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THE RECORDING PROCESS

 

 

THE RECORDING PROCESS

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Summary of Questions by learning Objectives and Bloom’s Taxonomy

Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT

True-False Statements

1. 1 K 9. 2 K 17. 3 K 25. 5 K sg33. 4 K
2. 1 K 10. 2 K 18. 3 K 26. 5 C sg34. 5 K
3. 1 K 11. 2 K 19. 4 K 27. 6 K sg35. 6 C
4. 1 K 12. 2 K 20. 4 K 28. 6 K sg36. 7 K
5. 2 K 13. 2 K 21. 4 K 29. 6 K sg37. 7 K
6. 2 K 14. 2 K 22. 4 K 30. 7 K      
7. 2 K 15. 3 K 23. 4 K sg31. 2 K      
8. 2 K 16. 3 K 24. 4 K sg32. 2 K      

Multiple Choice Questions

38. 1 K 63. 2 C 88. 3 K 113. 5 K 138. 7 C
39. 1 K 64. 2 C 89. 3 K 114. 5 K sg139. 1 K
40. 1 K 65. 2 K 90. 3 K 115. 5 C st140. 2 K
41. 1 C 66. 2 K 91. 3 K 116. 5 K sg141. 2 K
42. 1 K 67. 2 K 92. 3 C 117. 5 K st142. 3 K
43. 1 K 68. 2 K 93. 3 K 118. 4 AP sg143. 3 K
44. 1 K 69. 2 K 94. 3 K 119. 6 K st144. 4 K
45. 2 K 70. 2 C 95. 3 K 120. 6 K sg145. 4 K
46. 2 K 71. 2 K 96. 3 K 121. 6 K sg146. 4 K
47. 2 K 72. 2 K 97. 4 K 122. 6 K sg147. 4 C
48. 2 K 73. 2 K 98. 4 K 123. 6 K st148. 6 K
49. 2 K 74. 2 C 99. 4 K 124. 6 K sg149. 6 K
50. 2 K 75. 2 K 100. 4 K 125. 6 K st150. 7 K
51. 2 K 76. 2 K 101. 4 K 126. 6 K sg151. 7 C
52. 2 K 77. 2 C 102. 4 K 127. 6 K 152. 8 K
53. 2 K 78. 2 AP 103. 4 K 128. 6 K 153. 8 K
54. 2 C 79. 2 AP 104. 4 C 129. 6 K 154. 8 K
55. 2 C 80. 2 AP 105. 4 K 130. 6 K 155. 8 K
56. 2 C 81. 3 AP 106. 4 K 131. 6 K 156. 8 K
57. 2 K 82. 2 AP 107. 4 K 132. 7 K 157. 8 K
58. 2 K 83. 2 AP 108. 4 K 133. 7 C 158. 8 K
59. 2 K 84. 2 C 109. 4 C 134. 7 K      
60. 2 K 85. 2 AP 110. 4 AN 135. 7 C      
61. 2 K 86. 2 AP 111. 5 K 136. 7 K      
62. 2 K 87. 3 K 112. 5 K 137. 7 K      

Brief Exercises

159. 2 AP 162. 4 AP 164. 4 K 166. 6 AP 168. 7 AP
160. 2 C 163. 4 AP 165. 4 AP 167. 6 AP 169. 7 AP
161. 2 K                        

sg  This question also appears in the Study Guide.

st   This question also appears in a self-test at the student companion website.

Summary of Questions by learning Objectives and Bloom’s Taxonomy

Exercises

170. 2 AP 175. 2 C 180. 3 C 185. 7 AP 190. 7 AP
171. 2 C 176. 2 C 181. 3 AP 186. 6 AN 191. 7 AP
172. 2 C 177. 2 C 182. 3 C 187. 6 AP 192. 7 AP
173. 2 C 178. 2 C 183. 4 AP 188. 7 AN 193. 7 AN
174. 2 C 179. 4 AP 184. 6 AP 189. 7 AN      

Completion Statements

194. 1 K 196. 2 K 198. 3 K 200. 4 K 202. 5 K
195. 2 K 197. 2 K 199. 4 K 201. 4 K 203. 7 K

Short-Answer Essay

205.3 1,2 C 208. 7 AN 211. 4 C 214. 4-6 S      
206. 2 C 209. 3 S 212. 5,6 C 215. 1 E      
207. 2 S 210. 3 C 213. 6 S 216. 2 S      

SUMMARY OF learning OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learning Objective 1
1. TF 4. TF 40. MC 43. MC 194. C        
2. TF 38. MC 41. MC 44. MC 198. SA        
3. TF 39. MC 42. MC 139. MC 215. SA        
Learning Objective 2
5. TF 45. MC 57. MC 69. MC 82. MC 171. Ex 205. SA
6. TF 46. MC 58. MC 70. MC 83. MC 172. Ex 206. SA
7. TF 47. MC 59. MC 71. MC 84. MC 173. Ex 207. SA
8. TF 48. MC 60. MC 72. MC 85. MC 174. Ex 216. SA
9. TF 49. MC 61. MC 73. MC 86. MC 175. Ex    
10. TF 50. MC 62. MC 74. MC 140. MC 176. Ex    
11. TF 51. MC 63. MC 75. MC 141. MC 177. Ex    
12. TF 52. MC 64. MC 76. MC 142. MC 178. Ex    
13. TF 53. MC 65. MC 77. MC 159. BE 180. Ex    
14. TF 54. MC 66. MC 78. MC 160. BE 195. C    
31. TF 55. MC 67. MC 79. MC 161. BE 196. C    
32. TF 56. MC 68. MC 80. MC 170. Ex 197. C    
Learning Objective 3
15. TF 81. MC 90. MC 94. MC 182. Ex        
16. TF 87. MC 91. MC 95. MC 198. C        
17. TF 88. MC 92. MC 96. MC 209. SA        
18. TF 89. MC 93. MC 143. MC 210. SA        
Learning Objective 4
19. TF 33. TF 101. MC 106. MC 144. MC 163. BE 199. C
20. TF 97. MC 102. MC 107. MC 145. MC 164. BE 200. C
21. TF 98. MC 103. MC 108. MC 146. MC 165. BE 201. C
22. TF 99. MC 104. MC 109. MC 147. MC 179. Ex 211. SA
23/24.. TF 100. MC 105. MC 110/118. MC 162. BE 181/183. Ex 214. SA

 

SUMMARY OF learning OBJECTIVES BY QUESTION TYPE

Learning Objective 5
25. TF 111. MC 114. MC 117. MC 212. SA        
26. TF 112. MC 115. MC 176. Ex 207. SA        
34. TF 113. MC 116. MC 202. C            
Learning Objective 6
27.. TF 119. MC 123. MC 127. MC 131. MC 167. BE 207. SA
28. TF 120. MC 124. MC 128. MC 148. MC 184. Ex 212. SA
29. TF 121. MC 125. MC 129. MC 149. MC 185. Ex 213. SA
35. TF 122. MC 126. MC 130. MC 166. BE 187. Ex    
Learning Objective 7
30. TF 134. MC 150. MC 186. Ex 192. Ex        
36. TF 135. MC 151. MC 188. Ex 193. Ex        
37. TF 136. MC 168. BE 189. Ex 203. C        
132. MC 137. MC 169. BE 190. Ex 208. SA        
133. MC 138. MC 185. Ex 191. Ex 193. Ex        
Learning Objective 8
152. MC 153. MC 154. MC 155. MC 156. MC 157. MC 158. MC

 

Note:   TF  =  True-False                           BE  = Brief Exercise                   C = Completion

MC  =  Multiple Choice                    Ex  =  Exercise                        SA = Short-Answer Essay

 

The chapter also contains one set of ten Matching questions and six Short-Answer Essay questions.  A summary table of all learning outcomes, including AACSB, AICPA, and IMA professional standards, is available on the Weygandt Accounting Principles 11e instructor web site.

 

CHAPTER LEARNING OBJECTIVES

  1. Explain what an account is and how it helps in the recording process. An account is a record of increases and decreases in specific asset, liability, and owner’s equity items.
  2. Define debits and credits and explain their use in recording business transactions. The terms debit and credit are synonymous with left and right. Assets, drawings, and expenses are increased by debits and decreased by credits. Liabilities, owner’s capital, and revenues are increased by credits and decreased by debits.
  3. Identify the basic steps in the recording process. The basic steps in the recording process are (a) analyze each transaction for its effects on the accounts, (b) enter the transaction information in a journal, (c) transfer the journal information to the appropriate accounts in the ledger.
  4. Explain what a journal is and how it helps in the recording process. The initial accounting record of a transaction is entered in a journal before the data are entered in the accounts. A journal (a) discloses in one place the complete effects of a transaction, (b) provides a chronological record of transactions, and (c) prevents or locates errors because the debit and credit amounts for each entry can be easily compared.
  5. Explain what a ledger is and how it helps in the recording process. The ledger is the entire group of accounts maintained by a company. The ledger provides the balance in each of the accounts as well as keeps track of changes in these balances.
  6. Explain what posting is and how it helps in the recording process. Posting is the transfer of journal entries to the ledger accounts. This phase of the recording process accumulates the effects of journalized transactions in the individual accounts.
  7. Prepare a trial balance and explain its purposes. A trial balance is a list of accounts and their balances at a given time. Its primary purpose is to prove the equality of debits and credits after posting. A trial balance also uncovers errors in journalizing and posting and is useful in preparing financial statements.

 

TRUE-FALSE STATEMENTS

  1. A new account is opened for each transaction entered into by a business firm.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The recording process becomes more efficient and informative if all transactions are recorded in one account.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account is often referred to as a T-account because of the way it is constructed.

 

Ans: T   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A debit to an account indicates an increase in that account.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. If a revenue account is credited, the revenue account is increased.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The normal balance of all accounts is a debit.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Debit and credit can be interpreted to mean increase and decrease, respectively.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A credit balance in a liability account indicates that an error in recording has occurred.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The drawing account is a subdivision of the owner’s capital account and appears as an expense on the income statement.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Revenues are a subdivision of owner’s capital.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Under the double-entry system, revenues must always equal expenses.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Business documents can provide evidence that a transaction has occurred.

 

Ans: T   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

 

Ans: T   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Transactions are entered in the ledger accounts and then transferred to journals.

 

Ans: F   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. All business transactions must be entered first in the general ledger.

 

Ans: F   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A simple journal entry requires only one debit to an account and one credit to an account.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A compound journal entry requires several debits to one account and several credits to one account.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Transactions are recorded in alphabetic order in a journal.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A journal is also known as a book of original entry.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The complete effect of a transaction on the accounts is disclosed in the journal.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The chart of accounts is a special ledger used in accounting systems.

 

Ans: F   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the balance sheet accounts.

 

Ans: T   LO5   BT:C K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises.

 

Ans: F   LO6  BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Posting is the process of proving the equality of debits and credits in the trial balance.

 

Ans: F   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. After a transaction has been posted, the reference column in the journal should not be blank.

 

Ans: T   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

 

Ans: T   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The normal balance of an expense is a credit.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The journal provides a chronological record of transactions.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The ledger is merely a bookkeeping device and therefore does not provide much useful data for management.

 

Ans: F   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger.

 

Ans: T   LO6   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting.

 

Ans: T   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The trial balance will not balance when incorrect account titles are used in journalizing or posting.

 

Ans: F   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. F 7. F 13. F 19. T 25. F 31. T 37. F
2. F 8. F 14. F 20. F 26. T 32. F    
3. F 9. F 15. T 21. F 27. F 33. T    
4. T 10. F 16. T 22. T 28. F 34. F    
5. F 11. F 17. F 23. T 29. T 35. T    
6. T 12. T 18. F 24. F 30. T 36. T    

 

MULTIPLE CHOICE QUESTIONS

  1. An account consists of
  2. one part.
  3. two parts.
  4. three parts.
  5. four parts.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The left side of an account is
  2. blank.
  3. a description of the account.
  4. the debit side.
  5. the balance of the account.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which one of the following is not a part of an account?
  2. Credit side
  3. Trial balance
  4. Debit side
  5. Title

 

Ans: b   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account is a part of the financial information system and is described by all except which one of the following?
  2. An account has a debit and credit side.
  3. An account is a source document.
  4. An account may be part of a manual or a computerized accounting system.
  5. An account has a title.

 

Ans: b   LO1   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The right side of an account
  2. is the correct side.
  3. reflects all transactions for the accounting period.
  4. shows all the balances of the accounts in the system.
  5. is the credit side.

 

Ans: d   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account consists of
  2. a title, a debit balance, and a credit balance.
  3. a title, a left side, and a debit balance.
  4. a title, a debit side, and a credit side.
  5. a title, a right side, and a debit balance.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

  1. A T-account is
  2. a way of depicting the basic form of an account.
  3. what the computer uses to organize bytes of information.
  4. a special account used instead of a trial balance.
  5. used for accounts that have both a debit and credit balance.

 

Ans: a   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Credits
  2. decrease both assets and liabilities.
  3. decrease assets and increase liabilities.
  4. increase both assets and liabilities.
  5. increase assets and decrease liabilities.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A debit to an asset account indicates
  2. an error.
  3. a credit was made to a liability account.
  4. a decrease in the asset.
  5. an increase in the asset.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The normal balance of any account is the
  2. left side.
  3. right side.
  4. side which increases that account.
  5. side which decreases that account.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The double-entry system requires that each transaction must be recorded
  2. in at least two different accounts.
  3. in two sets of books.
  4. in a journal and in a ledger.
  5. first as a revenue and then as an expense.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A credit is not the normal balance for which account listed below?
  2. Capital account
  3. Revenue account
  4. Liability account
  5. Drawings account

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which one of the following represents the expanded basic accounting equation?
  2. Assets = Liabilities + Owner’s Capital + Owner’s Drawings – Revenue – Expenses.
  3. Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenues.
  4. Assets – Liabilities – Owner’s Drawings = Owner’s Capital + Revenues – Expenses.
  5. Assets = Revenues + Expenses – Liabilities.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. Which of the following correctly identifies normal balances of accounts?
  2. Assets Debit

Liabilities                            Credit

Owner’s Equity                  Credit

Revenues                          Debit

Expenses                          Credit

  1. Assets Debit

Liabilities                            Credit

Owner’s Equity                  Credit

Revenues                          Credit

Expenses                          Credit

  1. Assets Credit

Liabilities                            Debit

Owner’s Equity                  Debit

Revenues                          Credit

Expenses                          Debit

  1. Assets Debit

Liabilities                            Credit

Owner’s Equity                  Credit

Revenues                          Credit

Expenses                          Debit

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The best interpretation of the word credit is the
  2. offset side of an account.
  3. increase side of an account.
  4. right side of an account.
  5. decrease side of an account.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In recording an accounting transaction in a double-entry system
  2. the number of debit accounts must equal the number of credit accounts.
  3. there must always be entries made on both sides of the accounting equation.
  4. the amount of the debits must equal the amount of the credits.
  5. there must only be two accounts affected by any transaction.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An accounting convention is best described as
  2. an absolute truth.
  3. an accounting custom.
  4. an optional rule.
  5. something that cannot be changed.

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A debit is not the normal balance for which account listed below?
  2. Drawings
  3. Cash
  4. Accounts Receivable
  5. Service Revenue

 

Ans: d   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An accountant has debited an asset account for $1,200 and credited a liability account for $500. What can be done to complete the recording of the transaction?
  2. Nothing further must be done.
  3. Debit an owner’s equity account for $700.
  4. Debit another asset account for $700.
  5. Credit a different asset account for $700.

 

Ans: d   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An accountant has debited an asset account for $1,300 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?
  2. Credit an asset account for $800.
  3. Credit another liability account for $800.
  4. Credit an owner’s equity account for $800.
  5. Debit an owner’s equity account for $800.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following is not true of the terms debit and credit?
  2. They can be abbreviated as Dr. and Cr.
  3. They can be interpreted to mean increase and decrease.
  4. They can be used to describe the balance of an account.
  5. They can be interpreted to mean left and right.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An account will have a credit balance if the
  2. credits exceed the debits.
  3. first transaction entered was a credit.
  4. debits exceed the credits.
  5. last transaction entered was a credit.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. For the basic accounting equation to stay in balance, each transaction recorded must
  2. affect two or less accounts.
  3. affect two or more accounts.
  4. always affect exactly two accounts.
  5. affect the same number of asset and liability accounts.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following statements is true?
  2. Debits increase assets and increase liabilities.
  3. Credits decrease assets and decrease liabilities.
  4. Credits decrease assets and increase liabilities.
  5. Debits decrease liabilities and decrease assets.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Assets normally show
  2. credit balances.
  3. debit balances.
  4. debit and credit balances.
  5. debit or credit balances.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?
  2. A debit balance in the drawings account
  3. A credit balance in an expense account
  4. A credit balance in a liabilities account
  5. A credit balance in a revenue account

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. If a company has overdrawn its bank balance, then
  2. its cash account will show a debit balance.
  3. its cash account will show a credit balance.
  4. the cash account debits will exceed the cash account credits.
  5. it cannot be detected by observing the balance of the cash account.

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which account below is not a subdivision of owner’s equity?
  2. Drawings
  3. Revenues
  4. Expenses
  5. Liabilities

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. When an owner makes a withdrawal
  2. it doesn’t have to be cash, it could be another asset.
  3. the drawing account will be increased with a credit.
  4. the capital account will be directly increased with a debit.
  5. the drawing account will be decreased with a debit.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The drawings account
  2. appears on the income statement along with the expenses of the business.
  3. must show transactions every accounting period.
  4. is increased with debits and decreased with credits.
  5. is not a proper subdivision of owner’s equity.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following statements is not true?
  2. Expenses increase owner’s equity.
  3. Expenses have normal debit balances.
  4. Expenses decrease owner’s equity.
  5. Expenses are a negative factor in the computation of net income.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A credit to a liability account
  2. indicates an increase in the amount owed to creditors.
  3. indicates a decrease in the amount owed to creditors.
  4. is an error.
  5. must be accompanied by a debit to an asset account.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In the first month of operations, the total of the debit entries to the cash account amounted to $1,200 and the total of the credit entries to the cash account amounted to $800. The cash account has a(n)
  2. $800 credit balance.
  3. $1,200 debit balance.
  4. $400 debit balance.
  5. $400 credit balance.

 

Ans: c   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $1,200 – $800 = $400

 

  1. TransAm Mail Service purchased equipment for $2,000. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and
  2. nothing further must be done.
  3. debited the Capital account for $1,600.
  4. credited another asset account for $400.
  5. credited a liability account for $1,600.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $2,000 – $400 = $1,600

 

  1. Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for $1,000, a credit to a liability account for $600. Which of the following would be the correct way to complete the recording of the transaction?
  2. Credit an asset account for $400.
  3. Credit another liability account for $400.
  4. Credit the Capital account for $400.
  5. Debit the Capital account for $400.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include
  2. a debit to Supplies and a credit to Accounts Payable.
  3. a debit to Supplies Expense and a credit to Accounts Receivable.
  4. a debit to Supplies and a credit to Cash.
  5. a debit to Accounts Receivable and a credit to Supplies.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. On June 1, 2014, Portugal Inc. reported a cash balance of $12,000. During June, Portugal made deposits of $5,000 and made disbursements totalling $14,000. What is the cash balance at the end of June?
  2. $3,000 debit balance
  3. $17,000 debit balance
  4. $3,000 credit balance
  5. $2,000 credit balance

 

Ans: a   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $12,000 + $5,000 – $14,000 = $3,000

 

  1. At January 1, 2014, Alligator Industries reported owner’s equity of $150,000. During 2014, Alligator had a net loss of $30,000 and owner drawings of $15,000. At December 31, 2014, the amount of owner’s equity is
  2. $105,000.
  3. $120,000.
  4. $135,000.
  5. $165,000.

 

Ans: a   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $150,000 – $30,000 – $15,000 = $105,000

 

  1. Silver Mt. Zion pays its employees twice a month, on the 7th and the 21st. On June 21, Silver Mt. Zion paid employee salaries of $5,000. This transaction would
  2. increase owner’s equity by $5,000.
  3. decrease the balance in Salaries and Wages Expense by $5,000.
  4. decrease net income for the month by $5,000.
  5. be recorded by a $5,000 debit to Salaries and Wages Payable and a $5,000 credit to Salaries and Wages Expense.

 

Ans: c   LO2   BT: K   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In the first month of operations for Gallowsbird Industries, the total of the debit entries to the cash account amounted to $36,000 ($16,000 investment by the owner and revenues of $20,000). The total of the credit entries to the cash account amounted to $22,000 (purchase of equipment $8,000 and payment of expenses $14,000). At the end of the month, the cash account has a(n)
  2. $6,000 credit balance.
  3. $6,000 debit balance.
  4. $14,000 debit balance.
  5. $14,000 credit balance.

 

Ans: c   LO2   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $36,000 – $22,000 = $14,000 debit

 

  1. Chik Chik Company showed the following balances at the end of its first year:

Cash                                                        $  6,000

Prepaid insurance                                        9,400

Accounts receivable                                      7000

Accounts payable                                         5,600

Notes payable                                              8,400

Owner’s Capital                                            2,800

Owner’s Drawings                                        1,400

Revenues                                                  44,000

Expenses                                                   35,000

What did Chik Chik Company show as total credits on its trial balance?

  1. $51,400
  2. $60,800
  3. $62,200
  4. $70,200

 

Ans: b   LO2   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

 

Solution: $5,600 + $8,400 + $2,800 + $44,000 = $60,800

 

 

  1. Electrelane Company showed the following balances at the end of its first year:

Cash                                                        $  4,000

Prepaid insurance                                        7,000

Accounts receivable                                     5,000

Accounts payable                                         4,000

Notes payable                                              6,000

Owner’s Capital                                            2,000

Owner’s Drawings                                        1,000

Revenues                                                  32,000

Expenses                                                   25,000

 

What did Electrelene Company show as total credits on its trial balance?

  1. $9,000
  2. $44,000
  3. $45,000
  4. $49,000

 

Ans: b   LO2   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

 

Solution: $4,000 + $6,000 + $2,000 + $32,000 = $44,000

 

  1. During February 2014, its first month of operations, the owner of Ariel Pink Enterprises invested cash of $50,000. Ariel had cash revenues of $10,000 and paid expenses of $14,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28?
  2. $4,000 credit
  3. $4,000 debit
  4. $46,000 debit
  5. $54,000 debit

 

Ans: c   LO2   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $50,000 + $10,000 – $14,000 = $46,000

 

  1. At January 31, 2014, the balance in Aislers Inc.’s supplies account was $750. During February, Aislers purchased supplies of $900 and used supplies of $1,125. At the end of February, the balance in the supplies account should be
  2. $525 debit.
  3. $975 debit.
  4. $525 credit.
  5. $975 debit.

 

Ans: a   SO3   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $750 + $900 – $1,125 = $525 debit

 

  1. At December 1, 2014, Cursive  Company’s accounts receivable balance was $1,800. During December, Cursive had credit sales of $7,200 and collected accounts receivable of $6,000. At December 31, 2012, the accounts receivable balance is
  2. $600 debit.
  3. $3,000 debit.
  4. $600 credit.
  5. $3,000 credit.

 

Ans: b   LO2   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $1,800 + $7,200 – $6,000 = $3,000 debit

 

  1. At October 1, 2014, Padilla Industries had an accounts payable balance of $40,000. During the month, the company made purchases on account of $33,000 and made payments on account of $48,000. At October 31, 2014, the accounts payable balance is
  2. $25,000.
  3. $41,000.
  4. $55,000.
  5. $121,000.

 

Ans: a   LO2   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $40,000 + 33,000 – $48,000 = $25,000

 

  1. During 2014, its first year of operations, Neko’s Bakery had revenues of $60,000 and expenses of $35,000. The business had owner drawings of $20,000. What is the amount of owner’s equity at December 31, 2014?
  2. $0
  3. $5,000 credit
  4. $25,000 credit
  5. $20,000 debit

 

Ans: b   LO2   BT: C   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $0 + ($60,000 – $35,000) – $20,000 = $5,000

 

  1. On July 7, 2014, Hidden Comera Enterprises performed cash services of $1,700. The entry to record this transaction would include
  2. a debit to Service Revenue of $1,700.
  3. a credit to Accounts Receivable of $1,700.
  4. a debit to Cash of $1,700.
  5. a credit to Accounts Payable of $1,700.

 

Ans: c   LO2   BT: AP   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. At September 1, 2014, Promise Ring Co. reported owner’s equity of $156,000. During the month, Promise Ring generated revenues of $38,000, incurred expenses of $21,000, purchased equipment for $5,000 and withdrew cash of $2,000. What is the amount of owner’s equity at September 30, 2014?
  2. $166,000
  3. $171,000
  4. $173,000
  5. $176,000

 

Ans: b   LO2  BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Solution: $156,000 + ($38,000 – $21,000) – $2,000 = $171,000

 

  1. The final step in the recording process is to
  2. analyze each transaction.
  3. enter the transaction in a journal.
  4. prepare a trial balance.
  5. transfer journal information to ledger accounts.

 

Ans: d   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. The usual sequence of steps in the transaction recording process is:
  2. journal à  analyze  à  ledger.
  3. analyze à  journal  à  ledger.
  4. journal à  ledger  à  analyze.
  5. ledger à  journal  à  analyze.

 

Ans: b   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. In recording business transactions, evidence that an accounting transaction has taken place is obtained from
  2. business documents.
  3. the Internal Revenue Service.
  4. the public relations department.
  5. the SEC.

 

Ans: a   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to
  2. the company’s bank.
  3. owner’s equity.
  4. ledger accounts.
  5. financial statements.

 

Ans: c   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The first step in the recording process is to
  2. prepare financial statements.
  3. analyze each transaction for its effect on the accounts.
  4. post to a journal.
  5. prepare a trial balance.

 

Ans: b   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n)
  2. cash register sales tape.
  3. bill.
  4. advertising brochure.
  5. check.

 

Ans: c   LO3   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. After transaction information has been recorded in the journal, it is transferred to the
  2. trial balance.
  3. income statement.
  4. book of original entry.
  5. ledger.

 

Ans: d   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the
  2. journal, and transfer the information to the ledger accounts.
  3. ledger, and transfer the information to the journal.
  4. book of accounts, and transfer the information to the journal.
  5. book of original entry, and transfer the information to the journal.

 

Ans: a   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The final step in the recording process is to transfer the journal information to the
  2. trial balance.
  3. financial statements.
  4. ledger.
  5. file cabinets.

 

Ans: c   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The recording process occurs
  2. once a year.
  3. once a month.
  4. repeatedly during the accounting period.
  5. infrequently in a manual accounting system.

 

Ans: c   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A compound journal entry involves
  2. two accounts.
  3. three accounts.
  4. three or more accounts.
  5. four or more accounts.

 

Ans: c   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A journal provides
  2. the balances for each account.
  3. information about a transaction in several different places.
  4. a list of all accounts used in the business.
  5. a chronological record of transactions.

 

Ans: d   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. When three or more accounts are required in one journal entry, the entry is referred to as a
  2. compound entry.
  3. triple entry.
  4. multiple entry.
  5. simple entry.

 

Ans: a   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

  1. When two accounts are required in one journal entry, the entry is referred to as a
  2. balanced entry.
  3. simple entry.
  4. posting.
  5. nominal entry.

 

Ans: b   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Another name for a journal is
  2. listing.
  3. book of original entry.
  4. book of accounts.
  5. book of source documents.

 

Ans: b   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The standard format of a journal would not include
  2. a reference column.
  3. an account title column.
  4. a T-account.
  5. a date column.

 

Ans: c   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

103      Transactions in a journal are initially recorded in

  1. account number order.
  2. dollar amount order.
  3. alphabetical order.
  4. chronological order.

 

Ans: d   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

104      A journal is not useful for

  1. disclosing in one place the complete effect of a transaction.
  2. preparing financial statements.
  3. providing a record of transactions.
  4. locating and preventing errors.

 

Ans: b   LO4   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

105      A complete journal entry does not show

  1. the date of the transaction.
  2. the new balance in the accounts affected by the transaction.
  3. a brief explanation of the transaction.
  4. the accounts and amounts to be debited and credited.

 

Ans: b   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The name given to entering transaction data in the journal is
  2. chronicling.
  3. listing.
  4. posting.
  5. journalizing.

Ans: d   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The standard form of a journal entry has the
  2. debit account entered first and indented.
  3. credit account entered first and indented.
  4. debit account entered first at the extreme left margin.
  5. credit account entered first at the extreme left margin.

 

Ans: c   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. When journalizing, the reference column is
  2. left blank.
  3. used to reference the source document.
  4. used to reference the journal page.
  5. used to reference the financial statements.

 

Ans: a   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. On June 1, 2014 Ted Leo Le buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will
  2. use two journal entries.
  3. make a compound entry.
  4. make a simple entry.
  5. list the credit entries first, which is proper form for this type of transaction.

 

Ans: b   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following journal entries is recorded correctly and in the standard format?
  2. Salaries and Wages Expense ………………………………………. 500

Cash ……………………………………………………………………..                               1,500

Advertising Expense …………………………………………………….          1,000

 

  1. Salaries and Wages Expense ………………………………………. 500

Advertising Expense …………………………………………………….                               1,000

Cash ……………………………………………………………………..          1,500

 

  1. Cash ………………………………………………………………………….. 1,500

Salaries and Wages Expense ………………………………….                                  500

Advertising Expense ……………………………………………….                               1,000

 

  1. Salaries and Wages Expense ………………………………………. 500

Advertising Expense …………………………………………………….          1,000

Cash ……………………………………………………………………..                               1,500

 

Ans: d   LO4   BT: AN   Difficulty: Easy   TOT: 1 min.   AACSB: Analysis   AICPA  BB: CT   AICPA  PC: PS

 

  1. The ledger should be arranged in
  2. alphabetical order.
  3. chronological order.
  4. dollar amount order.
  5. financial statement order.

 

Ans: d   LO5   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The entire group of accounts maintained by a company is called the
  2. chart of accounts.
  3. general journal.
  4. general ledger.
  5. trial balance.

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. An accounting record of the balances of all assets, liabilities, and owner’s equity accounts is called a
  2. compound entry.
  3. general journal.
  4. general ledger.
  5. chart of accounts.

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The usual ordering of accounts in the general ledger is
  2. assets, liabilities, owner’s capital, drawings, revenues, and expenses.
  3. assets, liabilities, drawings, owner’s capital, expenses, and revenues.
  4. liabilities, assets, owner’s capital, revenues, expenses, and drawings.
  5. owner’s capital, assets, liabilities, drawings, expenses, and revenues.

 

Ans: a   LO5   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Management could determine the amounts due from customers by examining which ledger account?
  2. Service Revenue
  3. Accounts Payable
  4. Accounts Receivable
  5. Supplies

 

Ans: c   LO5   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The ledger accounts should be arranged in
  2. chronological order.
  3. alphabetical order.
  4. financial statement order.
  5. order of appearance in the journal.

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A three column form of account is so named because it has columns for
  2. debit, credit, and account name.
  3. debit, credit, and reference.
  4. debit, credit, and balance.
  5. debit, credit, and date.

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. On August 13, 2014, Swell Maps Enterprises purchased office equipment for $1,500 and office supplies of $200 on account. Which of the following journal entries is recorded correctly and in the standard format?
  2. Equipment ……………………………………………………………….. 1,500

Account Payable……………………………………………………..                               1,700

Supplies       ………………………………………………………………….. 200

 

  1. Equipment. ………………………………………………………………..                                1,500

Supplies       ………………………………………………………………..                                   200

Accounts Payable…………………………………………………… 1,700

 

  1. Accounts Payable………………………………………………………… 1,700

Equipment………………………………………………………………                               1,500

Supplies………………………………………………………………..                                  200

 

  1. Equipment ……………………………………………………………….. 1,500

Supplies       ………………………………………………………………….. 200

Accounts Payable……………………………………………………                               1,700

 

Ans: d   LO5   BT: AP   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Delta72 Company received a cash advance of $700 from a customer. As a result of this event,
  2. assets increased by $700.
  3. owner’s equity increased by $700.
  4. liabilities decreased by $700.
  5. assets and owner’s equity both increased by $700.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Camper Van Company purchased equipment for $2,600 cash. As a result of this event,
  2. owner’s equity decreased by $2,600.
  3. total assets increased by $2,600.
  4. total assets remained unchanged.
  5. owner’s equity decreased and total assets increased by $2,600.

 

Ans: c   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Beethoven Company provided consulting services and billed the client $3,100. As a result of this event,
  2. assets remained unchanged.
  3. assets increased by $3,100.
  4. owner’s equity increased by $3,100.
  5. assets and owner’s equity both increased by $3,100.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. The first step in posting involves
  2. entering in the appropriate ledger account the date, journal page, and debit amount shown in the journal.
  3. writing in the journal the account number to which the debit amount was posted.
  4. writing in the journal the account number to which the credit amount was posted.
  5. entering in the appropriate ledger account the date, journal page, and credit amount shown in the journal.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A chart of accounts usually starts with
  2. asset accounts.
  3. expense accounts.
  4. liability accounts.
  5. revenue accounts.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The procedure of transferring journal entries to the ledger accounts is called
  2. journalizing.
  3. analyzing.
  4. reporting.
  5. posting.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A number in the reference column in a general journal indicates
  2. that the entry has been posted to a particular account.
  3. the page number of the journal.
  4. the dollar amount of the transaction.
  5. the date of the transaction.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A chart of accounts for a business firm
  2. is a graph.
  3. indicates the amount of profit or loss for the period.
  4. lists the accounts and account numbers that identify their location in the ledger.
  5. shows the balance of each account in the general ledger.

 

Ans: c   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Posting
  2. should be performed in account number order.
  3. accumulates the effects of journalized transactions in the individual accounts.
  4. involves transferring all debits and credits on a journal page to the trial balance.
  5. is accomplished by examining ledger accounts and seeing which ones need updating.

 

Ans: b   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. After journal entries are posted, the reference column
  2. of the general journal will be blank.
  3. of the general ledger will show journal page numbers.
  4. of the general journal will show “Dr” or “Cr”.
  5. of the general ledger will show account numbers.

 

Ans: b   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The explanation column of the general ledger
  2. is completed without exception.
  3. is nonexistent.
  4. is used infrequently.
  5. shows account titles.

 

Ans: c   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A numbering system for a chart of accounts
  2. is prescribed by GAAP.
  3. is uniform for all businesses.
  4. usually starts with income statement accounts.
  5. usually starts with balance sheet accounts.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The first step in designing a computerized accounting system is the creation of the
  2. general ledger.
  3. general journal.
  4. trial balance.
  5. chart of accounts.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The steps in preparing a trial balance include all of the following except
  2. listing the account titles and their balances.
  3. totaling the debit and credit columns.
  4. proving the equality of the two columns.
  5. transferring journal amounts to ledger accounts.

 

Ans: d   LO7   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A trial balance may balance even when each of the following occurs except when
  2. a transaction is not journalized.
  3. a journal entry is posted twice.
  4. incorrect accounts are used in journalizing.
  5. a transposition error is made.

 

Ans: d   LO7   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

  1. A list of accounts and their balances at a given time is called a(n)
  2. journal.
  3. posting.
  4. trial balance.
  5. income statement.

 

Ans: c   LO7   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates
  2. no errors have been made.
  3. no errors can be discovered.
  4. that all accounts reflect correct balances.
  5. the mathematical equality of the accounting equation.

 

Ans: d   LO7   BT: C   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A trial balance is a listing of
  2. transactions in a journal.
  3. the chart of accounts.
  4. general ledger accounts and balances.
  5. the totals from the journal pages.

 

Ans: c   LO7   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Customarily, a trial balance is prepared
  2. at the end of each day.
  3. after each journal entry is posted.
  4. at the end of an accounting period.
  5. only at the inception of the business.

 

Ans: c   LO7   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A trial balance would only help in detecting which one of the following errors?
  2. A transaction that is not journalized
  3. A journal entry that is posted twice
  4. Offsetting errors are made in recording the transaction
  5. A transposition error when transferring the debit side of journal entry to the ledger

 

Ans: d   LO7   BT: C   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

139….. An account is an individual accounting record of increases and decreases in specific

  1. liabilities.
  2. assets.
  3. expenses.
  4. assets, liabilities, and owner’s equity items.

 

Ans: d   LO1   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. A debit is not the normal balance for which of the following?
  2. Asset account
  3. Drawing account
  4. Expense account
  5. Capital account

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following rules is incorrect?
  2. Credits decrease the drawing account.
  3. Debits increase the capital account.
  4. Credits increase revenue accounts.
  5. Debits decrease liability accounts.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following statements is false?
  2. Revenues increase owner’s equity.
  3. Revenues have normal credit balances.
  4. Revenues are a positive factor in the computation of net income.
  5. Revenues are increased by debits.

 

Ans: d   LO2   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following is the correct sequence of steps in the recording process?
  2. Posting, journalizing, analyzing
  3. Journalizing, analyzing, posting
  4. Analyzing, posting, journalizing
  5. Analyzing, journalizing, posting

 

Ans: d   LO3   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following is false about a journal?
  2. It discloses in one place the complete effects of a transaction.
  3. It provides a chronological record of transactions.
  4. It helps to prevent or locate errors because debit and credit amounts for each entry can be readily compared.
  5. It keeps in one place all the information about changes in specific account balances.

 

Ans: d   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Deerhoof Company purchases equipment for $2,700 and supplies for $400 from Milkman Co. for $3,100 cash. The entry for this transaction will include a
  2. debit to Equipment $2,700 and a debit to Supplies Expense $400 for Milkman.
  3. credit to Cash for Milkman.
  4. credit to Accounts Payable for Deerhoof.
  5. debit to Equipment $2,700 and a debit to Supplies $400 for Deerhoof.

 

Ans: d   LO4   BT: K   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. Devendra Banhart withdraws $600 cash from her business for personal use. The entry for this transaction will include a debit of $600 to
  2. Owner’s Drawings.
  3. Owner’s Capital.
  4. Owner’s Salaries Expense.
  5. Salaries and Wages Expense.

 

Ans: a   LO4   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. On October 3, Karl Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a
  2. credit to Owner’s Capital.
  3. credit to Notes Payable.
  4. debit to Accounts Receivable.
  5. credit to Accounts Payable.

 

Ans: d   LO4   BT: C   Difficulty: Medium   TOT: 1.5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Posting of journal entries should be done in
  2. account number order.
  3. alphabetical order.
  4. chronological order.
  5. dollar amount order.

 

Ans: c   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The chart of accounts is a
  2. list of accounts and their balances at a given time.
  3. device used to prove the mathematical accuracy of the ledger.
  4. listing of the accounts and the account numbers which identify their location in the ledger.
  5. required step in the recording process.

 

Ans: c   LO6   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following is incorrect regarding a trial balance?
  2. It proves that the debits equal the credits after posting.
  3. It proves that the company has recorded all transactions.
  4. A trial balance uncovers errors in journalizing and posting.
  5. A trial balance is useful in the preparation of financial statements.

 

Ans: b   LO7   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. A trial balance will not balance if
  2. a journal entry is posted twice.
  3. a wrong amount is used in journalizing.
  4. incorrect account titles are used in journalizing.
  5. a journal entry is only partially posted.

 

Ans: d   LO7   BT: C   Difficulty: Medium   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. Which of the following are the same under both GAAP and IFRS?
  2. The account.
  3. Debit and credit rules.
  4. Steps in the recording process.
  5. All of these answer choices are correct.

 

Ans: d   LO8   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following are the same under both GAAP and IFRS?
  2. The journal.
  3. The ledger.
  4. The chart of accounts.
  5. All of these answer choices are correct.

 

Ans: d   LO8   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Which of the following is true?
  2. Transaction analysis is completely different under IFRS and GAAP.
  3. Most transactions are recorded differently under IFRS and GAAP.
  4. Transaction analysis is the same under IFRS and GAAP, but some transactions are recorded differently.
  5. All transactions are recorded the same under IFRS and GAAP.

 

Ans: c   LO8   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. European companies rely
  2. less on historical cost and more on fair values than U.S. companies.
  3. less on fair values and more on historical cost than U.S. companies.
  4. completely on fair values for financial reporting.
  5. completely on historical cost for financial reporting.

 

Ans: a   LO8   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. The double–entry accounting system is the basis of accounting systems
  2. worldwide.
  3. worldwide, except for the U.S.
  4. in the U.S. only
  5. neither internationally nor in the U.S.

 

Ans: a   LO8   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

  1. Under IFRS, the trial balance
  2. follows the same format as under GAAP.
  3. shows credits on the left and debits on the right.
  4. includes less accounts than under GAAP.
  5. includes more accounts than under GAAP.

 

Ans: a   LO8   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

  1. In deciding whether the U.S. should adopt IFRS, the issue the SEC said should be considered is
  2. whether IFRS is sufficiently developed and consistent in application.
  3. whether the IFRS is established for the benefit of investors.
  4. the impact of a switch to IFRS on U.S. laws and regulations.
  5. all of these answer choices are correct.

 

Ans: d   LO8   BT: K   Difficulty: Easy   TOT: 1 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Answers to Multiple Choice Questions

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
38. c 56. d 74. a 92. c 110. d 128. b 146. a
39. c 57. d 75. a 93. d 111. d 129. c 147. d
40. b 58. b 76. c 94. a 112. c 130. d 148. c
41. b 59. a 77. c 95. c 113. c 131. d 149. c
42. d 60. b 78. b 96. c 114. a 132. d 150. b
43. c 61. c 79. b 97. c 115. c 133. d 151. d
44. a 62. b 80. c 98. d 116. c 134. c 152. d
45. b 63. b 81. a 99. a 117. c 135. d 153. d
46. d 64. b 82. b 100. b 118. d 136. c 154. c
47. c 65. d 83. a 101. b 119. a 137. c 155. a
48. a 66. a 84. b 102. c 120. c 138. d 156. a
49. d 67. c 85. c 103. d 121. d 139. d 157. a
50. b 68. a 86. b 104. b 122. a 140. d 158. d
51. d 69. a 87. d 105. b 123. a 141. b    
52. c 70. c 88. b 106. d 124. d 142. d    
53. c 71. d 89. a 107. c 125. a 143. d    
54. b 72. a 90. c 108. a 126. c 144. d    
55. d 73. a 91. b 109. b 127. b 145. d    

 

 

BRIEF Exercises

 

BE 159

At June 1, 2014, Coquehcot Industries had an accounts receivable balance of $12,000. During the month, the company performed credit services of $30,000 and collected accounts receivable of $22,000. What is the balance in accounts receivable at June 30, 2014?

 

 

Solution 159

The balance at the end of the month is $15,000, calculated as follows:

 

Beginning accounts receivable                      $12,000

Add:  Credit sales                                              30,000

Less:    Collections                                          (22,000)

Ending accounts receivable                           $20,000

 

LO2   BT: AP   Difficulty: Easy   TOT: 3 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

BE 160

 

TNT has the following transactions during April of the current year. Indicate

(a) the effect on the accounting equation and (b) the debit-credit analysis.

 

Apr. 1     Opens a law office, investing $25,000 in cash.

4      Pays rent in advance for 6 months, $9,000 cash.

16    Receives $8,000 from clients for services provided.

                                27    Pays secretary $2,800 salary.

 

Solution 160

 

 

    (a) Effect on Accounting Equation   (b) Debit-Credit Analysis
         
Aug.   1

 

  The asset Cash is increased; the owner’s equity Capital account is increased.   Debits increase assets:
debit Cash $25,000.
Credits increase owner’s equity: credit Owner’s Capital $25,000.
         
              4   The asset Prepaid Rent is increased; the asset Cash is decreased.   Debits increase assets:
debit Prepaid Rent $9,000.
Credits decrease assets:
credit Cash $9,000.
         
            16   The asset Cash is increased; the revenue Service Revenue is increased.   Debits increase assets:
debit Cash $8,000.
Credits increase revenues:
credit Service Revenue $8,000.
         
            27   The expense Salaries and Wages Expense is increased; the asset Cash is decreased.   Debits increase expenses:
debit Salaries and Wages
Expense $2,800.
Credits decrease assets:
credit Cash $2,800.
LO2   BT: C   Difficulty: Medium   TOT: 6 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

 

 

BE 161

For each of the following accounts indicate the effect of a debit or a credit on the account and the normal balance.  Increase (+), Decrease (–).

  Debit_            _Credit_            Normal Balance

  1. Salaries and wages expense.                       _______            _______                _______
  2. Accounts receivable.                                     _______            _______                _______
  3. Service revenue.                                           _______            _______                _______
  4. Owner’s Capital.                                            _______            _______                _______
  5. Owner’s Drawings.                                        _______            _______                _______

 

 

Solution 161

  Debit_            _Credit_            Normal Balance

  1. Salaries and wages expense.                       __ +___            ___–___                __ Dr___
  2. Accounts receivable.                                     __ +___            ___–___                __ Dr___
  3. Service revenue.                                           __ –____            ___+___                __ Cr___
  4. Owner’s Capital.                                            __ –____            ___+___                __ Cr___
  5. Owner’s Drawings.                                        __ +___            ___–___                __ Dr___

 

LO2   BT: K   Difficulty: Easy   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

BE 162

For each of the following transactions of Neon Garden, identify the account to be debited and the account to be credited.

  1. Purchased 18-month insurance policy for cash.
  2. Paid weekly payroll.
  3. Purchased supplies on account.
  4. Received utility bill to be paid at later date.

 

 

Solution 162

Transaction                          Debit                                                Credit        

1                       Prepaid Insurance                                    Cash

2                       Salaries and Wages Expense                  Cash

3                               Supplies                                  Accounts Payable

4                         Utilities Expense                            Accounts Payable

 

LO4   BT: AP   Difficulty: Medium   TOT: 4 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

BE 163

Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transaction.

  1. Andrew Bird invested $35,000 cash to start an appliance repair business.
  2. Hired an employee to be paid $400 per week, starting tomorrow.
  3. Paid two years’ rent in advance, $7,440.
  4. Paid the worker’s weekly wage.
  5. Recorded revenue earned and received for the week, $1,900.
Solution 163
  1. Cash……………………………………………………………………………………. 35,000

Owner’s Capital………………………………………………………………                             35,000

 

  1. No entry, not a transaction.

 

  1. Prepaid Rent………………………………………………………………………….. 7,440

Cash………………………………………………………………………………                               7,440

Solution 163     (cont.)
  1. Salaries and Wages Expense………………………………………………….. 400

Cash………………………………………………………………………………                                  400

 

  1. Cash…………………………………………………………………………………… 1,900

Service Revenue…………………………………………………………….                               1,900

 

LO4   BT: AP   Difficulty: Medium   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

BE 164

Identify the impact on the accounting equation of the following transactions.

  1. Purchased 36-month insurance policy for cash.
  2. Purchased supplies on account.
  3. Received utility bill to be paid at later date.
  4. Paid utility bill previously accrued.

 

 

Solution 164
  1. Net effect is no change: Increases assets and decreases assets.
  2. Increases assets and increases liabilities.
  3. Increases liabilities and decreases owner’s equity.
  4. Decreases assets and decreases liabilities

 

LO4   BT: K   Difficulty: Easy   TOT: 4 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

BE 165

Journalize the following transactions for Xiu Xiu Company for June 2014, the company’s first month of operations. You may omit explanations for the transactions.

  1. Purchased equipment on account for $9,000.
  2. Billed customers $5,000 for services performed.
  3. Made payment of $2,300 on account for equipment purchased earlier in month.
  4. Collected $2,900 on customer accounts.

 

 

Solution 165
  1. Equipment……………………………………………………………………………… 9,000

Accounts Payable……………………………………………………………                               9,000

 

  1. Accounts Receivable………………………………………………………………. 5,000

Service Revenue…………………………………………………………….                               5,000

 

  1. Accounts Payable…………………………………………………………………… 2,300

Cash………………………………………………………………………………                               2,300

 

  1. Cash……………………………………………………………………………………… 2,900

Accounts Receivable……………………………………………………….                               2,900

 

LO4   BT: AP   Difficulty: Medium   TOT: 4 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

BE 166

The following transactions took place for Xiu Xiu company:

  1. Purchased equipment on account for $9,000.
  2. Billed customers $5,000 for services performed.
  3. Made payment of $2,300 on account for equipment purchased earlier in month.
  4. Collected $2,900 on customer accounts.

 

  1. What is the balance in Accounts Payable at June 30, 2014?
  2. What is the balance in Accounts Receivable at June 30, 2014?

 

 

Solution 166
  1. Accounts Payable at June 30, 2014:

Beginning accounts payable                                       $       0

Purchases on account                                                   9,000

Payments on account                                                   (2,300)

Ending accounts payable                                            $6,700

 

  1. Accounts Receivable at June 30, 2014:

Beginning accounts receivable                                   $       0

Billed to customers                                                        5,000

Collections from customers                                         (2,900)

Ending accounts receivable                                        $2,100

 

 

LO6   BT: AP   Difficulty: Medium   TOT: 6 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

 

 

 

BE 167

The transactions of the Liberty Belle Store are recorded in the general journal below. You are to post the journal entries to T-accounts.

 

General Journal

______________________________________________________________________________

Date          Account Titles                                                                               Debit          Credit

______________________________________________________________________________

2014

Aug.      5         Accounts Receivable                                                                     4,400

Service Revenue                                                                                     4,400

 

10         Cash                                                                                               3,000

Service Revenue                                                                                     3,000

 

19         Rent Expense                                                                                 1,100

Cash                                                                                                        1,100

 

25         Cash                                                                                               1,400

Accounts Receivable                                                                              1,400

 

BE 167         (cont.)

General Ledger

Cash                                                                  Accounts Receivable

 

 

 

 

Service   Revenue                                                        Rent   Expense

 

 

 

 

 

 

 

 

 

Solution 167

General Ledger

 

Cash                                                            Accounts Receivable

8/10                 3,000        8/19       1,100                        8/5            4,400        8/25                 1,400

8/25                 1,400

 

 

8/31 Bal.          3,300                                                      8/31 Bal.  3,000

 

 

 

 

Service Revenue                                                      Rent Expense

8/5                                                 4,400                        8/19          1,100

8/10                                               3,000

8/31 Bal.                                        7,400                        8/31 Bal.  1,100

 

 

LO6   BT: AP   Difficulty: Medium   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

BE 168

Prepare a trial balance from the ledger accounts of Black Diamond Express as of January 31, 2014.

 

Accounts Payable                 $   1,100         Rent Expense                                      $   500

Accounts Receivable                 1,700         Service Revenue                                   3,000

Cash                                           1,400         Supplies                                                    200

Owner’s Capital                         2,000         Salaries and Wages Expense               1,300

Owner’s Drawings                     1,000

 

 

 

Solution 168

BLACK DIAMOND EXPRESS

Trial Balance

January 31, 2014

 

   Debit                            Credit 

Cash                                                              $   1,400

Accounts Receivable                                         1,700

Supplies                                                                200

Accounts Payable                                                                             $   1,100

Owner’s Capital                                                                                     2,000

Owner’s Drawings                                             1,000

Service Revenue                                                                                   3,000

Rent Expense                                                       500

Salaries and Wages Expense                           1,300                                    

$6,100                         $6,100

 

 

LO7   BT: AP   Difficulty: Medium   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

BE 169

Prepare a corrected trial balance for Stereolab Company. All accounts should have a normal balance.

 

STEROELAB COMPANY

Trial Balance

For the Quarter Ended 3/31/14

 

   Debit                    Credit  

Cash                                                                                 $  14,000

Accounts Receivable                                                                                   $  23,000

Prepaid Insurance                                                                  2,500

Equipment                                                                            60,000

Accounts Payable                                                                                            15,000

Unearned Service Revenue                                                 10,000

Notes Payable                                                                                                 25,000

Owner’s Capital                                                                                               38,000

Owner’s Drawings                                                                                             1,500

Service Revenue                                                                                             43,000

Salaries and Wages Expense                                              15,000

Utilities Expense                                                                     5,000

Rent Expense                                                                       10,000                          

$116,500            $145,500

 

 

 

Solution 169

STEREOLAB COMPANY

Trial Balance

For the Quarter Ended 3/31/14

 

   Debit                  Credit  

Cash                                                                               $    14,000

Accounts Receivable                                                            23,000

Prepaid Insurance                                                                  2,500

Equipment                                                                            60,000

Accounts Payable                                                                                        $  15,000

Unearned Service Revenue                                                                            10,000

Notes Payable                                                                                                 25,000

Owner’s Capital                                                                                               38,000

Owner’s Drawings                                                                  1,500

Service Revenue                                                                                             43,000

Salaries and Wages Expense                                              15,000

Utilities Expense                                                                     5,000

Rent Expense                                                                       10,000                          

$131,000            $131,000

 

 

LO7   BT: AP   Difficulty: Medium   TOT: 6 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: PS

 

 

Exercises

Ex. 170

The chart of accounts used by Notwist Copy Company is listed below. You are to indicate the proper accounts to be debited and credited for the following transactions by writing the account number(s) in the appropriate boxes.

CHART OF ACCOUNTS

101   Cash                                                             209   Unearned Service Revenue

112   Accounts Receivable                                   301   Owner’s Capital

125   Supplies                                                       306   Owner’s Drawings

157   Equipment                                                    400   Service Revenue

200   Notes Payable                                             610   Advertising Expense

201   Accounts Payable                                        729   Rent Expense

———————————————————————————————————————————

Number(s)           Number(s)

of account(s)       of account(s)

debited                credited

  1. M. Acher invests $70,000 cash to start the business.

———————————————————————————————————————————

  1. Purchased three pieces of equipment for $160,000, paying $50,000 cash and signing a 5-year, 10% note for the remainder.

———————————————————————————————————————————

  1. Purchased $5,000 supplies on credit.

———————————————————————————————————————————

  1. Cash revenue amounted to $7,000.

———————————————————————————————————————————

  1. Paid $500 cash for radio advertising.

———————————————————————————————————————————

  1. Paid $800 on account for supplies purchased in transaction 3.

———————————————————————————————————————————

  1. Owner withdrew $2,100 from the business for personal expenses.

———————————————————————————————————————————

  1. Paid $1,200 cash for rent for the current month.

———————————————————————————————————————————

  1. Received $2,000 cash advance from a customer for future copying.

———————————————————————————————————————————

  1. Billed a customer for $575 for photocopy work done.

———————————————————————————————————————————

 

 

 

Solution 170

———————————————————————————————————————————

Number(s)           Number(s)

of account(s)       of account(s)

debited                credited

  1. M. Acher invests $70,000 cash to start the

business.                                                                                    101                       301

———————————————————————————————————————————

  1. Purchased three pieces of equipment for

$160,000, paying $50,000 cash and signing a

5-year, 10% note for the remainder.                                         157                   101,200

———————————————————————————————————————————

  1. Purchased $5,000 supplies on credit.                                       125                       201

———————————————————————————————————————————

  1. Cash revenue amounted to $7,000.                                          101                       400

———————————————————————————————————————————

  1. Paid $500 cash for radio advertising.                                        610                       101

———————————————————————————————————————————

  1. Paid $800 on account for supplies

purchased in transaction 3.                                                       201                       101

———————————————————————————————————————————

  1. Owner withdrew $2,100 from the business for

personal expenses.                                                                   306                       101

———————————————————————————————————————————

  1. Paid $1,200 cash for rent for the current month.                      729                       101

———————————————————————————————————————————

  1. Received $2,000 cash advance from a

customer for future copying.                                                      101                       209

———————————————————————————————————————————

  1. Billed a customer for $575 for photocopy work

done.                                                                                          112                       400

———————————————————————————————————————————

 

LO2   BT: AP   Difficulty: Medium   TOT: 15 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Ex. 171

Under a double-entry system, show how the entry in each statement is entered in the ledger by using debit or credit to indicate the increase or decrease in the affected account.

 

        Debit or Credit     

 

  1. An increase in Salaries and Wages Expense.                       __________________

 

  1. A decrease in Accounts Payable.                                          __________________

 

  1. An increase in Prepaid Insurance.                                         __________________

 

  1. An increase in Owner’s Capital.                                             __________________

 

  1. A decrease in Supplies.                                                          __________________

 

  1. An increase in Owner’s Drawings.                                         __________________

 

  1. An increase in Service Revenue.                                           __________________

 

  1. A decrease in Accounts Receivable.                                     __________________

 

  1. An increase in Rent Expense.                                                __________________

 

  1. A decrease in Equipment.                                                      __________________

 

 

 

Solution 171

  1. An increase in Salaries and Wages Expense.                                     Debit_______

 

  1. A decrease in Accounts Payable.                                                        Debit_______

 

  1. An increase in Prepaid Insurance.                                                       Debit_______

 

  1.      An increase in Owner’s Capital.                                                           Credit_______

 

  1. A decrease in Office Supplies.                                                             Credit_______

 

  1. An increase in Owner’s Drawings.                                                       Debit_______

 

  1. An increase in Service Revenue.                                                         Credit_______

 

  1. A decrease in Accounts Receivable.                                                   Credit_______

 

  1. An increase in Rent Expense.                                                              Debit_______

 

  1. A decrease in Store Equipment.                                                          Credit_______

 

 

LO2   BT: C   Difficulty: Easy   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

Ex. 172

Selected transactions for A. Byrjun, a property manager, in her first month of business,

are as follows.

 

Jan. 2    Invested $15,000 cash in business.

3    Purchased used car for $5,200 cash for use in business.

9    Purchased supplies on account for $500.

11 Billed customers $2,100 for services performed.

16 Paid $450 cash for advertising.

20 Received $1,300 cash from customers billed on January 11.

23 Paid creditor $300 cash on balance owed.

28 Withdrew $2,000 cash for personal use of owner.

 

Instructions

For each transaction indicate the following.

(a) The basic type of account debited and credited (asset (A), liability (L), owner’s equity (OE)).

(b) The specific account debited and credited (cash, rent expense, service revenue, etc.).

(c) Whether the specific account is increased (incr.) or decreased (decr).

(d) The normal balance of the specific account.

 

Use the following format, in which the January 2 transaction is given as an example.

 

                              Account Debited                                  Account Credited

                 (a)         (b)          (c)            (d)            (a)           (b)            (c)           (d)

            Basic Specific                   Normal     Basic     Specific                   Normal

Date    Type    Account   Effect     Balance    Type       Account   Effect     Balance

Jan. 2     A       Cash          Incr.        Debit         OE          Owner’s     Incr.        Credit

                                                                                          Capital

 

Solution 172

 

                              Account Debited                                  Account Credited

                 (a)         (b)          (c)            (d)            (a)           (b)            (c)               (d)

            Basic Specific                   Normal     Basic     Specific                      Normal

Date    Type    Account   Effect     Balance    Type       Account   Effect        Balance

Jan. 2     A       Cash          Incr.        Debit          OE        Owner’s     Incr.           Credit

Capital

3      A       Equip.        Incr.        Debit           A           Cash          Decr.         Debit

9      A       Supplies    Incr.        Debit           L            Accts.

Pay.           Incr.           Credit

11    A       Accts.                                                        Service

Rec.          Incr.        Debit           OE        Revenue   Incr.           Credit

 

  • OE                                                       Cash          Decr.         Debit

Expense    Incr.        Debit           A

20    A       Cash          Incr.        Debit           A           Accts.

Rec.          Decr.         Debit

23    L       Accts.

Pay.           Decr.      Credit          A           Cash          Decr.         Debit

28    OE    Owner’s

                        Drawings   Incr.        Debit           A           Cash          Decr.         Debit
LO2   BT: C   Difficulty: Medium   TOT: 10 min.   AACSB:  RT   AICPA  BB: CT   AICPA PC: PS
Ex. 173

For the accounts listed below, indicate if the normal balance of the account is a debit or credit.

Normal Balance

Accounts                                                                           Debit or Credit     

 

  1. Service Revenue                                                        __________________

 

  1. Rent Expense                                                             __________________

 

  1. Accounts Receivable                                                  __________________

 

  1. Accounts Payable                                                       __________________

 

  1. Owner’s Capital                                                           __________________

 

  1. Supplies                                                                      __________________

 

  1. Insurance Expense                                                     __________________

 

  1. Owner’s Drawings                                                       __________________

 

  1. Buildings                                                                      __________________

 

  1. Notes Payable                                                            __________________

Solution 173

Normal Balance

Accounts                                                                             Debit or Credit   

 

  1. Service Revenue                                                                      Credit            
  2. Rent Expense                                                                           Debit             
  3. Accounts Receivable                                                                Debit             
  4. Accounts Payable                                                                     Credit            
  5. Owner’s Capital                                                                         Credit            
  6. Supplies                                                                                    Debit             
  7. Insurance Expense                                                                   Debit             
  8. Owner’s Drawings                                                                     Debit             
  9. Buildings                                                                                    Debit             
  10. Notes Payable                                                                          Credit            

LO2   BT: C   Difficulty: Easy   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Ex. 174

For each of the following accounts, indicate the effects of (a) a debit and (b) the normal account balance.

  1. Notes Payable
  2. Prepaid Insurance
  3. Salaries and Wages Expense
  4. Service Revenue
  5. Equipment
  6. Owner’s Capital

 

Solution 174

Debit Effect             Normal Balance

  1. Notes Payable                                 Decrease                    Credit
  2. Prepaid Insurance                           Increase                      Debit
  3. Salaries and Wages Expense         Increase                      Debit
  4. Service Revenue                             Decrease                    Credit
  5. Equipment                                        Increase                      Debit
  6. Owner’s Capital                               Decrease                    Credit

LO2   BT: C   Difficulty: Easy   TOT: 7 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

Ex. 175

During an accounting period, a business has numerous transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries.

 

____    (1)   Advertising Expense                           _____   (6)   Owner’s Drawings

____    (2)   Service Revenue                                _____   (7)   Cash

____    (3)   Accounts Payable                               _____   (8)   Salaries and Wages Expense

____    (4)   Accounts Receivable                          _____   (9)   Notes Payable

____    (5)   Owner’s Capital                                  _____ (10)   Insurance Expense

 

 

 

Solution 175

(1)      (a)                                         (5)      (b)                                          (9)      (c)

(2)      (b)                                         (6)      (a)                                        (10)      (a)

(3)      (c)                                         (7)      (c)

(4)      (c)                                         (8)      (a)

 

 

LO2   BT: C   Difficulty: Easy   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

Ex. 176

Eight transactions are recorded in the following T-accounts:

CASH                                                     ACCOUNTS RECEIVABLE

(1)                   25,000     (2)         3,500                               (5)       27,500      (7)        22,500

(7)                   22,500     (3)         1,950

(4)         5,100

(6)         8,000

(8)         3,300

 

SUPPLIES                                                             EQUIPMENT

(3)                     1,950                                                          (2)       13,500

 

OWNER’S CAPITAL                                              SERVICE REVENUE

(1)       25,000                                                          (5)        27,500

 

ACCOUNTS PAYABLE                                          OWNER’S DRAWINGS

(6)                     8,000     (2)       10,000                              (8)         3,300

 

SALARIES AND WAGES EXPENSE

(4)                    5,100

 

 

 

Ex. 176         (cont.)

Indicate for each debit and each credit:  (a) whether an asset, liability, capital, drawing, revenue, or expense account was affected and (b) whether the account was increased (+) or (–) decreased. Answers should be presented in the following chart form:

 

Transaction                             Account Debited                                 Account Credited

No.                                   Type       Effect                                   Type          Effect

———————————————————————————————————————————

(1)     (Example)                     Asset         +                                        Capital             +

———————————————————————————————————————————

(2)

———————————————————————————————————————————

(3)

———————————————————————————————————————————

(4)

———————————————————————————————————————————

(5)

———————————————————————————————————————————

(6)

———————————————————————————————————————————

(7)

———————————————————————————————————————————

(8)

———————————————————————————————————————————

 

 

Solution 176

Transaction                             Account Debited                                 Account Credited

No.                                   Type       Effect                                   Type          Effect

———————————————————————————————————————————

(1)     (Example)                     Asset         +                                        Capital             +

———————————————————————————————————————————

(2)                                           Asset         +                                        Asset               –

Liability            +

———————————————————————————————————————————

(3)                                           Asset         +                                        Asset               –

———————————————————————————————————————————

(4)                                           Expense    +                                        Asset               –

———————————————————————————————————————————

(5)                                           Asset         +                                        Revenue         +

———————————————————————————————————————————

(6)                                           Liability      –                                        Asset               –

———————————————————————————————————————————

(7)                                           Asset         +                                        Asset               –

———————————————————————————————————————————

(8)                                           Drawings   +                                        Asset               –

 

 

LO2   BT: C   Difficulty: Medium   TOT: 15 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

Ex. 177

For each of the following accounts indicate (a) the type of account (Asset, Liability, Owner’s Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the normal account balance.

 

Example

  1. Cash a.   Asset account
  2. Debit increases, credit decreases
  3. Normal balance – debit

 

                                                Accounts                                            

  1. Accounts Payable 5.    Service Revenue
  2. Accounts Receivable 6.    Insurance Expense
  3. Owner’s Capital 7.    Notes Payable
  4. Owner’s Drawings 8.    Equipment

 

 

Solution 177

  1. a. Liability account.                                             5.    a.   Revenue account.
  2. Debit decreases, credit increases.                       b.   Debit decreases, credit increases.
  3. Normal balance – credit.                                       c.   Normal balance – credit.

 

  1. a. Asset account.                                                6.    a.   Expense account.
  2. Debit increases, credit decreases.                       b.   Debit increases, credit decreases.
  3. Normal balance – debit.                                        c.   Normal balance – debit.

 

  1. a. Owner’s Equity account.                                7.    a.   Liability account.
  2. Debit decreases, credit increases.                       b.   Debit decreases, credit increases.
  3. Normal balance – credit.                                       c.   Normal balance – credit.

 

  1. a. Owner’s Equity account.                                8.    a.   Asset account.
  2. Debit increases, credit decreases.                       b.   Debit increases, credit decreases.
  3. Normal balance – debit.                                        c.   Normal balance – debit.

 

LO2   BT: C   Difficulty: Easy   TOT: 15 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Ex. 178

For each transaction given, enter in the tabulation given below a “D” for debit and a “C” for credit to reflect the increases and decreases of the assets, liabilities, and owner’s equity accounts. In some cases there may be a “D” and a “C” in the same box.

 

Transactions:

  1. Owner invests cash in the business.
  2. Pays insurance in advance for six months.
  3. Pays secretary’s salary.
  4. Purchases office supplies on account.
  5. Pays electricity bill.
  6. Borrows money from local bank.
  7. Makes payment on account.
  8. Receives cash due from customers.
Ex. 178         (cont.)
  1. Provides services on account.
  2. Owner withdraws assets from the business.

 

  Transaction #
  1 2 3 4 5 6 7 8 9 10
Assets                    
Liabilities                    
Owner’s Capital Account                    
Owner’s Drawings                    
Revenues                    
Expenses                    

 

 

 

Solution 178
  Transaction #
  1 2 3 4 5 6 7 8 9 10
Assets D D,C C D C D C D,C D C
Liabilities       C   C D      
Owner’s Capital Account C                  
Owner’s Drawings                   D
Revenues                 C  
Expenses     D   D          

 

LO2   BT: C   Difficulty: Medium   TOT: 15 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

Ex. 179

Journalize the following business transactions in general journal form. Identify each transaction by number. You may omit explanations of the transactions.

  1. The owner, Athena Lu, invests $40,000 in cash in starting a real estate office operating as a sole proprietorship.
  2. Purchased $400 of supplies on credit.
  3. Purchased equipment for $8,000, paying $2,000 in cash and signed a 30-day, $6,000, note payable.
  4. Real estate commissions billed to clients amount to $4,000.
  5. Paid $700 in cash for the current month’s rent.
  6. Paid $200 cash on account for supplies purchased in transaction 2.
  7. Received a bill for $600 for advertising for the current month.
  8. Paid $2,200 cash for office salaries and wages.
  9. Lu withdrew $1,500 from the business for living expenses.
  10. Received a check for $3,000 from a client in payment on account for commissions billed in transaction 4.

 

 

 

Solution 179
  1. Cash…………………………………………………………………………………        40,000

Owner’s Capital…………………………………………………………                             40,000

 

  1. Supplies……………………………………………………………………………             400

Accounts Payable………………………………………………………                                  400

 

  1. Equipment…………………………………………………………………………          8,000

Cash…………………………………………………………………………                               2,000

Notes Payable…………………………………………………………..                               6,000

 

  1. Accounts Receivable………………………………………………………….          4,000

Service Revenue……………………………………………………….                               4,000

 

  1. Rent Expense……………………………………………………………………             700

Cash…………………………………………………………………………                                  700

 

  1. Accounts Payable………………………………………………………………             200

Cash…………………………………………………………………………                                  200

 

  1. Advertising Expense…………………………………………………………..             600

Accounts Payable………………………………………………………                                  600

 

  1. Salaries and Wages Expense……………………………………………..          2,200

Cash…………………………………………………………………………                               2,200

 

  1. Owner’s Drawings……………………………………………………………..          1,500

Cash…………………………………………………………………………                               1,500

 

  1. Cash…………………………………………………………………………………          3,000

Accounts Receivable………………………………………………….                               3,000

 

LO4   BT: AP   Difficulty: Medium   TOT: 15 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

Ex. 180

Identify the accounts to be debited and credited for each of the following transactions.

  1. The owner, O. Gulag, invested $8,000 cash in the business.
  2. Purchased supplies on account for $1,000.
  3. Billed customers $2,000 for services performed.
  4. Paid salaries of $1,200.

 

Solution 180

Account Debited                         Account Credited

  1. Cash                                    Owner’s Capital
  2. Supplies                               Accounts Payable
  3. Accounts Receivable Service Revenue
  4. Salaries and Wages Expense Cash

LO2   BT: C   Difficulty: Easy   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

Ex. 181

Transactions for Tom Petty Company for the month of October are presented below. Journalize each transaction and identify each transaction by number. You may omit journal explanations.

  1. Invested $40,000 cash in the business.
  2. Purchased land costing $28,000 for cash.
  3. Purchased equipment costing $15,000 for $3,000 cash and the remainder on credit.
  4. Purchased supplies on account for $800.
  5. Paid $1,000 for a one-year insurance policy.
  6. Received $3,000 cash for services performed.
  7. Received $4,000 for services previously performed on account.
  8. Paid wages to employees for $2,500.
  9. Petty withdrew $2,000 cash from the business.

 

 

Solution 181
  1. Cash……………………………………………………………………………………… 40,000

Owner’s Capital………………………………………………………………                             40,000

 

  1. Land……………………………………………………………………………………… 28,000

Cash………………………………………………………………………………                             28,000

 

  1. Equipment……………………………………………………………………………… 15,000

Cash………………………………………………………………………………                               3,000

Accounts Payable……………………………………………………………                             12,000

 

  1. Supplies ……………………………………………………………………………….. 800

Accounts Payable …………………………………………………………..                                  800

 

  1. Prepaid Insurance………………………………………………………………….. 1,000

Cash………………………………………………………………………………                               1,000

 

  1. Cash……………………………………………………………………………………… 3,000

Service Revenue…………………………………………………………….                               3,000

 

  1. Cash……………………………………………………………………………………… 4,000

Accounts Receivable……………………………………………………….                               4,000

 

  1. Salaries and Wages Expense………………………………………………….. 2,500

Cash………………………………………………………………………………                               2,500

 

  1. Owner’s Drawings………………………………………………………………….. 2,000

Cash………………………………………………………………………………                               2,000

 

LO4   BT: AP   Difficulty: Medium   TOT: 10 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

Ex. 182

Match the basic step in the recording process described by each of the following statements.

 

  1. Analyze each transaction
  2. Enter each transaction in a journal
  3. Transfer journal information to ledger accounts

 

____ 1.   This step is called posting.

____ 2.   Business documents are examined to determine the effects of transactions on the accounts.

____ 3.   This step is called journalizing.

 

 

Solution 182
  1. C 2.   A                3.   B

SO3   BT: C   Difficulty: Easy   TOT: 2 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

Ex. 183

Prepare journal entries for each of the following transactions.

  1. Performed services for customers on account $8,000.
  2. Purchased $20,000 of equipment on account.
  3. Received $3,000 from customers in transaction 1.
  4. The owner, R. Orbison, withdrew $2,000 cash for personal use.

 

 

Solution 183
  1. Accounts Receivable……………………………………………………………………. 8,000

Service Revenue………………………………………………………………….                            8,000

  1. Equipment…………………………………………………………………………………… 20,000

Accounts Payable…………………………………………………………………                          20,000

  1. Cash ………………………………………………………………………………………….. 3,000

Accounts Receivable…………………………………………………………….                            3,000

 

  1. Owner’s Drawings……………………………………………………………………….. 2,000

Cash……………………………………………………………………………………                            2,000

LO4   BT: AP   Difficulty: Easy   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

Ex. 184

Sigur Ros Company is a newly organized business. The list of accounts to be opened in the general ledger is as follows:

Accounts Payable                                     Prepaid Insurance

Accounts Receivable                                Prepaid Rent

Accumulated Depreciation – Equip.          Rent Expense

Cash                                                          Salaries and Wages Expense

Depreciation Expense                              Salaries and Wages Payable

Equipment                                                 Service Revenue

Insurance Expense                                   Supplies

Owner’s Capital                                        Supplies Expense

Owner’s Drawings

Instructions

Organize the accounts into the order in which they should appear in the ledger of Sigur Ros Company and assign account numbers. Use the following system to assign account numbers.

1—199      Assets

200—299      Liabilities

300—399      Owner’s Equity

400—499      Revenues

500—599      Expenses

 

 

Solution 184

There are several possible correct account number assignments. The following is one of the correct solutions.

101-  Cash

112-  Accounts Receivable

125-  Supplies

130-  Prepaid Insurance

140-  Prepaid Rent

157-  Equipment

158-  Accumulated Depreciation – Equip.

201-  Accounts Payable

212-  Salaries and Wages Payable

301-  Owner’s Capital

306-  Owner’s Drawings

400-  Service Revenue

510-  Salaries and Wages Expense

520-  Supplies Expense

530-  Rent Expense

540-  Insurance Expense

550-  Depreciation Expense

LO6   BT: AP   Difficulty: Medium   TOT: 15 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

Ex. 185

The transactions of Medina Information Service are recorded in the general journal below. You are to post the journal entries to the accounts in the general ledger. After all entries have been posted, you are to prepare a trial balance on the form provided.

 

General Journal                                                              J1

———————————————————————————————————————————

Date          Account Titles and Explanation                                  Ref.           Debit          Credit

———————————————————————————————————————————

2014

Sept.     1         Cash                                                                                             25,000

Owner’s Capital                                                                                     25,000

(Invested cash in business)

 

4         Equipment                                                                                    30,000

Cash                                                                                                      10,000

Notes Payable                                                                                       20,000

(Paid cash and issued 2-year, 9%, note for

equipment)

 

8         Rent Expense                                                                                 1,000

Cash                                                                                                        1,000

(Paid September rent)

 

15         Prepaid Insurance                                                                             400

Cash                                                                                                           400

(Paid one-year liability insurance)

 

18         Cash                                                                                               2,500

Service Revenue                                                                                     2,500

(Received cash for delivery services)

 

20         Salaries and Wages Expense                                                           500

Cash                                                                                                           500

(Paid salaries for current period)

 

25         Utilities Expense                                                                                100

Accounts Payable                                                                                      100

(Received a bill for September utilities)

 

30         Owner’s Drawings                                                                          1,500

Cash                                                                                                        1,500

(Withdrew cash for personal use)

 

30         Accounts Receivable                                                                     4,000

Service Revenue                                                                                     4,000

(Billed customer for delivery service)

 

 

Ex. 185         (cont.)

General Ledger

 

Cash                                                   Account No. 101

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Accounts Receivable                                      Account No. 112

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Prepaid Insurance                                         Account No. 130

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Equipment                                               Account No. 155

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Accounts Payable                                         Account No. 201

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

 

 

Ex. 185         (cont.)

Notes Payable                                            Account No. 205

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Owner’s Capital                                           Account No. 301

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Owner’s Drawing                                          Account No. 306

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

Service Revenue                                          Account No. 400

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Rent Expense                                            Account No. 719

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

 

Ex. 185         (cont.)

Salaries and Wages Expense                                Account No. 726

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

Utilities Expense                                          Account No. 735

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

 

 

 

 

 

MEDINA INFORMATION SERVICE

Trial Balance

September 30, 2012

———————————————————————————————————————————

Accounts                                                                           Debit             Credit

———————————————————————————————————————————

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                        

———————————————————————————————————————————

 

Solution 185

General Journal                                                              J1

———————————————————————————————————————————

Date          Account Titles and Explanation                                  Ref.           Debit          Credit

———————————————————————————————————————————

2014

Sept.     1         Cash                                                                            101            25,000

Owner’s Capital                                                 301                              25,000

(Invested cash in business)

 

4         Equipment                                                                   155            30,000

Cash                                                                   101                              10,000

Notes Payable                                                   205                              20,000

(Paid cash and issued 2-year, 9%, note for

equipment)

 

8         Rent Expense                                                             719              1,000

Cash                                                                   101                                1,000

(Paid September rent)

 

15         Prepaid Insurance                                                      130                 400

Cash                                                                   101                                   400

(Paid one-year liability insurance)

 

18         Cash                                                                            101              2,500

Service Revenue                                               400                                2,500

(Received cash for delivery services)

 

20         Salaries and Wages Expense                                    726                 500

Cash                                                                   101                                   500

(Paid salaries for current period)

 

25         Utilities Expense                                                         735                 100

Accounts Payable                                              201                                   100

(Received a bill for September utilities)

 

30         Owner’s Drawings                                                      306              1,500

Cash                                                                   101                                1,500

(Withdrew cash for personal use)

 

30         Accounts Receivable                                                  112              4,000

Service Revenue                                               400                                4,000

(Billed customer for delivery service)

 

 

 

Solution 185     (cont.)

General Ledger

 

Cash                                                   Account No. 101

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.     1                                                                     J1            25,000                                 25,000

4                                                                     J1                                 10,000            15,000

8                                                                     J1                                   1,000            14,000

15                                                                     J1                                      400            13,600

18                                                                     J1              2,500                                 16,100

20                                                                     J1                                      500            15,600

30                                                                     J1                                   1,500            14,100

 

 

Accounts Receivable                                      Account No. 112

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.   30                                                                     J1              4,000                                   4,000

 

 

Prepaid Insurance                                         Account No. 130

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.   15                                                                     J1                 400                                      400

 

 

Equipment                                               Account No. 155

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.     4                                                                     J1            30,000                                 30,000

 

 

Accounts Payable                                         Account No. 201

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.   25                                                                     J1                                      100                 100

 

 

 

Solution 185     (cont.)

Notes Payable                                            Account No. 205

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.     4                                                                     J1                                 20,000            20,000

 

 

Owner’s Capital                                           Account No. 301

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.     1                                                                     J1                                 25,000            25,000

 

 

 

Owner’s Drawings                                         Account No. 306

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.   30                                                                     J1              1,500                                   1,500

 

 

Service Revenue                                          Account No. 400

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.   18                                                                     J1                                   2,500              2,500

30                                                                     J1                                   4,000              6,500

 

Rent Expense                                            Account No. 719

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.     8                                                                     J1              1,000                                   1,000

 

Salaries and Wages Expense                                Account No. 726

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.   20                                                                     J1                 500                                      500

 

 

Solution 185     (cont.)

Utilities Expense                                          Account No. 735

———————————————————————————————————————————

Date                  Explanation                                Ref.             Debit           Credit           Balance

———————————————————————————————————————————

2014

Sept.   25                                                                     J1                 100                                      100

 

 

MEDINA INFORMATION SERVICE

Trial Balance

September 30, 2014

———————————————————————————————————————————

Accounts                                                                           Debit              Credit

———————————————————————————————————————————

Cash                                                                                                             $  14,100

Accounts Receivable                                                                                         4,000

Prepaid Insurance                                                                                                400

Equipment                                                                                                        30,000

Accounts Payable                                                                                                               $      100

Notes Payable                                                                                                                        20,000

Owner’s Capital                                                                                                                      25,000

Owner’s Drawings                                                                                             1,500

Service Revenue                                                                                                                      6,500

Rent Expense                                                                                                    1,000

Salaries and Wages Expense                                                                              500

Utilities Expense                                                                                                   100                      

Totals                                                                                                    $51,600          $51,600

______________________________________________________________________________

 

LO 6,7   BT: AP   Difficulty: Hard   TOT: 25 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

Ex. 186

The bookkeeper for Panda Bear Yard Service made a number of errors in journalizing and posting as described below:

  1. A debit posting to accounts receivable for $500 was omitted.
  2. A payment of accounts payable for $600 was credited to cash and debited to accounts receivable.
  3. A credit to accounts receivable for $950 was posted as $95.
  4. A cash purchase of equipment for $893 was journalized as a debit to equipment and a credit to notes payable. The credit posting was made for $839 while the debit posting was made for $893.
  5. A debit posting of $400 for purchase of supplies was credited to supplies.
  6. A debit to repairs expense for $451 was posted as $415.
  7. A debit posting for salaries and wages expense for $900 was made twice.
  8. A cash purchase of supplies for $700 was journalized and posted as a debit to supplies for $70 and a credit to cash for $70.

Instructions

For each error, indicate (a) whether the trial balance will balance; if the trial balance will not balance, indicate (b) the amount of the difference, and (c) the trial balance column that will have the larger total. Consider each error separately. Use the following form, in which error (1) is given as an example.

(A)                               (B)                               (C)

Error                      In Balance                   Difference                Larger Column

1                               No                              $500                            Credit

 

 

 

Solution 186

(A)                               (B)                               (C)

Error                      In Balance                   Difference                Larger Column

1                                No                            $500                            Credit

2                               Yes                               —                                 —

3                                No                               855                             Debit

4                                No                                 54                             Debit

5                                No                               800                            Credit

6                                No                                 36                            Credit

7                                No                               900                             Debit

8                               Yes                               —                                 —

 

LO7  BT: AN   Difficulty: Hard   TOT: 15 min.   AACSB: Analysis   AICPA  BB: CT   AICPA  PC: PS

 

Ex. 187

Post the following transactions to T-accounts and determine each account’s ending balance.

  1. Supplies………………………………………………………………………………… 2,800

Accounts Payable……………………………………………………………                            2,800

  1. Accounts Receivable………………………………………………………………. 4,000

Service Revenue…………………………………………………………….                            4,000

  1. Cash …………………………………………………………………………………….. 3,000

Accounts Receivable……………………………………………………….                            3,000

  1. Accounts Payable…………………………………………………………………… 1,000

Cash………………………………………………………………………………                            1,000

 

Solution 187

Cash                                                       Accounts Payable

  1. 3,000            4.         1,000               4.            1,000            1.         2,800

Bal.         2,000                                                                                    Bal.      1,800

 

Solution 187     (cont.)

Accounts Receivable                                                Service Revenue

  1. 4,000            3.         3,000                                                   2.         4,000

Bal.         1,000                                                                                    Bal.      4,000

Supplies

  1. 2,800

Bal.         2,800

LO6   BT: AP   Difficulty: Easy   TOT: 6 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

Ex. 188

The trial balance of Red House Painters shown below does not balance.

RED HOUSE PAINTERS

Trial Balance

June 30, 2014

———————————————————————————————————————————

   Debit               Credit 

Cash………………………………………………………………………………………         $  2,780

Accounts Receivable……………………………………………………………….             7,420

Supplies…………………………………………………………………………………                600

Equipment………………………………………………………………………………             8,300

Accounts Payable……………………………………………………………………                                 $  9,777

Owner’s Capital………………………………………………………………………                                     1,952

Owner’s Drawings…………………………………………………………………..             1,300

Service Revenue…………………………………………………………………….                                   15,200

Salaries and Wages Expense…………………………………………………..             3,800

Repair Expense………………………………………………………………………             1,600                        

Totals…………………………………………………………………………….         $25,800           $26,929

 

An examination of the ledger and journal reveals the following errors:

  1. Each of the above listed accounts has a normal balance per the general ledger.
  2. Cash of $270 received from a customer on account was debited to Cash $720 and credited to Accounts Receivable $720.
  3. A withdrawal of $400 by the owner was posted as a credit to Owner’s Drawings, $400 and credit to Cash $400.
  4. A debit of $300 was not posted to Salaries and Wages Expense.
  5. The purchase of equipment on account for $700 was recorded as a debit to Repair Expense and a credit to Accounts Payable for $700.
  6. Services were performed on account for a customer, $510, for which Accounts Receivable was debited $510 and Service Revenue was credited $51.
  7. A payment on account for $235 was credited to Cash for $235 and credited to Accounts Payable for $253.

 

Instructions

Prepare a correct trial balance.

 

 

Solution 188

RED HOUSE PAINTERS

Trial Balance

June 30, 2014

———————————————————————————————————————————

   Debit               Credit 

Cash [2,780 – 450 (2)]……………………………………………………………..         $  2,330           $

Accounts Receivable [7,420 + 450 (2)]………………………………………             7,870

Supplies…………………………………………………………………………………                600

Equipment [8,300 + 700 (5)]……………………………………………………..             9,000

Accounts Payable [9,777 – 488 (7)]…………………………………………..                                     9,289

Owner’s Capital………………………………………………………………………                                     1,952

Owner’s Drawings [1,300 + 400 + 400 (3)]…………………………………             2,100

Service Revenue [15,200 + 459 (6)]………………………………………….                                   15,659

Salaries and Wages Expense [3,800 + 300 (4)]………………………….             4,100

Repair Expense [1,600 – 700 (5)]……………………………………………..                900                        

Totals………………………………………………………………………………         $26,900           $26,900

 

 

LO7   BT: AN   Difficulty: Hard   TOT: 25 min.   AACSB: Analysis   AICPA  BB: CT   AICPA  PC: PS

 

 

 

Ex. 189

Some of the following errors would cause the debit and credit columns of the trial balance to have unequal totals. For each of the four cases, state whether the error would cause unequal totals in the trial balance. If the error causes unequal totals, indicate the amount of difference between the columns and state whether the debit or credit is larger. Each case is to be considered independently of the others.

  1. A payment of $500 to a creditor was recorded by a debit to Accounts Payable of $50 and a credit to Cash of $500.
  2. A $480 payment for a printer was recorded by a debit to Equipment of $48 and a credit to Cash for $48.
  3. An account receivable in the amount of $2,500 was collected in full. The collection was recorded by a debit to Cash for $2,500 and a debit to Accounts Payable for $2,500.
  4. An account payable was paid by issuing a check for $800. The payment was recorded by debiting Accounts Payable $800 and crediting Accounts Receivable $800.

 

 

Solution 189
  1. The trial balance totals will be unequal. The credit column will be $450 larger than the debit column.
  2. The trial balance totals will be misstated but not unequal.
Solution 189     (cont.)
  1. The trial balance totals will be unequal. The debit column will be $5,000 larger than the credit column.
  2. The trial balance totals will be misstated but not unequal.

 

LO7   BT: AN   Difficulty: Medium   TOT: 5 min.   AACSB: Analysis   AICPA  BB: CT   AICPA  PC: PS

 

 

 

Ex. 190
  1. Phair and Associates is a financial planning service. The account balances at December 31, 2014 are shown by the following alphabetical list:

Accounts Payable                                                    $    5,000

Accounts Receivable                                                   19,000

Buildings                                                                    140,000

Cash                                                                             11,700

Equipment                                                                    31,300

Land                                                                             42,000

Owner’s Capital                                                         152,900

Notes Payable                                                             95,000

Notes Receivable                                                          8,100

Supplies                                                                            800

 

Instructions

Prepare a trial balance with the accounts arranged in financial statement order.

 

 

 

Solution 190
  1. PHAIR AND ASSOCIATES

Trial Balance

December 31, 2014

     Debit               Credit   

Cash………………………………………………………………………………………      $   11,700

Accounts Receivable……………………………………………………………….           19,000

Supplies…………………………………………………………………………………                800

Notes Receivable……………………………………………………………………             8,100

Equipment………………………………………………………………………………           31,300

Buildings…………………………………………………………………………………         140,000

Land………………………………………………………………………………………           42,000

Accounts Payable……………………………………………………………………                               $    5,000

Notes Payable………………………………………………………………………..                                   95,000

Owner’s Capital……………………………………………………………………….                                 152,900

Totals…………………………………………………………………………….       $252,900         $252,900

LO7   BT: AP   Difficulty: Medium   TOT: 10 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

Ex. 191

The ledger accounts of the Fabulous Muscles Gym at June 30, 2014 are shown below:

 

Accounts Payable                                         $   9,100

Accounts Receivable                                         8,050

Buildings                                                          43,000

Owner’s Capital                                               61,800

Cash                                                                   6,100

Equipment                                                        42,900

Notes Payable                                                 40,000

Supplies                                                                350

Owner’s Drawings                                           10,500

 

Instructions

Prepare a trial balance with the ledger accounts arranged in the proper financial statement order. Include the appropriate heading.

 

 

 

 

Solution 191

FABULOUS MUSCLES GYM

Trial Balance

June 30, 2014

 

   Debit               Credit  

Cash………………………………………………………………………………………         $  6,100

Accounts Receivable……………………………………………………………….             8,050

Supplies…………………………………………………………………………………                350

Equipment………………………………………………………………………………           42,900

Buildings…………………………………………………………………………………           43,000

Notes Payable………………………………………………………………………..                              $ 40,000

Accounts Payable……………………………………………………………………                                     9,100

Owner’s Capital………………………………………………………………………                                   61,800

Owner’s Drawings…………………………………………………………………..           10,500                       

Totals…………………………………………………………………………….       $110,900         $110,900

 

 

LO7   BT: AP   Difficulty: Medium   TOT: 10 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

Ex. 192

The ledger account balances for Galaxie 500 Company are listed below.

Accounts Payable                                 $  6,000

Accounts Receivable                                7,000

Cash                                                          5,200

Owner’s Capital                                      11,000

Owner’s Drawings                                    4,000

Service Revenue                                    30,000

Salaries and Wages Expense                20,800

Unearned Service Revenue                     2,000

Utilities Expense                                     12,000

Instructions

Prepare a trial balance in proper form for Galaxie at December 31, 2014.

 

 

 

Solution 192

GALAXIE 500

Trial Balance

December 31, 2014

   Debit                           Credit  

Cash                                                                 $5,200

Accounts Receivable                                         7,000

Accounts Payable                                                                              $  6,000

Unearned Service Revenue                                                                  2,000

Owner’s Capital                                                                                   11,000

Owner’s Drawings                                             4,000

Service Revenue                                                                                 30,000

Salaries and Wages Expense                         20,800

Utilities Expense                                              12,000                                    

$49,000                       $49,000

LO7   BT: AP   Difficulty: Medium   TOT: 8 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

 

Ex 193

 

The bookkeeper for Antony Johnson Auto Repair made a number of errors in journalizing

and posting, as described below.

 

  1. A credit posting of $500 to Accounts Receivable was omitted.
  2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
  3. A collection from a customer of $100 in payment of its account owed was journalized and

posted as a debit to Cash $100 and a credit to Service Revenue $100.

  1. A credit posting of $350 to Property Taxes Payable was made twice.
  2. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25

and a credit to Cash $25.

6. A debit of $685 to Advertising Expense was posted as $658

Instructions

For each error:

(a) Indicate whether the trial balance will balance.

(b) If the trial balance will not balance, indicate the amount of the difference.

(c) Indicate the trial balance column that will have the larger total.

 

Consider each error separately. Use the following form, in which error (1) is given as an example.

 

                                            (a)                  (b)                        (c)

Error                In Balance       Difference       Larger Column

              (1)                          No                $500                   debit

 

Solution 193

 

 

Error

  (a)

In Balance

  (b)

Difference

  (c)

Larger Column

1.   No   $500   Debit
2.   Yes    
3.   Yes    
4.   No   350   Credit
5.   Yes    
6.   No   27   Credit

LO7   BT: AN   Difficulty: Hard   TOT: 8 min.   AACSB: Analytic   AICPA  BB: CT   AICPA  PC: PS

 

 

COMPLETION STATEMENTS

  1. An _______________ is a record of increases and decreases in specific assets, liabilities, and owner’s equity items.
  2. The process of entering an amount on the left side of an account is called ____________ the account, and making an entry on the right side is called _________________ the account.
  3. ______________, _______________, and _______________ have debit normal account balances whereas _______________, ________________, and ________________ have credit normal account balances.
  4. The four subdivisions of owner’s equity are: ________________, ________________, ________________, and ________________.
  5. The basic steps in the recording process are: _______________ each transaction, enter the transaction in a ________________, and transfer the _______________ information to appropriate accounts in the ________________.
  6. A sales slip, a check, and a cash register tape are examples of ________________ used as evidence that a transaction has taken place.
  7. An accounting record where transactions are initially recorded in chronological order is called a ________________.
  8. When three or more accounts are required in one journal entry, the entry is referred to as a ________________ entry.
  9. The entire group of accounts and their balances maintained by a company is called the ________________.
  10. A two column list of all accounts and their balances at a given time is a ______________.

Answers to Completion Statements

  1. account 199.    business documents
  2. debiting, crediting 200.    journal
  3. Assets, expenses, owner’s drawings, 201.    compound

owner’s capital, liabilities, revenues                       202.    general ledger

  1. capital, drawings, revenues, expenses 203.    trial balance
  2. analyze, journal, journal, ledger

 

LO1-7   BT: K   Difficulty: Easy   TOT: 8 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

MATCHING

  1. Match the items below by entering the appropriate code letter in the space provided.

 

  1. Account                                       F.    Journal
  2. Normal account balance             G.    Posting
  3. Debit                                            H.    Chart of accounts
  4. Revenue account                        I.      Trial balance
  5. Compound entry                         J.     Simple entry

 

 

_____    1.  An entry that involves three or more accounts.

_____    2.  Transferring journal entries to ledger accounts.

_____    3.  The side which increases an account.

_____    4.  A list of all the accounts used by an enterprise.

_____    5.  A record of increases and decreases in specific assets, liabilities, and owner’s equity items.

_____    6.  Left side of an account.

_____    7.  An entry that involves only two accounts.

_____    8.  A book of original entry.

_____    9.  A list of accounts and their balances at a given time.

_____ 10.  Has a credit normal balance

 

 

Answers to Matching

  1. E 6.     C
  2. G 7.     J
  3. B 8.     F
  4. H 9.     I
  5. A 10.     D

 

LO1-6   BT: K   Difficulty: Easy   TOT: 3 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

 

SHORT-ANSWER ESSAY QUESTIONS

S-A E  205

An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased and its normal balance.

 

 

Solution 205

An account is an individual accounting record of increases and decreases in specific asset, liability, and owner’s equity accounts. In its simplest form, an account consists of three parts: (1) the title of the account, (2) a left or debit side, and (3) a right or credit side (it resembles the letter T). Accounts are classified as asset, liability, owner’s equity, revenue, and expense. Accounts with a normal debit balance, such as assets and expenses, are increased when debited and decreased when credited. Accounts with a normal credit balance, such as liabilities and revenues, are increased when credited and decreased when debited.

 

LO1,2   BT: C   Difficulty: Medium   TOT: 5 min.   AACSB: Comm.   AICPA  BB: CT   AICPA  PC: Communication

 

S-A E 206
Your roommate, a marketing major, thinks that debit means decrease and credit means increase. And, that every account can be debited and credited and as result, every account can have both a debit and a credit balance. Explain to your roommate (1) the meaning of debit and credit; (2) which accounts can only be debited, which can only be credited, and which can be both debited and credited; and (3) which accounts normally have debit balances and which credit balances.

 

 

Solution 206

The terms debit and credit mean the left and right side, respectively, of every account. Some accounts such as Drawings and Expenses are only debited; other accounts such as Capital and Revenues are only credited; and finally, some accounts such as Cash, Accounts Receivable, and Accounts Payable can be debited and credited. Accounts with debit balances include Assets, Drawings, and Expenses. Accounts with credit balances include Capital and Revenues.

 

LO2   BT: C   Difficulty: Medium   TOT: 5 min.   AACSB: RT   AICPA  BB: CT   AICPA  FN: Reporting

 

S-A E 207

A fellow classmate is confused about how debits and credits relate to the basic accounting equation. State the basic accounting equation, convert it into the expanded accounting equation, and then explain how it ties into the rules for debits and credits.

 

 

 

Solution 207

 

The basic accounting equation is:

 

Assets = Liabilities + Owner’s Equity

 

The expanded equation divides Owner’s Equity into its various parts, reflecting the owner’s investment, drawings, revenues, and expenses:

 

Assets = Liabilities + Owner’s Capital – Owner’s Drawings + Revenues – Expenses

 

This expanded equation can then be re-arranged to explain why certain accounts have debit (left-hand) balances, while other accounts have credit (right-hand) balances, as follows:

 

Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenues

 

The accounts on the left-hand side of the equation have left-hand, or debit, balances, while the accounts on the right-hand side of the equation have right-hand, or credit, balances. Accounts with debit balances are increased with debits and decreased with credits, while accounts with credit balances are increased with credits and decreased with debits.

 

LO2   BT: S   Difficulty: Hard   TOT: 10 min.   AACSB: RT   AICPA  BB:  CT   AICPA  PC: Communication

S-A E  208

Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that insure that the ledger accounts are correct? Explain.

 

 

Solution 208

The process of preparing a trial balance consists of (1) listing the account titles and their debit or credit balances in the order in which they appear in the general ledger, (2) totaling the debit and credit columns, and (3) proving the equality of the total debits and total credits. The primary purpose of the trial balance is to prove the equality of the debits and credits after posting. A trial balance also uncovers errors in journalizing and posting because errors in journalizing and posting cause a trial balance not to balance. A trial balance does not prove that all transactions have been recorded or that the ledger is correct. The trial balance may balance even when (1) an entire transaction is not journalized, (2) a correct journal entry is not posted, (3) a journal entry is posted twice, (4) incorrect accounts are used in journalizing or posting, or (5) offsetting errors are made in recording the amount of a transaction or posting to the ledger.

 

LO7   BT: AN   Difficulty: Medium   TOT: 5 min.   AACSB: Comm.   AICPA  BB: CT   AICPA  PC:  Communication

 

 

 

S-A E 209 

 

A classmate who is a computer science major thinks that accountants are obsolete. She states that computers can do the entire process without any human assistance.

 

Discuss the steps in the recording process and indicate what role the computer plays in that process.

 

 

Solution 209

 

The initial step in the recording process is to analyze each transaction. This is done by analyzing the source documents to determine which accounts were affected. The computer is not able to perform this step. The second step is enter the transaction in the journal using a journal entry. The computer is not able to perform this step and does not know if the correct accounts are being debited and credited, nor if the correct amounts were entered. It is only able to test the equality of the debits and credits comprising the entry. The final step is to transfer the journal entry to the specific accounts in the ledger (posting). The computer can perform this step efficiently and effectively.

 

LO3   BT: S   Difficulty: Medium   TOT: 7 min.   AACSB: Comm.   AICPA  BB: CT   AICPA  PC:  Communication

 

 

 

S-A E  210
Amy Pond, a fellow employee, wants to understand the basic steps in the recording process. Identify and briefly explain the steps in the order in which they occur.

Solution 210

The basic steps in the recording process are:

 

  1. Analyze each transaction. In this step, business documents are examined to determine the effects of the transaction on the accounts.

 

  1. Enter each transaction in a journal. This step is called journalizing and it results in making a chronological record of the transactions.

 

  1. Transfer journal information to ledger accounts. This step is called posting. Posting makes it possible to accumulate the effects of journalized transactions on individual accounts.

 

 

LO3   BT: C   Difficulty: Medium   TOT: 5min.   AACSB: Comm.   AICPA  BB: CT   AICPA  PC:  Communication

 

 

 

 

S-A E 211
All recordable transactions are initially recorded in the journal. Discuss the contributions that the journal makes to the recording process.

 

Solution 211

The journal makes several significant contributions to the recording process: (1) It discloses in one place the complete effects of a transaction; (2) It provides a chronological record of transactions; and, (3) It helps to prevent and locate errors because the debit and credit amounts for each entry can be readily compared.

 

LO4   BT: C   Difficulty: Medium   TOT: 5 min.   AACSB: Comm.   AICPA  BB: CT   AICPA PC: Communication

 

S-A E 212

 

A bookkeeping student has come to you for tutoring on the recording process. She is confused about the relationship between the chart of accounts and the ledger. Explain the purpose of the chart of accounts and the general ledger. In your explanation indicate the relationship between these two items as well.

 

Solution 212

 

The chart of accounts lists all of the accounts that a company uses and their account numbers that identify their location in the ledger. The numbering system used to identify the accounts usually starts with the balance sheet accounts followed by the income statement accounts.

 

The general ledger contains all of the accounts of a company and their respective balances at any point in time. The ledger is organized by account number with assets coming first, then liabilities, owner’s equity, revenue, and expense accounts.

 

LO5&6   BT: C   Difficulty: Easy   TOT: 5 min.   AACSB: Comm.   AICPA  BB: CT   AICPA  PC: Communication

 

 

S-A E 213

The process of transferring the information in the journal to the general ledger is called posting. Explain the posting process, including the importance of the journal page number and the account numbers.

 

Solution 213

 

The posting process begins with locating the account(s) being debited in the general ledger. Then entering the date of the entry, the journal page number where the entry originated and debit portion of the entry in the date, reference and debit columns, respectively. Once this done, the account number(s) of the account(s) being debited is (are) entered in the reference column in the journal. Next, the credit portion of the journal entry is posted to the appropriate accounts in the ledger following the same steps as noted for the debit portion.

 

The importance of the journal page number, in the reference column of each account in the general ledger accounts, is to indicate where to find the original entry. And, the general ledger account numbers, in the reference column of the journal, indicate that the entry has been posted.

 

LO6   BT: S   Difficulty: Medium   TOT: 5 min.   AACSB: Comm.   AICPA  BB: CT   AICPA  PC: Communication

 

S-A E  214

During a study session, a classmate states that it is not necessary to make journal entries and then post them to the ledger. She states that it is sufficient to analyze the transaction and simply record the information in T-accounts.

What is your response to this statement? Be brief, yet concise.

 

 

Solution 214

You have a very good point regarding the steps of the accounting cycle. If a company only has a few transactions, it might be possible to simply analyze them and then record each in T-accounts. However, nearly all businesses have many transactions each day. There must be a systematic way to process these transactions. The steps of the accounting cycle represent this process. After analyzing each transaction, a journal entry needs to be prepared. The journal represents a chronological listing of every transaction for a business. This allows users to review past transactions. Your approach does not leave a trail that can be reviewed at a later date. Once the journal entries are made, posting allows each line of the journal to be transferred into the ledger. This process increases and decreases individual accounts in the ledger. At the end of the accounting period, the balance of each account is determined and the trial balance is prepared.

Based on your approach, if someone saw a credit to cash for $10,000 and wondered what the debit was, that person would have to go through every ledger account to locate the corresponding debit.  By having a general journal, the person can view the entire transaction, thus easily seeing the account that was debited.

Your approach may work for a very simple business, but it would result in problems for the majority of businesses and accountants.

 

LO4-6   BT: S   Difficulty: Medium   TOT: 7 min.   AACSB: Comm.   AICPA  BB: CT   AICPA  PC: Communication

 

 

S-A E  215   (Ethics)

Jim Coleman, Jr. was appointed the manager of Maris Properties, a recently formed company that manages residential rental properties. Linda Grider is the accountant. She prepared a chart of accounts based on an analysis of the expenditures of the company. One of the largest expense categories is Travel and Entertainment. Mr. Coleman believes that it is important to maintain a presence in the social life of the city. In this, he sharply differs from his father, Jim Coleman, Sr. The elder Mr. Coleman has set up Maris Properties in order to test his son’s management skills before allowing him to manage the more lucrative commercial property business. Mr. Coleman, Sr. provided the capital for Maris, and maintains close contact with the company. He allowed his son, however, to hire his own employees.

 

S-A E  215   (cont.)

Mr. Coleman has asked Ms. Grider to change the name of the Travel and Entertainment account to Property Development. He hopes to deflect his father’s attention away from the amount he has spent on travel and entertainment until he has proven that his methods work. When Ms. Grider resisted, he reminded her that he, not his father, hired her. He also reminded her that she had been enthusiastic about his business plans when she was hired.

 

Required:

  1. Who are the stakeholders in this situation?
  2. Should Ms. Grider agree to the change in the Travel and Entertainment account to Property Development? Explain.

 

 

Solution 215
  1. The stakeholders in this situation include

Mr. Coleman, Jr.

Linda Grider

Mr. Coleman, Sr.

Bankers and others who might rely on the financial statements

 

  1. Ms. Grider definitely should not agree to the name change. The intention of the person making the change is to deceive someone who has a right to know the affairs of the business, fully and completely. Though Ms. Grider was hired by Mr. Coleman, Jr., and though she may agree with his business methods, she cannot be a party to such deceit.

 

LO1   BT: E   Difficulty: Medium   TOT: 7 min.   AACSB: Ethics   AICPA  BB: CT   AICPA  PC: Professional Demeanor

 

 

 

S-A E  216   (Communication)

A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits.

  1. Can the student be successful in the course without an understanding of the rules of debits and credits?
  2. Explain the rules of debits and credits in a way that will help him understand them.

 

 

Solution 216
  1. Accounting is based on the double-entry system. This system records the dual effect of each transaction in the appropriate accounts, thus keeping the accounting equation in balance. Each transaction is analyzed and recorded using this dual effect system. If you do not have this basic understanding, the remaining chapters will become increasingly more difficult. You will not have the ability to make journal entries for the many new topics in these upcoming chapters.

 

 

Solution 216     (cont.)
  1. You may be trying to memorize the rules of debits and credits, only to discover that this does not work. Here are some other ways to master this very important topic:
  • Make sure that you understand the accounting equation. Assets equal the total of liabilities and owners’ equity. Owners’ equity is not an account but rather a group of accounts that includes owner’s capital, revenues, expenses, and owner’s drawings.  Owner’s capital and revenues cause owners’ equity to increase while expenses and drawings cause owners’ equity to decrease.
  • Next, make sure that you understand the accounting meaning of the terms debits and credits.  For accounting, debit means left and credit means right.  Don’t try to add any more to these definitions.
  • Then, work with the rules of debits and credits. These rules determine whether a debit or credit increases or decreases an account. Start with assets. Assets increase with a debit and thus decrease with a credit. Think about the cash account—when cash is received, the account is increased with a debit. When cash is paid, the account is decreased with a credit. All of the other rules of debits and credits keep the equation in balance.  Liabilities, owner’s capital, and revenues are all increased with credits. Expenses and owner’s drawing are the two accounts that cause owners’ equity to decrease, thus they must be increased with a debit.

 

LO2   BT: S   Difficulty: Hard   TOT: 10 min.   AACSB: RT   AICPA  BB: CT   AICPA  PC: Communication