Question 1

The Dividends account

Accepted Answer

The Dividends account is a contra equity account that is increased with debits and decreased with credits. It is not a proper subdivision of retained earnings because it represents a distribution of profits to shareholders, not a retained portion of earnings. The account does not appear on the income statement as it is not an expense or revenue account. It only reflects transactions when dividends are declared and paid out by the company.

Question 2

At December 1, 2018, Cursive Company's accounts receivable balance was $1,800. During December, Cursive had revenues on account of $7,200 and collected accounts receivable of $6,000. At December 31, 2018, the accounts receivable balance is

Accepted Answer

Starting Balance: $1,800
Add: Revenues on account: $7,200
Total: $9,000
Less: Collections: $6,000
Ending Balance: $3,000 debit.

Question 3

If a company has overdrawn its bank balance, then

Accepted Answer

When a company overdraws its bank balance, it means the bank account has a negative balance, which is represented in the company's books as a credit balance in the cash account.

Question 4

In the first month of operations for Gallowsbird Industries, the total of the debit entries to the cash account amounted to $36,000 ($16,000 investment by stockholders and revenues of $20,000). The total of the credit entries to the cash account amounted to $22,000 (purchase of equipment $8,000 and payment of expenses $14,000). At the end of the month, the cash account has a(n)

Accepted Answer

The answer of In the first month of operations for...

Question 5

At January 31, 2018, the balance in Aislers Inc.'s supplies account was $750. During February, Aislers purchased supplies of $900 and used supplies of $1,125. At the end of February, the balance in the supplies account should be

Accepted Answer

The answer of At January 31, 2018, the balance in...

Question 6

An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?

Accepted Answer

Expenses normally have a debit balance, so a credit balance in an expense account would indicate an error in recording. A debit balance in dividends (A) is normal, as dividends decrease equity. A credit balance in liabilities (C) is normal, as it represents obligations owed to others. A credit balance in revenue (D) is normal, as it represents income earned.

Question 7

Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for $1,000, a credit to a liability account for $600. Which of the following would be the correct way to complete the recording of the transaction?

Accepted Answer

The answer of Radio Moscow Industries purchased supplies for $1,000....

Question 8

Assets normally show

Accepted Answer

Assets normally have debit balances, which means that they increase with debits and decrease with credits. This is consistent with the accounting equation (Assets = Liabilities + Equity), where an increase in assets would require a corresponding increase in either liabilities or equity, which would be recorded with a credit.

Question 9

TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and

Accepted Answer

Since TransAm signed a note for the balance of $2,100, they have incurred a liability that needs to be recorded. Therefore, TransAm should credit a liability account for $2,100.

Question 10

When a company distributes dividends

Accepted Answer

The answer of When a company distributes dividends
...

Question 11

Which account below is not a subdivision of retained earnings?

Accepted Answer

Common stock represents the equity investment made by shareholders and is not a subdivision of retained earnings. Retained earnings are composed of accumulated net income (revenues minus expenses) that has not been distributed to shareholders as dividends.

Question 12

At January 1, 2018, Alligator Industries reported retained earnings of $150,000. During 2018, Alligator had a net loss of $30,000 and paid dividends of $15,000. At December 31, 2018, the amount of retained earnings is

Accepted Answer

Retained earnings at January 1, 2018 = $150,000
Net loss during 2018 = ($30,000)
Dividends paid during 2018 = ($15,000)
Retained earnings at December 31, 2018 = $150,000 - $30,000 - $15,000 = $105,000.

Question 13

Mt. Zion Inc. pays its employees twice a month, on the 7^th and the 21^st. On June 21, Mt. Zion Inc. paid employee salaries of $5,000. This transaction would

Accepted Answer

The answer of Mt. Zion Inc. pays its employees twice...

Question 14

Electrelane Company showed the following balances at the end of its first year: $$\begin{array} { l r } 
\text { Cash } & \$ 4,000 \
\text { Prepaid insurance } & 7,000 \
\text { Accounts receivable } & 5,000 \
\text { Accounts payable } & 4,000 \
\text { Notes payable } & 6,000 \
\text { Common stock } & 2,000 \
\text { Dividends } & 1,000 \
\text { Revenues } & 32,000 \
\text { Expenses } & 25,000
\end{array}$$ What did Electrelene Company show as total credits on its trial balance?

Accepted Answer

The answer of Electrelane Company showed the following balances at...

Question 15

On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include

Accepted Answer

The purchase was made on account, which means Edamame Industries did not pay cash but instead promised to pay later. Therefore, the transaction involves an increase in Supplies (an asset) and a corresponding increase in Accounts Payable (a liability) since the company owes the supplier for the purchase. The entry to record the purchase will be a debit to Supplies and a credit to Accounts Payable.

Question 16

In the first month of operations, the total of the debit entries to the cash account amounted to $1,200 and the total of the credit entries to the cash account amounted to $800. The cash account has a(n)

Accepted Answer

The cash account has a debit balance of $400 ($1,200 - $800 = $400).

Question 17

On June 1, 2018, Portugal Inc. reported a cash balance of $12,000. During June, Portugal made deposits of $5,000 and made disbursements totalling $14,000. What is the cash balance at the end of June?

Accepted Answer

The answer of On June 1, 2018, Portugal Inc. reported...

Question 18

During February 2018 its first month of operations, the stockholders of Ariel Pink Enterprises invested cash of $50,000. Ariel had cash revenues of $10,000 and paid expenses of $14,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28?

Accepted Answer

The answer of During February 2018 its first month of...

Question 19

Which of the following statements is incorrect?

Accepted Answer

Expenses decrease stockholders' equity, not increase it. When expenses are incurred, they are recorded as debits, which decrease stockholders' equity. Therefore, statement A is incorrect. Statements B, C, and D are all correct.

Question 20

A credit to a liability account

Accepted Answer

A credit to a liability account indicates an increase in the amount owed to creditors. In double-entry accounting, credits increase liability accounts.

Quiz 2: The Recording Process