Deck 3: The Mechanics of Double-Entry Bookkeeping

Question 1

The set of accounting procedures that must be completed for a business each accounting period is the

A) accounting cycle.
B) operating cycle.
C) monthly close schedule.
D) fiscal cycle.
E) double-entry cycle.

Answer 1

accounting cycle.

Question 2

A method of maintaining financial records developed more than 500 years ago that serves as the foundation of modern accounting systems worldwide is

A) the "Method of Paris."
B) double-entry bookkeeping.
C) cash basis accounting.
D) GAAP.
E) fiscal economics.

Answer 2

double-entry bookkeeping.

Question 3

The key premise underlying double-entry bookkeeping is that

A) all transactions must be recorded twice.
B) a minimum of two financial statements (the balance sheet and the income statement) must be prepared.
C) financial transactions must be recorded as consisting of two equal and opposite effects.
D) each journal entry must have only one debit and one credit.
E) general ledger accounts are shown as two-sided T-accounts.

Answer 3

financial transactions must be recorded as consisting of two equal and opposite effects.

Question 4

A double-entry booking system

A) records each event in two journal entries.
B) matches assets to liabilities or stockholders' equity for each transaction.
C) records monetary debits equal to monetary credits for each transaction.
D) requires the use of two journals and two ledgers.
E) all of the above are true.

Question 5

Which of the following equations is correct?

A) Stockholders' Equity = Assets + Liabilities
B) Liabilities = Assets + Stockholders' Equity
C) Liabilities = Assets - Stockholders' Equity + Expenses
D) Stockholders' Equity = Assets - Liabilities
E) Assets + Revenues - Expenses = Stockholders' Equity

Question 6

Any supporting item that identifies the key features of business transactions is a

A) chart of accounts.
B) general ledger.
C) journal entry.
D) set of financial statements.
E) source document.

Question 7

Which of the following items is not a source document?

A) Invoice
B) Journal entry
C) Legal contract
D) Purchase order
E) Sales slip

Question 8

Which of the following statements is true?

A) A payment of accounts payable causes assets and liabilities to decrease.
B) An investment by an owner causes both assets and liabilities to increase.
C) A purchase of supplies on credit causes assets and stockholders' equity to increase.
D) A purchase of land for cash causes assets to increase.
E) An issuance of a note payable causes liabilities and stockholders' equity to increase.

Question 9

Q Co. paid $1,000 owed to a supplies vendor. The effect of this transaction on assets and liabilities is

Question 10

John Dorval Trucking Co. purchased a new truck costing $45,750, paying $5,750 in cash and signing a one-year, 10% interest bearing note payable for the balance. The purchase of the new truck increases the Truck

A) and Retained Earnings accounts by $45,750.
B) account by $49,750, increases the Note Payable account by $44,000, and decreases the Cash account by $5,750.
C) account by $45,750, increases the Note Payable account by $40,000, and decreases the Cash account by $5,750.
D) account by $40,000 and increases the Note Payable account by $40,000.
E) account by $49,750, increases the Note Payable account by $40,000, increases the Interest Expense account by $4,000, and decreases Cash by $9,750.

Question 11

Darwin Services purchased furniture costing $12,000, paid $5,000 in cash, and signed a 12% interest-bearing note payable for the balance. The effect of this transaction on the Cash and Furniture accounts is

Question 12

As used in accounting, a debit is an entry that

A) causes an expense account to decrease.
B) causes a liability account to decrease.
C) arises because a company bought something that put the company in debt.
D) is made on the right-hand side of a T-account.
E) increases an asset or a revenue account .

Question 13

As used in accounting, a credit is an entry that

A) is recorded in a liability account.
B) causes a liability account to decrease.
C) arises because a company bought something with a credit card.
D) is made on the right-hand side of a T-account.
E) requires the initiation of a source document for a customer.

Question 14

Which of the following reflects the normal balances of the listed types of accounts?

Question 15

Which of the following reflects the normal balances of the listed types of accounts?

Question 16

Which of the following reflects the normal balances of the listed types of accounts?

Question 17

Which of the following statements is true?

A) Purchasing office furniture on credit decreases total assets.
B) Financing purchases with long-term notes payable decreases total liabilities.
C) Declaring dividends decreases total stockholders' equity.
D) Purchasing inventory for cash causes total assets to increase.
E) Both c and d.

Question 18

Expenses normally have ___ balances and cause stockholders' equity to ____.

A) debit; increase
B) debit; decrease
C) credit; increase
D) credit; decrease
E) credit; remain unchanged

Question 19

Revenues normally have ___ balances and cause stockholders' equity to ____.

A) debit; increase
B) debit; decrease
C) credit; increase
D) credit; decrease
E) debit; remain unchanged

Question 20

A fundamental rule of double-entry bookkeeping is that

A) within a given transaction, debits equal credits.
B) debits are shown on the right-hand side of a T-account.
C) assets equal stockholders' equity.
D) credits cause dividends to increase.
E) Retained Earnings is increased with a debit.

Question 21

Quick Co. owed Lars Co. $15,000. Quick's accountant misread the amount owed and wrote a check to Lars for $18,000. If a balance sheet is prepared immediately after this payment, Quick will show a

A) credit-balanced Account Payable to Lars Co.
B) debit-balanced Account Payable to Lars Co.
C) contra-liability account to Lars Co.
D) debit-balanced Account Receivable from Lars Co.
E) debit-balanced deferred expense from Lars Co.

Question 22

The expanded accounting equation is

A) Assets + Expenses + Revenues = Liabilities + Stockholders' Equity + Dividends
B) Assets + Expenses + Dividends = Liabilities + Stockholders' Equity + Revenues
C) Assets + Liabilities + Stockholders' Equity = Revenues + Expenses + Dividends
D) Assets + Dividends + Revenues = Liabilities + Stockholders' Equity + Expenses
E) Assets + Revenues + Stockholders' Equity = Liabilities + Expenses + Dividends

Question 23

Accumulated depreciation is an example of a(an)

A) accrued expense.
B) contra-asset.
C) contra-liability.
D) deferred asset.
E) deferred expense.

Question 24

In a contra-asset account, debits would cause the account balance to ___ and credits would cause the account balance to ___.

A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
E) decrease; remain unchanged

Question 25

Which of the following does (do) not take place in a normal accounting cycle?

A) transactions are recorded.
B) account balances are adjusted.
C) temporary accounts are closed.
D) permanent accounts are closed.
E) All of the above take place.

Question 26

A compound journal entry affects

A) a balance sheet and an income statement account.
B) a permanent and a temporary account.
C) two accounts in stockholders' equity.
D) a "regular" account and a contra-account.
E) more than two accounts.

Question 27

On May, 1, 2010, John and Adam Smith formed the Smith Bros. Company. John and Adam contributed $1,000,000 cash for 100% ownership of the company's 100,000 shares of $10 par value common stock. How should Smith Bros. record this transaction?

A)
B)
C)
D)
E)

Question 28

On February 1, 2010, Green Valley Lodge purchased ski equipment costing $75,000. The company paid $25,000 in cash and signed a 2-year note payable for the balance. What is the net change in Green Valley's total assets immediately after this transaction?

A) $(25,000)
B) $0
C) +$25,000
D) +$50,000
E) +$75,000

Question 29

Georgia Company's total liabilities on August 31, 2010, were $200,000. During September, the company incurred an additional $150,000 of liabilities. Georgia Co. paid $50,000 of outstanding liabilities in September. What were the company's total liabilities at September 30, 2010?

A) $50,000
B) $150,000
C) $200,000
D) $300,000
E) $350,000

Question 30

On October 1, 2010, Pilcher's Inc. paid $60,000 to the Chicago Informer for newspaper advertisements that will run from November 1, 2010 through December 24, 2010. Which of the following journal entries should Pilcher's recognize on October 1, 2010?

A)
B)
C)
D)
E)

Question 31

On April 15, the Gold Coast Pizza Stand sold 100 slices of pizza at $2.50 per slice to cash customers. Which of the following journal entries should Gold Coast Pizza recognize on April 15?

A)
B)
C)
D)
E)

Question 32

On November 15, 2010, Horse & Hound received $14,000 for subscriptions for the 2011 year. The entry to record these subscriptions would include a

A) debit to Unearned Subscription Revenue.
B) debit to Subscriptions Revenue.
C) credit to Unearned Subscription Revenue.
D) credit to Subscriptions Revenue.
E) none of the above.

Question 33

On November 30, 2010, Kali Co. declared a $20,000 dividend to its stockholders. The entry to record this dividend would include a

A) debit to Dividends.
B) debit to Dividends Expense.
C) credit to Dividends.
D) credit to Dividends Expense.
E) credit to Retained Earnings.

Question 34

Dividends cause

A) expenses to increase.
B) net income to decrease.
C) Retained Earnings to decrease.
D) Answers a and b are correct.
E) Answers a, b, and c are correct.

Question 35

The primary purpose of a trial balance is to

A) determine that the total debits and total credits entered in the general ledger accounts during the period are equal.
B) obtain assurance that accounting records are correct.
C) summarize information from journal entries by specific accounts.
D) convert accounting records from cash basis accounting to accrual basis accounting.
E) Answers a and b are correct.

Question 36

In a trial balance,

A) all accounts contained in the chart of accounts are listed.
B) all accounts that appear in the asset section of the balance sheet are listed as debits.
C) only permanent accounts are shown.
D) contra-asset accounts will appear in the credit column.
E) Both a and d are correct.

Question 37

Entries prepared to ensure that revenues and expenses have been appropriately recorded in the accounting period to which they relate are called

A) accrual entries.
B) adjusting entries.
C) closing entries.
D) deferral entries.
E) contra-account entries.

Question 38

The prepayment of an expense item is a(n)

A) accrued liability.
B) accrued expense.
C) deferred expense.
D) deferred liability.
E) deferred revenue.

Question 39

An amount received by a business for a service or product that will be provided or delivered in the future is

A) accrued expense.
B) accrued revenue.
C) deferred expense.
D) deferred revenue.
E) operating income.

Question 40

A company records interest that it owes, but has not yet paid, at the end of the fiscal year. This recognition of interest generates a(an)

A) accrued liability.
B) accrued asset.
C) deferred expense.
D) deferred liability.
E) deferred revenue.

Question 41

A company records interest that it is owed, but has not yet received, at the end of the fiscal year. This recognition of interest generates a(an)

A) accrued expense.
B) accrued asset.
C) deferred expense.
D) deferred revenue.
E) operating income.

Question 42

On January 1, 2010, Grey Corporation had $1,000 of office supplies on hand. During the year, Grey purchased $10,000 of office supplies on credit. Payments to vendors for those supplies during 2010 totaled $8,400. At the end of the accounting period, only $1,300 of the supplies remained in Grey's supply cabinet. How much office supplies expense should Grey recognize for 2010?

A) $1,300
B) $1,600
C) $2,300
D) $8,400
E) $9,700

Question 43

Real Sports Unlimited received $240,000 for multiple annual subscriptions beginning October 1, 2010. That amount was properly recorded on that date. What adjusting entry should Real Sports Unlimited make on December 31, 2010, related to these subscriptions?

A)
B)
C)
D)
E)

Question 44

A machine costing $33,000 with an estimated salvage value of $3,000 is to be depreciated on a straight-line basis over five years. The machine was purchased on April 1, 2009. What year-end depreciation adjusting entry should be made on December 31, 2010?

A)
B)
C)
D)
E) None of the above

Question 45

On May 1, 2010, Pepper Corporation paid a $24,000 premium for insurance coverage from May 1, 2010 through April 30, 2011. Which of the following statements is false?

A) Prepaid Insurance is a deferred expense and a current asset.
B) On May 1, Pepper debited and credited prepaid insurance and cash, respectively, for $24,000.
C) Over the term of the insurance policy, the economic benefit provided by the prepaid insurance will be gradually used up.
D) Pepper should recognize $24,000 of insurance expense in 2010.
E) On May 1, 2011, the balance of the prepaid insurance account will be $0.

Question 46

On October 1, 2011, Railways Corp. signed a $10,000, 5%, 5-year note payable. The note and the interest will be paid when the note comes due. Assuming Railways has a calendar year-end, how much interest expense should Railways record on this note payable in 2011?

A) $ 0
B) $ 125
C) $ 500
D) $2,500
E) None of the above

Question 47

An internet service provider requires customers to prepay for six months of service. On August 1, 2010, Ricky Roberts paid $480 for internet service for the next six-month period. For the year ended December 31, 2010, how much revenue will the internet service have earned from Roberts?

A) $ 0
B) $ 80
C) $320
D) $400
E) $480

Question 48

On September 1, 2010, Huntley Co. paid $18,000 to renew its insurance policy for the next 12-month period. What amount should be recorded as prepaid insurance in Huntley's December 31, 2010, balance sheet?

A) $ 1,500
B) $ 6,000
C) $12,000
D) $13,500
E) $18,000

Question 49

An account whose period-ending balance is carried forward to the next accounting period is a(an)

A) closing account.
B) income statement account.
C) income summary account.
D) permanent account.
E) temporary account.

Question 50

An account whose period-ending balance is transferred or closed to Income Summary is a(an)

A) closing account.
B) income statement account.
C) income summary account.
D) permanent account.
E) temporary account.

Question 51

Which of the following is not a permanent account?

A) Accounts Receivable
B) Prepaid Insurance
C) Cash
D) Unearned Revenue
E) Dividends

Question 52

Closing entries

A) bring the balance in all general ledger accounts to zero.
B) transfer the balances in all of the temporary accounts to stockholders' equity.
C) must be made on December 31.
D) are made before adjusting entries.
E) bring the balance in all revenue, expense, and contra-accounts to zero.

Question 53

On December 31, earned but unpaid wages amounted to $33,500. What closing entry would be made for the unpaid wages?

A) Debit Wages Expense for $33,500 and credit Wages Payable for $33,500.
B) Debit Wages Payable for $33,500 and credit Wages Expense for $33,500.
C) Debit Wages Expense for $33,500 and credit Income Summary for $33,500.
D) Debit Income Summary for $33,500 and credit Wages Payable for $33,500.
E) None of the above.

Question 54

During 2010, Zambezi Rowing Co. generated $500,000 in revenue. In its closing entry for revenue, Zambezi will debit

A) Revenue for $500,000 and credit Income Summary for $500,000.
B) Income Summary for $500,000 and credit Revenue for $500,000.
C) Cash for $500,000 and credit Revenue for $500,000.
D) Revenue for $500,000 and credit Stockholders' Equity for $500,000.
E) Income Summary for $500,000 and credit Retained Earnings for $500,000.

Question 55

During 2010, Elaine Corp. (a calendar-year company) declared $46,000 of dividends. The dividends have not been paid by December 31, 2010. At year-end, Elaine Corp. will

A) debit Dividends and credit Income Summary to close the Dividends account.
B) debit Income Summary and credit Dividends to close the Dividends account.
C) debit Dividends and credit Cash to close the Dividends account.
D) debit Retained Earnings and credit Dividends to close the Dividends account.
E) not close the Dividends account until the dividends have been paid.

Question 56

At the beginning of 2010, Trey Corp. had $341,000 in Retained Earnings. During 2010, Trey Corp. had $450,000 of revenue and $260,000 of expenses. Dividends declared and paid in 2010 were $25,000. Which of the following statements is(are) true?

A) Trey Corp.'s net income for 2010 was $165,000.
B) Trey Corp.'s net income for 2010 was $190,000.
C) Trey Corp.'s Retained Earnings on the December 31, 2010, balance sheet is $506,000.
D) Both a and c are true.
E) Both b and c are true.

Question 57

Which of the following statements is true?

A) Retained Earnings represents a corporation's net income for the current period minus all dividends distributed to the firm's stockholders for the current period.
B) The dollar amounts associated with revenue, expense, and dividend transactions are stored in permanent accounts during the accounting period.
C) The Income Summary account is used to channel the balances of temporary accounts into the Retained Earnings account through closing entries.
D) Revenue and expense account balances do not change once closing entries have been posted.
E) Only temporary accounts are included in the post-closing trial balance.

Question 58

Which of the following accounts are included in the post-closing trial balance?

Question 59

The origins of modern accounting date back to the early 1900s.

Question 60

The key premise underlying double-entry bookkeeping is that financial transactions must be recorded as if they have opposite and equal effects.

Question 61

The accounting cycle in an organization begins with the incurrence of an economic transaction.

Question 62

T-accounts are part of an organization's general ledger.

Question 63

A contra-liability account has a debit balance and, thus, will be shown with the assets on the balance sheet.

Question 64

Companies should prepare trial balances before posting journal entries to general ledger accounts.

Question 65

General journals generally contain columns for dates, descriptions, posting references, debits, credits, and balances.

Question 66

A journal entry must have one debit and one credit and the amounts of the debit and credits must be equal.

Question 67

The declaration of a dividend causes Common Stock to decrease.

Question 68

A dividend is a special type of expense account.

Question 69

The posting reference column of a general ledger account should include the account number from the chart of accounts.

Question 70

If the column totals of a trial balance are equal, debits are equal to credits but there still may be errors in the accounting records.

Question 71

A deferred expense is an asset account that represents the prepayment of specified item.

Question 72

An accrued item is one for which cash has been paid or received in advance of the expense or revenue.

Question 73

Under the accrual basis of accounting, businesses generally record transactions only if those transactions involve cash.

Question 74

Companies should prepare adjusting journal entries before financial statements.

Question 75

Companies should not accrue liabilities for estimated income taxes each quarter because income taxes cannot be calculated with absolute certainty until year-end.

Question 76

Financial statements can be prepared even if closing entries have not been prepared.

Question 77

During the closing process, the balances of revenue, expense, and dividend accounts are transferred to Income Summary.

Question 78

Retained Earnings may be reduced by the closing of the Income Summary account.

Question 79

A post-closing trial balance includes all the accounts that are listed in a company's chart of accounts.

Question 80

On January 1, 2010, Lio Corporation has assets equal to four times the amount of its liabilities. Total liabilities on January 1, 2010, are $1,000,000. During January 2010, Lio Corporation engaged in the following five transactions:
January 5 Purchased equipment for $100,000 on credit.
January 7 Purchased inventory for $63,000 cash.
January 14 Made a $25,000 partial payment for equipment purchased on January 5.
January 28 Purchased office supplies for $2,000 cash.
January 31 Sold common stock for $100,000 cash.
Required:

A) Determine Lio Corporation's total assets and total stockholders' equity on January 1, 2010.
B) Determine Lio Corporation's total assets, liabilities, and stockholder's equity on January 31, 2010.