Exam 15: Basic Accounting for Transactions

Preparation of a trial balance is the first step in the analyzing and recording process.

The third step in the analyzing and recording process is to post the information to _________________________.

Management Services, Inc.provides services to clients.On May 1, a client prepaid Management Services $60,000 for a six-month contract in advance.Management Services' journal entry to record this transaction will include a:

Accounting records are also referred to as the books.

The following are all of the accounts of Flaherty Company that have a balance at the end of August.All accounts have normal balances: Accounts receivable \ 36,000 Cash \ 27,000 Equipment 59,000 Advertising expense 5,000 Service revenues earned 75,000 Accounts payable 31,000 Rent expense 3,600 Dividends 24,000 Office supplies 1,500 Salaries expense 30,000 Notes payable 22,000 Common stock 20,000 Retained earnings 58,100 a.Calculate net income b.Determine the amount of retained earnings to be shown on the August 31 balance sheet.

Cash dividends should be treated as an expense to the business.

The debt ratio is used:

The balances for the accounts of Lance's Consulting Firm, Inc.for the year ended December 31 are shown below.Each account shown had a normal balance. Accounts payable \ 6,400 Wages expense \ 35,000 Accounts receivable 7,000 Rent expense 5,000 Cash 10,000 Retained earnings 68,700 Office supplies 1,000 Land 53,000 Building 99,000 Unearned revenue 7,000 Supplies expense 15,000 Dividends 20,000 Consulting revenue 150,000 Common stock 12,900 Calculate the debt ratio.

If a company is highly leveraged, this means that it has relatively low risk of not being able to repay its debt.

The process of transferring general journal information to the ledger is:

After preparing an (unadjusted)trial balance at year-end,G.Chu of Chu Design Company discovered the following errors: 1.Cash payment of the $225 telephone bill for December was recorded twice. 2.Cash payment of a note payable was recorded as a debit to Cash and a debit to Notes Payable for $1,000. 3.A $900 cash dividend was recorded to the correct accounts as $90. 4.An additional investment of $5,000 cash by the owner was recorded as a debit to Common Stock and a credit to Cash. 5.A credit purchase of office equipment for $1,800 was recorded as a debit to the Office Equipment account with no offsetting credit entry. Using the form below, indicate whether the error would cause the trial balance to be out of balance by placing an X in either the yes or no column. Error Yes No 1. 2. 3. 4. 5.

The debt ratio reflects the risk of a company to both its owners and creditors.

Items such as sales slips, invoices, checks, and purchase orders are source documents.

Which of the following statements are true?

Stride Rite has total assets of $425 million.Its total liabilities are $110 million.Its equity is $315 million.Calculate the debt ratio.

Accounts are normally decreased by debits.

High financial leverage is always bad for a company's owners.

Jones Hardware, Inc.paid a cash dividend of $6,000.What is the necessary entry to record this transaction?

The journal is known as the book of final entry because financial statements are prepared from it.

At year-end, Harris Cleaning Service noted the following errors in its trial balance: It understated the total debits to the Cash account by $500 when computing the account balance. 2.A credit sale for $311 was recorded as a credit to the revenue account, but the offsetting debit was not posted. 3.A cash payment to a creditor for $2,600 was never recorded. 4.The $680 balance of the Prepaid Insurance account was listed in the credit column of the trial balance. 5.A $24,900 truck purchase for cash was recorded as a $24,090 debit to Vehicles and a $24,090 credit to Notes Payable. 6.A purchase of office supplies for $150 was recorded as a debit to Office Equipment.The offsetting credit entry was correct. 7.An additional investment of $4,000 by Del Harris was recorded as a debit to Common Stock and as a credit to Cash. 8.The cash payment of the $510 utility bill for December was recorded (but not paid)twice. 9.A revenue account balance of $79,817 was listed on the trial balance as $97,817. 10.A $1,000 cash dividend was recorded as a $100 debit to Dividends and $100 credit to cash. Using the form below, indicate whether each error would cause the trial balance to be out of balance, the amount of any imbalance and whether a correcting journal entry is required. Error 1 2. 3. 4. 5. 6. 7 8 9. 10. Would the error cause the trial balance to be out of balance? Yes No Amount of Imbalance Correcting Journal Entryl Required Yes No