ACC 301 Chapter 2 Quiz Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. A common business transaction that would not affect the amount of owners' equity is a. signing a note payable to purchase equipment. b. payment of property taxes. c. billing of customers for services rendered. d. payment of dividends. ____ 2. On June 30, a company paid $3,600 for insurance premiums for the current year and debited the amount to Prepaid Insurance. At December 31, the bookkeeper forgot to record the amount expired. The omission has the following effect on the financial statements prepared December 31: a. overstates owners' equity. b. overstates assets. c. understates net income. d. both (a) and (b). ____ 3. A routine collection on a customer's account was recorded and posted as a debit to Cash and a credit to Sales Revenue. The journal entry to correct this error would be a. a debit to Sales Revenue and a credit to Accounts Receivable. b. a debit to Sales Revenue and a credit to Unearned Revenue. c. a debit to Cash and a credit to Accounts Receivable. d. a debit to Accounts Receivable and a credit to Sales Revenue. ____ 4. On March 1, 2003, Forest Co. borrowed cash and signed a 36-month, interest-bearing note on which both the principal and interest are payable on February 28, 2006. At December 31, 2004, the liability for accrued in-terest should be a. 10 months' interest. b. 22 months' interest. c. 34 months' interest. d. 36 months' interest. ____ 5. Iowa Cattle Company uses a periodic inventory system. Iowa purchased cattle from Big D Ranch at a cost of $27,000 on credit. The entry to record the receipt of the cattle would be
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