stockholders’ equity. C. a revenue. D. a liability.



2.1-11 All payables are listed as: A. assets. B. liabilities. C. stockholders’ equity. D. revenue.


2.1-12 Accounts that start with the numbers 6-9 would probably be: A. other revenues and expenses. B. other assets and liabilities. C. other stockholders’ equity. D. other assets and revenues.


2.1-13 A type of company asset in which a customer owes the company money would be a: A. dividend. B. receivable. C. payable. D. sale.



2.1-14 Expenses paid in advance such as rent and insurance are classified as prepaid expenses. Into what category are they placed? A. Liabilities B. Revenues C. Expenses D. Assets


2.1-15 Dividends are paid with cash to shareholders. Dividends are in what category of the chart of accounts? A. Revenue B. Assets C. Stockholders’ equity D. Liabilities

Answer: C LO: 2-1 Difficulty: 2 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.1-16 Accounts starting with the number 4 would represent: A. assets. B. liabilities. C. revenues. D. expenses.



2.1-17 Marketing expenditures account 511 would belong to what category of accounts? A. Assets B. Expenses C. Revenues D. Liabilities


2.1-18 Land, cash, office equipment and accounts receivable belong to what category of accounts? A. Liabilities B. Revenues C. Expenses D. Assets


2.1-19 Dividends, revenues, and expenses all: A. start with the same chart of account number. B. start with different chart of accounts numbers. C. appear in the chart of accounts under assets. D. appear in the chart of accounts under liabilities.



2.1-20 Which of the following would start with a 1 in the chart of accounts? A. Land and buildings B. Depreciation expense and marketing expense C. Merchandise sales and rent revenue D. Common stock and cash


2.1-21 Which of the following would start with a 2 in the chart of accounts? A. Income taxes to be paid and wages to be paid B. Common stock and preferred stock C. Cash and accounts receivable D. Sales and fees revenue


2.1-22 A promissory note owed to another company would most likely appear in which of the following categories? A. Accounts receivable B. Accounts payable C. Notes receivable D. Notes payable



2.1-23 A chart of accounts does NOT include: A. stockholders’ equity. B. assets. C. names of customers. D. liabilities.

Answer: C LO: 2-1 Difficulty: 1 EOC Ref: S2-4 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Reporting

2.1-24 Which of the following is an expense account? A. Prepaid insurance B. Advertising C. Accounts payable D. Cash


2.1-25 Which of the following is NOT a revenue account? A. Wages B. Sales C. Delivery fees D. Professional fees

Answer: A LO: 2:-1 Difficulty: 1 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.1-26 Payment of a telephone bill represents a(n): A. asset. B. liability. C. revenue. D. expense.


2.1-27 Obligations owed by a company to banks, for instance, are called: A. notes receivable. B. notes payable. C. accounts receivable. D. accounts payable.


2.1-28 Net income and dividends are part of: A. liabilities. B. stockholders’ equity. C. assets. D. net income.



2.1-29 Which is NOT a part of stockholders’ equity? A. Revenues B. Expenses C. Accounts receivable D. Dividends


2.1-30 Collection of money from a cash customer represents a(n): A. liability. B. expense. C. revenue. D. stock.


2.1-31 Identify the accounts below as (1) assets; (2) liabilities; (3) stockholders’ equity; (4) revenues; or (5) expenses.

A. Accounts payable B. Subscription fees C. Computer equipment D. Mortgage payable E. Marketing charges F. Cash

Answer: a-2; b-4; c-1; d-2; e-5; f-1 LO: 2-1 Difficulty: 2 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting



A. Grocery sales B. Notes receivable C. Common stock D. Supplies expense E. Taxes payable F. Land Answer: a-4; b-1; c-3; d-5; e-2; f-1 LO: 2-1 Difficulty: 2 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


A. Maintenance charges B. Prepaid rent C. Notes payable D. Inventory E. Cash F. Season ticket sales Answer: a-5; b-1; c-2; d-1; e-1; f-4 LO: 2-1 Difficulty: 2 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


A. Dividends B. Supplies C. Office furniture D. Merchandise sales E. Notes payable F. Accounts receivable Answer: a-3; b-1; c-1; d-4; e-2; f-1 LO: 2-1 Difficulty: 2 EOC Ref: S2-2 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.1-35 List the order in which each of the following accounts would appear in a chart of accounts. Notes receivable, Common stock, Advertising expense, Magazine sales, Accounts payable Answer: Notes receivable, Accounts payable, Common stock, Magazine sales, Advertising expense

LO: 2-1 Difficulty: 2 EOC Ref: S2-4 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.1-36 List the order in which each of the following accounts would appear in a chart of accounts. Merchandise sales, Cash, Wages expense, Dividends, Mortgage payable

Answer: Cash, Mortgage payable, Dividends, Merchandise sales, Wages expense LO: 2-1 Difficulty: 2 EOC Ref: S2-4 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.1-37 List the order in which each of the following accounts would appear in a chart of accounts. Utilities expenses, Tax return revenue, Accounts receivable, Income taxes payable Answer: Accounts receivable, Income tax payable, Tax return revenue, Utilities expenses

LO: 2-1 Difficulty: 2 EOC Ref: S2-4 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.2-1 Double-entry accounting requires that every business transaction impacts at least two different accounts.

Answer: True LO: 2-2 Difficulty: 1 EOC Ref: S2-3 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.2-2 A T-account is a way to visualize the increases and decreases to the value of an account.


2.2-3 The debit (left) side of an account always indicates an increase in the value of the account.

Answer: False LO: 2-2 Difficulty: 1 EOC Ref: S2-6 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.2-4 The credit (right) side of an account shows an increase or decrease depending upon the type of account.


2.2-5 Accounts that increase on the credit side are assets, dividends and expenses (ADE).



2.2-6 Accounts that increase on the credit side are liabilities, common stock, revenues and retained earnings (LCR).


2.2-7 Normal balance refers to the positive increase of an account and identifies the side of the account (Debit or Credit) to which this positive balance is recorded.


2.2-8 Accounts payable, taxes payable, and notes payable: A. increase on the debit side, decrease on the credit side and are assets. B. decrease on the debit side, increase on the credit side and are liabilities. C. increase on the debit side, decrease on the credit side and are expenses. D. decrease on the debit side, increase on the credit side and are revenues.


2.2-9 The retained earnings accounts of dividends, revenues and expenses have normal balances of: A. credit, debit, and debit, respectively. B. debit, credit, and credit, respectively. C. debit, credit, and debit, respectively. D. credit, credit, and credit, respectively.



2.2-10 Cash, common stock, and advertising expense have normal balances of: A. credit, credit, and credit, respectively. B. debit, credit, and debit, respectively. C. debit, debit, and credit, respectively. D. credit, debit, and debit, respectively.


2.2-11 Dividends, accounts receivable, and buildings have normal balances of: A. credit, debit, and debit, respectively. B. debit, debit, and credit, respectively. C. credit, credit, and credit, respectively. D. debit, debit, and debit, respectively.


2.2-12 Revenues, accounts receivable, and common stock have normal balances of: A. credit, debit, and credit, respectively. B. debit, debit, and credit, respectively. C. credit, credit, and credit, respectively. D. debit, debit, and debit, respectively.



2.2-13 Office furniture, wages payable and dividends have normal balances of: A. credit, credit, and credit, respectively. B. debit, credit, and debit, respectively. C. debit, debit, and credit, respectively. D. credit, debit, and debit, respectively.


2.2-14 Which of the following is an unofficial tool of accounting? A. Account B. T-account C. Debit D. Credit


2.2-15 T-accounts aid in separating: A. increases and decreases in an account. B. the equality of the credits. C. the equality of debits and credits in the accounting equation. D. the balances of all of the accounts.



2.2-16 The total amount of debits must equal the total amount of credits. This is a rule of: A. T-accounts. B. the chart of accounts. C. double-entry accounting. D. normal balances.


2.2-17 A T-account has a $759 credit balance. This account is most likely NOT:

A. accounts payable. B. sales revenue. C. accounts receivable. D. common stock.


2.2-18 A T-account has a $509 debit balance. This account is most likely NOT: A. common stock. B. land. C. advertising expense. D. dividends.



2.2-19 A T-account has a $382 debit balance. This account is most likely: A. income taxes payable. B. common stock. C. cash. D. magazine sales.


2.2-20 A T-account has a $299 credit balance. This account is most likely NOT: A. accounts receivable. B. bicycle repairs revenue. C. wages payable. D. common stock.


2.2-21 A T-account has a $922 credit balance. This account is most likely: A. office equipment. B. rent expense. C. dividends. D. sales revenue.



2.2-22 A T-account has a $388 credit balance. This account is most likely: A. an expense. B. a dividend account. C. an asset. D. a stock account.


2.2-23 Debit means: A. decrease. B. increase. C. the right side of an account. D. the left side of an account.


2.2-24 Credit means: A. decrease. B. increase. C. the right side of an account. D. the left side of an account.



2.2-25 An example of accounts with normal debit balances would be: A. liabilities. B. expenses. C. revenues. D. stockholders’ equity.


2.2-26 An example of accounts with normal credit balances would be: A. revenues. B. assets. C. expenses. D. dividends.


2.2-27 A T-account has which of the following three major parts? A. A debit side, a credit side, and a balance B. A debit side, a credit side, and a total column C. A title, a current date, and a balance D. A title, a debit side, and a credit side



2.2-28 The fact that each transaction has a dual effect on the accounting equation provides the basis for what is called: A. single-entry accounting. B. double-entry accounting. C. compound-entry accounting. D. multiple-entry accounting.


2.2-29 An investment of cash in a business: A. represents an obligation of the business. B. decreases stockholders’ equity. C. increases cash. D. appears in a liability account.


2.2-30 ARCO pays wages in the amount of $13,579. This transaction: A. debits cash. B. credits wages expense. C. credits cash. D. credits revenue.



2.2-31 The difference between the total debits and total credits of an account is called a: A. trial balance. B. sub-total. C. ruling. D. balance.


2.3-1 The general journal was developed to organize transactions by account.

Answer: False LO: 2-3 Difficulty: 1 EOC Ref: P2-33A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-2 The general journal is used to record the events (transactions) of a business.

Answer: True LO: 2-3 Difficulty: 1 EOC Ref: P2-33A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-3 The act of recording a transaction is called “journalizing”.



2.3-4 Journalizing is the transfer of information from the general journal to the general ledger.


2.3-5 The posting reference column of the general journal will include the number of the account to which the information is being posted.


2.3-6 The posting reference column of the general ledger shows the sources of the transferred information.


2.3-7 Transactions are recorded in order of the dollar amount of the transaction.


2.3-8 Chronological order dictates the order in which transactions are journalized.



2.3-9 The account “Cash” had the following changes: increase of $250, decrease of $75, increase of $113 and a decrease of $35. The final balance is a: A. debit balance of $253. B. credit balance of $253. C. debit balance of $363. D. credit balance of $110.

Answer: A Calculations: 250 – 75 + 113 – 35 = 253 LO: 2-3 Difficulty: 2 EOC Ref: S2-7 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-10 The account “Notes payable” had the following changes: increase of $500, increase of $200, decrease of $550, and an increase of $250. The final balance is a: A. credit balance of $550. B. debit balance of $950. C. credit balance of $400. D. debit balance of $400.

Answer: C Calculations: 500 + 200 – 550 + 250 = 400 LO: 2-3 Difficulty: 2 EOC Ref: S2-7 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-11 The first step in analyzing a transaction is to determine: A. if the account balance will increase or decrease. B. the accounts that are involved. C. the type of accounts that are involved. D. which accounts are to be debited and credited.



2.3-12 The second step in analyzing a transaction is to determine: A. if the account balance will increase or decrease. B. the accounts that are involved. C. the type of accounts that are involved. D. which accounts are to debited and credited.


2.3-13 The third step in analyzing a transaction is to determine: A. if the account balance will increase or decrease. B. the accounts that are involved. C. the type of accounts that are involved. D. which accounts are to debited and credited.


2.3-14 The fourth step in analyzing a transaction is to determine: A. if the account balance will increase or decrease. B. the accounts that are involved. C. the type of accounts that are involved. D. which accounts are to debited and credited.



2.3-15 The general ledger is arranged in the: A. numerical order of the chart of accounts. B. alphabetical order of the account names. C. order with normal debit balance accounts first. D. order with normal credit balance accounts first.


2.3-16 The first step in recording a transaction in the general journal is to record the: A. explanation of the entry. B. record the account(s) to be credited and the amount(s). C. record the date of the entry. D. record the account(s) to be debited and the amount(s).


2.3-17 The second step in recording a transaction in the general journal is to record the: A. explanation of the entry. B. record the account(s) to be credited and the amount(s). C. record the date of the entry. D. record the account(s) to be debited and the amount(s).



2.3-18 The third step in recording a transaction in the general journal is to record the: A. explanation of the entry. B. record the account(s) to be credited and the amount(s). C. record the date of the entry. D. record the account(s) to be debited and the amount(s).


2.3-19 The fourth step in recording a transaction in the general journal is to record the: A. explanation of the entry. B. record the account(s) to be credited and the amount(s). C. record the date of the entry. D. record the account(s) to be debited and the amount(s).

Answer: A LO: 2-3 Difficulty: 1 EOC Ref: S2-10 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking

AICPA Functional Competencies: Measurement and Reporting 2.3-20 Once you post the transaction to the general ledger, you must go back to the general journal and

fill in: A. the date. B. the amount debited or credited. C. the posting reference column with the account number of the posting. D. the account name that was involved in the transaction.



2.3-21 Jill invested $25,000 in her business, Fashion, Unlimited. The journal entry would include a: A. debit to Cash for $25,000 and a credit to Sales for $25,000. B. debit to Cash for $25,000 and a credit to Common stock for $25,000. C. credit to Cash for $25,000 and a debit to Common stock for $25,000. D. credit to Cash for $25,000 and a debit to Dividends for $25,000.

Answer: B LO: 2-3 Difficulty: 2 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-22 Office equipment was purchased for $2,400 on account to Business Furniture Company. The journal entry would include a: A. debit to Office equipment and a credit to Cash. B. credit to Cash and a debit to office Equipment expense. C. debit to Office equipment and a credit to Accounts payable. D. debit to Accounts payable and a credit to Cash.

Answer: C LO: 2-3 Difficulty: 2 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-23 Salary expenses of $675 were paid in cash. The journal entry would include a: A. debit to Salary expense and a credit to Cash. B. credit to Salary expense and a debit to Cash. C. debit to Accounts payable and a credit to Cash. D. debit to Accounts payable and a credit to Salary expense.

Answer: A LO: 2-3 Difficulty: 1 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.3-24 ABC Corporation collected $600 from one of its customers for payment on their account. The journal entry would include a: A. debit to Accounts receivable and a credit to Cash. B. debit to Cash and a credit to Accounts payable. C. debit to Cash and a credit to Accounts receivable. D. debit to Cash and a credit to Sales revenue.


2.3-25 ABC Corporation purchases a building for $35,000 cash. The journal entry would include a: A. debit to Building and a credit to Cash. B. debit to Common stock and a credit to Building. C. debit to Building and a credit to Accounts payable. D. debit to Building and a credit to Common stock.


2.3-26 Which of the following has a four column format? A. Income statement B. Balance sheet C. General ledger sheet D. General journal



2.3-27 Toys, Inc. paid one of its creditors $678 on their balance due. The journal entry would require a: A. debit to Cash and a credit to Accounts payable. B. debit to Cash and a credit to Accounts receivable. C. credit to Cash and a debit to Accounts receivable. D. debit to Accounts payable and credit to Cash .

Answer: D LO: 2-3 Difficulty: 1 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-28 Tonga Corporation purchased $350 of office supplies on account and treated the supplies as a prepaid expense. The journal entry would require a: A. debit to Office supplies expense and a credit to Cash. B. debit to Office supplies and a credit to Cash. C. debit to Office supplies and a credit to Accounts payable. D. debit to Office supplies expense and a credit to Office supplies.


2.3-29 Casey Corporation purchased a $600 two-year insurance policy for cash. The journal entry would require a: A. debit to Prepaid insurance and a credit to Cash. B. debit to Insurance expense and credit to Cash. C. debit to Insurance expense and a credit to Accounts payable. D. debit to Insurance expense and a credit to Retained earnings.



2.3-30 Brandon Company sold season tickets for $7000 on account. The journal entry would be to: A. debit Cash and credit season ticket Sales revenue. B. debit Accounts receivable and credit season ticket Sales revenue. C. debit Cash and credit Accounts payable. D. debit Cash and credit Accounts receivable.


2.3-31 The ________________ keeps a running balance of an individual account. A. general journal B. balance sheet C. general ledger D. posting reference


2.3-32 The _______________ indicates where the information originated and to where the information was transferred.

A. general journal B. balance sheet C. general ledger D. posting reference



2.3-33 One of the customers of Amanda Company paid $223 on her bill. The journal entry that Amanda Company would record is: A. debit Accounts receivable and credit Sales. B. debit Cash and credit Sales. C. debit Accounts receivable and credit Cash. D. debit Cash and credit Accounts receivable.

Answer: D LO: 2-3 Difficulty: 1 EOC Ref: E2-27B AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-34 The information from the general journal is transferred to the: A. balance sheet. B. income statement. C. general ledger. D. statement of retained earnings.

Answer: C LO: 2-3 Difficulty: 1 EOC Ref: P2-33A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-35 Journalizing does NOT include: A. debiting account(s) that are affected. B. crediting account(s) that are affected. C. posting the debits and credits to the accounts. D. entering the date of the transaction.

Answer: C LO: 2-3 Difficulty: 2 EOC Ref: E2-27B AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.3-36 The posting reference column of the general journal provides a cross-reference between the: A. ledger and accounts. B. journal and ledger. C. ledger and financial statements. D. journal and financial statements.


2.3-37 Instead of T-accounts, businesses more than likely use a: A. chart of accounts. B. balance sheet. C. general ledger. D. general journal.

Answer: C LO: 2-3 Difficulty: 1 EOC Ref: P2-33A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-38 Every entry in the general journal should include all of the following EXCEPT: A. the title of each account affected. B. the amounts of debits and credits. C. a brief description of the transaction. D. the balance of the accounts affected.

Answer: D LO: 2-3 Difficulty: 1 EOC Ref: E2-27B AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-39 Journalize the following transactions. You may leave out the explanations and disregard the posting reference. A. Paul invested $33,000 into his company, Paul’s Sports, on January 9. B. The company purchased $6,300 of furniture on account on February 14. C. The company paid three month’s rent of $4,500 and recorded it as a prepaid expense on February 22. D. The company bought $5,300 of office desks and $9,000 of computer equipment for $14,300 cash on March 9.


E. The company incurred $1400 of wages to be paid next week. This entry is to be dated March 19. Answer

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT 1/9 Cash 33,000 Common stock 33,000 2/14 Furniture 6,300 Accounts payable 6,300 2/22 Prepaid rent 4,500 Cash 4,500 3/9 Office desks 5,300 Computer equipment 9,000 Cash 14,300 3/19 Wages expense 1,400 Wages payable 1,400

LO: 2-3 Difficulty: 2 EOC Ref: E2-27B AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.3-40 Given the following accounts, identify which account(s), by letter, would be debited or credited for the following transactions.

A. Cash B. Accounts receivable C. Supplies D. Computer equipment E. Accounts payable F. Fees revenue G. Marketing expense H. Salaries expense I. Internet expense J. Office equipment K. Common stock L. Rent expense 1. Purchased supplies on account. 2. Purchased computer equipment for cash. 3. Earned revenue from doing tax returns on account. 4. Paid this month’s rent. 5. Paid a bill due on account. 6. Collected payment from a customer. 7. Invested additional cash into the business. 8. Paid our marketing bill. 9. Earned revenue from doing tax returns for cash. 10. Paid salaries in cash. 11. Purchased office equipment on account. Answer: 1. Debit C; Credit E 2. Debit D; Credit A 3. Debit B; Credit F 4. Debit L; Credit A 5. Debit E; Credit A 6. Debit A; Credit B 7. Debit A; Credit K 8. Debit G; Credit A 9. Debit A; Credit F 10. Debit H; Credit A 11. Debit J; Credit E LO: 2-3 Difficulty: 2 EOC Ref: E2-27B AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.3-41 Journalize the following transactions. You may omit the explanations and disregard the posting reference.

A. Rick invested $21,500 into his company, Rick’s Fishing, on January 11. B. The company purchased $2,900 of furniture for cash on February 3. C. The company paid three month’s rent of $2250 and recorded it as a prepaid expense on February 9. D. The company bought $2,300 of office fixtures and $6,200 of stock bins for $7,000 cash and the balance on account dated March 9. E. The company receives payment of $575 of from a customer on her bill. This

transaction was on March 12. Answer

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT 1/11 Cash 21,500 Common stock 21,500 2/3 Furniture 2,900 Cash 2,900 2/9 Prepaid rent 2,250 Cash 2,250 3/9 Office fixtures 2,300 Stock bins 6,200 Cash 7,000 Accounts payable 1,500 3/12 Cash 575 Accounts receivable 575



2.3-42 Post the general journal below to the appropriate T-accounts. You need not fill in the PR column below.

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT 1/11 Cash 21,500 Common stock 21,500 2/3 Furniture 2,900 Cash 2,900 2/9 Prepaid rent 2,250 Cash 2,250 3/9 Office fixtures 2,300 Stock bins 6,200 Cash 7,000 Accounts payable 1,500 3/12 Cash 575 Accounts receivable 575

Cash 101 Accounts Receivable

104 Prepaid Rent 107 Computers 109

Stock Bins 110 Carpeting 114 Office Desks 119 Furniture 123


Office Fixtures 144 Accounts Payable 204

Wages Payable 222 Common Stock 301

Wages Expense 511 Rent Expense 512 Wages Exp. 511

Off. Fixtures 144

Answer: Cash 101 Accounts Receivable


21,500 575

2,900 2,250 7,000

575 2,250


6,200 2,900


Office Fixtures 144 Accounts Payable 204

Wages Payable 222 Common Stock 301

2,300 1,500 21,500

Wages Expense 511 Rent Expense 512


2.3-43 Post the following transactions to T-accounts.

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT 1/9 Cash 33,000 Common stock 33,000 2/14 Furniture 6,300 Accounts payable 6,300 2/22 Prepaid rent 4,500 Cash 4,500 3/9 Office desks 5,300 Computers 9,000 Cash 14,300 3/19 Wages expense 1,400 Wages payable 1,400


Cash 101 Accounts Receivable 104

Prepaid Rent 107 Computers 109


Office Fixtures 144 Accounts Payable

204 Wages Payable 222 Common Stock 301





33,000 4,500 14,300

4,500 9,000


5,300

6,300


204Wages Payable 222 Common Stock 301

6,300 1,400 33,000


1,400



2.3-44 Post the following general journal to the T-accounts provided below.

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT 1/23 Cash 25,000 Common stock 25,000 2/7 Computers 7,500 Account payable 7,500 2/19 Rent expense 900 Cash 900 3/9 Furniture 2,550 Carpeting 1,000 Cash 3,550 3/12 Wages expense 1,200 Wages payable 1,200

Cash 101 Accounts Receivable




204 Wages Payable 222 Common Stock 301





25,000 900 3,550

7,500


1,000 2,550


204Wages Payable 222 Common Stock 301

7,500 1,200 25,000



1,200 900


2.3-45 Given the following general ledger template, identify the parts of the ledger. Account Cash Account Number 111 A B C D E F G

Answer: A-date; B- item; C-posting reference; D-debit amount of transaction; E-credit amount of transaction; F-debit balance of the account; G-credit balance of the account LO: 2-3 Difficulty: 1 EOC Ref: E2-29B AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.3-46 Journalize the following transactions and omit the explanations. A. ABC Corporation purchased $15,000 of office furniture by putting $7,000 down in cash and the rest on account on April 8. B. The corporation paid $60,000 for a two-year lease on April 19. C. The corporation had sales of $45,000 of which $35,000 were on account on April 20. D. The corporation borrowed $25,000 by signing a note payable on April 22. E. The corporation paid $1,250 on one of their accounts payable on April 26. Answer:

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT April 8 Office furniture 15,000

Accounts payable 8,000 Cash 7,000 April 19 Prepaid rent 60,000 Cash 60,000 April 20 Accounts receivable 35,000 Cash 10,000 Sales 45,000 April 22 Cash 25,000 Notes payable 25,000 April 26 Accounts payable 1,250 Cash 1,250



2.3-47 Journalize the following transactions and include the explanations. A. Tammy invested $40,000 into her corporation on June 11. B. Tammy purchased inventory for $95,000 of which $70,000 was on account on June 14. C. Tammy paid one month’s rent of $2400 on June 16. D. Tammy had sales of $15,000 on account on June 19. E. Tammy had paid $2,500 on her payables account on June 21. Answer:

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT June 11 Cash 40,000 Common Stock 40,000 Invested money June 14 Inventory 95,000 Cash 25,000 Accounts payable 70,000 Purchased inventory June 16 Rent Expense 2,400 Cash 2,400 Paid one month’s rent June 19 Accounts receivable 15,000 Sales 15,000 Record credit sales June 21 Accounts payable 2,500 Cash 2,500 Paid on account



2.3-48 Journalize the following transactions with explanations. A. On October 11, Isaiah Corporation paid $3,000 in dividends that were declared last month. B. On October 15, Isaiah Corporation paid their advertising expense ($1,300) and wages expense ($6,230) C. On October 21, recorded weekly cash sales of $38,600. D. On October 27, paid $2,100 for a 3-month rental. E. On October 28, collected $3,200 from customers on their accounts. Answer: DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT Oct 11 Dividends payable 3,000 Cash 3,000 Paid dividends Oct 15 Advertising Expense 1,300 Wages Expense 6,230 Cash 7,530 Paid expenses Oct 21 Cash 38,600 Sales 38,600 Recorded weekly sales Oct 27 Prepaid Rent 2,100 Cash 2,100 Paid on prepaid lease Oct 28 Cash 3,200 Accounts Receivable 3,200 Collected from customers



2.3-49 Journalize the following transactions. You may leave out the explanations. A. Paul invested $25,000 into his company, Paul’s Music Palace on January 23. B. The company purchased $7,500 of computer equipment on account on February 7. C. The company paid one month’s rent of $900 and recorded it as an expense on February 19. D. The company bought $2,550 of office desks and $1,000 of carpeting for $3,550 cash on March 9. E. The company incurred $1,200 of wages to be paid next week. This entry is to be dated March 12. Answer

DATE ACCOUNT/DESCRIPTION PR DEBIT CREDIT Jan. 23 Cash 25,000 Common Stock 25,000 Feb. 7 Computer Equipment 7,500 Account Payable 7,500 Feb. 19 Rent Expense 900 Cash 900 March 9 Office Desks 2,550 Carpeting 1,000 Cash 3,550 March 12 Wages Expense 1,200 Wages Payable 1,200


2.3-50 The Fees earned account is increased with a ___________ and the Equipment account is

decreased with a ___________.

Answer: credit, credit LO: 2-3 Difficulty: 1 EOC Ref: S2-8 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.3-51 The Common stock account is increased with a ______________ and Wages expense account is increased with a ______________.

Answer: credit, debit LO: 2-3 Difficulty: 1 EOC Ref: S2-8 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-52 The Prepaid insurance account is decreased with a ______________ and an Accounts payable account is decreased with a _____________.


2.3-53 The Cash account is decreased with a _______________ , while a revenue account is increased

with a ________________.

Answer: credit, credit LO: 2-3 Difficulty: 1 EOC Ref: S2-8 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.3-54 The Equipment account is increased with a _______________, while an expense account is increased with a __________________.

Answer: debit, debit LO: 2-3 Difficulty: 1 EOC Ref: S2-8 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.3-55 The Inventory account is decreased with a ____________ , and the Wages expense account is increased with a ____________.


2.3-56 Retained earnings is increased with a ____________, and land is increased with a _________________.


2.3-57 An asset account is increased with a ______ , and an accounts receivable account is decreased

with a _____________.

Answer: debit, credit LO: 2-3 Difficulty: 1 EOC Ref: S2-8 AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.4-1 A trial balance is a list of the accounts and their balances taken from the general journal.

Answer: False LO: 2-4 Difficulty: 1 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.4-2 The trial balance is an official financial statement.

Answer: False LO: 2-4 Difficulty: 1 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.4-3 A trial balance contains the name of the company, the words “trial balance” and the date of the statement.


2.4-4 The required accounting period for a trial balance is one year.


2.4-5 If debits equal credits on the trial balance, it means that the trial balance is correct.


2.4-6 Once the trial balance is correct, the next step is to prepare the financial statements, beginning with the income statement.



2.4-7 An entry could have been posted twice and the trial balance might still balance.

Answer: True LO: 2-4 Difficulty: 1 EOC Ref: E2-22A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.4-8 If a trial balance does not equal, redo the addition of the debit and credit columns.

Answer: True LO: 2-4 Difficulty: 1 EOC Ref: E2-22A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.4-9 A trial balance will determine if: A. an entry was recorded twice. B. an entry was posted twice. C. debits equal credits. D. the right accounts were debited or credited.


2.4-10 A cash payment was made to pay for delivery expenses, but was mistakenly charged to advertising expenses. What effect will this have on the balance of the trial balance? A. Advertising expense will be correct. B. Delivery expense will be understated. C. The trial balance will still balance. D. Cash will be correct.



2.4-11 On the trial balance, which should have their balances listed in the debit column? A. Assets, revenues, and dividends B. Liabilities, revenues, and common stock C. Assets, dividends, and expenses D. Liabilities, revenues, and dividends


2.4-12 On the trial balance, which should have their balances listed in the credit column? A. Liabilities, retained earnings, and revenues B. Assets, retained earnings, and expenses C. Liabilities, common stock, and expenses D. Assets, dividends, and expenses


2.4-13 Which would be best at proving the accounts balance? A. General journal B. General ledger C. Trial balance D. Income statement



2.4-14 Taylor’s trial balance contains the following balances: Cash $367 Accounts payable $267 Revenue $632 Accounts receivable $429 Expenses $103 What is the total for the trial balance? A. $ 899 B. $ 735 C. $1798 D. $ 796

Answer: A Calculation: 367 + 429 + 103 = $899 OR 267 + 632 = $899 LO: 2-4 Difficulty: 3 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

2.4-15 Only the ______________ accounts from the trial balance will be used to prepare the income statement. A. asset and liabilities B. liabilities and retained earnings C. revenue and expense D. stockholders’ equity and asset


2.4-16 The columns on a trial balance represent: A. revenues and expenses B. debits and credits C. common stock and dividends D. subtotals and totals



2.4-17 The trial balance: A. lists only the accounts which are used to prepare the balance sheet. B. shows only credit balances. C. shows only debit balances. D. shows the current date.

Answer: D LO: 2-4 Difficulty: 1 EOC Ref: E2-19A AASCB: Analytical Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


2.4-18 Prepare a trial balance from the following information for Learn a New Language, Inc. for December 31, 2012.

Accounts payable $ 5,012 Common stock $ 9,692 Cash $ 3,928 Notes payable $ 1,439 Wages expense $ 777 Marketing expense $ 493 Equipment $ 8,345 Accounts receivable $ 1,142 Inventory $ 8,074 Sales $ 6,616

Answer:

Learn a New Language Inc. Trial Balance

December 31, 2012 Cash $ 3,928Accounts receivable 1,142Inventory 8,074Equipment 8,345Accounts payable $ 5,012Notes payable 1,439Common stock 9,692Sales 6,616Marketing expense 493Wages expense 777 ______ TOTALS $ 22,759 $ 22,759



2.4-19 Prepare a trial balance from the following information for Computer Systems, Inc. for December 31, 2012.

Accounts payable $ 4,298 Common stock $ 4,073 Sales $ 8,302 Cash $ 1,902 Notes payable $ 888 Wages expense $ 777 Supplies expense $ 1,028 Equipment $ 5,183 Accounts receivable $ 1,733 Inventory $ 6,938

Answer:

Computer Systems, Inc. Trial Balance

December 31, 2012 Cash $ 1,902Accounts receivable 1,733Inventory 6,938Equipment 5,183Accounts payable $ 4,298Notes payable 888Common stock 4,073Sales 8,302Supplies expense 1,028Wages expense 777 _______ ______TOTALS $ 17,561 $ 17,561



2.4-20 Prepare a trial balance from the following information for Alpha Systems, Inc. for December 31, 2012.

Accounts payable $ 3,245 Common stock $ 5,521 Sales $ 8,348 Cash $ 2,602 Notes payable $ 1,465 Travel expense $ 2,006 Rent expense $ 1,305 Computers $ 4,064 Accounts receivable $ 1,284 Inventory $ 7,318

Answer:

Alpha Systems, Inc. Trial Balance

December 31, 2012 Cash $ 2,602Accounts receivable 1,284Computers 4,064Inventory 7,318Accounts payable $ 3,245Notes payable 1,465Common stock 5,521Sales 8,348Rent expense 1,305Travel expense 2,006 ________ _______TOTALS $ 18,579 $ 18,579


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