Question 1

A company has recorded $25,000 in debits to a particular account, and has also recorded $14,000 of credits to that account. The account balance is

Accepted Answer

The account balance is calculated by subtracting the total credits from the total debits. In this case, $25,000 - $14,000 = $11,000, which means the account has a balance of $11,000 in debits. Choice A) is the only option that reflects this answer.

Question 2

On November 1, 2017, the Baumol Real Estate Corp. received $4,000 from a tenant, representing rent for November and December 2017, as well as January and February of 2018, and recorded the transaction with a journal entry to cash and to unearned revenue. Assuming there were no other journals made, Baumol should record which of the following on December 31, 2017?

Accepted Answer

When Baumol received the $4,000, they recorded it as unearned revenue because it had not been earned yet. As time passes and the rent becomes earned, the unearned revenue account will decrease and the rent revenue account will increase. 
Since the journal entry recorded on November 1 covered rent for November and December 2017, as well as January and February of 2018, Baumol has earned only half of the rent by December 31, 2017 (i.e. for November and December 2017). Therefore, they should record a debit to unearned revenue and a credit to rent revenue for only $2,000 ($1,000 for each of the two months earned). Choice B is the best answer.

Question 3

During December, an accountant does $700 of bookkeeping work for the Castorini Plumbing Corp., but does not bill the company until January. Which of the following is the appropriate journal entry that should be made in the December 31 balance sheet? (Assume the company prepares its balance sheet in February.)

Accepted Answer

The appropriate journal entry is to credit accrued expenses payable and debit accounting expense for $700. This is because the accountant performed the work in December but did not bill until January, so the expense should still be recognized in December as an accrued expense. Option A is incorrect because even though no bill was received in December, the work was performed and the expense should still be recognized. Option B is incorrect because there is no cash movement involved in this transaction. Option D is incorrect because it implies that the company paid for the accounting work in December, which is not the case. Option E is partially correct in that accrual accounting requires the expense be recognized, but it does not specify the accounts that need to be credited and debited.

Question 4

In a typical accounting cycle, which of the following events occurs first?

Accepted Answer

Posting information from journals to the ledger is typically the first step in the accounting cycle, as it involves transferring the financial transactions recorded in the journal to the appropriate accounts in the ledger. This step provides a preliminary view of the company's financial standings before adjustments are made in later steps such as preparing an adjusted trial balance and closing entries. Finally, after all transactions are recorded and necessary adjustments made, financial statements are prepared.

Question 5

In a typical accounting cycle, which of the following events occurs last?

Accepted Answer

Preparing closing entries occurs after all other steps in the accounting cycle, including preparing adjustments, posting information from journals to the ledger, and preparing an adjusted trial balance.

Question 6

Which of the following bookkeeping errors will not cause a trial balance to be out of balance?

Accepted Answer

Posting a journal entry "backwards" by reversing the debits and credits does not affect the balance of the trial balance because the total debits still equal the total credits, just in different accounts.

Question 7

Which of the following bookkeeping errors will cause the total debits and total credits to be out of balance in the general ledger?

Accepted Answer

The answer of Which of the following bookkeeping errors will...

Question 8

In the year-end closing process, which account should not be reset to zero?

Accepted Answer

Land is a long-term asset and its value is not affected by the year-end closing process. Therefore, it should not be reset to zero. Dividends, sales revenues, and supplies expense are all temporary accounts that should be reset to zero at the end of the accounting period.

Question 9

On December 1, 2017, Physical Bank made a loan to a customer of $2,000,0000, with an annual interest rate of 6%. The loan, and all the interest, are due on November 30, 2018. The appropriate adjusting entry the bank should make on December 31, 2017 is

Accepted Answer

Interest for one month (December) on a $2,000,000 loan at 6% annual interest is $10,000 ($2,000,000 * 6% / 12 months). This interest has been earned but not yet received, so the bank should recognize it as interest receivable (an asset) and as interest revenue (increasing income).

Question 10

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

Accepted Answer

When a company purchases merchandise inventory on account, the inventory account is increased (debited) and the accounts payable account is also increased (credited). Therefore, the correct entry would be:
Dr. Inventory 6,500 
Cr. Accounts Payable 6,500

Question 11

What business event would be represented by a journal entry that shows a debit to cash of $500 and a credit to unearned revenue of $500?

Accepted Answer

This journal entry represents the receipt of cash for services that have not yet been provided, which is accounted for as unearned revenue. This is common in industries such as subscription-based services or prepaid warranties. The $500 debit to cash indicates the receipt of cash, while the $500 credit to unearned revenue indicates an increase in liability as the company owes the customer future services.

Question 12

A company has recorded $38,000 in debits to a particular account, and has also recorded $14,000 of credits to that account. The account balance is

Accepted Answer

The account balance is calculated by subtracting the credits from the debits. Therefore, $38,000 (debits) - $14,000 (credits) = $24,000 debit.

Question 13

All of the following accounts increase with debits, except

Accepted Answer

Bank loans payable is a liability account, and liability accounts increase with credits, not debits. Accounts receivable, interest expense, and dividends all increase with debits.

Question 14

All of the following accounts increase with credits, except

Accepted Answer

Sales revenues, retained earnings, and accounts payable increase with credits, but dividends decrease with debits.

Question 15

On January 1, 2016, the Marlin Company purchased a tractor that cost $30,000, had a five-year useful life, and a $5,000 salvage value. Which of the following is the correct general journal entry to record depreciation expense for the 2016 fiscal year?

Accepted Answer

Depreciation expense is recorded as an expense in the income statement and the accumulated depreciation account is a contra asset account that contains the total amount of depreciation expense recorded over the asset's useful life. Therefore, the correct entry to record depreciation expense is to debit (increase) the depreciation expense account and credit (increase) the accumulated depreciation account. Option A records too much depreciation expense in the first year, option B records the salvage value instead of the depreciation expense, and option C records a cash transaction instead of a non-cash expense. Option D records the correct entry by debiting depreciation expense $5,000 and crediting accumulated depreciation $5,000.

Question 16

On November 1, 2017, Schubert Corp. paid $1,200 in advance for an insurance policy that covered the company for six months. Assuming that Schubert recorded this purchase as an asset, the adjusting entry required on December 31, 2017 would include

Accepted Answer

At the end of December, Schubert has used up two months of the insurance policy and still has four months to go. Therefore, $400 worth of insurance has been used up (2/6 of $1,200). This means that the asset (prepaid insurance) needs to be reduced by $400 and the expense (insurance expense) needs to be increased by $400. Therefore, the adjusting entry required would be a debit to insurance expense for $400 and a credit to prepaid insurance for $400.

Question 17

What business event is represented by a journal entry that shows a debit to supplies of $800 and a credit to accounts payable of $800?

Accepted Answer

The journal entry represents a purchase of supplies on account, as evidenced by the credit to accounts payable for the same amount as the debit to supplies. Option A would require a credit to cash, while option B would not have a credit to accounts payable. Option C would only have a debit to supplies with no corresponding credit.

Question 18

What business event is represented by a journal entry that shows a debit to supplies of $9,000 and a credit to cash of $9,000?

Accepted Answer

The journal entry shows that the company purchased supplies with cash. The debit to supplies indicates an increase in the asset account while the credit to cash shows a decrease in the asset account, indicating that cash was paid for the supplies.

Question 19

What business event is represented by a journal entry that shows a debit to supplies expense of $9,000 and a credit to supplies of $9,000?

Accepted Answer

The journal entry represents an expense being incurred for supplies, as the debit to supplies expense increases the expense account and the credit to supplies decreases the asset account. The other choices involve a cash or accounts payable transaction, which is not shown in the given entry.

Quiz 13: Appendix