Fundamental Financial Accounting Concepts Thomas Edmonds 9th Edition-Test Bank
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Sample Test
Chapter 03 The Double-Entry Accounting System Answer Key
Short Answer Questions
Indicate how each event affects the elements of financial
statements. Use the following letters to record your answer in the box shown
below each element. You do not need to enter amounts.
1. A
transaction recorded as a debit to Cash and a credit to Common Stock.
Answer:(I) (N) (I) (N) (N) (N) (I)
Learning Objective: 03-01
Topic Area:Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: Debits increase assets such as cash and credits increase
equity such as common stock.
2. A
transaction recorded as a debit to Accounts Receivable and a credit to a
revenue account.
Answer: (I) (N) (I) (I) (N) (I) (N)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: Debits increase assets such as accounts receivable and
credits increase revenue, which in turn increases equity.
3. A
transaction recorded as a debit to Cash and a credit to Accounts Receivable.
Answer: (N) (N) (N) (N) (N) (N) (I)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Debits increase assets and credits decrease assets
such as cash and accounts receivable.
4. A
transaction recorded as a debit to Cash and a credit to Unearned Revenue.
Answer: (I) (I) (N) (N) (N) (N) (I)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Debits increase assets such as cash and credits
increase liabilities such as unearned revenue.
5. A
transaction recorded as a debit to Dividends and a credit to Cash.
Answer: (D) (N) (D) (N) (N) (N) (D)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Debits increase dividends, which in turn decrease
equity, and credits decrease assets such as cash.
6. A
transaction recorded as a debit to Cash and a credit to Common Stock.
Answer: (I) (N) (I) (N) (N) (N) (I)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: Debits increase assets such as cash and credits
increase equity such as common stock.
7. A
transaction recorded as a debit to Office Supplies and a credit to Accounts Payable.
Answer: (I) (I) (N) (N) (N) (N) (N)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: Debits increase assets such as office supplies and
credits increase liabilities such as accounts payable.
8. An
adjusting entry recorded as a debit to Rent Expense and a credit to Prepaid
Rent.
Answer: (D) (N) (D) (N) (I) (D) (N)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
Topic Area: Adjusting the Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Debits increase expenses, which in turn decrease
equity, and credits decrease assets such as prepaid rent.
9. An
adjusting entry recorded as a debit to Unearned Service Revenue and a credit to
Service Revenue.
Answer: (N) (D) (I) (I) (N) (I) (N)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
Topic Area: Adjusting the Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback:
10.
An adjusting entry recorded as a debit to Salaries Expense and a
credit to Salaries Payable.
Answer: (N) (I) (D) (N) (I) (D) (N)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
Topic Area: Adjusting the Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Debits increase expenses, which in turn decrease
equity, and credits increase liabilities such as salaries payable.
11.
An adjusting entry recorded as a debit to Supplies Expense and a
credit to Supplies.
Answer: (D) (N) (D) (N) (I) (D) (N)
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
Topic Area: Adjusting the Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Debits increase expenses, which in turn decreases
equity, and credits decrease assets such as supplies.
12.
What effect do debits have on asset accounts? On liability
accounts?
Answer: Debits increase asset accounts. Debits decrease
liability accounts.
Learning Objective: 03-01
Topic Area: Debit/Credit Terminology
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: Debits also decrease equity.
13.
What effect do credits have on asset accounts? On equity
accounts?
Answer: Credits decrease asset accounts. Credits increase equity
accounts.
Learning Objective: 03-01
Topic Area:Debit/Credit Terminology
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: Credits also increase liabilities.
14.
What is the meaning of the terms “debit” and “credit” and what
is the effect on specific account types?
Answer: “Debit” means the left side of an account and refers to
increases in asset, expense, and dividend accounts and decreases in revenue,
liability, and equity accounts. “Credit” means the right side of the account
and refers to increases in revenues, liabilities, and equity accounts and
decreases in asset, expense, and dividend accounts.
Learning Objective: 03-01
Topic Area:Debit/Credit Terminology
AACSB: Reflective Thinking
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 2 Medium
15.
Are liability accounts increased by debits or credits?
Answer: Credits
Learning Objective: 03-01
Topic Area:Debit/Credit Terminology
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
16.
Cornelius Company purchased supplies on account. What account is
credited?
Answer: Accounts Payable
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: Accounts payable, a liability, is increased with a
credit.
17.
What is the purpose of a trial balance?
Answer: To ensure that debits and credits are equal.
Learning Objective: 03-03
Topic Area: Trial Balance and Financial Statements
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: A trial balance ensures that debits and credits are
equal, but does not ensure that all transactions were correctly recorded.
18.
Explain the significance of the return on equity ratio. Who
(what category or type of financial statement users) would normally be most
interested in this ratio, and why?
Answer: The return on equity ratio measures the relationship
between the amount of net income and the owner’s equity. The owners would
normally be most interested in this ratio because it measures how well the
company is using their investment to earn income.
Learning Objective: 03-05
Topic Area: Assessing the Effective Use of Assets
AACSB: Reflective Thinking
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Risk Analysis
Blooms: Understand
Level of Difficulty: 2 Medium
19.
What does the debt to assets ratio indicate with regard to the
degree of a company’s debt risk? Who would normally be most interested in this
ratio?
Answer: With a high debt to assets ratio, a company experiences
a great degree of debt risk. A company with a high debt to assets ratio may be
forced into bankruptcy if it is unable to meet the required payments on its
outstanding debt. The company’s creditors would likely be most interested in this
ratio.
Learning Objective: 03-05
Topic Area: Assessing Debt Risk
AACSB: Reflective Thinking
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Risk Analysis
Blooms: Understand
Level of Difficulty: 1 Easy
20.
What is financial leverage? What financial ratio can be
increased by using financial leverage?
Answer: Financial leverage is the use of borrowed money to
increase return on stockholders’ investment. If a company can borrow money at
8% and invest it at 10%, it can increase return on equity.
Learning Objective: 03-05
Topic Area: Assessing the Effective Use of Assets
AACSB: Reflective Thinking
AACSB: Communication
AICPA: BB Critical Thinking
AICPA: FN Risk Analysis
Blooms: Understand
Level of Difficulty: 1 Easy
Multiple Choice Questions
21.
Which of the following accounts normally has a debit balance?
22.
Prepaid insurance
23.
Unearned service revenue
24.
Accounts payable
25.
Common Stock
Answer: A
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Assets such as prepaid insurance normally have a debit
balance; that is, debits increase that account.
Use the following information to answer questions 22-23:
22.
Select the true statement (note: an answer may be true even if
it does not identify all accounts that appear on that particular financial
statement).
23.
Account numbers 2, 4, and 5 will appear on the income statement.
24.
Account numbers 1, 3, and 8 will appear on the balance sheet.
25.
Account numbers 2, 5, and 8 will appear on the statement of cash
flows.
26.
Account numbers 4, 5, and 6 will appear on the statement of
changes in equity.
Answer: B
Learning Objective: 03-03
Topic Area:Trial Balance and Financial Statements
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 2 Medium
Feedback: Cash, accounts receivable, and retained earnings are
all balance sheet accounts.
23.
Select the true statement (note: an answer may be true even if
it does not identify all accounts that have debit balances on that particular
financial statement).
24.
Account numbers 1, 3, and 5 normally have debit balances.
25.
Account numbers 2, 4, and 5 normally have debit balances.
26.
Account numbers 2, 5, and 8 normally have debit balances.
27.
Account numbers 4, 5, and 6 normally have debit balances.
Answer: A
Learning Objective: 03-03
Topic Area: Trial Balance and Financial Statements
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 2 Medium
Feedback: Cash and accounts receivable, both assets, normally
have debit balances, as does the dividends account.
24.
The left side of a T-account is known as the:
25.
Equity side
26.
Debit side
27.
Credit side
28.
Claims side
Answer: B
Learning Objective: 03-01
Topic Area: Debit/Credit Terminology
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: Debits are always recorded on the left side of a
T-account. They are not universally increases or decreases.
25.
The right side of a T-account is known as the
26.
Credit side.
27.
Claims side.
28.
Debit side.
29.
Equity side
Answer: A
Learning Objective: 03-01
Topic Area: Debit/Credit Terminology
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: Credits are always recorded on the right side of a
T-account. They are not universally increases or decreases.
26.
The difference between the debit and credit side of a T-account
is known as the
27.
Net income.
28.
Trial balance.
29.
Equality.
30.
Account balance.
Answer: D
Learning Objective: 03-01
Topic Area: T-accounts
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: The account balance is recorded on the side that
contains increases to that account.
27.
A debit entry
28.
increases assets.
29.
increases expenses.
30.
decreases liabilities.
31.
increases assets, expenses, and liabilities.
Answer: D
Learning Objective: 03-01
Topic Area: Debit/Credit Terminology
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: Credit entries decrease assets and expenses and
increase liabilities.
28.
Warren Company began the accounting period with a $32,000 debit
balance in its accounts receivable account. During the accounting period, the
company recorded revenue on account amounting to $88,000. The accounts
receivable account at the end of the accounting period contained a $16,000
debit balance. Based on this information, the cash collected from accounts
receivable during the period is
29.
$104,000
30.
$40,000
31.
$72,000
32.
$84,000
Answer: A
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Level of Difficulty: 3 Hard
Feedback: $32,000 beg. balance + $88,000 rev. on account –
$16,000 end. balance = $104,000 cash collected from AR
29.
Benson Co. purchased land and paid the full purchase price in
cash. The journal entry necessary to record this event includes a:
30.
debit to Land and a debit to Cash.
31.
debit to Cash and a credit to Land.
32.
credit to Land and a credit to Cash.
33.
debit to Land and a credit to Cash.
Answer: D
Learning Objective: 03-02
Topic Area: The General Journal
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: Land, an asset, is increased with a debit, and cash,
another asset, is decreased with a credit.
30.
Credit entries
31.
decrease liability accounts.
32.
increase asset accounts.
33.
increase the common stock account.
34.
increase asset and common stock accounts, and decrease liability
accounts.
Answer: C
Learning Objective: 03-01
Topic Area: Debit/Credit Terminology
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Level of Difficulty: 1 Easy
Feedback: Common stock, an equity account, is increased with a
credit.
31.
Which of the following is increased with a debit?
32.
Insurance expense
33.
Service revenue
34.
Accounts payable
35.
Common stock
Answer: A
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Expenses decrease equity, and are therefore recorded
as debit entries.
32.
Which of the following is increased with a credit?
33.
Salaries payable
34.
Prepaid rent
35.
Common stock
36.
Both salaries payable and common stock
Answer: D
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Salaries payable, a liability, and common stock, an
equity account, are increased with a credit.
33.
Which of the following is decreased with a debit?
34.
Accounts Receivable
35.
Accounts Payable
36.
Prepaid Rent
37.
Rent Expense
Answer: B
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Accounts payable, a liability, is decreased with a
debit.
34.
Which of the following is decreased with a credit?
35.
Unearned revenue
36.
Prepaid insurance
37.
Accounts payable
38.
Service revenue
Answer: B
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Prepaid insurance, an asset, is decreased with a
credit.
35.
Which account is increased by a credit to the account?
36.
Accounts receivable
37.
Service revenue
38.
Interest expense
39.
Supplies
Answer: B
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Service revenue increases equity, and therefore is
recorded as a credit.
36.
The Baker Company purchased $1,000 of supplies on account. After
this transaction has been recorded in T-accounts, the $1,000 would appear
37.
on the right side of the Supplies account.
38.
on the left side of the Supplies account.
39.
on the left side of the Accounts Payable account.
40.
on the right side of the Cash account.
Answer: B
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: The purchase increased the supplies account, an asset
and decreased accounts payable, a liability. Therefore, $1,000 will
appear as a debit on the left side of the supplies account and as a credit on
the right side of the accounts payable account.
37.
The information in the following T-accounts of Gibbs Company
indicates that:
1. Cash
has been paid out to a company that will provide future services to Gibbs
Company.
2. Gibbs
has completed services for which they had earlier received cash in advance.
3. Gibbs
has provided services to a customer on account.
4. Gibbs
has received cash for service to be provided in the future.
Answer: D
Learning Objective: 03-02
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Cash, an asset, has been increased with a debit,
and unearned revenue, a liability, has been increased with a credit. This
indicates that Gibbs has collected cash for services to be provided in the
future.
38.
The Horowitz Corporation recorded a business event using
T-accounts as follows:
Which of the following reflects how this event affects the
company’s financial statements?
1.
2.
3.
4.
Answer: B
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: A debit to cash increases assets and a credit to
common stock increases equity. The income statement is not affected, and
the event is reported as a cash inflow for financing activities.
39.
Powell Corporation recorded a business event using T-accounts as
follows:
Which of the following reflects how this event affects the company’s
financial statements?
1.
2.
3.
4.
Answer: B
Learning Objective: 03-01
Topic Area: Adjusting the Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: A debit to rent expense increases expenses, decreases
net income, and decreases equity. A credit to prepaid rent decreases
assets. The event does not affect cash flows.
40.
Vernon Company recorded a business event in T-accounts as
follows:
Which of the following reflects how this event affects the
company’s financial statements?
1.
2.
3.
4.
Answer: D
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: The debit to land increases assets and the credit to
cash decreases assets, resulting in no net affect on assets. The income
statement is not affected, and the transaction is reported as a cash outflow
for investing activities.
41.
The Wagner Company issued common stock for $500,000 cash. Which
of the following shows the proper entry using T-accounts?
1.
2.
3.
4.
Answer: A
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: The event increases cash, an asset account, and common
stock, an equity account. It is recorded as a debit to cash and a credit
to common stock.
42.
Fitzpatrick Company recorded $500 of accrued salaries expense.
Which of the following shows the proper entry using T-accounts?
1.
2.
3.
4.
Answer: C
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: The accrual increases salaries expense and increases
salaries payable, a liability. It is recorded as a debit to salaries
expense and a credit to salaries payable.
43.
Bijan Corporation recorded the adjusting entry to recognize
$4,000 of revenue previously recorded as unearned. Which of the following shows
the proper entry using T-accounts?
1.
2.
3.
4.
Answer: D
Learning Objective: 03-01
Topic Area: Adjusting the Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: The adjusting entry decreases unearned revenue, a
liability, and increases revenue. It is recorded as a debit to unearned
revenue and a credit to revenue.
44.
The information in the following T-accounts indicates that
850.
the company borrowed $850.
851.
the company loaned $850 to another company.
852.
the company repaid a $850 debt.
853.
stockholders invested $850 cash in the corporation.
Answer: A
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 1 Easy
Feedback: The debit to cash and credit to notes payable
indicates that cash increased and notes payable increased. This would be
caused by borrowing cash.
45.
Hough Company recorded a business event in these T-accounts:
Which of the following choices accurately reflects how this
event would affect the company’s financial statements?
1.
2.
3.
4.
Answer: D
Learning Objective: 03-01
Topic Area: Recording Transactions in T-Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: The debit to cash and credit to notes payable
indicates that cash, an asset, and notes payable, a liability, both
increased. There is not affect on the income statement, and the event is
reported as a cash inflow for financing activities.
46.
On August 1, 2016, Benjamin and Associates collected $18,000 in
advance for legal services to be rendered for one year. Which of the following
entries reflect the end-of-the-year adjustment to reflect revenue earned?
1.
1.
1.
1.
Answer: D
Learning Objective: 03-01
Learning Objective: 03-02
Topic Area: Adjusting the Accounts
Topic Area: The General Journal
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Level of Difficulty: 2 Medium
Feedback: The adjusting entry will increase revenue and decrease
unearned revenue, a liability. The journal entry would be a debit to
unearned revenue and a credit to revenue. $18,000 ÷ 12 months = $1,500/month.
August through December is 5 months. $1,500 × 5 = $7,500.
47.
The employees of Able Company have worked the last two weeks of
2016, but the employees’ wages have not been paid or recorded as of December
31, 2016. The adjusting entry that Able should make for these unpaid wages on
December 31, 2016 is:
48.
debit to Wages Expense and credit to Cash.
49.
debit to Wages Expense and credit to Wages Payable.
50.
debit to Wages Payable and credit to Wages Expense.
51.
no entry is required until the employee is paid next period.
Answer: B
Learning Objective: 03-01
Topic Area: Adjusting the Accounts
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Level of Difficulty: 2 Medium
Feedback: Accruing wages will increase wages expense and
increase wages payable, a liability. The journal entry would be a debit
to wages expense and a credit to wages payable.
48.
On October 1, 2016, Sengal Company recorded a journal entry
debiting prepaid rent and crediting cash for $1,200 in payment for one year of
office rent. At December 31, 2016, the financial statements should report:
1.
2.
3.
4.
Answer: D
Learning Objective: 03-03
Topic Area: Trial Balance and Financial Statements
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: The adjusting entry on December 31 to recognize
3 months of rent expense would decrease prepaid rent by $300 and recognize $300
of rent expense. The remaining $900 of prepaid rent would appear on the
balance sheet and the $300 of rent expense would appear on the income
statement.
49.
During a company’s first year, the asset account, Office
Supplies, was debited for $2,300 for the purchases of supplies. At year-end,
office supplies on hand were counted and determined to be $825. The proper
adjusting entry crediting supplies and debiting supplies expense will
50.
increase expenses and decrease assets by $1,475.
51.
decrease assets and increase expenses by $825.
52.
increase expenses and increase assets by $1,475.
53.
have no effect on net income or the accounting equation.
Answer: A
Learning Objective: 03-01
Topic Area: Adjusting the Accounts
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: $2,300 supplies were available for use, and $825 of
supplies remained on hand. Therefore, $1,475 of supplies were used during
the year. The adjusting entry debiting supplies expense and crediting
supplies will increase expenses and decrease assets by $1,475.
50.
Adjusting entries are made at the end of the period because of
the need to
51.
adjust the balance in the cash account for the effects of all
daily transactions with customers and creditors.
52.
assure that debits are equal to credits prior to preparing the
trial balance.
53.
assure that all revenues and expenses are recognized in the
period in which they are earned or incurred.
54.
prepare revenue and expense accounts for recording transactions
in the next accounting period by bringing the balances to zero.
Answer: C
Learning Objective: 03-01
Learning Objective: 03-02
Topic Area: Adjusting Entries
Topic Area: The General Journal
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 2 Medium
Feedback: The purpose of adjusting entries is to recognize
revenues and expenses in the proper accounting period. Debits and credits
should be equal at all times, not just after adjusting entries. Closing
entries, not adjusting entries, close temporary accounts to retained earnings.
51.
On November 1, 2016, Shumate Company paid $1,200 in advance for
an insurance policy that covered the company for six months. Assuming that
Schumacher recorded this purchase as an asset, the adjusting entry required on
December 31, 2016 would include:
52.
a debit to Prepaid Insurance for $400.
53.
a credit to Prepaid Insurance for $400.
54.
a debit to Insurance Expense for $1,200.
55.
a credit to Insurance Expense for $1,200.
Answer: B
Learning Objective: 03-02
Topic Area: Adjusting Entries
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Level of Difficulty: 2 Medium
Feedback: Two months of insurance had been used during
2013. Therefore, Schumacher should recognize 2/12 of $1,200, or $400 of
insurance expense at the end of the year. The adjusting entry to
recognize insurance expense would a debit to insurance expense and a credit to
prepaid insurance for $400.
52.
The closing entry for the Dividends account would involve which
of the following?
53.
A credit to Retained Earnings
54.
A credit to Dividends
55.
A credit to Common Stock
56.
A credit to Cash
Answer: B
Learning Objective: 03-04
Topic Area: Closing Entries
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: The journal entry to close dividends to retained
earnings would be a debit to retained earnings, reducing that account, and a
credit to dividends, leaving a zero balance in that account.
53.
Which one of the following would not be included in a closing
entry at the end of the accounting year?
54.
A credit to rent expense
55.
A debit to unearned revenue
56.
A debit to service revenue
57.
A credit to dividends
Answer: B
Learning Objective: 03-04
Topic Area: Closing Entries
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Level of Difficulty: 2 Medium
Feedback: Only temporary accounts are closed at the end of the
year. Unearned revenue is a liability account that is not closed.
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