Question 1

Peterson Corporation recorded an adjusting entry using T-accounts as follows:
$\begin{array}{cc}\text {Depreciation Expense }\\hline
\begin{array}{ll|l}
&750& \
\end{array}
\end{array}$
$\begin{array}{cc}\text {Accumulated Depreciation }\\hline
\begin{array}{ll|l}
&&750 \
\end{array}
\end{array}$
Which of the following reflects how this adjustment affects the company's financial statements?
$\begin{array}{|l|l|l|l|l|l|l|l|l|l|l|l|}
\hline&&&&&&&&&&&\text { Stmt of }\
 & \text {Assets }&=& \text {Liab }&+& \text { Equity}& \text { Rev.}&-& \text {Exp. }&=& \text { Net Inc. }& \text {Cash Flows } \
\hline \mathrm{A} & + & = & + & + & \mathrm{NA} & \mathrm{NA} &-& \mathrm{NA} &=& \mathrm{NA} &+FA\
\hline \mathrm{B} & - & = & \text { NA } & + & - &NA&-&+&=&-&NA\
\hline C&+&=&NA&+&+&+&-&NA&=&+&+OA\
\hline D&-&=&-&+&NA&NA&-&+&=&-&-OA\
\hline 
\end{array}$

Accepted Answer

The answer of Peterson Corporation recorded an adjusting entry using...

Question 2

Manhattan Company recorded an adjusting entry to accrue interest owed of $300 as of December 31,Year 1.When the related note was paid during Year 2,the company paid $450 in interest.Which of the following journal entries correctly records this Year 2 transaction? (Assume that the entry to record the payment of the note itself was recorded in a separate journal entry.)

Accepted Answer

The company had already accrued $300 as interest payable in Year 1. In Year 2, the total interest paid was $450, so the additional interest expense for Year 2 is $150. The journal entry should debit Interest Expense for $150, debit Interest Payable for $300, and credit Cash for $450.

Question 3

Vargas Company purchased a computer for $3,000 on January 1,Year 1.The computer is estimated to have a 5-year useful life and a $500 salvage value.What adjusting entry would Vargas record on December 31,Year 1 to recognize expense related to use of the computer?

Accepted Answer

The annual depreciation expense is calculated as (Cost - Salvage Value) / Useful Life = ($3,000 - $500) / 5 = $500. The correct entry debits Depreciation Expense and credits Accumulated Depreciation for $500.

Question 4

The T-account format is also called the chart of accounts.

Accepted Answer

This is false. A chart of accounts is a list of a company's ledger accounts and their account numbers.

Question 5

The balance in Retained Earnings is decreased by debiting the account.

Accepted Answer

This is true. Decreases to retained earnings are recorded as debits because stockholders' equity is being decreased.

Question 6

A liability account normally has a credit balance.

Accepted Answer

This is true. A liability account normally has a credit balance because increases to liabilities are recorded as credits.

Question 7

A $200 credit to Interest Payable was instead recorded in error as a $200 credit to Cash in an adjusting entry,which has been posted to the ledger accounts.Which of the following is the result of this error?

Accepted Answer

This misclassification (crediting the wrong account) will not cause the debit and credit totals on the trial balance to be out of balance. Crediting an asset (Cash) instead of crediting a liability (Interest Payable) would understate total assets and understate total liabilities. That error has no effect on net income.

Question 8

The Dividends account normally has a credit balance.

Accepted Answer

This is false. Because dividends decrease stockholders' equity (retained earnings), dividends normally carry a debit balance. The normal balance of an account is the side on which increases are recorded.

Question 9

The adjusting entry to record an expense related to the use of a delivery van would involve which of the following?

Accepted Answer

Recognizing depreciation expense is an asset use event. Both assets and stockholders' equity decrease. Because credits decrease assets, the decrease in assets (Accumulated Depreciation) is recorded with a credit, and because debits decrease stockholders' equity, the decrease to stockholders' equity (Depreciation Expense) is recorded with a debit. On the income statement, expenses increase which decreases net income.

Question 10

The general journal is a list of a business's accounts and their account numbers.

Accepted Answer

This is false. The chart of accounts is a list of all ledger accounts and their account numbers.

Question 11

Callahan Corporation recorded an adjusting entry using T-accounts as follows:
$\begin{array}{cc}\text {Interest Receivable }\\hline
\begin{array}{ll|l}
&75& \
\end{array}
\end{array}$
$\begin{array}{cc}\text { Interest Revenue}\\hline
\begin{array}{ll|l}
&&75 \
\end{array}
\end{array}$
Which of the following reflects how this adjustment affects the company's financial statements?
$\begin{array} { | c | c | c | c | c | c | c | c | c | c | c | c | } 
\hline&&&&&\text { Stk. }&&&&&&\text { Stmt of }\
 &\text { Asset }&=&\text { Liab. }&+&\text { Equity }&\text { Rev. }&-&\text { Exp. }&=&\text { Net Inc. }&\text { Cash Flows }\
\hline A&+&=&+&+&NA&NA&-&NA&=&NA&+FA\
\hline B&+&=&NA&+&+&+&-&NA&=&+&NA\
\hline C&+&=&NA&+&+&+&-&NA&=&+&+OA\
\hline D&-&=&NA&+&NA&-&-&NA&=&-&NA\
\hline
\end{array}$

Accepted Answer

The adjustment increases assets (Interest Receivable) and equity (Interest Revenue), which increases net income. There is no immediate cash flow impact.

Question 12

The year for which companies prepare their financial statements is their fiscal year.

Accepted Answer

This is true. A fiscal year can be a calendar year; however, instead of using a calendar year, companies whose business is highly seasonal often choose "slow" periods to end their fiscal year.

Question 13

A transaction has been recorded in the journal of Davis Company as follows:
$$\begin{array} { | l | r | r | } 
\hline \text { Interest Expense } & \mathbf { 8 0 0 } & \
\hline \text { Interest Payable } & & \mathbf { 8 0 0 } \
\hline
\end{array}$$
Which of the following describes the effect of this transaction on the company's financial statements?

Accepted Answer

This transaction increases liabilities because it records an interest expense that is payable, thus increasing the Interest Payable account.

Question 14

A company's general ledger provides a chronological record of its business transactions.

Accepted Answer

This is false. Journals provide a chronological record of business transactions. Transactions are recorded in journals before they are entered into ledger accounts. The collection of all the accounts used by a particular business is called the general ledger.

Question 15

On August 1,Year 1,Bellisa Company issued a $10,000 6%,1-year note to Citizens Bank.Which of the following entries reflects the adjustment required as of December 31,Year 1?

Accepted Answer

The interest for 5 months (August to December) is $10,000 * 6% * (5/12) = $250. The correct entry is to debit Interest Expense and credit Interest Payable for $250.

Question 16

Generally accepted accounting principles require that a business's fiscal year must end on December 31.

Accepted Answer

This is false. A fiscal year can be a calendar year; however, instead of using a calendar year, companies whose business is highly seasonal often choose "slow" periods to end their fiscal year.

Question 17

Source documents provide information that serves as the basis for entries into the accounting system.Examples of source documents include invoices and deposit tickets.

Accepted Answer

This is true. To simplify recordkeeping, businesses rely on source documents, such as cash register tapes, invoices, time cards, check registers, and deposit tickets. Data from source documents are initially recorded in journals and then they are entered into ledger accounts in the general ledger.

Question 18

Abbott Company purchased $6,500 of merchandise inventory on account.Which of the following entries would be required to record this transaction?

Accepted Answer

The correct entry records an increase in Inventory (debit) and an increase in Accounts Payable (credit) for the purchase on account.

Question 19

Which of the following statements about the entry to record depreciation is true?

Accepted Answer

The entry to record depreciation expense involves a debit to Depreciation Expense (to increase that expense account) and a credit to Accumulated Depreciation (to increase that contra-asset account.

Question 20

The following entry is taken from the journal of a merchandising company:
$\begin{array}{|l|r|r|}
\hline \text { Cost of Goods Sold } & 6,000 & \
\hline \text { Merchandise Inventory } & & 6,000 \
\hline
\end{array}$
What is the effect of this entry on the company's financial statements?

Accepted Answer

The entry decreases the Merchandise Inventory asset account and increases the Cost of Goods Sold expense account, which decreases stockholders' equity.

Quiz 13: The Double-Entry Accounting System