Deck 3: The Double-Entry Accounting System

Question 1

What does the debt to assets ratio indicate with regard to the degree of a company's debt risk? Who would normally be most interested in this ratio?

Answer 1

With a high debt to assets ratio,a company experiences a great degree of debt risk.A company with a high debt to assets ratio may be forced into bankruptcy if it is unable to meet the required payments on its outstanding debt.The company's creditors would likely be most interested in this ratio.

Question 2

What is the purpose of a trial balance?

Answer 2

To ensure that debits and credits are equal.

Question 3

What effect do debits have on asset accounts? On liability accounts?

Answer 3

Debits increase asset accounts.Debits decrease liability accounts.

Question 4

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

An adjusting entry recorded as a debit to Unearned Service Revenue and a credit to Service Revenue.

Question 5

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

A transaction recorded as a debit to Office Supplies and a credit to Accounts Payable.

Question 6

What is the meaning of the terms "debit" and "credit" and what is the effect on specific account types?

Question 7

What is financial leverage? What financial ratio can be increased by using financial leverage?

Question 8

Cornelius Company purchased supplies on account.What account is credited?

Question 9

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

A transaction recorded as a debit to Cash and a credit to Unearned Revenue.

Question 10

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

A transaction recorded as a debit to Dividends and a credit to Cash.

Question 11

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

A transaction recorded as a debit to Cash and a credit to Common Stock.

Question 12

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

An adjusting entry recorded as a debit to Salaries Expense and a credit to Salaries Payable.

Question 13

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

A transaction recorded as a debit to Cash and a credit to Accounts Receivable.

Question 14

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

An adjusting entry recorded as a debit to Supplies Expense and a credit to Supplies.

Question 15

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

A transaction recorded as a debit to Cash and a credit to Common Stock.

Question 16

Are liability accounts increased by debits or credits?

Question 17

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

An adjusting entry recorded as a debit to Rent Expense and a credit to Prepaid Rent.

Question 18

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.

A transaction recorded as a debit to Accounts Receivable and a credit to a revenue account.

Question 19

Explain the significance of the return on equity ratio.Who (what category or type of financial statement users)would normally be most interested in this ratio,and why?

Question 20

What effect do credits have on asset accounts? On equity accounts?

Question 21

Benson Co.purchased land and paid the full purchase price in cash.The journal entry necessary to record this event includes a:

A)debit to Land and a debit to Cash.
B)debit to Cash and a credit to Land.
C)credit to Land and a credit to Cash.
D)debit to Land and a credit to Cash.

Question 22

Which of the following is decreased with a debit?

A)Accounts Receivable
B)Accounts Payable
C)Prepaid Rent
D)Rent Expense

Question 23

Vernon Company recorded a business event in T-accounts as follows:
Which of the following reflects how this event affects the company's financial statements?

Question 24

Use the following information to answer questions


-Select the true statement (note: an answer may be true even if it does not identify all accounts that have debit balances on that particular financial statement).

A)Account numbers 1,3,and 5 normally have debit balances.
B)Account numbers 2,4,and 5 normally have debit balances.
C)Account numbers 2,5,and 8 normally have debit balances.
D)Account numbers 4,5,and 6 normally have debit balances.

Question 25

The right side of a T-account is known as the

A)Credit side.
B)Claims side.
C)Debit side.
D)Equity side

Question 26

The left side of a T-account is known as the:

A)Equity side
B)Debit side
C)Credit side
D)Claims side

Question 27

Which of the following accounts normally has a debit balance?

A)Prepaid insurance
B)Unearned service revenue
C)Accounts payable
D)Common Stock

Question 28

The Baker Company purchased $1,000 of supplies on account.After this transaction has been recorded in T-accounts,the $1,000 would appear

A)on the right side of the Supplies account.
B)on the left side of the Supplies account.
C)on the left side of the Accounts Payable account.
D)on the right side of the Cash account.

Question 29

Use the following information to answer questions


-Select the true statement (note: an answer may be true even if it does not identify all accounts that appear on that particular financial statement).

A)Account numbers 2,4,and 5 will appear on the income statement.
B)Account numbers 1,3,and 8 will appear on the balance sheet.
C)Account numbers 2,5,and 8 will appear on the statement of cash flows.
D)Account numbers 4,5,and 6 will appear on the statement of changes in equity.

Question 30

Powell Corporation recorded a business event using T-accounts as follows:
Which of the following reflects how this event affects the company's financial statements?

Question 31

Credit entries

A)decrease liability accounts.
B)increase asset accounts.
C)increase the common stock account.
D)increase asset and common stock accounts,and decrease liability accounts.

Question 32

The Horowitz Corporation recorded a business event using T-accounts as follows:
Which of the following reflects how this event affects the company's financial statements?

Question 33

The information in the following T-accounts of Gibbs Company indicates that:

A)Cash has been paid out to a company that will provide future services to Gibbs Company.
B)Gibbs has completed services for which they had earlier received cash in advance.
C)Gibbs has provided services to a customer on account.
D)Gibbs has received cash for service to be provided in the future.

Question 34

Which account is increased by a credit to the account?

A)Accounts receivable
B)Service revenue
C)Interest expense
D)Supplies

Question 35

Which of the following is increased with a debit?

A)Insurance expense
B)Service revenue
C)Accounts payable
D)Common stock

Question 36

A debit entry

A)increases assets.
B)increases expenses.
C)decreases liabilities.
D)increases assets,expenses,and liabilities.

Question 37

Which of the following is increased with a credit?

A)Salaries payable
B)Prepaid rent
C)Common stock
D)Both salaries payable and common stock

Question 38

The difference between the debit and credit side of a T-account is known as the

A)Net income.
B)Trial balance.
C)Equality.
D)Account balance.

Question 39

Which of the following is decreased with a credit?

A)Unearned revenue
B)Prepaid insurance
C)Accounts payable
D)Service revenue

Question 40

Warren Company began the accounting period with a $32,000 debit balance in its accounts receivable account.During the accounting period,the company recorded revenue on account amounting to $88,000.The accounts receivable account at the end of the accounting period contained a $16,000 debit balance.Based on this information,the cash collected from accounts receivable during the period is

A)$104,000
B)$40,000
C)$72,000
D)$84,000

Question 41

On August 1,2016,Benjamin and Associates collected $18,000 in advance for legal services to be rendered for one year.Which of the following entries reflect the end-of-the-year adjustment to reflect revenue earned?

Question 42

What effect will the following entry have on Retained Earnings?

A)Retained Earnings will remain unchanged.
B)Retained Earnings will decrease by $2,550.
C)Retained Earnings will increase by $2,550.
D)Retained Earnings will be transferred to the income statement.

Question 43

The closing entry for the Dividends account would involve which of the following?

A)A credit to Retained Earnings
B)A credit to Dividends
C)A credit to Common Stock
D)A credit to Cash

Question 44

The Wagner Company issued common stock for $500,000 cash.Which of the following shows the proper entry using T-accounts?

Question 45

On October 1,2016,Sengal Company recorded a journal entry debiting prepaid rent and crediting cash for $1,200 in payment for one year of office rent.At December 31,2016,the financial statements should report:

Question 46

On November 1,2016,Shumate Company paid $1,200 in advance for an insurance policy that covered the company for six months.Assuming that Schumacher recorded this purchase as an asset,the adjusting entry required on December 31,2016 would include:

A)a debit to Prepaid Insurance for $400.
B)a credit to Prepaid Insurance for $400.
C)a debit to Insurance Expense for $1,200.
D)a credit to Insurance Expense for $1,200.

Question 47

Which one of the following would not be included in a closing entry at the end of the accounting year?

A)A credit to rent expense
B)A debit to unearned revenue
C)A debit to service revenue
D)A credit to dividends

Question 48

What statement is true regarding the trial balance?

A)Incorrectly recording a cash sale as a sale on account would not cause the trial balance to be out of balance.
B)The income statement is prepared using the post-closing trial balance.
C)A balance of debits and credits ensures that all transactions have been recorded correctly.
D)Trial balances are only prepared at the end of an accounting period.

Question 49

During a company's first year,the asset account,Office Supplies,was debited for $2,300 for the purchases of supplies.At year-end,office supplies on hand were counted and determined to be $825.The proper adjusting entry crediting supplies and debiting supplies expense will

A)increase expenses and decrease assets by $1,475.
B)decrease assets and increase expenses by $825.
C)increase expenses and increase assets by $1,475.
D)have no effect on net income or the accounting equation.

Question 50

Magellan Corporation earned net income of $32,000 and paid cash dividends of $8,500 to its stockholders.Which of the following choices reflects the effect of closing entries on Magellan's financial statements?

Question 51

Fitzpatrick Company recorded $500 of accrued salaries expense.Which of the following shows the proper entry using T-accounts?

Question 52

The following account balances prior to closing entries were taken from the records of Kendall Company:
After closing entries at December 31,2016,Retained Earnings will be:

A)$19,900.
B)$7,400.
C)$2,900.
D)$24,400.

Question 53

Which of the following statements is true?

A)Adjusting entries are recorded after the closing entries have been recorded.
B)Equal totals in a trial balance guarantees that no errors were made in the recording process.
C)Debits are equal to credits only after closing entries have been made.
D)The balance in the retained earnings account in the trial balance will equal the retained earnings balance on the balance sheet only after closing entries have been posted to the general ledger.

Question 54

At the end of 2016,Valley Packaging Company's adjusted trial balance showed a zero balance in retained earnings.What is the most likely explanation for this?

A)Valley reported zero net income in 2016.
B)Valley's trial balance will be out of balance until closing entries are made.
C)2016 was Valley's first year in business.
D)An error must have been made in preparing Valley's trial balance.

Question 55

The trial balance of Barger Company at the end of the accounting period,immediately prior to recording closing entries,showed:

After closing entries,the Retained Earnings account will have a balance of

A)$17,600
B)$4,600
C)$18,600
D)$3,600

Question 56

Bijan Corporation recorded the adjusting entry to recognize $4,000 of revenue previously recorded as unearned.Which of the following shows the proper entry using T-accounts?

Question 57

Hough Company recorded a business event in these T-accounts:
Which of the following choices accurately reflects how this event would affect the company's financial statements?

Question 58

Adjusting entries are made at the end of the period because of the need to

A)adjust the balance in the cash account for the effects of all daily transactions with customers and creditors.
B)assure that debits are equal to credits prior to preparing the trial balance.
C)assure that all revenues and expenses are recognized in the period in which they are earned or incurred.
D)prepare revenue and expense accounts for recording transactions in the next accounting period by bringing the balances to zero.

Question 59

The employees of Able Company have worked the last two weeks of 2016,but the employees' wages have not been paid or recorded as of December 31,2016.The adjusting entry that Able should make for these unpaid wages on December 31,2016 is:

A)debit to Wages Expense and credit to Cash.
B)debit to Wages Expense and credit to Wages Payable.
C)debit to Wages Payable and credit to Wages Expense.
D)no entry is required until the employee is paid next period.

Question 60

The information in the following T-accounts indicates that

A)the company borrowed $850.
B)the company loaned $850 to another company.
C)the company repaid a $850 debt.
D)stockholders invested $850 cash in the corporation.

Question 61

Which of the following ratios would be most useful in evaluating a company's performance from the owners' perspective?

A)Return on assets ratio.
B)Debt to assets ratio.
C)Return on equity ratio.
D)Either the debt to assets ratio or the return on equity ratio.

Question 62

Use the following information to answer questions
At the end of 2016 the following information is available for Grumpy,Happy,and Doc Companies.


-Which company is the most profitable from the owners' perspective?

A)Grumpy
B)Happy
C)Doc
D)Cannot be determined

Question 63

Nelson Company began operations on December 1,2016.The following transactions were recorded in December:
1)The business received $9,000 cash from the issuance of common stock to its stockholders.
2)Provided services on account for $7,500.
3)Paid $4,500 cash for land.
4)Accrued $3,000 of salaries expenses.
5)Purchased $900 of supplies on account to be used in January.
6)Collected $3,900 from customers.
At December 31,2016,the total debits in the company's adjusted trial balance would be

A)$12,000.
B)$20,400.
C)$6,900.
D)28,800.

Question 64

The Lazarus Company recorded the following adjustment in general journal form:
Which of the following choices accurately reflects how this event would affect the company's financial statements?

Question 65

Van Buren Company experienced an accounting event that was recorded in the company's general journal:
Which of the following choices accurately reflects how this event affects the company's financial statements?

Question 66

If a $600 credit to Revenue was posted as a $600 debit to Salaries Expense:

A)the credit column of the trial balance would be $600 more than the debit column.
B)the debit column of the trial balance would be $1,200 more than the credit column.
C)the credit column of the trial balance would be $1,200 more than the debit column.
D)the debit column of the trial balance would be $600 more than the credit column.

Question 67

Use the following information to answer questions
At the end of 2016 the following information is available for Grumpy,Happy,and Doc Companies.


-Which company has the highest level of debt risk?

A)Grumpy
B)Happy
C)Doc
D)They all have equal debt risk

Question 68

Explain how the following general journal entry affects the accounting equation.

A)Both assets and equity increase.
B)Both liabilities and assets increase.
C)Assets increase and equity decreases.
D)Liabilities increase and equity decreases.

Question 69

What is one effect of the following general journal entry?

A)Reduces liabilities
B)Increases Retained Earnings
C)Reduces assets
D)Reduces equity

Question 70

Describe the transaction shown in the following journal entry.

A)Paid cash to a customer who requested a refund.
B)Received cash in advance for work to be performed in future months.
C)Recorded adjusting entry for work completed.
D)Received cash for services completed.

Question 71

Which of the following errors would cause the debit side of a trial balance to be larger than the credit side?

A)Revenue earned on account was recorded with a debit to Cash and a credit to Revenue.
B)Purchase of supplies on account was recorded with a credit to Supplies and a debit to Accounts Payable.
C)Land purchased with cash was recorded with a debit to the Land account and a credit to Accounts Payable.
D)None of these answer choices would cause the debit side of the trial balance to be larger than the credit side.

Question 72

The following is a trial balance of Barnhart Company as December 31,2016:
Based on the trial balance,the total amount of assets appearing on the balance sheet would be:

A)$21,350.
B)$12,500.
C)$15,750.
D)$23,200.

Question 73

Flannigan Company prepared a trial balance at December 31,2016.A trial balance that balances

A)proves that all transactions have been properly recorded.
B)proves that there are no missing transactions.
C)can only be achieved after adjusting entries have been recorded.
D)proves the equality of debits and credits.

Question 74

The following is a random list of the accounts of Wyoming Company:
If these accounts were presented in a trial balance,the total of the credit column would be equal to:

A)$112,200.
B)$114,200.
C)$116,200.
D)$79,800.

Question 75

The Youngstown Company recorded the following adjustment in general journal form:
Which of the following choices accurately reflects how this event would affect the company's financial statements?

Question 76

What business event is represented by this journal entry?

A)Incurred supplies expense.
B)Purchased supplies on account.
C)Used supplies.
D)Purchased supplies with cash.

Question 77

What transaction does the following general journal entry represent?

A)Provided services on account.
B)Paid cash owed to a supplier.
C)Collected cash from customers.
D)Borrowed money to support operating activities.

Question 78

Which is one effect of the following journal entry?

A)Increases equity
B)Increases liabilities
C)Decreases assets
D)Increases assets

Question 79

Kincaid Company provided consulting service of $2,500 to a customer who paid $1,300 and promised to pay the remainder next month.Which of the following journal entries correctly records this transaction?

Question 80

Use the following information to answer questions
At the end of 2016 the following information is available for Grumpy,Happy,and Doc Companies.


-Which company has the highest return on assets?

A)Grumpy
B)Happy
C)Doc
D)They all have equal return on assets.