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    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2

A note receivable due in 12 months is listed on the balance sheet under the caption
 
a. fixed assets.
b. long-term liabilities.
c. investments.
d. current assets.
   
Other receivables do not include
 
a. taxes receivable.
b. interest receivable.
c. officers and employees receivable.
d. trade receivables.
   
The receivable that is usually evidenced by a formal instrument of credit is a(n)
 
a. note receivable.
b. intangible receivable.
c. income tax receivable.
d. accounts receivable.
   
The rule is that an account becomes uncollectible
 
a. when the debtor fails to pay a note on the due date.
b. upon receipt of a certified letter from the debtor.
c. There is no general rule as to when an account becomes uncollectible.
d. at the end of the fiscal year.
   
The direct write-off method is required
a. where receivables are a large part of the current assets.
b. by GAAP.
c. for companies that factor their receivables.
d. for federal income tax purposes.
   
Establishing an Allowance for Doubtful Accounts under the allowance method is necessary because
 
a. uncollectible accounts that are written off must be accumulated in a separate account.
b. a liability results when a credit sale is made.
c. collection agencies use this account to accumulate attempts to collect worthless balances.
d. estimates must be made when recording bad debt expense and it is not possible to know which specific
     accounts will not be collected.
   
A primary weakness of the direct write-off method is that
 
a. the expense of a bad debt is not matched to the period that generated the uncollectible sale amount.
b. it understates accounts receivable on the balance sheet.
c. it is based on estimates.
d. it is too difficult for many companies to use.
   
Extra Co. uses the direct write-off method of accounting for uncollectible accounts receivable.
The entry to write off an account that has been determined to be uncollectible would be as follows:
 
a. debit Sales Returns and Allowances; credit Accounts Receivable.
b. debit Bad Debt Expense; credit Accounts Receivable.
c. debit Accounts Receivable; credit Bad Debt Expense.
d. debit Bad Debt Expense; credit Allowance for Doubtful Accounts.
   
The direct write-off method is used by all of the following businesses except
 
a. those that have receivables as a large part of their current assets.
b. those that sell certain kinds of merchandise, like restaurants or convenience stores.
c. those that sell most of their goods or services for cash.
d. those that accept only MasterCard or VISA for sales other than cash.
   
Under the allowance method, when a specific account is written off
 
a. net income will decrease.
b. total assets will be unchanged.
c. total assets will decrease.
d. total assets will increase.
   
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),
and an analysis of accounts in the customer ledger indicates doubtful accounts of $16,000.
Which of the following entries records the proper provision for doubtful accounts?
 
a. Debit Bad Debt Expense, $16,500; credit Allowance for Doubtful Accounts, $16,500.
b. Debit Bad Debt Expense, $500; credit Allowance for Doubtful Accounts,$500.
c. Debit Bad Debt Expense, $15,500; credit Allowance for Doubtful Accounts, $15,500.
d. Debit Allowance for Doubtful Accounts, $500; credit Bad Debt Expense, $500.
   
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),
and an analysis of accounts in the customer ledger indicates doubtful accounts of $15,000.
Which of the following entries records the proper provision for doubtful accounts?
 
a. Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500.
b. Debit Bad Debt Expense, $500; credit Allowance for Doubtful Accounts, $500.
c. Debit Allowance for Doubtful Accounts, $15,500; credit Bad Debt Expense, $15,500.
d. Debit Allowance for Doubtful Accounts, $500; credit Bad Debt Expense, $500.
   
If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which had been
written off on March 1, the entry to record the cash receipt after the account has been reinstated under the direct write-off method
 
a. includes a credit to Bad Debt Expense of $3,650.
b. is the same as it would be under the allowance method.
c. includes a debit to Allowance for Doubtful Accounts of $3,650.
d. includes a credit to Cash of $3,650.
   
If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which
had been written off on March 1, the entry to reinstate the account under the allowance method would include:
 
a. a debit to Bad Debt Expense of $3,650.
b. a debit to Allowance for Doubtful Accounts of $3,650.
c. a credit to Allowance for Doubtful Accounts of $3,650.
d. a credit to Cash of $3,650.
   
If Modern Company received $3,650 from Connor Young Company on March 12 for the total amount of an account which
had been written off on March 1, the entry to reinstate the account under the direct write-off method would include:
 
a. a credit to Bad Debt Expense of $3,650.
b. a debit to Bad Debt Expense of $3,650.
c. a debit to Allowance for Doubtful Accounts of $3,650.
d. a credit to Cash of $3,650.
   
A 60-day, 12% note for $10,000, dated May 1, is received from a customer on account.
Assuming a 360-day year, the maturity value of the note is
 
a. $11,200.
b. $10,000.
c. $9,980.
d. $10,200.
   
A 90-day, 10% note for $9,000, dated April 15, is received from a customer on account. The face value of the note is
 
a. $8,100.
b. $9,225.
c. $9,000.
d. $9,900.
   
A 90-day, 12% note for $10,000, dated May 1, is received from a customer on account.
Assuming a 360-day year, the maturity value of the note is
 
a. $11,200.
b. $10,300.
c. $9,700.
d. $10,000.
   
Receivables are _________ on the __________, which are listed in order of ____________.
 
a. current liabilities; balance sheet; size
b. current assets; balance sheet; liquidity
c. current liabilities; balance sheet; due date
d. current assets; balance sheet; importance
   
All receivables that are expected to be realized within a year are reported in the __________ section of the balance sheet.
 
a. current assets
b. investments
c. fixed assets
d. cash
   
The Allowance for Doubtful Accounts is
 
a. added to Accounts Receivable.
b. subtracted from Cash.
c. subtracted from Notes Receivable.
d. subtracted from Accounts Receivable.
   
The number of days' sales in receivables
 
a. measures the number of times the receivables turn over each year.
b. is not used.
c. is an estimate of the length of time the receivables have been outstanding.
d. is Average Receivables / Sales.
   
The numerator in the number of days' sales in receivables calculation is
a. accounts receivable ending balance.
b. accounts receivable beginning balance.
c. None of these choices are correct.
d. average daily sales.
   
Using the following end-of-year information, calculate accounts receivable turnover for Year 2.​
Year 2: sales are $82,500; average accounts receivable is $11,000.
Year 1: sales are $78,000; average accounts receivable is $10,000. Round to one decimal place.
 
a. 7.5
b. 48.7
c. 46.8
d. 7.8
   
If Accounts Receivable for Sally Company is equal to $56,850 and the Allowance for Doubtful Accounts is $2,375
at December 31, 2016, what is the amount of net receivables shown on Sally's balance sheet at December 31, 2016?
 
a. $54,475
b. $56,850
c. Cannot be determined from the information given.
d. $59,225
   
Notes and accounts receivable that result from sales transactions are sometimes called
 
a. trade receivables.
b. fixed assets.
c. current liabilities.
d. intangible assets.
   
An account receivable due in 12 months is listed on the balance sheet under the caption
 
a. current assets.
b. long-term liabilities.
c. fixed assets.
d. investments.
   
Companies may sell their receivables. This practice is called
 
a. dumping.
b. hedging.
c. factoring.
d. expensing.
   
The two methods of accounting for uncollectible receivables are the direct method and the __________ method.
 
a. interest
b. allowance
c. equity
d. cost
   
If the direct write-off method of accounting for uncollectible receivables is used,
what general ledger account is credited when a customer's account is written off as uncollectible?
 
a. Allowance for Doubtful Accounts.
b. Uncollectible Accounts Payable.
c. Accounts Receivable.
d. Bad Debt Expense.
   
Which of the following methods and bases of accounting for uncollectible accounts receivable is inconsistent with the
proper application of matching?
 
a. Aging of receivables allowance method
b. Direct write-off method
c. Percentage of receivables basis
d. None of these choices are correct.
   
When comparing the direct write-off and allowance methods, which of the following statements applies to the
direct write-off method?
a. Primary users are large companies and those with a large amount of receivables.
b. The result is based on either (1) a percentage of sales or (2) an analysis of receivables.
c. The expense is recognized when the account is written off rather than in the period of sale.
d. An allowance account is used.
   
When comparing the direct write-off and allowance methods, which of the following statements applies to the
allowance method?
 
a. Primary users are small companies and those with a small amount of receivables.
b. The result is based on either (1) a percentage of sales or (2) an analysis of receivables.
c. The expense is recognized when the account is written off rather than in the period of sale.
d. No allowance account is used.
   
The journal entry to record a note received from a customer to apply on account is
 
a. debit Cash; credit Notes Receivable.
b. debit Notes Receivable; credit Cash.
c. debit Accounts Receivable; credit Notes Receivable.
d. debit Notes Receivable; credit Accounts Receivable.
   
In the current asset section of the balance sheet, receivables are usually listed in order
a. that they can be turned into cash.
b. alphabetically.
c. of size.
d. of due date.
   
Other disclosures related to receivables are reported
 
a. in the financial statement notes.
b. either on the face of the financial statements or in the financial statement notes.
c. on the face of the financial statements.
d. on the income statement.
   
Using the following end-of-year information, calculate the number of days' sales in receivables for Year 2.?
 
Year 2: sales are $82,500; average accounts receivable is $11,000.
Year 1: sales are $78,000; average accounts receivable is $10,000.
 
Round to one decimal place.
 
a. 7.8
b. 48.7
c. 7.5
d. 46.8
   
Under the direct write-off method, when a specific account is written off
 
a. total assets will increase.
b. total assets will be unchanged.
c. net income will increase.
d. total assets will decrease.
   
Under the allowance method of accounting for uncollectible accounts, Bad Debts Expense is debited
 
a. when an account is determined to be worthless.
b. whenever a predetermined amount of credit sales has been made.
c. when a credit sale is past due.
d. at the end of each accounting period.
   
Flora Co. uses the allowance method of accounting for uncollectible accounts receivable.
The entry to write off an account that has been determined to be uncollectible would be as follows:
 
a. debit Accounts Receivable; credit Bad Debt Expense.
b. debit Bad Debt Expense; credit Allowance for Doubtful Accounts.
c. debit Sales Returns and Allowances; credit Accounts Receivable.
d. debit Allowance for Doubtful Accounts; credit Accounts Receivable.
   
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and uncollectible accounts
expense is estimated at 2% of sales. If sales are $600,000, the amount of the adjusting entry to record the provision for doubtful
accounts is
 
a. None of these answers are correct.
b. $12,000.
c. $12,500.
d. $11,500.
   
The maturity value of a promissory note is
 
a. the discounted value of the note.
b. the face value of the note.
c. the face value of the note plus the interest due to the maturity date.
d. its realizable value.
   
Two financial measures that are especially useful in evaluating efficiency in collecting receivables are the
 
a. accounts receivable turnover and the ratio of cash to monthly cash expenses.
b. number of days' sales in receivables and the profit margin on sales.
c. accounts receivable turnover and the number of days' sales in receivables.
d. accounts receivable turnover and the profit margin on sales.
   
The most common transaction for creating receivables is
 
a. buying fixed assets on credit.
b. selling merchandise or services on credit.
c. buying merchandise on credit.
d. selling fixed assets on credit.
   
The direct write-off method records bad debt expense
 
a. only when an account is judged to be worthless.
b. at the end of each reporting period.
c. never.
d. at the point of sale.
   
If Ohio Company received $2,250 as partial payment on the $5,500 account of Carson Mueller Company and wrote off the
remaining balance as uncollectible, the only difference between recording the entry under the direct write-off method and the
allowance method (assuming that an adequate allowance account had been set up) would be:
 
a. a debit to Cash for $2,250 under the direct method rather than a credit to Cash for $2,250
under the allowance method.
 
b. a credit to Accounts Receivable for $3,250 under the direct method rather than a credit to Allowance for
Doubtful Accounts for $3,250 under the allowance method.
 
c. a debit to Bad Debt Expense for $3,250 under the direct method rather than a debit to Accounts Receivable
for $3,250 under the allowance method.
 
d. a debit to Bad Debt Expense for $3,250 under the direct method rather than a debit to Allowance for
Doubtful Accounts for $3,250 under the allowance method.
   
On December 1, Bright Company receives a 6% interest-bearing note from Galvalume Company to settle a $20,000 account receivable.
The note is due in 3 months. At December 31, Bright should record interest revenue of
 
a. $200.
b. $100.
c. $600.
d. $0.
 
The number of days' sales in receivables is determined by dividing
 
a. average accounts receivable by sales.
b. average accounts receivable by average daily sales.
c. None of these choices are correct.
d. the number of days in a year by accounts receivable.
   
Accounts receivable turnover is calculated by dividing
 
a. average accounts receivable by sales.
b. days' sales in receivables by accounts receivable ending balance.
c. sales by average accounts receivable.
d. average accounts receivable by average daily sales.
   
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment), and Bad Debt Expense
is estimated at 2% of sales. If sales are $500,000, the adjusting entry for uncollectible accounts would include:
 
a. a credit to Allowance for Doubtful Accounts of $10,000.
b. a credit to Allowance for Doubtful Accounts of $10,500.
c. None of these choices are correct.
d. a credit to Allowance for Doubtful Accounts of $9,500.
   
If Accounts Receivable for Crawford Company is equal to $172,000 and the Allowance for Doubtful Accounts is $4,500 at
December 31, 2016, what is the amount of net receivables shown on Crawford's balance sheet at December 31, 2016?
 
a. $176,500
b. $167,500
c. Cannot be determined from the information given.
d. $172,000
   
The party making the promise to pay the promissory note is the
 
a. payee.
b. maker.
c. None of these choices are correct
d. lender.
   
Under the direct write-off method
 
a. bad debt is recorded when specific customer accounts are determined to be uncollectible.
b. sometimes the allowance account is used.
c. primary users are large companies with large amounts of receivables.
d. estimates are used.
   
The accounting process begins with:
 
A.   Analysis of business transactions and source documents.
B.   Preparing financial statements and other reports.
C.   Summarizing the recorded effect of business transactions.
D.   Presentation of financial information to decision-makers.
E.   Preparation of the trial balance.
   
All of the following statements regarding a sales invoice are true except:
 
A.   A sales invoice is a type of source document.
B.   A sales invoice is used by sellers to record the sale and for control.
C.   A sales invoice is used by buyers to record purchases and monitor purchasing activity.
D.   A sales invoice gives rise to an entry in the accounting process.
E.   A sales invoice does not provide objective evidence about a transaction.
   
A business's source documents may include all of the following except:
 
A.   Sales tickets.
B.   Ledgers.
C.   Checks.
D.   Purchase orders.
E.   Bank statements.
   
A business's source documents:
 
A.   include the ledger.
B.   Provide objective evidence that a transaction has taken place.
C.   must be in electronic form.
D.   are prepared internally to ensure accuracy.
E.   include the chart of accounts.
   
A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):
 
A.   Journal.
B.   Posting.
C.   Trial balance.
D.   Account.
E.   Chart of accounts.
   
An account used to record the stockholders' investments in a business is called a(n):
 
A.   Dividends account.
B.   Common stock account.
C.   Revenue account.
D.   Expense account.
E.   Liability account.
   
Identify the account used by businesses to record the transfer of assets from a business to its owner for personal use:
 
A.   A revenue account.
B.   The dividends account.
C.   The common stock account.
D.   An expense account.
E.   A liability account.
   
Identify the statement below that is correct.
 
A.   When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense.
B.   Promises of future payment by the customer are called accounts receivable.
C.   Increases and decreases in cash are always recorded in the common stock account.
D.   An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business.
E.   Accrued liabilities include accounts receivable.
   
Unearned revenues are generally:
 
A.   Revenues that have been earned and received in cash.
B.   Revenues that have been earned but not yet collected in cash.
C.   Liabilities created when a customer pays in advance for products or services before the revenue is earned.
D.   Recorded as an asset in the accounting records.
E.   Increases to stockholders equity.
   
Prepaid expenses are generally:
 
A.   Payments made for products and services that do not ever expire.
B.   Classified as liabilities on the balance sheet.
C.   Decreases in equity.
D.   Assets that represent prepayments of future expenses.
E.   Promises of payments by customers.
   
A company's formal promise to pay (in the form of a promissory note) a future amount is a(n):
 
A.   Unearned revenue.
B.   Prepaid expense.
C.   Credit account.
D.   Note payable.
E.   Account receivable.
   
The record of all accounts and their balances used by a business is called a:
 
A.   Journal.
B.   Book of original entry.
C.   General Journal.
D.   Balance column journal.
E.   Ledger.
   
A company's ledger is:
 
A.   A record containing increases and decreases in a specific asset, liability, equity, revenue, or expense item.
B.   A journal in which transactions are first recorded.
C.   A collection of documents that describe transactions and events entering the accounting process.
D.   A list of all accounts a company uses with an assigned identification number.
E.   A record containing all accounts and their balances used by the company.
   
A company's list of accounts and the identification numbers assigned to each account is called a:
 
A.   Source document.
B.   Journal.
C.   Trial balance.
D.   Chart of accounts.
E.   General Journal.
   
The numbering system used in a company's chart of accounts:
 
A.   Is the same for all companies.
B.   Is determined by generally accepted accounting principles.
C.   Depends on the source documents used in the accounting process.
D.   Typically begins with balance sheet accounts.
E.   Typically begins with income statement accounts.
   
A debit:
 
A.   Always increases an account.
B.   Is the right-hand side of a T-account.
C.   Always decreases an account.
D.   Is the left-hand side of a T-account.
E.   Is not need to record a transaction.
   
The right side of a T-account is a(n):
 
A.   Debit.
B.   Increase.
C.   Credit.
D.   Decrease.
E.   Account balance.
   
Identify the statement below that is incorrect.
 
A.   The normal balance of accounts receivable is a debit.
B.   The normal balance of dividends is a debit.
C.   The normal balance of unearned revenues is a credit.
D.   The normal balance of an expense account is a credit.
E.   The normal balance of the common stock account is a credit.
   
A credit is used to record an increase in all of the following accounts except:
 
A.   Accounts Payable
B.   Service Revenue
C.   Unearned Revenue
D.   Wages Expense
E.   Common Stock
   
A debit is used to record an increase in all of the following accounts except:
 
A.   Supplies
B.   Cash
C.   Accounts Payable
D.   Dividends
E.   Prepaid Insurance
   
Identify the account below that is classified as a liability in a company's chart of accounts:
 
A.   Cash
B.   Unearned Revenue
C.   Salaries Expense
D.   Accounts Receivable
E.   Supplies
   
Identify the account below that is classified as an asset in a company's chart of accounts:
 
A.   Accounts Receivable
B.   Accounts Payable
C.   Common Stock
D.   Unearned Revenue
E.   Service Revenue
   
Identify the account below that is classified as an asset account: 
 
A.   Unearned Revenue
B.   Accounts Payable
C.   Supplies
D.   Common Stock
E.   Service Revenue
   
Identify the account below that is classified as a liability account: 
 
A.   Cash
B.   Accounts Payable
C.   Salaries Expense
D.   Common Stock
E.   Equipment
   
Identify the account below that impacts the Equity of a business:
 
A.   Utilities Expense
B.   Accounts Payable
C.   Accounts Receivable
D.   Cash
E.   Unearned Revenue
   
A business uses a credit to record:
 
A.   An increase in an expense account.
B.   A decrease in an asset account.
C.   A decrease in an unearned revenue account.
D.   A decrease in a revenue account.
E.   A decrease in an equity account.
   
A simple tool that is widely used in accounting to represent a ledger account and to understand how debits and
credits affect an account balance is called a:
 
A.   Dividends account.
B.   Equity account.
C.   Drawing account.
D.   T-account.
E.   Balance column sheet
   
Identify the statement below that is correct. 
 
A.   The left side of a T-account is the credit side.
B.   Debits decrease asset and expense accounts, and increase liability, equity, and revenue accounts.
C.   The left side of a T-account is the debit side.
D.   Credits increase asset and expense accounts, and decrease liability, equity, and revenue accounts.
E.   In certain circumstances the total amount debited need not equal the total amount credited for a particular transaction.
   
An account balance is:
 
A.   The total of the credit side of the account.
B.   The total of the debit side of the account.
C.   The difference between the total debits and total credits for an account including the beginning balance.
D.   Assets = liabilities + equity.
E.   Always a credit.
   
Select the account below that normally has a credit balance.
 
A.   Cash.
B.   Office Equipment.
C.   Wages Payable.
D.   Dividends.
E.   Sales Salaries Expense.
   
A debit is used to record which of the following? 
 
A.   A decrease in an asset account.
B.   A decrease in an expense account.
C.   An increase in a revenue account.
D.   An increase in a contributed capital account.
E.   An increase in the dividends account.
   
A credit entry:
 
A.   Increases asset and expense accounts, and decreases liability, stockholders' equity, and revenue accounts.
B.   Is always a decrease in an account.
C.   Decreases asset and expense accounts, and increases liability, stockholders' equity, and revenue accounts.
D.   Is recorded on the left side of a T-account.
E.   Is always an increase in an account.
   
A double-entry accounting system is an accounting system:
 
A.   That records each transaction twice.
B.   That records the effects of transactions and other events in at least two accounts with equal debits and credits.
C.   In which each transaction affects and is recorded in two or more accounts but that could include two debits and no credits.
D.   That may only be used if T-accounts are used.
E.   That insures that errors never occur.
   
Ralph Pine Consulting received its telephone bill in the amount of $300, and immediately paid it.
Pine's general journal entry to record this transaction will include a: 
 
A.   Debit to Telephone Expense for $300.
B.   Credit to Accounts Payable for $300.
C.   Debit to Cash for $300.
D.   Credit to Telephone Expense for $300.
E.   Debit to Accounts Payable for $300.
   
Golddigger Services, Inc. provides services to clients. On May 1, a client prepaid Golddigger Services $60,000 for
6-months services in advance. Golddigger Services' general journal entry to record this transaction will include a:
 
A.   Debit to Unearned Management Fees for $60,000.
B.   Credit to Management Fees Earned for $60,000.
C.   Credit to Cash for $60,000.
D.   Credit to Unearned Management Fees for $60,000
E.   Debit to Management Fees Earned for $60,000.
   
Willow Rentals purchased office supplies on credit. The general journal entry made by Willow Rentals will include a:
 
A.   Debit to Accounts Payable.
B.   Debit to Accounts Receivable.
C.   Credit to Cash.
D.   Credit to Accounts Payable.
E.   Credit to Common Stock.
   
An asset created by prepayment of an insurance expense is:
 
A.   Recorded as a debit to Unearned Revenue.
B.   Recorded as a debit to Prepaid Insurance.
C.   Recorded as a credit to Unearned Revenue.
D.   Recorded as a credit to Prepaid Insurance.
E.   Not recorded in the accounting records until the insurance period expires.
   
Richard Redden contributed $70,000 in cash and land worth $130,000 to open a new business, RR Consulting, Inc.
Which of the following general journal entries will RR Consulting, Inc. make to record this transaction? 
 
A.   Debit Assets $200,000; credit Common Stock, $200,000.
B.   Debit Cash and Land, $200,000; credit Common Stock, $200,000.
C.   Debit Cash $70,000; debit Land $130,000; credit Common Stock, $200,000.
D.   Debit Common Stock, $200,000; credit Cash $70,000; credit Land, $130,000.
E.   Debit Common Stock, $200,000; credit Assets, $200,000.
   
Wiley Consulting purchased $7,000 worth of supplies and paid cash immediately.
        Which of the following general journal entries will Wiley Consulting make to record this transaction? 
 
A.   Accounts Payable  7,000  
                Supplies     7,000
 
B.   Cash  7,000  
                Supplies     7,000
 
C.    Supplies  7,000  
                Cash     7,000
 
D.    Supplies  7,000  
                Accounts Payable     7,000
 
E.    Supplies Expense  7,000  
                Accounts Payable     7,000
   
J. Brown Consulting paid $500 cash for utilities for the current month. Given the choices below, determine the
general journal entry that J. Brown Consulting will make to record this transaction. 
 
A.    Utilities Expense  500  
                Cash     500
 
B.    Cash  500  
                Utilities Expense     500
 
C.    Cash  500  
                Accounts Payable     500
 
D.    Utilities Expense  500  
                Accounts Payable     500
 
E.    Prepaid Utilities  500  
                Accounts Payable     500
   
J. Brown Consulting paid $2,500 cash for a 5-month insurance policy which begins on December 1.
Given the choices below, determine the general journal entry that J. Brown Consulting will make to record this transaction. 
 
A.    Insurance Expense  2,500  
                Cash     2,500
 
B.    Cash  2,500  
                Insurance Expense     2,500
 
C.    Cash  2,500  
                Prepaid Insurance     2,500
 
D.   Prepaid Insurance  2,500  
                Cash     2,500
 
E.    Insurance Expense  2,500  
                Prepaid Insurance     2,500
   
ABC Catering received $800 cash from a customer for catering services to be provided next month.
Given the choices below, determine the general journal entry that ABC Catering will make to record this transaction. 
 
A.    Unearned Catering Revenue  800  
                Catering Revenue     800
 
B.    Cash  800  
                Accounts Receivable     800
 
C.    Cash  800  
                Unearned Catering Revenue     800
 
D.    Cash  800  
                Catering Revenue     800
 
E.   Accounts Receivable  800  
                Catering Revenue     800
   
Grills R Us Catering provided $1,000 of catering services and billed its client for the amount owed.
Given the choices below, determine the general journal entry that Grills R Us Catering will make to record this transaction. 
 
A.    Unearned Catering Revenue  1,000  
                Catering Revenue     1,000
 
B.    Catering Revenue  1,000  
                Accounts Receivable     1,000
 
C.    Accounts Receivable  1,000  
                Unearned Catering Revenue     1,000
 
D.    Accounts Receivable  1,000  
                Catering Revenue     1,000
 
E.    Cash  1,000  
   Catering Revenue     1,000
   
Trimble Graphic Design receives $1,500 from a client billed in a previous month for services provided.
Which of the following general journal entries will Trimble Graphic Design make to record this transaction? 
 
A.    Cash  1,500  
                Accounts Receivable     1,500
 
B.    Cash  1,500  
                Unearned Design Revenue     1,500
 
C.   Accounts Receivable  1,500  
                Unearned Design Revenue     1,500
 
D.    Cash  1,500  
                Design Revenue     1,500
 
E.   Accounts Receivable  1,500  
                Cash     1,500
   
The company paid $100 cash in dividends to J. Smith, the owner.
 Which of the following general journal entries will Jay's Limo Services, Inc. make to record this transaction? 
 
A.    Dividends  100  
                Cash     100
 
B.   Cash  100  
                 Dividends     100
 
C.   Common Stock  100  
                Dividends     100
 
D.   Dividends  100  
                Common Stock     100
 
E.   Cash  100  
                Common Stock     100
   
Jay's Limo Services, Inc. paid $300 cash to employees for work performed in the current period.
Which of the following general journal entries will Jay's Limo Services, Inc. make to record this transaction? 
 
A.    Salaries Expense  300  
                Accounts Payable     300
 
B.    Cash  300  
               Salaries Expense     300
 
C.   Salaries Expense  300  
                Dividends     300
 
D.   Salaries Payable  300  
                Salaries Expense     300
 
E.   Salaries Expense  300  
                Cash     300
   
Able Graphics received a $400 utility bill for the current month's electricity.
It is not due until the end of the next month which is when they intend to pay it.
Which of the following general journal entries will Able Graphics make to record this transaction? 
 
A.   Utilities Expense  400  
   Cash     400
 
B.   Cash  400  
   Utilities Expense     400
 
C.   Utilities Expense  400  
   Accounts Payable     400
 
D.    Accounts Payable  400  
   Utilities Expense     400
 
E.    Utilities Payable  400  
   Cash     400
   
HH Consulting & Design provided $800 of consulting work and $100 of design work to the same client.
It billed the client for the total amount and is expecting to collect from the customer next month.
Which of the following general journal entries will HH Consulting & Design make to record this transaction? 
 
A.    Design Revenue  100  
       Consulting Revenue  800  
                 Accounts Receivable     900
 
B.    Accounts Payable  800  
                Design Revenue     100
                Consulting Revenue     800
 
C.    Cash  900  
                Consulting Revenue     800
                 Design Revenue                100
 
D.    Cash  900  
                Design Revenue                100
                Consulting Revenue     800
 
E.    Accounts Receivable  900  
                Consulting Revenue     800
                 Design Revenue               100
   
Gi Gi's Dance Studio provided $150 of dance instruction and rented out its dance studio to the same client for another $100.
The client paid immediately. Identify the general journal entry below that Gi Gi's will make to record the transaction. 
 
A.             Rental Revenue  100  
 Instruction Revenue  150  
                                Cash                      250
 
B.    Accounts Payable  250  
                                Rental Revenue                 100
                                 Instruction Revenue     150
 
C.    Cash  250  
                Rental Revenue                100
                Instruction Revenue     150
 
D.    Accounts Receivable  250  
                                Rental Revenue                  100
                                 Instruction Revenue     150
 
E.    Unearned Revenue  250  
                                Rental Revenue                    100
                                 Instruction Revenue     150
   
Geraldine Parker, the owner of Gi Gi's Dance Studio, Inc., started the business by investing $10,000 cash and
donating a building worth $20,000.
Identify the general journal entry below that Gi Gi's will make to record the transaction. 
 
A.    Cash  30,000  
                Common Stock     30,000
 
B.    Common Stock  30,000  
                                Cash     10,000
                                Building               20,000
 
C.            Cash  10,000  
                Building  20,000  
                Common Stock     30,000
 
D.   Common Stock  30,000  
                Retained Earnings     30,000
 
E.    Cash & Building  30,000  
                Common Stock                     30,000
   
Mary Martin, the owner of Martin Consulting, Inc., started the business by investing $40,000 cash.
Identify the general journal entry below that Martin Consulting, Inc. will make to record the transaction. 
 
A.    Cash  40,000  
                Common Stock     40,000
 
B.    Common Stock  40,000  
                Cash     40,000
 
C.    Investments  40,000  
                Cash     40,000
 
D.    Investments  40,000  
                Common Stock     40,000
 
E.    Cash  40,000  
                Increased Equity     40,000
   
If cash is received from customers in payment for products or services that have not yet been delivered to the customers,
the business would record the cash receipt as: 
 
A.   A debit to an unearned revenue account.
B.   A debit to a prepaid expense account.
C.   A credit to an unearned revenue account.
D.   A credit to a prepaid expense account.
E.   No entry is required at the time of collection.
   
On May 31, the Cash account of Bottle's R Us had a normal balance of $5,000. During May, the account was
debited for a total of $12,200 and credited for a total of $11,500. What was the balance in the Cash account
at the beginning of May? 
 
A.   A $0 balance.
B.   A $4,300 debit balance.
C.   A $4,300 credit balance.
D.   A $5,700 debit balance.
E.   A $5,700 credit balance.
 
Beginning Cash Balance + Debits - Credits = Ending Cash Balance
Beginning Cash Balance + $12,200 - $11,500 = $5,000
Beginning Cash Balance + $700 = $5,000; Beginning Balance = $4,300 debit balance
   
On April 30, Victor Services had an Accounts Receivable balance of $18,000. During the month of May, total credits to
Accounts Receivable were $52,000 from customer payments. The May 31 Accounts Receivable balance was $13,000.
What was the amount of credit sales during May? 
 
A.   $5,000.
B.   $47,000.
C.   $52,000.
D.   $57,000.
E.   $32,000.
 
$18,000 + Credit Sales (Debits) - $52,000 = $13,000
 Credit Sales (Debits) - $34,000 = $13,000
 Credit Sales (Debits) = $47,000
   
During the month of February, Victor Services had cash receipts of $7,500 and cash disbursements of $8,600.
The February 28 cash balance was $1,800. What was the February 1 beginning cash balance?
 
A.   $700.
B.   $1,100.
C.   $2,900.
D.   $0.
E.   $4,300.
 
Beginning Cash Balance + Cash Receipts - Cash Disbursements = Ending Cash Balance
Beginning Cash Balance + $7,500 - $8,600 = $1,800
Beginning Cash Balance - $1,100 = $1,800
Beginning Cash Balance = $2,900
   
The following transactions occurred during July:
 
1. Received $900 cash for services provided to a customer during July.
2. Received $2,200 cash investment from Bob Johnson, the stockholder of the business.
3. Received $750 from a customer in partial payment of his account receivable which arose from sales in June.
4. Provided services to a customer on credit, $375.
5. Borrowed $6,000 from the bank by signing a promissory note.
6. Received $1,250 cash from a customer for services to be rendered next year.
 
What was the amount of revenue for July?
 
A.   $900.
B.   $1,275.
C.   $2,525.
D.   $3,275.
E.   $11,100.
 
Revenues = $900 (from #1) + $375 (from #4) = $1,275
   
If Taylor Willow, the owner of Willow Hardware Inc., uses cash of the business to purchase a family automobile,
the business should record this use of cash with an entry to: 
 
A.   Debit Automobiles and credit Cash.
B.   Debit Cash and credit Salary Expense.
C.   Debit Cash and credit Dividends.
D.   Debit Dividends and credit Cash.
E.   Debit Cash and credit Automobiles.
  The journal entry to record a note received from a customer to apply on
account is a
 
a.  debit to Notes Receivable and a credit to Accounts Receivable.
b. debit to Notes Receivable and a credit to Cash.
c. debit to Cash and a credit to Notes Receivable.
d.  debit to Accounts Receivable and a credit to Notes Receivable.
   
A 90-day, 10% note for $9,000, dated April 15, is received from a
customer on account. The face value of the note is
 
a. $9,000.
b.$9,225.
c.$8,100.
d. $9,900.
   
The party making the promise to pay the promissory note is the
a. maker.
b.lender.
c.payee.
d. None of these choices are correct.
   
The journal entry to record a note received from a customer to apply on
account is a
a.  debit to Accounts Receivable and a credit to Notes Receivable.
b. debit to Notes Receivable and a credit to Cash.
c. debit to Notes Receivable and a credit to Accounts Receivable.
d. debit to Cash and a credit to Notes Receivable.
   
The party to whom the promissory note is payable is the
a. maker.
b. payee.
c. issuer.
d. None of these choices are correct.
   
A 90-day, 12% note for $10,000, dated May 1, is received from a customer
on account. Assuming a 360-day year, the maturity value of the note is
a. $10,000.
b. $9,700.
c. $11,200.
d. $10,300.
   
When comparing the direct write-off and allowance methods, which of the
following statements applies to the allowance method?
 
a. The result is based on either (1) a percentage of sales or (2) an analysis of receivables.
b. Primary users are small companies and those with a small amount of receivables.
c. The expense is recognized when the account is written off rather than in the period of sale.
d. No allowance account is used.
   
Under the direct write-off method,
 
a. bad debt expense is recorded when specific customer accounts are determined to be uncollectible.
b. estimates are used.
c. sometimes the allowance account is used.
d. primary users are large companies with large amounts of receivables.
   
If Ohio Company received $2,250 as partial payment on the $5,500 account of Carson Mueller Company and wrote off the remaining balance
as uncollectible, the only difference between recording the entry under the direct write-off method and the allowance method (assuming that
an adequate allowance account had been set up) would be
 
a. a debit to Bad Debt Expense for $3,250 under the direct write-off method rather than a debit to Allowance for
    Doubtful Accounts for $3,250 under the allowance method.
 
b. a debit to Cash for $2,250 under the direct method rather than a credit to Cash for $2,250 under the allowance method.
 
c. a credit to Accounts Receivable for $3,250 under the direct method rather than a credit to Allowance for Doubtful Accounts
    for $3,250 under the allowance method.
 
d. a debit to Bad Debt Expense for $3,250 under the direct method rather than a debit to Accounts Receivable for $3,250
    under the allowance method.
   
Under the allowance method,
 
a. the allowance account and estimates are used.
b. primary users are small companies with few receivables.
c. bad debt expense is recorded when specific customer accounts are
determined to be uncollectible.
d. the allowance account is used, but estimates are not.
   
In the current assets section of the balance sheet, receivables are usually listed in order
 
a. of due date.
b. that they can be turned into cash.
c. of size.
d. alphabetically.
   
Allowance for Doubtful Accounts is
 
a. subtracted from Notes Receivable.
b. subtracted from Accounts Receivable.
c. added to Accounts Receivable.
d. subtracted from Cash.
   
Allowance for Doubtful Accounts is a(n)
a. revenue account.
b. expense account.
c. contra asset account.
d. contra revenue account.
   
Allowance for Doubtful Accounts is
 
a. subtracted from Cash.
b. subtracted from Notes Receivable.
c. subtracted from Accounts Receivable.
d. added to Accounts Receivable.
   
All receivables that are expected to be realized within a year are reported in the __________ section of the balance sheet.
 
a. current assets
b. cash
c. investments
d. fixed assets
   
If Accounts Receivable for Fiona Industries is equal to $445,400 and Allowance for Doubtful Accounts is $13,700 at December 31,
what is the amount of net receivables shown on Fiona's balance sheet of the same date?
 
a. $445,400
b. $431,700
c. $459,100
d. Cannot be determined from the information given.
   
Allowance for Doubtful Accounts will have
 
a. an unadjusted debit balance at the end of the period if the write-offs during the period were equal to the beginning balance.
b. an unadjusted debit balance at the end of the period if the write-offs during the period were less than the beginning balance.
c. an unadjusted credit balance at the end of the period if the write-offs during the period were less than the
    beginning balance.
d. an unadjusted credit balance at the end of the period if the write-offs during the period were more than the beginning balance.
   
The two methods to estimate uncollectible accounts are
 
a. direct write-off and analysis of receivables.
b. percent of sales and analysis of receivables.
c. percent of receivables and analysis of receivables.
d. percent of sales and direct write-off.
   
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),
and an analysis of accounts in the customer ledger indicates doubtful accounts of $15,000.
Which of the following entries records the proper provision for doubtful accounts?
 
a. Debit Bad Debt Expense, $500; credit Allowance for Doubtful Accounts, $500
b. Debit Bad Debt Expense, $14,500; credit Allowance for Doubtful Accounts, $14,500
c. Debit Allowance for Doubtful Accounts, $15,500; credit Bad Debt Expense, $15,500
d. Debit Allowance for Doubtful Accounts, $500; credit Bad Debt Expense, $500
   
Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),
and Bad Debt Expense is estimated at 2% of sales. If sales are $500,000, the adjusting entry for uncollectible
accounts would include
 
a. a credit to Allowance for Doubtful Accounts of $9,500.
b. a credit to Allowance for Doubtful Accounts of $10,000.
c. a credit to Allowance for Doubtful Accounts of $10,500.
d. None of these choices are correct.
   
Flora Co. uses the allowance method of accounting for uncollectible accounts receivable.
The entry to write off an account that has been determined to be uncollectible would be to
 
a. debit Bad Debt Expense and credit Allowance for Doubtful Accounts.
b. debit Accounts Receivable and credit Bad Debt Expense.
c. debit Sales Returns and Allowances and credit Accounts Receivable.
d. debit Allowance for Doubtful Accounts and credit Accounts Receivable.
   
The estimate of uncollectible accounts is based on all of the following
except
a. industry averages.
b. forecasts of the future.
c. past experience.
d. monthly cash expenses.
   
The two methods to estimate uncollectible accounts are
 
a. percent of sales and direct write-off.
b. percent of receivables and analysis of receivables.
c. percent of sales and analysis of receivables.
d. direct write-off and analysis of receivables.
   
Other receivables do not include
 
a. taxes receivable.
b. trade receivables.
c. interest receivable.
d. officers and employees receivable.
   
An account receivable due in 60 days is listed on the balance sheet under the caption
 
a. fixed assets.
b. current assets.
c. long-term liabilities.
d. investments.
   
The receivable that is usually evidenced by a formal instrument of credit is a(n)
 
a. note receivable.
b. accounts receivable.
c. intangible receivable.
d. income tax receivable.
   
Establishing an allowance for doubtful accounts under the allowance method is necessary because
 
a. uncollectible accounts that are written off must be accumulated in a separate account.
b. estimates must be made when recording bad debt expense and it is not possible to know
     which specific accounts will not be collected.
c. a liability results when a credit sale is made.
d. collection agencies use this account to accumulate attempts to collect worthless balances.
   
The two methods of accounting for uncollectible receivables are the direct method and the __________ method.
 
a. interest
b. equity
c. cost
d. allowance
   
Debt Expense is debited
 
a. whenever a predetermined amount of credit sales has been made.
b. when a credit sale is past due.
c. when an account is determined to be worthless.
d. at the end of each accounting period.
   
Which of the following methods and bases of accounting for uncollectible
accounts receivable is inconsistent with the proper application of matching?
 
a. Aging of receivables allowance method
b. Direct write-off method
c. Percentage of receivables basis
d. None of these choices are correct.
   
The direct write-off method is used by all of the following businesses except
 
a. those that accept only MasterCard or VISA for sales other than cash.
b. those that sell certain kinds of merchandise, like restaurants or convenience stores.
c. those that have receivables as a large part of their current assets.
d. those that sell most of their goods or services for cash.
   
The direct write-off method records bad debt expense
 
a. only when an account is judged to be worthless.
b. at the point of sale.
c. at the end of each reporting period.
d. never.
   
Larry Bar opened a frame shop and completed these transactions:
 
 1. Larry started the shop by investing $40,000 cash and equipment valued at $18,000.
 2. Purchased $70 of office supplies on credit.
 3. Paid $1,200 cash for the receptionist's salary.
 4. Sold a custom frame service and collected a $1,500 cash on the sale.
 5. Completed framing services and billed the client $200.
   
 What was the balance of the cash account after these transactions were posted? 
 
A.   $300.
B.   $41,500.
C.   $40,300.
D.   $38,500.
E.   $38,700.
 
$40,000 (#1) - $1,200 (#3) + $1,500 (#4) = $40,300
   
At the beginning of January of the current year, Little Mikey's Catering ledger reflected a normal balance of $52,000 for accounts receivable. During January, the company collected $14,800 from customers on account and provided additional services to
customers on account totaling $12,500. Additionally, during January one customer paid Mikey $5,000 for services to be
provided in the future. At the end of January, the balance in the accounts receivable account should be:
 
A.   $54,700.
B.   $49,700.
C.   $2,300.
D.   $54,300.
E.   $49,300.
 
52,000 + 12,500 - 14,800 = 49,700
   
During the month of March, Harley's Computer Services made purchases on account totaling $43,500.
Also during the month of March, Harley was paid $8,000 by a customer for services to be provided in the future and paid
$36,900 of cash on its accounts payable balance. If the balance in the accounts payable account at the beginning of
March was $77,300, what is the balance in accounts payable at the end of March?
 
A.   $83,900.
B.   $91,900.
C.   $6,600.
D.   $75,900.
E.   $4,900.
 
Beginning Accounts Payable Balance + Purchases on Account - Payments on Accounts = Ending Accounts Payable Balance
$77,300 + $43,500 - $36,900 = Ending Accounts Payable Balance
Ending Accounts Payable = $83,900
   
On January 1 of the current year, Jimmy's Sandwich Company, Inc. reported stockholders' equity totaling $122,500.
During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year
the business paid $20,000 to the stockholders. No other changes in equity occurred during the year. If, on December 31
of the current year, total assets are $196,000, the change in stockholders' equity during the year was: 
 
A.   A decrease of $9,500.
B.   An increase of $9,500.
C.   An increase of $30,500.
D.   A decrease of $30,500.
E.   An increase of 73,500.
 
Beg. Stockholders' Equity + Revenues - Expenses - Dividends = End. Stockholders' Equity
$122,500 + $96,000 - $85,500 - $20,000 = Ending Stockholders' Equity
Ending Stockholders' Equity = $113,000
Change in Equity = Beginning Stockholders' Equity - Ending Stockholders' Equity
Change in Equity = $122,500 - $113,000 = $9,500 Decrease
   
Andrea Apple opened Apple Photography, Inc. on January 1 of the current year.
During January, the following transactions occurred and were recorded in the company's books:
 
1. Andrea, the stockholder, invested $13,500 cash in the business.
2. Andrea contributed $20,000 of photography equipment to the business.
3. The company paid $2,100 cash for an insurance policy covering the next 24 months.
4. The company received $5,700 cash for services provided during January.
5. The company purchased $6,200 of office equipment on credit.
6. The company provided $2,750 of services to customers on account.
7. The company paid cash of $1,500 for monthly rent.
8. The company paid $3,100 on the office equipment purchased in transaction #5 above.
9. Paid $275 cash for January utilities.
 
Based on this information, the balance in the cash account at the end of January would be: 
 
A.   $41,450.
B.   $12,225.
C.   $18,700.
D.   $15,250.
E.   $13,500.
 
Ending Cash Balance = $13,500 (#1) - $2,100 (#3) + $5,700 (#4) - $1,500 (#7) - $3,100 (#8) - $275 (#9) = $12,225
   
Andrea Apple opened Apple Photography, Inc. on January 1 of the current year.
During January, the following transactions occurred and were recorded in the company's books:
 
1. Andrea, the stockholder, invested $13,500 cash in the business.
2. Andrea contributed $20,000 of photography equipment to the business.
3. The company paid $2,100 cash for an insurance policy covering the next 24 months.
4. The company received $5,700 cash for services provided during January.
5. The company purchased $6,200 of office equipment on credit.
6. The company provided $2,750 of services to customers on account.
7. The company paid cash of $1,500 for monthly rent.
8. The company paid $3,100 on the office equipment purchased in transaction #5 above.
9. Paid $275 cash for January utilities.
 
Based on this information, the balance in the stockholders' equity reported on the Balance Sheet
at the end of the month would be: 
 
A.   $31,400.
B.   $39,200.
C.   $31,150.
D.   $40,175.
E.   $30,875.
 
13,500 + 20,000 + 5,700 + 2,750 - 1,500 - 275 = 40,175
   
The debt ratio is used:
 
A.   To measure the ratio of equity to expenses.
B.   To assess the risk associated with a company's use of liabilities.
C.   Only by banks when a business applies for a loan.
D.   To determine how much debt a firm should pay off.
E.   To determine how much debt a company should borrow.
   
Identify the correct formula below used to calculate the debt ratio.
 
A.   Total Equity/Total Liabilities.
B.   Total Liabilities/Total Equity.
C.   Total Liabilities/Total Assets.
D.   Total Assets/Total Liabilities.
E.   Total Equity/Total Assets.
   
Lu Lu's Catering has a debt ratio equal to .3 and its competitor, Able's Bakery, has a debt ratio equal to .7
Determine the statement below that is correct. 
 
A.   Able's Bakery has a smaller percentage of its assets financed with liabilities as compared to Lu Lu's.
B.   Able's Bakery's financial leverage is less than Lu Lu's.
C.   Able's Bakery's financial leverage is greater than Lu Lu's.
D.   Lu Lu's has a higher risk from its financial leverage.
E.   Higher financial leverage involves lower risk.
   
Identify the statement that is incorrect.
 
A.   Higher financial leverage involves higher risk.
B.   Risk is higher if a company has more liabilities.
C.   Risk is higher if a company has higher assets.
D.   The debt ratio is one measure of financial risk.
E.   Lower financial leverage involves lower risk.
   
The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information,
an investor can conclude:
 
A.   Company B has more debt than Company A.
B.   Company B has a lower risk from its financial leverage.
C.   Company A has a lower risk from its financial leverage.
D.   Company A has 10% more assets than Company B.
E.   Both companies have too much debt.
   
The debt ratio of Jackson's Shoes is .9 and the debt ratio of Billy's Catering is 1.0. Based on this information,
an investor can conclude:
 
A.   Billy's Catering finances a relatively lower portion of its assets with liabilities than Jackson's Shoes.
B.   Billy's Catering has a lower risk from its financial leverage.
C.   Jackson's Shoes has a higher risk from its financial leverage.
D.   Billy's Catering has the exact same dollar amount of total liabilities and total assets.
E.   Jackson's Shoes has less equity per dollar of assets than Billy's Catering.
   
Gi Gi's Bakery has total assets of $425 million. Its total liabilities are $110 million. Its equity is $315 million.
Calculate the debt ratio.
 
A.   38.6%.
B.   13.4%.
C.   34.9%.
D.   25.9%.
E.   14.9%.
 
Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $110 million/$425 million; Debt Ratio = 0.2588 = 25.9%
   
128.  Happiness Catering has total assets of $385 million. Its total liabilities are $100 million and its equity is
$285 million. Calculate its debt ratio.
 
A.   35.1%.
B.   26.0%.
C.   38.5%.
D.   28.5%.
E.   58.8%.
 
Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $100 million/$385 million; Debt Ratio = 0.2597 = 26.0%
   
129.  All of the following statements accurately describe the debt ratio except. 
 
A.   It is use to both internal and external users of accounting information.
B.   A relatively high ratio is always desirable.
C.   The dividing line for a high and low ratio varies from industry to industry.
D.   Many factors such as a company's age, stability, profitability and cash flow influence the determination of what
       would be interpreted as a high versus a low ratio.
E.   The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.
   
At the end of the current year, Leer Company reported total liabilities of $300,000 and total equity of $100,000.
The company's debt ratio on the last year-end was: 
 
A.   300%.
B.   33.3%.
C.   75.0%.
D.   66.67%.
E.   $400,000.
 
Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $300,000/$400,000*; Debt Ratio = 0.75 = 75%
 
*Total Assets = Total Liabilities + Total Equity
Total Assets = $300,000 + $100,000; Total Assets = $400,000
   
At the beginning of the current year, Trenton Company Inc.'s total assets were $248,000 and its total liabilities were $175,000.
During the year, the company reported total revenues of $93,000, total expenses of $76,000 and dividends of $5,000.
There were no other changes in stockholders' equity during the year and total assets at the end of the year were $260,000.
Trenton Company's debt ratio at the end of the current year is:
 
A.   70.6%.
B.   67.3%.
C.   32.7%.
D.   48.6%.
E.   1.42%.
 
175,000 / 260,000 = 67.3%
 
 
The process of transferring general journal entry information to the ledger is called:
 
A.   Double-entry accounting.
B.   Posting.
C.   Balancing an account.
D.   Journalizing.
E.   Not required unless debits do not equal credits.
   
A column in journals and ledger accounts that is used to cross reference journal and ledger entries is the:
 
A.   Account balance column.
B.   Debit column.
C.   Posting reference column.
D.   Credit column.
E.   Description column.
   
The chronological record of each complete transaction that has occurred is called the:
 
A.   Account balance.
B.   Ledger.
C.   Journal.
D.   Trial balance.
E.   Cash account.
   
A business's general journal provides a place for recording all of the following except:
 
A.   The transaction date.
B.   The names of the accounts involved.
C.   The amount of each debit and credit.
D.   An explanation of the transaction.
E.   The balance in each account.
   
The balance column in a ledger account is:
 
A.   An account entered on the balance sheet.
B.   A column for showing the balance of the account after each entry is posted.
C.   Another name for the dividends account.
D.   An account used to record the transfers of assets from a business to its stockholders.
E.   A simple form of account that is widely used in accounting to illustrate the debits and credits required in recording a transaction.
   
A general journal is:
 
A.   A ledger in which amounts are posted from a balance column account.
B.   Not required if T-accounts are used.
C.   A complete record of all transactions in chronological order from which transaction amounts are posted to the ledger accounts.
D.   Not necessary in electronic accounting systems.
E.   A book of final entry because financial statements are prepared from it.
   
A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n):
 
A.   Account.
B.   Trial balance.
C.   Journal.
D.   T-account.
E.   Balance column account.
   
Smiles Entertainment had the following accounts and balances at December 31:
 

Using the information in the table, calculate the company's reported net income for the period. 
 
A.   $1,100.
B.   $4,000.
C.   $4,500.
D.   $10,400.
E.   $5,500.
 
Net Income = Total Revenues - Total Expenses.
(Service Revenue $7,000 - Salaries Expense $500 - Utilities Expense $1,000 = $5,500)
   
Jackson Consulting, Inc. had the following accounts and balances at December 31:
 

 
Using the information in the table, calculate Jackson Consulting Inc.'s reported net income for the period. 
 
A.   $16,800.
B.   $15,800.
C.   $15,300.
D.   $10,300.
E.   $32,000.
 
Net Income = Total Revenues - Total Expenses.
Service Revenue $20,000 - Utilities Expense $2,000 - Salaries Expense $1,200 = $16,800
   
Bologna Lodging, Inc. had the following accounts and balances as of December 31:
 

 
Using the information in the table, calculate the total assets reported on Bologna's balance sheet for the period. 
 
A.   $24,900.
B.   $25,400.
C.   $22,500.
D.   $25,900.
E.   $23,400.
 
(Cash $20,000 + Accounts Receivable $2,000 + Prepaid Insurance $1,400 + Supplies $1,500 = $24,900)
   
At the end of its first month of operations, Michael's Consulting Services, Inc. reported net income of $25,000.
They also had account balances of: Cash, $18,000; Office Supplies, $2,000 and Accounts Receivable $10,000.
The stockholders' total investment for this first month was $5,000.
Calculate the ending balance in Stockholders' Equity to be reported on the Balance Sheet. 
 
A.   $30,000
B.   $25,000
C.   $20,000
D.   $5,000
E.   $7,000
 
5,000 + 25,000 = 30,000
   
Identify the accounts that would normally have balances in the debit column of a business's trial balance. 
 
A.   Assets and expenses.
B.   Assets and revenues.
C.   Revenues and expenses.
D.   Liabilities and expenses.
E.   Liabilities and dividends.
   
Identify the accounts that would normally have balances in the credit column of a business's trial balance. 
 
A.   Liabilities and expenses.
B.   Assets and revenues.
C.   Revenues and expenses.
D.   Revenues and liabilities.
E.   Dividends and liabilities.
   
Which of the following is not a step in the accounting process? 
 
A.   Record relevant transactions and events in a journal.
B.   Post journal information to the ledger accounts.
C.   Prepare and analyze the trial balance.
D.   Analyzing each transaction.
E.   Verify that revenues and expenses are equal.
   
A bookkeeper has debited an account for $3,500 and credited a liability account for $2,000.
Which of the following would be an incorrect way to complete the recording of this transaction:
 
A.   Credit another asset account for $1,500.
B.   Credit another liability account for $1,500.
C.   Credit an expense account for $1,500.
D.   Credit the common stock account for $1,500.
E.   Debit another asset account for $1,500.
   
A report that lists a business's accounts and their balances, in which the total debit balances should
equal the total credit balances, is called a(n):
 
A.   Account balance.
B.   Trial balance.
C.   Ledger.
D.   Chart of accounts.
E.   General Journal.
   
Identify the statement below that is true.
 
A.   If the trial balance is in balance, it proves that no errors have been made in recording and posting transactions.
B.   The trial balance is a book of original entry.
C.   Another name for the trial balance is the chart of accounts.
D.   The trial balance is a list of all accounts from the ledger with their balances at a point in time.
E.   The trial balance is another name for the balance sheet as long as debits balance with credits.
   
While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the
Equipment account. The effect of this error will be that:
 
A.   The Equipment account balance will be overstated.
B.   The trial balance will not balance.
C.   The error will overstate the debits listed in the journal.
D.   The total debits in the trial balance will be larger than the total credits.
E.   The error will overstate the credits listed in the journal.
   
A $15 credit to Sales was posted as a $150 credit. By what amount is the Sales account in error?
 
A.   $150 understated.
B.   $135 overstated.
C.   $150 overstated.
D.   $15 understated.
E.   $135 understated.
 
$150 - 15 = $135
   
At year-end, a trial balance showed total credits exceed total debits by $4,950. This difference could have been caused by:
 
A.   An error in the general journal where a $4,950 increase in Accounts Receivable was recorded as an increase in Cash.
B.   A net income of $4,950.
C.   The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950.
D.   The balance of $5,500 in the Office Equipment account being entered on the trial balance as a debit of $550.
E.   An error in the general journal where a $4,950 increase in Accounts Payable was recorded as a decrease in Accounts Payable.
   
Identify the item below that would cause the trial balance to not balance. 
 
A.   A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a credit to Cash.
B.   The purchase of office supplies on account for $3,250 was erroneously recorded in the journal as $2,350 debit to
       Office Supplies and credit to Accounts Payable.
C.   A $50 cash receipt for the performance of a service was not recorded at all.
D.   The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and a credit to Cash for $1,200.
E.   The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for $750.
   
The credit purchase of a new oven for $4,700 was posted to Kitchen Equipment as a $4,700 debit and to
Accounts Payable as a $4,700 debit. What effect would this error have on the trial balance?
 
A.   The total of the Debit column of the trial balance will exceed the total of the Credit column by $4,700.
B.   The total of the Credit column of the trial balance will exceed the total of the Debit column by $4,700.
C.   The total of the Debit column of the trial balance will exceed the total of the Credit column by $9,400.
D.   The total of the Credit column of the trial balance will exceed the total of the Debit column by $9,400.
E.   The total of the Debit column of the trial balance will equal the total of the Credit column.
   
On a trial balance, if the Debit and Credit column totals are equal, then:
 
A.   All transactions have been recorded correctly.
B.   All entries from the journal have been posted to the ledger correctly.
C.   All ledger account balances are correct.
D.   Equal debits and credits have been recorded for transactions.
E.   The balance sheet would be correct.
   
Given the following errors, identify the one by itself that will cause the trial balance to be out of balance.
 
A.   A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries Expense.
B.   A $100 cash receipt from a customer in payment of her account posted as a $100 debit
       to Cash and a $10 credit to Accounts Receivable.
C.   A $75 cash receipt from a customer in payment of her account posted as a $75 debit to Cash and a $75 credit to Cash.
D.   A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50 credit to Cash.
E.   An $800 prepayment from a customer for services to be rendered in the future was posted as an $800 debit to
      Unearned Revenue and an $800 credit to Cash.
   
A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the
accounts under  or overstated as a result of this error?
 
A.   Supplies, understated $130; Fees Earned, overstated $130.
B.   Supplies, understated $260; Fees Earned, overstated $130.
C.   Supplies, overstated $130; Fees Earned, overstated $130.
D.   Supplies, overstated $130; Fees Earned, understated $130.
E.   Supplies, overstated $260; Fees Earned, understated $130.
   
All of the following are asset accounts except:
 
A.   Accounts Receivable.
B.   Buildings.
C.   Supplies expense.
D.   Equipment.
E.   Prepaid insurance.
   
Compare the list of accounts below and choose the list that contains only accounts that would
be classified as asset accounts on the Chart of Accounts. 
 
A.   Accounts Payable; Cash; Supplies.
B.   Unearned Revenue; Accounts Payable; Dividends.
C.   Building; Prepaid Insurance; Supplies Expense.
D.   Cash; Prepaid Insurance; Equipment.
E.   Notes Payable; Cash; Dividends.
   
Which financial statement reports an organization's financial position at a single point in time?
 
A.   Income statement.
B.   Balance sheet.
C.   Statement of retained earnings.
D.   Cash flow statement.
E.   Trial balance.
   
Joe Jackson opened Jackson's Repairs, Inc. on March 1 of the current year. During March,
the following transactions occurred and were recorded in the company's books:
 
1. Jackson invested $25,000 cash in the business.
2. Jackson contributed $100,000 of equipment to the corporation.
3. The company paid $2,000 cash to rent office space for the month.
4. The company received $16,000 cash for repair services provided during March.
5. The company paid $6,200 for salaries for the month.
6. The company provided $3,000 of services to customers on account.
7. The company paid cash of $500 for monthly utilities.
8. The company received $3,100 cash in advance of providing repair services to a customer.
 
Based on this information, net income for March would be: 
 
A.   $10,300.
B.   $13,400.
C.   $5,300.
D.   $8,400.
E.   $13,500.
 
Net Income = Revenues - Expenses
Net Income = $16,000 (#4) - $2,000 (#3) - $6,200 (#5) + $3,000 (#6) - $500 (#7) = $10,300
   
Joel Consulting received $3,000 from a customer for services provided. Joel's general journal
entry to record this transaction will be:
 
A.   Debit Services Revenue, credit Accounts Receivable.
B.   Debit Cash, credit Accounts Payable.
C.   Debit Cash, credit Accounts Receivable.
D.   Debit Cash, credit Services Revenue.
E.   Debit Accounts Payable, credit Services Revenue.
   
Wiley Hill opened Hill's Repairs, Inc. on March 1 of the current year. During March, the following
transactions occurred and were recorded in the company's books:
 
1. Wiley invested $25,000 cash in the corporation.
2. Wiley contributed $100,000 of equipment to the corporation.
3. The company paid $2,000 cash to rent office space for the month.
4. The company received $16,000 cash for repair services provided during March.
5. The company paid $6,200 for salaries for the month.
6. The company provided $3,000 of services to customers on account.
7. The company paid cash of $500 for monthly utilities.
8. The company received $3,100 cash in advance of providing repair services to a customer.
9. The company paid $5,000 cash in dividends to Wiley. (sole shareholder)
 
Based on this information, the balance in Stockholders' Equity reported on the Balance Sheet
at the end of March would be: 
 
A.   $133,400.
B.   $130,300.
C.   $125,300.
D.   $8,400.
E.   $13,500.
 
Ending Stockholders' Equity =
$25,000 (#1) + $100,000 (#2) + $16,000 (#4) + $3,000 (#6) - $2,000 (#3) - $6,200 (#5) - $500 (#7) - $5,000 (#9) = $130,300

    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2