This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

04 Chapter - The Bookkeeping Process and Transaction Analysis Chapter 04 The Bookkeeping Process and Transaction Analysis Multiple Choice Questions 1. An expanded version of the accounting equation could be: A. A + Rev = L + OE - Exp B. A - L = Paid-in Capital - Rev - Exp C. A = L + Paid-in Capital + Beginning Retained Earnings + Rev - Exp D. A = L + Paid-in Capital - Rev + Exp 2. In the seller's records, the sale of merchandise on account would: A. Increase assets and increase expenses. B. Increase assets and decrease liabilities. C. Increase assets and increase paid-in capital. D. Increase assets and decrease revenues. 3. In an advertiser's records, a newspaper ad submitted and published this week with the agreement to pay for it next week would: A. Decrease assets and decrease expenses. B. Increase liabilities and increase expenses. C. Decrease assets and increase revenue. D. Increase assets and decrease liabilities. 4. In the buyer's records, the purchase of merchandise on account would: A. Increase assets and increase expenses. B. Increase assets and increase liabilities. C. Increase liabilities and increase paid-in capital. D. Have no effect on total assets. 4-1 Chapter 04 - The Bookkeeping Process and Transaction Analysis 5. A newspaper ad submitted and published this week, with the agreement to pay for it next week would, in the newspaper's records: A. Increase assets and increase revenues. B. Increase assets and decrease liabilities. C. Increase assets and increase expenses. D. Have no effect on total assets. 6. A debit entry will: A. Decrease an asset account. B. Increase a liability account. C. Increase paid-in capital. D. Increase an expense account. 7. A credit entry will: A. Increase an asset account. B. Increase a liability account. C. Decrease paid-in capital. D. Increase an expense account. 8. A credit entry to an account will: A. Always decrease the account balance. B. Always increase the account balance. C. Increase the balance of a revenue account. D. Increase the balance of an expense account. 9. A debit entry to an account will: A. Always decrease the account balance. B. Always increase the account balance. C. Increase the balance of a revenue account. D. Increase the balance of an expense account. 4-2 Chapter 04 - The Bookkeeping Process and Transaction Analysis 10. An engineering consultant provided $500 of services to a client; the client paid $100 when the bill was submitted and will pay the balance within a week. The consultant will record this transaction by: A. B. C. D. 11. To accrue $5,500 of employee salaries for the last week of February, the employer's journal entry is: A. B. C. D. 12. Sage, Inc. has 20 employees who each earn $100 per day and are paid every Friday. The end of the accounting period is on a Wednesday. How much wages should the firm accrue at the end of the period? A. $2,000. B. $1,000. C. $0. D. $6,000. 4-3 Chapter 04 - The Bookkeeping Process and Transaction Analysis 13. Which of the following is not one of the 5 questions of transaction analysis? A. What's going on? B. Which accounts are affected? C. Is this an accrual? D. Does the balance sheet balance? E. Does my analysis make sense? 14. The effect of an adjustment is: A. To correct an entry that was not in balance. B. To increase the accuracy of the financial statements. C. To record transactions not previously recorded. D. To close the books. 15. A journal entry recording an accrual: A. Results in a better matching of revenues and expenses. B. Will involve a debit or credit to cash. C. Will affect balance sheet accounts only. D. Will most likely include a debit to a liability account. 16. Wisdom Co. has a note payable to its bank. An adjustment is likely to be required on Wisdom's books at the end of every month that the loan is outstanding to record the: A. Amount of interest paid during the month. B. Amount of total interest to be paid when the note is paid off. C. Amount of principal payable at the maturity date of the note. D. Accrued interest expense for the month. Martin & Associates borrowed $5,000 on April 1, 2010 at 8% interest with both principal and interest due on March 31, 2011. 4-4 Chapter 04 - The Bookkeeping Process and Transaction Analysis 17. Which of the following journal entries should the firm use to accrue interest at the end of each month? A. B. C. D. 18. How much should be in the firm's interest payable account at December 31, 2010? A. $300 B. $400 C. $0 D. $333 19. Which of the following journal entries should the firm use to record the payment of interest on March 31, 2011? A. B. C. D. 4-5 Chapter 04 - The Bookkeeping Process and Transaction Analysis 20. The accountant at Abco, Inc. made an adjusting entry at the end of February to accrue interest on a note receivable from a customer. The effect of this entry is to: A. Decrease ROI for February. B. Increase ROI for February. C. Decrease working capital at February 28. D. Decrease the acid-test ratio at February 28. 21. The accounting concept/principle being applied when an adjustment is made is usually: A. matching revenue and expense. B. consistency. C. original cost. D. materiality. 22. The Interest Receivable account for February showed transactions totaling $8,500 and an adjustment of $11,200.All of the following responses are correct except: A. The transactions probably resulted from accruing interest income earned. B. The transactions were probably entered on the credit side of the account. C. The adjustment was probably for cash receipts of interest receivable accrued in prior months. D. The balance in the interest receivable account decreased $2,700. 23. The balance in the Accrued Wages Payable account increased from $12,200 at the beginning of the month to $15,000 at the end of the month. Wages accrued during the month totaled $61,000. A. Wages paid during the month totaled $58,200. B. Wages paid during the month totaled $64,800. C. Wages expense for the month totaled $58,200. D. Wages expense for the month totaled $76,000. 4-6 Chapter 04 - The Bookkeeping Process and Transaction Analysis 24. When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as an asset, the following adjustment to recognize the cost of supplies used will probably be required: A. B. C. D. No adjustment will probably be required. 25. When a firm purchases supplies for its business: A. The supplies account should always be debited. B. The supplies expense account should always be debited. C. Either the supplies account or the supplies expense account should be credited. D. An adjustment will probably be required as supplies are used. 26. The effect of an adjustment on the financial statements is usually to: A. make the balance sheet balance. B. increase net income. C. increase the accuracy of both the balance sheet and income statement. D. match revenues and assets. 4-7 Chapter 04 - The Bookkeeping Process and Transaction Analysis Essay Questions 27. At the beginning of the current fiscal year, Surrey Corp.'s balance sheet showed assets of $675,000 and Liabilities of $525,000. During the year, liabilities decreased by $35,000. Net Income for the year was $175,000, and net assets at the end of the year were $193,000. There were no changes in paid-in capital during the year. Calculate the dividends, if any, declared during the year. Calculate the total assets at the end of the year. 28. At the beginning of the current fiscal year, the balance sheet of Arches Co. showed liabilities of $380,000. During the year liabilities increased by $10,000, assets increased by $55,000, and paid-in capital increased $20,000 to $165,000. Dividends declared and paid during the year were $60,000. At the end of the year, owners' equity totaled $402,000. Calculate net income or loss for the year. 4-8 Chapter 04 - The Bookkeeping Process and Transaction Analysis 29. Using the column headings provided below, show the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the account name, amount, and indicating whether it is an addition (+) or subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting owners' equity. (1.) The firm borrowed $2,000 from the bank; a short-term note was signed. (2.) Merchandise inventory costing $750 was purchased; cash of $200 was paid and the balance is due in 30 days. (3.) Employee wages of $1,000 were accrued at the end of the month. (4.) Merchandise that cost $350 was sold for $450 in cash. (5.) This month's rent of $700 was paid. (6.) Revenues from services during month totaled $6,500. Of this amount, $2,000 was received in cash and the balance is expected to be received within 30 days. (7.) During the month, supplies were purchased at a cost of $520, and debited into the Supplies (asset) account. A total of $400 of supplies were used during the month. (8.) Interest of $240 has been earned on a note receivable, but has not yet been received. 4-9 Chapter 04 - The Bookkeeping Process and Transaction Analysis 30. Using the column headings provided below, show the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the account name, amount, and indicating whether it is an addition (+) or subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting owners' equity. (1.) During the month, the board of directors declared a cash dividend of $1,200, payable next month. (2.) Employees were paid $1,900 in wages for their work during the first three weeks of the month. (3.) Employee wages of $600 for the last week of the month have not been recorded. (4.) Merchandise that cost $900 was sold for $1,350. Of this amount, $1,000 was received in cash and the balance is expected to be received within 30 days. (5.) A contract was signed with a local radio station for a $100 advertisement; the ad was aired during this month but will not be paid for until next month. (6.) Store equipment was purchased at a cash price of $300. The original list price of the equipment was $400, but a discount was received. (7.) Received $180 of interest income for the current month. (8.) Accrued $310 of interest expense at the end of the month. 4-10 Chapter 04 - The Bookkeeping Process and Transaction Analysis Chapter 04 The Bookkeeping Process and Transaction Analysis Answer Key Multiple Choice Questions 1. An expanded version of the accounting equation could be: A. A + Rev = L + OE - Exp B. A - L = Paid-in Capital - Rev - Exp C. A = L + Paid-in Capital + Beginning Retained Earnings + Rev - Exp D. A = L + Paid-in Capital - Rev + Exp AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 2. In the seller's records, the sale of merchandise on account would: A. Increase assets and increase expenses. B. Increase assets and decrease liabilities. C. Increase assets and increase paid-in capital. D. Increase assets and decrease revenues. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Comprehension Difficulty: Medium Learning Objective: 2 4-11 Chapter 04 - The Bookkeeping Process and Transaction Analysis 3. In an advertiser's records, a newspaper ad submitted and published this week with the agreement to pay for it next week would: A. Decrease assets and decrease expenses. B. Increase liabilities and increase expenses. C. Decrease assets and increase revenue. D. Increase assets and decrease liabilities. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Comprehension Difficulty: Medium Learning Objective: 6 4. In the buyer's records, the purchase of merchandise on account would: A. Increase assets and increase expenses. B. Increase assets and increase liabilities. C. Increase liabilities and increase paid-in capital. D. Have no effect on total assets. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Application Difficulty: Medium Learning Objective: 6 5. A newspaper ad submitted and published this week, with the agreement to pay for it next week would, in the newspaper's records: A. Increase assets and increase revenues. B. Increase assets and decrease liabilities. C. Increase assets and increase expenses. D. Have no effect on total assets. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Application Difficulty: Medium Learning Objective: 6 4-12 Chapter 04 - The Bookkeeping Process and Transaction Analysis 6. A debit entry will: A. Decrease an asset account. B. Increase a liability account. C. Increase paid-in capital. D. Increase an expense account. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Bloom's: Knowledge Difficulty: Easy Learning Objective: 5 7. A credit entry will: A. Increase an account. B. asset Increase a liability account. C. Decrease paid-in capital. D. Increase an expense account. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Bloom's: Knowledge Difficulty: Easy Learning Objective: 5 8. A credit entry to an account will: A. Always decrease the account balance. B. Always increase the account balance. C. Increase the balance of a revenue account. D. Increase the balance of an expense account. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Bloom's: Knowledge Difficulty: Medium Learning Objective: 5 4-13 Chapter 04 - The Bookkeeping Process and Transaction Analysis 9. A debit entry to an account will: A. Always decrease the account balance. B. Always increase the account balance. C. Increase the balance of a revenue account. D. Increase the balance of an expense account. AACSB: Analytic AICPA BB: Industry AICPA FN: Decision Making Bloom's: Knowledge Difficulty: Medium Learning Objective: 5 10. An engineering consultant provided $500 of services to a client; the client paid $100 when the bill was submitted and will pay the balance within a week. The consultant will record this transaction by: A. B. C. D. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Application Difficulty: Medium Learning Objective: 6 4-14 Chapter 04 - The Bookkeeping Process and Transaction Analysis 11. To accrue $5,500 of employee salaries for the last week of February, the employer's journal entry is: A. B. C. D. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Application Difficulty: Medium Learning Objective: 6 12. Sage, Inc. has 20 employees who each earn $100 per day and are paid every Friday. The end of the accounting period is on a Wednesday. How much wages should the firm accrue at the end of the period? A. $2,000. B. $1,000. C. $0. D. $6,000. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Analysis Difficulty: Hard Learning Objective: 6 4-15 Chapter 04 - The Bookkeeping Process and Transaction Analysis 13. Which of the following is not one of the 5 questions of transaction analysis? A. What's going on? B. Which accounts are affected? C. Is this an accrual? D. Does the balance sheet balance? E. Does my analysis make sense? AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Knowledge Difficulty: Easy Learning Objective: 7 14. The effect of an adjustment is: A. To correct an entry that was not in balance. B. To increase the accuracy of the financial statements. C. To record transactions not previously recorded. D. To close the books. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Comprehension Difficulty: Medium Learning Objective: 6 15. A journal entry recording an accrual: A. Results in a better matching of revenues and expenses. B. Will involve a debit or credit to cash. C. Will affect balance sheet accounts only. D. Will most likely include a debit to a liability account. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Comprehension Difficulty: Medium Learning Objective: 6 4-16 Chapter 04 - The Bookkeeping Process and Transaction Analysis 16. Wisdom Co. has a note payable to its bank. An adjustment is likely to be required on Wisdom's books at the end of every month that the loan is outstanding to record the: A. Amount of interest paid during the month. B. Amount of total interest to be paid when the note is paid off. C. Amount of principal payable at the maturity date of the note. D. Accrued interest expense for the month. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Application Difficulty: Hard Learning Objective: 6 Martin & Associates borrowed $5,000 on April 1, 2010 at 8% interest with both principal and interest due on March 31, 2011. 17. Which of the following journal entries should the firm use to accrue interest at the end of each month? A. B. C. D. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Analysis Difficulty: Medium Learning Objective: 6 4-17 Chapter 04 - The Bookkeeping Process and Transaction Analysis 18. How much should be in the firm's interest payable account at December 31, 2010? A. $300 B. $400 C. $0 D. $333 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Analysis Difficulty: Hard Learning Objective: 6 19. Which of the following journal entries should the firm use to record the payment of interest on March 31, 2011? A. B. C. D. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Analysis Difficulty: Medium Learning Objective: 6 4-18 Chapter 04 - The Bookkeeping Process and Transaction Analysis 20. The accountant at Abco, Inc. made an adjusting entry at the end of February to accrue interest on a note receivable from a customer. The effect of this entry is to: A. Decrease ROI for February. B. Increase ROI for February. C. Decrease working capital at February 28. D. Decrease the acid-test ratio at February 28. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Evaluation Difficulty: Hard Learning Objective: 6 21. The accounting concept/principle being applied when an adjustment is made is usually: A. matching revenue and expense. B. consistency. C. original cost. D. materiality. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Comprehension Difficulty: Medium Learning Objective: 6 22. The Interest Receivable account for February showed transactions totaling $8,500 and an adjustment of $11,200.All of the following responses are correct except: A. The transactions probably resulted from accruing interest income earned. B. The transactions were probably entered on the credit side of the account. C. The adjustment was probably for cash receipts of interest receivable accrued in prior months. D. The balance in the interest receivable account decreased $2,700. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Analysis Difficulty: Medium Learning Objective: 6 4-19 Chapter 04 - The Bookkeeping Process and Transaction Analysis 23. The balance in the Accrued Wages Payable account increased from $12,200 at the beginning of the month to $15,000 at the end of the month. Wages accrued during the month totaled $61,000. A. Wages paid during the month totaled $58,200. B. Wages paid during the month totaled $64,800. C. Wages expense for the month totaled $58,200. D. Wages expense for the month totaled $76,000. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Analysis Difficulty: Medium Learning Objective: 6 24. When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as an asset, the following adjustment to recognize the cost of supplies used will probably be required: A. B. C. D. No adjustment will probably be required. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Application Difficulty: Hard Learning Objective: 6 4-20 Chapter 04 - The Bookkeeping Process and Transaction Analysis 25. When a firm purchases supplies for its business: A. The supplies account should always be debited. B. The supplies expense account should always be debited. C. Either the supplies account or the supplies expense account should be credited. D. An adjustment will probably be required as supplies are used. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Synthesis Difficulty: Hard Learning Objective: 6 26. The effect of an adjustment on the financial statements is usually to: A. make the balance sheet balance. B. increase net income. C. increase the accuracy of both the balance sheet and income statement. D. match revenues and assets. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Comprehension Difficulty: Medium Learning Objective: 6 4-21 Chapter 04 - The Bookkeeping Process and Transaction Analysis Essay Questions 27. At the beginning of the current fiscal year, Surrey Corp.'s balance sheet showed assets of $675,000 and Liabilities of $525,000. During the year, liabilities decreased by $35,000. Net Income for the year was $175,000, and net assets at the end of the year were $193,000. There were no changes in paid-in capital during the year. Calculate the dividends, if any, declared during the year. Calculate the total assets at the end of the year. Steps: (1.) $675,000 - $525,000 = $150,000 (2.) $150,000 + $175,000 - DIV = $193,000; Div = $132,000 (3.) $525,000 - $35,000 = $490,000 (4.) $490,000 + $193,000 = $683,000 = Year-end Assets Alternative Computation of Year-end Assets Follow Steps 1 and 2, above Compute the change in assets during the year. Asset change = - $35,000 + $175,000 - $132,000 Asset change = $8,000 $675,000 + $8,000 = $683,000 = Year-end assets Assets = $683,000. AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Analysis Difficulty: Medium Learning Objective: 3 4-22 Chapter 04 - The Bookkeeping Process and Transaction Analysis 28. At the beginning of the current fiscal year, the balance sheet of Arches Co. showed liabilities of $380,000. During the year liabilities increased by $10,000, assets increased by $55,000, and paid-in capital increased $20,000 to $165,000. Dividends declared and paid during the year were $60,000. At the end of the year, owners' equity totaled $402,000. Calculate net income or loss for the year. Steps: (1.) $402,000 - 165,000 = $237,000 (2.) $380,000 + 10,000 = 390,000 (3.) $390,000 + 402,000 = $792,000 (4.) $165,000 - 20,000 = $145,000 (5.) $792,000 - 55,000 = $737,000 (6.) $737,000 - 380,000 - 145,000 = 212,000 (7.) $212,000 + Net Income - $60,000 = $237,000: Net Income = $85,000 Short cut Approach: $55,000 = 10,000 + 20,000 + Net Income -$60,000 Net Income = $85,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Bloom's: Analysis Difficulty: Medium Learning Objective: 3 4-23 Chapter 04 - The Bookkeeping Process and Transaction Analysis 29. Using the column headings provided below, show the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the account name, amount, and indicating whether it is an addition (+) or subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting owners' equity. (1.) The firm borrowed $2,000 from the bank; a short-term note was signed. (2.) Merchandise inventory costing $750 was purchased; cash of $200 was paid and the balance is due in 30 days. (3.) Employee wages of $1,000 were accrued at the end of the month. (4.) Merchandise that cost $350 was sold for $450 in cash. (5.) This month's rent of $700 was paid. (6.) Revenues from services during month totaled $6,500. Of this amount, $2,000 was received in cash and the balance is expected to be received within 30 days. (7.) During the month, supplies were purchased at a cost of $520, and debited into the Supplies (asset) account. A total of $400 of supplies were used during the month. (8.) Interest of $240 has been earned on a note receivable, but has not yet been received. 4-24 Chapter 04 - The Bookkeeping Process and Transaction Analysis AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Application Difficulty: Medium Learning Objective: 6 4-25 Chapter 04 - The Bookkeeping Process and Transaction Analysis 30. Using the column headings provided below, show the effect, if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the account name, amount, and indicating whether it is an addition (+) or subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting owners' equity. (1.) During the month, the board of directors declared a cash dividend of $1,200, payable next month. (2.) Employees were paid $1,900 in wages for their work during the first three weeks of the month. (3.) Employee wages of $600 for the last week of the month have not been recorded. (4.) Merchandise that cost $900 was sold for $1,350. Of this amount, $1,000 was received in cash and the balance is expected to be received within 30 days. (5.) A contract was signed with a local radio station for a $100 advertisement; the ad was aired during this month but will not be paid for until next month. (6.) Store equipment was purchased at a cash price of $300. The original list price of the equipment was $400, but a discount was received. (7.) Received $180 of interest income for the current month. (8.) Accrued $310 of interest expense at the end of the month. 4-26 Chapter 04 - The Bookkeeping Process and Transaction Analysis AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Bloom's: Application Difficulty: Medium Learning Objective: 6 4-27 ... View Full Document

End of Preview

Sign up now to access the rest of the document