978-1337276337 Test Bank Chapter 3 Part 2

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61. One effect on the accounting equation when a firm lends money is that

a. stockholders’ equity decreases.

b. liabilities decrease.

c. liabilities increase.

d. total assets remain the same.

62. Which of the following statements best describes the effects of recognizing revenue earned by a business entity?

a. Assets increase only when cash sales are made.

b. Stockholders’ equity increases only when credit sales are made.

c. Assets and stockholders’ equity increase when either cash or credit sales are made.

d. Assets increase, but stockholders’ equity decreases, when either cash or credit sales are made.

63. Which of the following statements best describes one effect of recognizing expenses incurred by a business entity?

a. Stockholders’ equity will decrease.

b. Liabilities will decrease.

c. Stockholders’ equity will increase.

d. Assets will increase.

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64. Which of the following statements regarding the activities of Casion Corp. is true?

a. Revenues decrease Casion ’s stockholders’ equity.

b. Expenses decrease Casion ’s stockholders’ equity.

c. Expenses increase Casion ’s stockholders’ equity.

d. None of these are correct.

65. Which of the following transactions does not affect the total assets of Vertican Sailing Corp.?

a. A bill is received for the telephone service used by Vertican Sailing during the past month.

b. Cash dividends are paid by Vertican Sailing.

c. Customers are billed for sales made on credit by Vertican Sailing.

d. A new computer is purchased on credit by Vertican Sailing.

66. Which of the following transactions affects the liabilities for Gravette, Inc.?

a. Supplies are purchased for cash by Gravette.

b. Gravette places an order for merchandise with a supplier; the merchandise will be shipped to Gravette in 60 days.

c. The owners of Gravette invest $100,000 in the company.

d. Payment is made on a bank loan which Gravette had obtained six months ago.

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67. The Casan Company purchased a delivery van for $100,000 in cash. What is the effect on current assets?

a. Increase in current assets

b. Decrease in current assets

c. No effect on current assets

d. Unable to determine

68. Rise Corp. received payment from its customers for previous sales on credit. What was the impact on its working

capital?

a. Increase in working capital

b. Decrease in working capital

c. No effect on working capital

d. Unable to determine

69. Given a current ratio of 5 to 1, what is the effect of paying an accounts payable to a supplier?

a. The current ratio would increase.

b. The current ratio would decrease.

c. The current ratio would remain the same.

d. The effect of the current ratio cannot be determined.

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70. Given that Carlson Corp.’s current ratio is 3 to 2, what is the effect of obtaining a patent from the inventor in exchange

for shares of stock in Carlson Corp.?

a. The current ratio would increase.

b. The current ratio would decrease.

c. The current ratio would remain the same.

d. The effect of the current ratio cannot be determined.

Hennigan Company

Use the five transactions below for Hennigan Rentals to answer the questions that follow.

Dec. 1

Hennigan purchases two new saws on credit at $375 each. The saws are added to Hennigan’s rental

inventory. Payment is due in 30 days.

8 Hennigan accepts advance deposits for tool rentals of $75.

15

Hennigan receives a bill from Farmer’s Electric Company for $150. Payment is due in 30 days.

20

Customers are charged $750 by Hennigan for tool rentals. Payment is due from the customers in 30

days.

31

Hennigan receives $500 in payments from the customers that were billed for rentals on December 20.

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71. Refer to the transactions for Hennigan Rentals.

Based on the above transactions, how much is still owed to Hennigan on December 31 from its customers?

a. $0

b. $250

c. $500

d. $750

72. Refer to the transactions for Hennigan Rentals.

Based on the December 15 transaction, Farmer’s Electric will record which of the following in its accounting records?

a. A credit in Accounts Payable for $150

b. A credit in Accounts Receivable for $150

c. A debit in Accounts Payable for $150

d. A debit in Accounts Receivable for $150

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73. Refer to the transactions for Hennigan Rentals.

Based on the December 31 transaction, Hennigan will record which of the following in its accounting records?

a. A credit in Accounts Payable for $500

b. A credit in Accounts Receivable for $500

c. A debit in Accounts Payable for $500

d. A debit in Accounts Receivable for $500

74. Refer to the transactions for Hennigan Rentals.

Based on the December 15 transaction, Hennigan will record which of the following in its accounting records?

a. A credit in Accounts Payable for $150

b. A credit in Accounts Receivable for $150

c. A debit in Accounts Payable for $150

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75. Refer to the transactions for Hennigan Rentals.

Based on the December 8 transaction, Hennigan will record which of the following in its accounting records?

a. A credit in Accounts Payable for $75

b. A credit in Accounts Receivable for $75

c. A debit in Accounts Payable for $75

d. A debit in Accounts Receivable for $75

76. If the company has an _________ from a client, then the client has an ________ to the company.

a. account receivable; account receivable

b. account payable; account payable

c. account receivable; account payable

d. account payable; account receivable

77. If the landlord has rent _________, then the tenant has rent _________.

a. revenue; revenue

b. revenue; expense

c. expense; revenue

d. expense; expense

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78. Your bookkeeper is off for the day and you are trying to figure out what her last entry in the journal could be for.

Unfortunately, she only recorded the debit side of the transaction as $4,400 to Accounts Payable. It is possible that this

debit could correspond to

a. a purchase of equipment costing $4,400 on credit.

b. a payment of $4,400 to a supplier to settle a balance due.

c. a $4,400 sale to a customer.

d. a $4,400 issuance of the company’s capital stock.

79. Which of the following entries causes a decrease in assets and in net income?

a. The entry to record the payment of utilities with cash

b. The entry to record the payment of cash for the purchase of a building

c. The entry to record accrued wages payable

d. The entry to record revenue earned but not yet received

80. A list of all asset, liability, stockholders’ equity, revenue, and expense accounts, along with their assigned account

numbers, that are used by a company, is a(n)

a. account.

b. general journal.

c. general ledger.

d. chart of accounts.

81. The following transactions occurred during March, the first month of operations for Canyon Products, Inc.:

1. Issued 50,000 shares of capital stock in exchange for $600,000 cash.

2. Purchased land for $400,000, using a $150,000 cash down payment and signing a note payable for the balance.

3. Made a $60,000 cash payment on the note payable from the purchase of land.

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4. Purchased equipment on credit from Burton, Inc. for $63,000.

What is the balance in the Cash account at the end of March?

a. $810,000

b. $210,000

c. $600,000

d. $390,000

82. Double-entry accounting is best characterized as

a. the number of debit entries posted to the ledger equals the number of credit entries.

b. the number of ledger accounts with debit balances is equal to the number with credit balances.

c. every transaction affects both an asset account and either a liability account or a stockholders’ equity account.

d. the total dollar amount of debit entries posted to the ledger is equal to the dollar amount of the credit entries.

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83. The record used to accumulate monetary information for each individual asset, liability, stockholders’ equity, revenue,

and expense item is a(n)

a. chart of accounts.

b. general journal.

c. general ledger.

d. account.

84. The system of accounting in which there are at least two accounts affected in every transaction so that the accounting

equation stays in balance is a(n)

a. double-entry system.

b. debit.

c. credit.

d. journalizing.

85. A file or book that contains a record for all accounts used by a company, including the account balance, is called a

a. chart of accounts.

b. general journal.

c. general ledger.

d. trial balance.

86. An abbreviated version of an account that is useful for analyzing the effects of business transactions is the

a. chart of accounts.

b. double-entry system.

c. T account.

d. trial balance.

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87. An entry made to the right side of an account is called a

a. debit.

b. credit.

c. double-entry system.

d. journal entry.

88. Debit entries are used to

a. increase asset accounts.

b. decrease expense accounts.

c. increase liability accounts.

d. increase revenue accounts.

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89. Credit entries are used to

a. increase asset accounts.

b. increase liability accounts.

c. decrease revenue accounts.

d. decrease liability accounts.

90. Which of the following accounts is increased by a credit entry?

a. Interest Revenue

b. Salary Expense

c. Accounts Receivable

d. Dividends

91. Which of the following accounts is increased by a credit entry?

a. Cash

b. Equipment

c. Accounts Receivable

d. None of these are correct.

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92. All of the following accounts have normal debit balances except

a. Accounts Receivable.

b. Dividends.

c. Office Supplies Expense.

d. Sales.

93. All of the following accounts have normal credit balances except

a. Investments.

b. Common Stock (Capital Stock).

c. Accounts Payable.

d. Service Revenue.

94. Which pair of accounts has the same set of rules for debit and credit entries?

a. Common Stock (Capital Stock) and Accounts Payable

b. Salaries Expense and Retained Earnings

c. Cash and Notes Payable

d. Sales Revenue and Accounts Receivable

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95. Which pair of accounts has the same set of rules for debit and credit entries?

a. Service Revenue and Rent Expense

b. Dividends and Retained Earnings

c. Equipment and Salaries Expense

d. Accounts Receivable and Accounts Payable

96. Read the information for Copper Corp..

On which date did the company make a credit sale to a customer?

a. August 2

b. August 3

c. August 5

d. August 7

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97. Read the information on Copper Corp..

On which date did the company make a cash sales to a customer?

a. August 2

b. August 3

c. August 5

d. August 7

98. Read the information on Copper Corp..

On which date did the company collect an advance deposit?

a. August 2

b. August 3

c. August 5

d. August 7

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99. Read the information about Copper Corp..

Which of the following describes the transaction that occurred on August 7?

a. Sold to a customer on credit

b. Cash sales to daily customers

c. Collected an advance deposit in cash

d. Received cash payments of accounts receivable

100. Read the information about Copper Corp..

Assuming that there are no other transactions, how much was owed to the company on August 8?

a. $1,800

b. $1,300

c. $ 900

d. $ 500

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101. A credit means

a. the event has an effect on the left side of an account.

b. the event is unfavorable.

c. the event is favorable.

d. None of these are correct.

102. The correct term for an entry made to the left side of an account is

a. double-entry system.

b. debit.

c. credit.

d. journalizing.

103. What type of account is increased with a debit but is a decrease to Retained Earnings?

a. Liability

b. Asset

c. Revenue

d. Expense

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104. Which of the following statements is true?

a. If a debit entry is made to an account in the general journal, the same account will receive a credit entry when the

amount is posted to the general ledger.

b. If all transactions are correctly posted to the general ledger, the sum of the debit balances will be equal to the sum

of the credit balances.

c. Posting occurs when numbers in the general ledger accounts are transferred to the general journal.

d. If the sum of the debit balances equals the sum of the credit balances, then there were no mistakes made in the

posting process.

105. Which of the following statements is true?

a. An entry in a general ledger account can be traced to the trial balance by referring to the page listed in the posting

reference column of that ledger account.

b. The posting of an amount recorded in the general journal can be verified by referring to the account number listed

in the Posting Reference column on that line in the general journal.

c. Business transactions are recorded first in the general ledger, and then that information is transferred to the general

journal.

d. No explanation is needed for each entry in the general journal.

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106. Sunnyside Vacations has a $1,200 account receivable from John Smith. On September 18, John makes a partial

payment of $1,100 to Sunnyside. The journal entry made on September 18 by Sunnyside to record this transaction

includes

a. a debit to the Cash account of $1,150.

b. a debit to the Accounts Receivable account of $1,150.

c. a credit to the Accounts Receivable account of $1,100.

d. a credit to the Accounts Receivable account of $1,050.

107. Squidly Products sold and delivered modems to Detail Solutions for $6,600 to be paid by Detail Solutions in three

equal installments over the next three months. The journal entry made by Squidly to record this transaction will include

a. a credit to Cash for $6,600.

b. a debit to Accounts Receivable for $6,600.

c. a debit to Accounts Receivable for $2,200.

d. a debit to Sales Revenue for $6,600.

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108. The purchase of office equipment at a cost of $3,600 with an immediate down payment of $1,000 and agreement to

pay the balance within 60 days is recorded by

a. a debit of $3,600 to Office Equipment, a credit of $1,000 to Cash, and a credit of $2,600 to Accounts Payable.

b. a debit of $2,600 to Accounts Receivable, a debit of $1,000 to Cash, and a credit of $3,600 to Office Equipment.

c. a debit of $3,600 to Office Equipment, a credit of $1,000 to Cash, and a credit of $2,600 to Accounts Receivable.

d. None of these are correct.

109. The record in which transactions are initially recorded in chronological order as they occur is a(n)

a. general journal.

b. account of events.

c. general Ledger.

d. chart of accounts.