CHAPTER 2 THE RECORDING PROCESS: Test Bank for Accounting Principles, Eleventh Edition. This document/TEST BANK Contains 214 Questions With Answers, Worked Solutions and Essay Explanations

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CHAPTER 2 THE RECORDING PROCESS SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY sg This question also appears in the Study Guide. st This question also appears in a self-tes... t at the student companion website. SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Matching: Q204 SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Note: TF = True-False BE = Brief Exercise C = Completion MC = Multiple Choice Ex = Exercise SA = Short-Answer Essay Matching Question: 204 CHAPTER LEARNING OBJECTIVES 1. Explain what an account is and how it helps in the recording process. 2. Define debits and credits and explain their use in recording business transactions. 3. Identify the basic steps in the recording process. 4. Explain what a journal is and how it helps in the recording process. 5. Explain what a ledger is and how it helps in the recording process. 6. Explain what posting is and how it helps in the recording process. 7. Prepare a trial balance and explain its purposes. TRUE-FALSE STATEMENTS 1. A new account is opened for each transaction entered into by a business firm. LO1 BT: K 2. The recording process becomes more efficient and informative if all transactions are recorded in one account. LO1 BT: K 3. When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers. LO1 BT: K 4. An account is often referred to as a T-account because of the way it is constructed. LO1 BT: K 5. A debit to an account indicates an increase in that account. 6. If a revenue account is credited, the revenue account is increased. 7. The normal balance of all accounts is a debit. 8. Debit and credit can be interpreted to mean increase and decrease, respectively. 9. The double-entry system of accounting refers to the placement of a double line at the end of a column of figures. 10. A credit balance in a liability account indicates that an error in recording has occurred. 11. The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement. 12. Revenues are a subdivision of retained earnings. 13. Under the double-entry system, revenues must always equal expenses. 14. Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts. 15. Business documents can provide evidence that a transaction has occurred. LO3 BT: K 16. Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal. LO3 BT: K 17. Transactions are entered in the ledger accounts and then transferred to journals. LO3 BT: K 18. All business transactions must be entered first in the general ledger. LO3 BT: K 19. A simple journal entry requires only one debit to an account and one credit to an account. LO4 BT: K 20. A compound journal entry requires several debits to one account and several credits to one account. LO4 BT: K 21. Transactions are recorded in alphabetic order in a journal. LO4 BT: K 22. A journal is also known as a book of original entry. LO4 BT: K 23. The complete effect of a transaction on the accounts is disclosed in the journal. LO4 BT: K 24. The account titles used in journalizing transactions need not be identical to the account titles in the ledger. LO5 BT: K 25. The chart of accounts is a special ledger used in accounting systems. LO5 BT: K 26. A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the balance sheet accounts. LO5 BT:C K 27. 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. LO5 BT: K 28. Posting is the process of proving the equality of debits and credits in the trial balance. LO6 BT: K 29. After a transaction has been posted, the reference column in the journal should not be blank. LO6 BT: K 30. A trial balance does not prove that all transactions have been recorded or that the ledger is correct. LO7 BT: K 31. The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction. 32. The normal balance of an expense is a credit. 33. The journal provides a chronological record of transactions. LO4 BT: K 34. The ledger is merely a bookkeeping device and therefore does not provide much useful data for management. LO5 BT: K 35. The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger. LO6 BT: C 36. The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting. LO7 BT: K 37. The trial balance will not balance when incorrect account titles are used in journalizing or posting. LO7 BT: K Answers to True-False Statements MULTIPLE CHOICE QUESTIONS 38. An account consists of a. one part. b. two parts. c. three parts. d. four parts. LO1 BT: K 39. The left side of an account is a. blank. b. a description of the account. c. the debit side. d. the balance of the account. LO1 BT: K 40. Which one of the following is not a part of an account? a. Credit side b. Trial balance c. Debit side d. Title LO1 BT: K 41. An account is a part of the financial information system and is described by all except which one of the following? a. An account has a debit and credit side. b. An account is a source document. c. An account may be part of a manual or a computerized accounting system. d. An account has a title. LO1 BT: C 42. The right side of an account a. is the correct side. b. reflects all transactions for the accounting period. c. shows all the balances of the accounts in the system. d. is the credit side. LO1 BT: K 43. An account consists of a. a title, a debit balance, and a credit balance. b. a title, a left side, and a debit balance. c. a title, a debit side, and a credit side. d. a title, a right side, and a debit balance. LO1 BT: K 44. A T-account is a. a way of depicting the basic form of an account. b. what the computer uses to organize bytes of information. c. a special account used instead of a trial balance. d. used for accounts that have both a debit and credit balance. LO1 BT: K 45. Credits a. decrease both assets and liabilities. b. decrease assets and increase liabilities. c. increase both assets and liabilities. d. increase assets and decrease liabilities. 46. A debit to an asset account indicates a. an error. b. a credit was made to a liability account. c. a decrease in the asset. d. an increase in the asset. 47. The normal balance of any account is the a. left side. b. right side. c. side which increases that account. d. side which decreases that account. 48. The double-entry system requires that each transaction must be recorded a. in at least two different accounts. b. in two sets of books. c. in a journal and in a ledger. d. first as a revenue and then as an expense. 49. A credit is not the normal balance for which account listed below? a. Common stock account b. Revenue account c. Liability account d. Dividends account 50. Which one of the following represents the expanded basic accounting equation? a. Assets = Liabilities + Common stock + Retained Earnings + Dividends – Revenues – Expenses. b. Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings + Revenues. c. Assets – Liabilities – Dividends = Common stock + Retained Earnings + Revenues – Expenses. d. Assets = Revenues + Expenses – Liabilities. 51. Which of the following correctly identifies normal balances of accounts? a. Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Debit Expenses Credit b. Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Credit Expenses Credit c. Assets Credit Liabilities Debit Stockholders' Equity Debit Revenues Credit Expenses Debit d. Assets Debit Liabilities Credit Stockholders' Equity Credit Revenues Credit Expenses Debit 52. The best interpretation of the word credit is the a. offset side of an account. b. increase side of an account. c. right side of an account. d. decrease side of an account. 53. In recording an accounting transaction in a double-entry system a. the number of debit accounts must equal the number of credit accounts. b. there must always be entries made on both sides of the accounting equation. c. the amount of the debits must equal the amount of the credits. d. there must only be two accounts affected by any transaction. 54. An accounting convention is best described as a. an absolute truth. b. an accounting custom. c. an optional rule. d. something that cannot be changed. 55. A debit is not the normal balance for which account listed below? a. Dividends b. Cash c. Accounts Receivable d. Service Revenue 56. 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? a. Nothing further must be done. b. Debit a Stockholders' equity account for $700. c. Debit another asset account for $700. d. Credit a different asset account for $700. 57. 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? a. Credit an asset account for $800. b. Credit another liability account for $800. c. Credit a Stockholders' account for $800. d. Debit a Stockholders' account for $800. 58. Which of the following is not true of the terms debit and credit? a. They can be abbreviated as Dr. and Cr. b. They can be interpreted to mean increase and decrease. c. They can be used to describe the balance of an account. d. They can be interpreted to mean left and right. 59. An account will have a credit balance if the a. credits exceed the debits. b. first transaction entered was a credit. c. debits exceed the credits. d. last transaction entered was a credit. 60. For the basic accounting equation to stay in balance, each transaction recorded must a. affect two or less accounts. b. affect two or more accounts. c. always affect exactly two accounts. d. affect the same number of asset and liability accounts. 61. Which of the following statements is true? a. Debits increase assets and increase liabilities. b. Credits decrease assets and decrease liabilities. c. Credits decrease assets and increase liabilities. d. Debits decrease liabilities and decrease assets. 62. Assets normally show a. credit balances. b. debit balances. c. debit and credit balances. d. debit or credit balances. 63. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording? a. A debit balance in the dividends account b. A credit balance in an expense account c. A credit balance in a liabilities account d. A credit balance in a revenue account 64. If a company has overdrawn its bank balance, then a. its cash account will show a debit balance. b. its cash account will show a credit balance. c. the cash account debits will exceed the cash account credits. d. it cannot be detected by observing the balance of the cash account. 65. Which account below is not a subdivision of retained earnings? a. Dividends b. Revenues c. Expenses d. Common stock 66. When a company pays dividends a. it doesn't have to be cash, it could be another asset. b. the dividends account will be increased with a credit. c. the retained earnings account will be directly increased with a debit. d. the dividends account will be decreased with a debit. 67. The Dividends account a. appears on the income statement along with the expenses of the business. b. must show transactions every accounting period. c. is increased with debits and decreased with credits. d. is not a proper subdivision of retained earnings. 68. Which of the following statements is incorrect? a. Expenses increase stockholders’ equity. b. Expenses have normal debit balances. c. Expenses decrease stockholders’ equity. d. Expenses are a negative factor in the computation of net income. 69. A credit to a liability account a. indicates an increase in the amount owed to creditors. b. indicates a decrease in the amount owed to creditors. c. is an error. d. must be accompanied by a debit to an asset account. 70. 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) a. $800 credit balance. b. $1,200 debit balance. c. $400 debit balance. d. $400 credit balance. 71. TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and a. nothing further must be done. b. debited the retained earnings account for $2,100. c. credited another asset account for $400. d. credited a liability account for $2,100. 72. 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? a. Credit an asset account for $400. b. Credit another liability account for $400. c. Credit the retained earnings account for $400. d. Debit the retained earnings account for $400. 73. On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include a. a debit to Supplies and a credit to Accounts Payable. b. a debit to Supplies Expense and a credit to Accounts Receivable. c. a debit to Supplies and a credit to Cash. d. a debit to Accounts Receivable and a credit to Supplies. 74. On June 1, 2015, 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? a. $3,000 debit balance b. $17,000 debit balance c. $3,000 credit balance d. $2,000 credit balance 75. At January 1, 2015, Alligator Industries reported retained earnings of $150,000. During 2015, Alligator had a net loss of $30,000 and paid dividends of $15,000. At December 31, 2015, the amount of retained earnings is a. $105,000. b. $120,000. c. $135,000. d. $165,000. 76. Mt. Zion Inc. pays its employees twice a month, on the 7th and the 21st. On June 21, Mt. Zion Inc. paid employee salaries of $5,000. This transaction would a. increase stockholders’ equity by $5,000. b. decrease the balance in Salaries and Wages Expense by $5,000. c. decrease net income for the month by $5,000. d. be recorded by a $5,000 debit to Salaries and Wages Payable and a $4,000 credit to Salaries and Wages Expense. LO2 BT: K Difficulty: Medium 77. 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 stockholders 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) a. $6,000 credit balance. b. $6,000 debit balance. c. $14,000 debit balance. d. $14,000 credit balance. 78 Chik Chik Company showed the following balances at the end of its first year: Cash $ 6,000 Prepaid insurance 9,400 Accounts receivable 7,000 Accounts payable 5,600 Notes payable 8,400 Common stock 2,800 Dividends 1,400 Revenues 44,000 Expenses 35,000 What did Chik Chik Company show as total credits on its trial balance? a. $51,400 b. $60,800 c. $62,200 d. $70,200 LO2 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA PC: PS 79. 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 Common stock 2,000 Dividends 1,000 Revenues 32,000 Expenses 25,000 What did Electrelene Company show as total credits on its trial balance? a. $9,000 b. $44,000 c. $45,000 d. $49,000 LO2 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA PC: PS 80. During February 2015 its first month of operations, the stockholders 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? a. $4,000 credit b. $4,000 debit c. $46,000 debit d. $54,000 debit LO2 BT: AP 81. At January 31, 2015, 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 a. $525 debit. b. $975 debit. c. $525 credit. d. $775 debit. LO3 BT: AP 82. At December 1, 2015, Cursive Company’s accounts receivable balance was $1,800. During December, Cursive had credit revenues of $7,200 and collected accounts receivable of $6,000. At December 31, 2015, the accounts receivable balance is a. $600 debit. b. $3,000 debit. c. $600 credit. d. $3,000 credit. LO3 BT: AP 83. At October 1, 2015, 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, 2015, the accounts payable balance is a. $25,000. b. $41,000. c. $55,000. d. $121,000. LO3 BT: AP 84. During 2015, its first year of operations, Neko’s Bakery had revenues of $60,000 and expenses of $35,000. The business paid dividends of $20,000. What is the amount of stockholders’ equity at December 31, 2015? a. $0 b. $5,000 credit c. $25,000 credit d. $20,000 debit LO3 BT: C Difficulty: Medium 85. On July 7, 2015, Hidden Camera Enterprises performed cash services of $1,700. The entry to record this transaction would include a. a debit to Service Revenue of $1,700. b. a credit to Accounts Receivable of $1,700. c. a debit to Cash of $1,700. d. a credit to Accounts Payable of $1,700. LO3 BT: AP 86. At September 1, 2015, Promise Ring Co. reported stockholders’ 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 paid dividends of $2,000. What is the amount of stockholders’ equity at September 30, 2015? a. $166,000 b. $171,000 c. $173,000 d. $176,000 LO3 BT: AP Difficulty: Medium TOT: 1.5 min. 87. The final step in the recording process is to a. analyze each transaction. b. enter the transaction in a journal. c. prepare a trial balance. d. transfer journal information to ledger accounts. LO3 BT: K 88. The usual sequence of steps in the transaction recording process is: a. journal  analyze  ledger. b. analyze  journal  ledger. c. journal  ledger  analyze. d. ledger  journal  analyze. LO3 BT: K 89. In recording business transactions, evidence that an accounting transaction has taken place is obtained from a. business documents. b. the Internal Revenue Service. c. the public relations department. d. the SEC. LO3 BT: K 90. 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 a. the company's bank. b. stockholders’ equity. c. ledger accounts. d. financial statements. LO3 BT: K 91. The first step in the recording process is to a. prepare financial statements. b. analyze each transaction for its effect on the accounts. c. post to a journal. d. prepare a trial balance. LO3 BT: K 92. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n) a. cash register sales tape. b. bill. c. advertising brochure. d. check. LO3 BT: C 93. After transaction information has been recorded in the journal, it is transferred to the a. trial balance. b. income statement. c. book of original entry. d. ledger. LO3 BT: K 94. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the a. journal, and transfer the information to the ledger accounts. b. ledger, and transfer the information to the journal. c. book of accounts, and transfer the information to the journal. d. book of original entry, and transfer the information to the journal. LO3 BT: K 95. The final step in the recording process is to transfer the journal information to the a. trial balance. b. financial statements. c. ledger. d. file cabinets. LO3 BT: K 96. The recording process occurs a. once a year. b. once a month. c. repeatedly during the accounting period. d. infrequently in a manual accounting system. LO3 BT: K 97. A compound journal entry involves a. two accounts. b. three accounts. c. three or more accounts. d. four or more accounts. LO4 BT: K 98. A journal provides a. the balances for each account. b. information about a transaction in several different places. c. a list of all accounts used in the business. d. a chronological record of transactions. LO4 BT: K 99. When three or more accounts are required in one journal entry, the entry is referred to as a a. compound entry. b. triple entry. c. multiple entry. d. simple entry. LO4 BT: K 100. When two accounts are required in one journal entry, the entry is referred to as a a. balanced entry. b. simple entry. c. posting. d. nominal entry. LO4 BT: K 101. Another name for journal is a. listing. b. book of original entry. c. book of accounts. d. book of source documents. LO4 BT: K 102. The standard format of a journal would not include a. a reference column. b. an account title column. c. a T-account. d. a date column. LO4 BT: K 103 Transactions in a journal are recorded in a. account number order. b. dollar amount order. c. alphabetical order. d. chronological order. LO4 BT: K 104 A journal is not useful for a. disclosing in one place the complete effect of a transaction. b. preparing financial statements. c. providing a record of transactions. d. locating and preventing errors. LO4 BT: C 105 A complete journal entry does not show a. the date of the transaction. b. the new balance in the accounts affected by the transaction. c. a brief explanation of the transaction. d. the accounts and amounts to be debited and credited. LO4 BT: K 106. The name given to entering transaction data in the journal is a. chronicling. b. listing. c. posting. d. journalizing. LO4 BT: K 107. The standard form of a journal entry has the a. debit account entered first and indented. b. credit account entered first and indented. c. debit account entered first at the extreme left margin. d. credit account entered first at the extreme left margin. LO4 BT: K 108. When journalizing, the reference column is a. left blank. b. used to reference the source document. c. used to reference the journal page. d. used to reference the financial statements. LO4 BT: K 109. On June 1, 2015 Ted Leo buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will a. use two journal entries. b. make a compound entry. c. make a simple entry. d. list the credit entries first, which is proper form for this type of transaction. LO4 BT: K 110. Which of the following journal entries is recorded correctly and in the standard format? a. Salaries and Wages Expense 500 Cash 1,500 Advertising Expense . 1,000 b. Salaries and Wages Expense . 500 Advertising Expense . 1,000 Cash 1,500 c. Cash 1,500 Salaries and Wages Expense 500 Advertising Expense 1,000 d. Salaries and Wages Expense 500 Advertising Expense 1,000 Cash . 1,500 LO4 BT: AN AACSB: Analysis AICPA BB: CT AICPA PC: PS 111. The ledger should be arranged in a. alphabetical order. b. chronological order. c. dollar amount order. d. financial statement order. LO5 BT: K 112. The entire group of accounts maintained by a company is called the a. chart of accounts. b. general journal. c. general ledger. d. trial balance. LO5 BT: K 113. An accounting record of the balances of all assets, liabilities, and stockholders’ equity accounts is called a a. compound entry. b. general journal. c. general ledger. d. chart of accounts. LO5 BT: K 114. The usual order of accounts in the general ledger is a. assets, liabilities, common stock, retained earnings, dividends, revenues, and expenses. b. assets, liabilities, dividends, common stock, retained earnings, expenses, and revenues. c. liabilities, assets, common stock, retained earnings, revenues, expenses, and dividends. d. common stock, retained earnings, assets, liabilities, dividends, expenses, and revenues. LO5 BT: K 115. Management could determine the amounts due from customers by examining which ledger account? a. Service Revenue b. Accounts Payable c. Accounts Receivable d. Supplies LO5 BT: C 116. The ledger accounts should be arranged in a. chronological order. b. alphabetical order. c. financial statement order. d. order of appearance in the journal. LO5 BT: K 117. A three column form of account is so named because it has columns for a. debit, credit, and account name. b. debit, credit, and reference. c. debit, credit, and balance. d. debit, credit, and date. LO5 BT: K 118. On August 13, 2015, Swell Maps Enterprises purchased equipment for $1,300 and supplies of $200 on account. Which of the following journal entries is recorded correctly and in the standard format? a. Equipment 1,300 Account Payable 1,500 Supplies 200 b. Equipment 1,300 Supplies 200 Accounts Payable 1,500 c. Accounts Payable 1,500 Equipment 1,300 Supplies 200 d. Equipment 1,300 Supplies 200 Accounts Payable. 1,500 LO5 BT: AP Difficulty: Medium 119. Delta72 Company received a cash advance of $700 from a customer. As a result of this event, a. assets increased by $700. b. stockholders’ equity increased by $700. c. liabilities decreased by $700. d. assets and stockholders’ equity increased by $700. LO6 BT: K 120. Camper Van Company purchased equipment for $2,600 cash. As a result of this event, a. stockholders’ equity decreased by $2,600. b. total assets increased by $2,600. c. total assets remained unchanged. d. stockholders’ equity decreased and total assets increased by $2,600. LO6 BT: K 121. Beethoven Company provided consulting services and billed the client $3,100. As a result of this event, a. assets remained unchanged. b. assets increased by $3,100. c. stockholders’ equity increased by $3,100. d. assets and stockholders’ equity both increased by $3,100. LO6 BT: K 122. The first step in posting involves a. entering in the appropriate ledger account the date, journal page, and debit amount shown in the journal. b. writing in the journal the account number to which the debit amount was posted. c. writing in the journal the account number to which the credit amount was posted. d. entering in the appropriate ledger account the date, journal page, and credit amount shown in the journal. LO6 BT: K 123. A chart of accounts usually starts with a. asset accounts. b. expense accounts. c. liability accounts. d. revenue accounts. LO6 BT: K 124. The procedure of transferring journal entries to the ledger accounts is called a. journalizing. b. analyzing. c. reporting. d. posting. LO6 BT: K 125. A number in the reference column in a general journal indicates a. that the entry has been posted to a particular account. b. the page number of the journal. c. the dollar amount of the transaction. d. the date of the transaction. LO6 BT: K 126. A chart of accounts for a business firm a. is a graph. b. indicates the amount of profit or loss for the period. c. lists the accounts and account numbers that identify their location in the ledger. d. shows the balance of each account in the general ledger. LO6 BT: K 127. Posting a. should be performed in account number order. b. accumulates the effects of journalized transactions in the individual accounts. c. involves transferring all debits and credits on a journal page to the trial balance. d. is accomplished by examining ledger accounts and seeing which ones need updating. LO6 BT: K 128. After journal entries are posted, the reference column a. of the general journal will be blank. b. of the general ledger will show journal page numbers. c. of the general journal will show "Dr" or "Cr". d. of the general ledger will show account numbers. LO6 BT: K 129. The explanation column of the general ledger a. is completed without exception. b. is nonexistent. c. is used infrequently. d. shows account titles. LO6 BT: K 130. A numbering system for a chart of accounts a. is prescribed by GAAP. b. is uniform for all businesses. c. usually starts with income statement accounts. d. usually starts with balance sheet accounts. LO6 BT: K 131. The first step in designing a computerized accounting system is the creation of the a. general ledger. b. general journal. c. trial balance. d. chart of accounts. LO6 BT: K 132. The steps in preparing a trial balance include all of the following except a. listing the account titles and their balances. b. totaling the debit and credit columns. c. proving the equality of the two columns. d. transferring journal amounts to ledger accounts. LO7 BT: K 133. A trial balance may balance even when each of the following occurs except when a. a transaction is not journalized. b. a journal entry is posted twice. c. incorrect accounts are used in journalizing. d. a transposition error is made. LO7 BT: C 134. A list of accounts and their balances at a given time is called a(n) a. journal. b. posting. c. trial balance. d. income statement. LO7 BT: K 135. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates a. no errors have been made. b. no errors can be discovered. c. that all accounts reflect correct balances. d. the mathematical equality of the accounting equation. LO7 BT: C 136. A trial balance is a listing of a. transactions in a journal. b. the chart of accounts. c. general ledger accounts and balances. d. the totals from the journal pages. LO7 BT: K 137. Customarily, a trial balance is prepared a. at the end of each day. b. after each journal entry is posted. c. at the end of an accounting period. d. only at the inception of the business. LO7 BT: K 138. A trial balance would only help in detecting which one of the following errors? a. A transaction that is not journalized b. A journal entry that is posted twice c. Offsetting errors are made in recording the transaction d. A transposition error when transferring the debit side of journal entry to the ledger LO7 BT: C Difficulty: Medium 139. An account is an individual accounting record of increases and decreases in specific a. liabilities. b. assets. c. expenses. d. assets, liabilities, and stockholders’ equity items. LO1 BT: K 140. A debit is not the normal balance for which of the following? a. Asset account b. Dividends account c. Expense account d. Common stock account 141. Which of the following rules is incorrect? a. Credits decrease the dividends account. b. Debits increase the common stock account. c. Credits increase revenue accounts. d. Debits decrease liability accounts. 142. Which of the following statements is false? a. Revenues increase stockholders’ equity. b. Revenues have normal credit balances. c. Revenues are a positive factor in the computation of net income. d. Revenues are increased by debits. LO3 BT: K 143. Which of the following is the correct sequence of steps in the recording process? a. Posting, journalizing, analyzing b. Journalizing, analyzing, posting c. Analyzing, posting, journalizing d. Analyzing, journalizing, posting LO3 BT: K 144. Which of the following is false about a journal? a. It discloses in one place the complete effects of a transaction. b. It provides a chronological record of transactions. c. It helps to prevent or locate errors because debit and credit amounts for each entry can be readily compared. d. It keeps in one place all the information about changes in specific account balances. LO4 BT: K 145. 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 a. debit to Equipment $2,700 and a debit to Supplies Expense $400 for Milkman. b. credit to Cash for Milkman. c. credit to Accounts Payable for Deerhoof. d. debit to Equipment $2,700 and a debit to Supplies $400 for Deerhoof. LO4 BT: K Difficulty: Medium 146. Devendra Company pays cash dividends of $600. The entry for this transaction will include a debit of $600 to a. Dividends b. Retained Earnings. c. Owner's Salaries Expense. d. Salaries and Wages Expense. LO4 BT: K 147. 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 a. credit to Retained Earnings. b. credit to Notes Payable. c. debit to Accounts Receivable. d. credit to Accounts Payable. LO4 BT: C Difficulty: Medium TOT: 1.5 min. 148. Posting of journal entries should be done in a. account number order. b. alphabetical order. c. chronological order. d. dollar amount order. LO6 BT: K 149. The chart of accounts is a a. list of accounts and their balances at a given time. b. device used to prove the mathematical accuracy of the ledger. c. listing of the accounts and the account numbers which identify their location in the ledger. d. required step in the recording process. LO6 BT: K 150. Which of the following is incorrect regarding a trial balance? a. It proves that the debits equal the credits after posting. b. It proves that the company has recorded all transactions. c. A trial balance uncovers errors in journalizing and posting. d. A trial balance is useful in the preparation of financial statements. LO7 BT: K 151. A trial balance will not balance if a. a journal entry is posted twice. b. a wrong amount is used in journalizing. c. incorrect account titles are used in journalizing. d. a journal entry is only partially posted. LO7 BT: C Difficulty: Medium 152. Which of the following are the same under both GAAP and IFRS? a. The account. b. Debit and credit rules. c. Steps in the recording process. d. All of these answers are correct. IFRS. LO8 BT: K 153. Which of the following are the same under both GAAP and IFRS? a. The journal. b. The ledger. c. The chart of accounts. d. All of these answers are correct. IFRS. LO8 BT: K 154. Which of the following is true? a. Transaction analysis is completely different under IFRS and GAAP. b. Most transactions are recorded differently under IFRS and GAAP. c. Transaction analysis is the same under IFRS and GAAP, but some transactions are recorded differently. d. All transactions are recorded the same under IFRS and GAAP. IFRS. LO8 BT: K 155. European companies rely a. less on historical cost and more on fair values than U.S. companies. b. less on fair values and more on historical cost than U.S. companies. c. completely on fair values for financial reporting. d. completely on historical cost for financial reporting. IFRS. LO8 BT: K 156. The double–entry accounting system is the basis of accounting systems a. worldwide. b. worldwide, except for the U.S. c. in the U.S. only d. neither internationally nor in the U.S. IFRS. LO8 BT: K 157. Under IFRS, the trial balance a. follows the same format as under GAAP. b. shows credits on the left and debits on the right. c. includes less accounts than under GAAP. d. includes more accounts than under GAAP. IFRS. LO8 BT: K 158. In deciding whether the U.S. should adopt IFRS, the issue the SEC said should be considered is a. whether IFRS is sufficiently developed and consistent in application. b. whether the IFRS is established for the benefit of investors. c. the impact of a switch to IFRS on U.S. laws and regulations. d. all of these answers are correct. IFRS. LO8 BT: K Answers to Multiple Choice Questions BRIEF EXERCISES BE 159 At June 1, 2015, 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, 2015? 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. 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. Common stock. 5. Dividends. 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. in general journal form. Identify each transaction by number. You may omit explanations of the transaction. 1. Andrew Bird invested $35,000 cash in exchange for stock. 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. 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. BE 165 Journalize the following transactions for Xiu Xiu Company for June 2015, 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. BE 166 The following transactions took place for Xiu Xiu Company: (a) Purchased equipment on account for $9,000. (b) Billed customers $5,000 for services performed. (c) Made payment of $2,300 on account for equipment purchased earlier in month. (d) Collected $2,900 on customer accounts. 1. What is the balance in Accounts Payable at June 30, 2015? 2. What is the balance in Accounts Receivable at June 30, 2015? 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 2015 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 BE 168 Prepare a trial balance from the ledger accounts of Black Diamond Express as of January 31, 2015. Accounts Payable $1,100 Rent Expense $ 500 Accounts Receivable 1,700 Service Revenue 3,000 Cash 1,400 Supplies 200 Common stock 2,000 Salaries and Wages Expense 1,300 Dividends 1,000 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 3/31/15 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 Common stock 38,000 Dividends 1,500 Service Revenue 43,000 Salaries and Wages Expense 15,000 Utilities Expense 5,000 Rent Expense 10,000 $116,500 $145,500 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 311 Common Stock 125 Supplies 332 Dividends 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. The company issues stock in exchange for $70,000 cash. ——————————————————————————————————————————— 2. Purchased three pieces of equipment for $160,000, paying $50,000 cash and signing a 5-year, 10% note for the remainder. ——————————————————————————————————————————— 3. Purchased $5,000 supplies on credit. ——————————————————————————————————————————— 4. Cash revenue amounted to $7,000. ——————————————————————————————————————————— 5. Paid $500 cash for radio advertising. ——————————————————————————————————————————— 6. Paid $800 on account for supplies purchased in transaction 3. ——————————————————————————————————————————— 7. The company paid dividends of $2,100. ——————————————————————————————————————————— 8. Paid $1,200 cash for rent for the current month. ——————————————————————————————————————————— 9. Received $2,000 cash advance from a customer for future copying. ——————————————————————————————————————————— 10. Billed a customer for $575 for photocopy work done. ——————————————————————————————————————————— x. 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. 2. A decrease in Accounts Payable. 3. An increase in Prepaid Insurance. 4. An increase in Common Stock. 5. A decrease in Supplies. 6. An increase in Dividends. 7. An increase in Service Revenue. 8. A decrease in Accounts Receivable. 9. An increase in Rent Expense. 10. A decrease in Equipment. Ex. 172 Selected transactions for Good Home, a property management company, in its first month of business, are as follows: Jan. 2 Issued stock to investors for $15,000 cash. 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 Paid dividends of $2,000. Instructions For each transaction indicate the following. (a) The basic type of account debited and credited (asset (A), liability (L), stockholders’ equity (SE)). (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 SE Common Incr. Credit Stock 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 2. Rent Expense 3. Accounts Receivable 4. Accounts Payable 5. Retained Earnings 6. Supplies 7. Insurance Expense 8. Dividends 9. Buildings 10. Notes Payable 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. Common Stock 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) Dividends (2) Service Revenue (7) Cash (3) Accounts Payable (8) Salaries and Wages Expense (4) Accounts Receivable (9) Notes Payable (5) Common Stock (10) Insurance Expense 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 COMMON STOCK SERVICE REVENUE (1) 25,000 (5) 27,500 ACCOUNTS PAYABLE DIVIDENDS (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, stockholders’ equity, revenue, or expense account was affected and (b) whether the account was increased (+) or (–) decreased. Answers should be presented in the following chart form: Account Debited Account Credited Transaction (a) (b) (a) (b) No. Type Effect Type Effect ——————————————————————————————————————————— (1) (Example) Asset + Stockholders’ equity + ——————————————————————————————————————————— (2) ——————————————————————————————————————————— (3) ——————————————————————————————————————————— (4) ——————————————————————————————————————————— (5) ——————————————————————————————————————————— (6) ——————————————————————————————————————————— (7) ——————————————————————————————————————————— (8) ——————————————————————————————————————————— Ex. 177 For each of the following accounts indicate (a) the type of account (Asset, Liability, Stockholders’ Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the normal account balance. Example 0. Cash a. Asset account b. Debit increases, credit decreases c. Normal balance - debit Accounts 1. Accounts Payable 5. Service Revenue 2. Accounts Receivable 6. Insurance Expense 3. Common Stock 7. Notes Payable 4. Dividends 8. Equipment 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 stockholders’ equity accounts. In some cases there may be a "D" and a "C" in the same box. Transactions: 1. Invests cash in exchange for stock. 2. Pays insurance in advance for six months. 3. Pays secretary's salary. 4. Purchases 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.) 9. Provides services on account. 10. The company pays a dividends. Transaction # 1 2 3 4 5 6 7 8 9 10 Assets Liabilities Common stock Dividends Revenues Expenses 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 company issues stock in exchange for $40,000 cash 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. The company paid dividends of $1,500. 10. Received a check for $3,000 from a client in payment on account for commissions billed in transaction 4. Ex. 180 Identify the accounts to be debited and credited for each of the following transactions. 1. Invested $8,000 cash in the business in exchange for stock. 2. Purchased supplies on account for $1,000. 3. Billed customers $2,000 for services performed. 4. Paid salaries of $1,200. 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 in exchange for stock. 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. Paid dividends of $2,000. Ex. 182 Match the basic step in the recording process described by each of the following statements. A. Analyze each transaction B. Enter each transaction in a journal C. 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. 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 company paid dividends of $2,000. 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 Rent Expense Cash Salaries and Wages Expense Common Stock Salaries and Wages Payable Depreciation Expense Service Revenue Dividends Supplies Equipment Utilities Expense Insurance Expense 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 Stockholders’ Equity 400—499 Revenues 500—599 Expenses 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 ——————————————————————————————————————————— 2015 Sept. 1 Cash 25,000 Common Stock 25,000 (Issued stock for cash) 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 Dividends 1,500 Cash 1,500 (Paid dividends) 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 ——————————————————————————————————————————— Common Stock Account No. 311 ——————————————————————————————————————————— Date Explanation Ref. Debit Credit Balance ——————————————————————————————————————————— Dividends Account No. 332 ——————————————————————————————————————————— 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, 2015 ——————————————————————————————————————————— Accounts Debit Credit ——————————————————————————————————————————— ——————————————————————————————————————————— 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 maintenance and 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. Ex. 186 (cont.) 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 Ex. 187 Post the following transactions to T-accounts and determine each account's ending balance. 1. Supplies 2,800 Accounts Payable 2,800 2. Accounts Receivable 4,000 Service Revenue 4,000 3. Cash 3,000 Accounts Receivable 3,000 4. Accounts Payable 1,000 Cash 1,000 Ex. 188 The trial balance of Red House Painters shown below does not balance. RED HOUSE PAINTERS Trial Balance June 30, 2015 ——————————————————————————————————————————— Debit Credit Cash $ 2,780 Accounts Receivable 7,420 Supplies 600 Equipment 8,300 Accounts Payable $ 9,777 Common Stock 1,952 Dividends 1,300 Service Revenue 15,200 Salaries and Wages Expense 3,800 Maintenance and Repairs 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 dividend of $400 was posted as a credit to Dividends $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 Maintenance and Repairs 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. 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. Ex. 190 L. Phair and Associates is a financial planning service. The account balances at December 31, 2015 are shown by the following alphabetical list: Accounts Payable $ 5,000 Accounts Receivable 19,000 Buildings 140,000 Cash 11,700 Common Stock 143,400 Equipment 15,400 Land 42,000 Notes Payable 95,000 Notes Receivable 8,100 Prepaid Insurance 6,400 Supplies 800 Instructions Prepare a trial balance with the accounts arranged in financial statement order. Ex. 191 The ledger accounts of the Fabulous Muscles Gym at June 30, 2015 are shown below: Accounts Payable $ 9,100 Accounts Receivable 1,050 Buildings 43,000 Cash 14,100 Common Stock 62,800 Dividends 10,500 Equipment 42,900 Notes Payable 40,000 Supplies 350 Instructions Prepare a trial balance with the ledger accounts arranged in the proper financial statement order. Include the appropriate heading. Ex. 192 The ledger account balances for Galaxie 500 Company are listed below. Accounts Payable $ 6,000 Accounts Receivable 7,000 Cash 5,200 Common Stock 11,000 Dividends 4,000 Salaries and Wages Expense 20,800 Service Revenue 30,000 Unearned Service Revenue 2,000 Utilities Expense 12,000 Instructions Prepare a trial balance in proper form for Galaxie at December 31, 2015. 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. 4. A credit posting of $350 to Interest Payable was made twice. 5. 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. Ex. 193 (cont.) 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 COMPLETION STATEMENTS 194. An _______________ is a record of increases and decreases in specific assets, liabilities, and stockholders’ items. 195. 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. 196. ______________, _______________, and _______________ have debit normal account balances whereas _______________, ________________, and ________________ have credit normal account balances. 197. The four subdivisions of stockholders’ equity are: ________________, ________________, ________________, and ________________. 198. The basic steps in the recording process are: _______________ each transaction, enter the transaction in a ________________, and transfer the _______________ information to appropriate accounts in the ________________. 199. A sales slip, a check, and a cash register tape are examples of ________________ used as evidence that a transaction has taken place. 200. An accounting record where transactions are initially recorded in chronological order is called a ________________. 201. When three or more accounts are required in one journal entry, the entry is referred to as a ________________ entry. 202. The entire group of accounts and their balances maintained by a company is called the ________________. 203. A two column list of all accounts and their balances at a given time is a ______________. MATCHING 204. Match the items below by entering the appropriate code letter in the space provided. A. Account F. Journal B. Normal account balance G. Posting C. Debit H. Chart of accounts D. Revenue account I. Trial balance E. 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 stockholdersl 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 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. 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. 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. 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. 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. 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. S-A E 211 All recordable transactions are initially recorded in the journal. Discuss the contributions that the journal makes to the recording process. 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. 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. 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. 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. Two of the largest expense categories are 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 names of the Travel and Entertainment Expense accounts 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 Expense and Entertainment Expense accounts to Property Development? Explain. S-A E 216 (Communication) A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits. a. Can the student be successful in the course without an understanding of the rules of debits and credits? b. Explain the rules of debits and credits in a way that will help him understand them. CHALLENGE EXERCISES CE 1 Presented below is information related to Pickett Real Estate Agency. Oct. 1 Jeff Pickett begins business as a real estate agent with a cash investment of $30,000 in exchange for common stock. 2 Hires an administrative assistant. 3 Purchases office equipment for $3,500, by paying $500 cash with the balance on account. 6 Sells a house and lot for N. Foster, earning a fee of $6,900 with $900 collected in cash and the balance billed to N. Foster. 27 Pays $1,000 on the balance related to the transaction of October 3. 30 Pays the administrative assistant $2,300 in salary for October. 31 Collects $1,500 of the balance owed by N. Foster. Instructions 1. Journalize the transactions. (You may omit explanations.) 2. What balance would Pickett Real Estate Agency report for Accounts Payable in its October 31 financial statements? In which category of which financial statements would it be found? 3. What balance would Pickett Real Estate Agency report for Accounts Receivable in its October 31 financial statements? In which category of which financial statements would it be found? CE 2 Selected transactions for Garver Company during its first month in business are presented below. Sept. 1 Invested $25,000 cash in the business in exchange for common stock. 5 Purchased equipment for $27,000 paying $6,000 in cash and the balance on account. 11 Performed $3,900 of services for clients, collecting $1,000 cash and billing them for the remainder. 25 Paid $7,000 cash on balance owed for equipment. 30 Declared and paid a $600 cash dividend. 30 Collected $1,200 from the clients from the September 11 transactions. The Chart of accounts shows: No. 101 Cash, No. 112 Accounts Receivable, No. 157 Equipment, No. 201 Accounts Payable, No. 311 Common Stock, No. 332 Dividends, and No. 400 Service Revenue. Instructions (a) Journalize the transactions on page 1 of the journal (Omit explanations). (b) Post the transactions using the standard account form. (c) Based only on these transactions, what amount would Garver Company report as total assets in the October 31 balance sheet? (d) Based only on these transactions, what amount would Garver Company report as total liabilities in the October 31 balance sheet. CE 3 The accounts in the ledger of Ace Delivery Service contain ithe following balances on July 31, 2015. Accounts Receivable $10,000 Accounts Payable 7,900 Cash ? Common Stock 35,000 Equipment 45,000 Dividends 900 Gasoline Expense 800 Utilities Expense 600 Maintenance and Repair Expense 1,100 Retained Earnings 5,000 Service Revenue 13,000 Salaries and Wages Expense ? Salaries and Wages Payable 1,000 Supplies 3,000 Unearned Service Revenue 2,500 Notes Payable 22,000 Prepaid Insurance 2,000 Instructions Prepare a trial balance with the accounts arranged as illustrated in the chapter and fill in the missing amounts for Cash and Salaries and Wages Expense. Assume net income for the period is $3,500. [Show More]

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