Exam 2: Analyzing and Recording Transactions

Given the trial balance amounts below,compute ending retained earnings. Common stock…….$120,000 Accounts payable…...$25,000 Cash………………..$116,640 Accounts receivable.$22,450 Supplies………........$ 1,500 Office equipment…...$23,300 Prepaid rent……….$ 3,200 Unearned revenue….$ 4,152 Service revenue…...$ 20,000 Utilities expense…....$ 422 Beginning Shaving equipment… $31,640 Retained earnings..$ 30,000

The general ledger of a business

Based on the following trial balance for Sal's Beauty Shop,prepare an income statement,statement of retained earnings and a balance sheet.Sal made no additional investments in the company during the year. SAL'S BEAUTY SHOP Trial Balance December 31 Cash \ 6,500 Accounts receivable 475 Beauty supplies 2,500 Beauty shop equipment 17,000 Accounts payable \ 745 Common stock 10,000 Retained earnings 11,155 Dividends 36,000 Revenue earned 72,000 Beauty supplies expense 3,425 Rent expense 6,000 Wages expense Totals \ 93,900 \ 93.900

A trial balance that balances is not proof of complete accuracy in recording transactions.

Double-entry accounting is an accounting system:

Which of the following statements is correct?

On October 1,2011,Smith invested $20,000 cash,office equipment costing $15,000,and drafting equipment costing $12,000 into the company in exchange for common stock.Show the general journal entry to record this transaction.

Rocky Industries received its telephone bill in the amount of $300 and immediately paid it.Rocky's journal entry to record this transaction will include a

For each of the following errors,indicate on the table below the amount by which the trial balance will be out of balance and which trial balance column (debit or credit)will have the larger total as a result of the error. a.$100 debit to Cash was debited to the Cash account twice. b.$1,900 credit to Sales was posted as a $190 credit. c.$5,000 debit to Office Equipment was debited to Office Supplies. d.$625 debit to Prepaid Insurance was posted as a $62.50 debit. e.$520 credit to Accounts Payable was not posted. Error Amount Out of Balance Column Having Larger Total a. b. c. d. e.

Which of the following items would appear on the income statement? Common stock……$120,000 Accounts payable…...$25,000 Cash……………….$116,640 Accounts receivable..$22,450 Supplies………… $ 1,500 Office equipment…...$23,300 Prepaid rent……....$ 3,200 Unearned revenue….$ 4,152 Service revenue.....$ 20,000 Utilities expense…....$ 422 Retained earnings...$ 30,000 Shaving equipment…$31,640

Match the following definitions and terms by placing the number that identifies the best definition in the blank space next to the term.

A company failed to post a $50 debit to the Office Supplies account.The effect of this error will be that:

Maria Sanchez began business as Sanchez Law Firm on November 1.Record the following November transactions by making entries directly to the T-accounts provided.Then,prepare a trial balance,as of November 30. a.Sanchez invested $15,000 cash and a law library valued at $6,000 in exchange for common stock. b.Purchased $7,500 of office equipment from Johnson Bros.on credit. c.Completed legal work for a client and received $1,500 cash in full payment. d.Paid Johnson Bros.$3,500 cash in partial settlement of the amount owed. e.Completed $4,000 of legal work for a client on credit. f.Paid a $2,000 cash dividend. g.Received $2,500 cash as partial payment for the legal work completed for the client in (e). h.Paid $2,500 cash for the legal secretary's salary.

Increases in assets are _______________,while increases in liabilities are _______________.

A record of the increases and decreases in a specific asset,liability,equity,revenue,or expense is a(n):

A balance column account is:

A company has total liabilities of $550 million and total equity of $300 million.Calculate this company's debt ratio.

Debit means the right-hand side of any account.

A credit is used to record:

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