138) Andrea Apple opened Apple Photography on January 1 of the current year. During January,
the following transactions occurred and were recorded in the company’s books:
1. Andrea invested $13,500 cash in the business in exchange for common stock.
2. Andrea contributed $20,000 of photography equipment to the business.
3. The company paid $2,100 cash for an insurance policy covering the next 24 months.
4. The company received $5,700 cash for services provided during January.
5. The company purchased $6,200 of office equipment on credit.
6. The company provided $2,750 of services to customers on account.
7. The company paid cash of $1,500 for monthly rent.
8. The company paid $3,100 on the office equipment purchased in transaction #5 above.
9. Paid $275 cash for January utilities.
Based on this information, the amount reported as total stockholders’ equity on the balance sheet
at month-end would be:
A) $31,400.
B) $39,200.
C) $31,150.
D) $40,175.
E) $30,875.
139) The debt ratio is used:
A) To measure the ratio of equity to expenses.
B) To assess the risk associated with a company’s use of liabilities.
C) To assess market expectations for future growth.
D) To determine how efficient the company is using its assets.
E) To determine the profitability of a company.
140) Identify the correct formula below used to calculate the debt ratio.
A) Total Equity/Total Liabilities.
B) Total Liabilities/Total Equity.
C) Total Liabilities/Total Assets.
D) Total Assets/Total Liabilities.
E) Total Equity/Total Assets.
141) Langley has a debt ratio of 0.3 and its competitor, Appleton, has a debt ratio equal to 0.7.
Determine the statement below that is correct.
A) Appleton finances a smaller percentage of its assets with liabilities as compared to Langley.
B) Appleton’s financial leverage is less than Langley’s financial leverage.
C) Appleton’s financial leverage is greater than Langley’s financial leverage.
D) Langley has a higher risk from its financial leverage.
E) Higher financial leverage involves lower risk.
142) Identify the statement that is incorrect.
A) Higher financial leverage involves higher risk.
B) Risk is higher if a company has more liabilities.
C) Risk is higher if a company has more assets.
D) The debt ratio is one measure of financial risk.
E) Lower financial leverage involves lower risk.
143) The debt ratio of Company A is 0.31 and the debt ratio of Company B is 0.21. Based on this
information, an investor can conclude:
A) Company B has more debt than Company A.
B) Company B has less financial leverage.
C) Company A has less financial leverage.
D) Company A has 10% more assets than Company B.
E) Both companies have too much debt.
144) The debt ratio of Braun is 0.9 and the debt ratio of Kemp is 1.0. Based on this information,
an investor can conclude:
A) Kemp finances a relatively lower portion of its assets with liabilities than Braun.
B) Kemp has less financial leverage.
C) Braun has higher financial leverage.
D) Kemp has the exact same dollar amount of total liabilities and total assets.
E) Braun has less equity per dollar of assets than Kemp.
145) Jennings Co. has total assets of $425 million. Its total liabilities are $110.5 million. Its
equity is $314.5 million. Calculate the debt ratio.
A) 38%.
B) 13%.
C) 34%.
D) 26%.
E) 14%.
146) Sanders Co. has total assets of $385 million. Its total liabilities are $100.1 million and its
equity is $284.9 million. Calculate its debt ratio.
A) 35%.
B) 26%.
C) 38%.
D) 28%.
E) 58%.
147) All of the following statements accurately describe the debt ratio except.
A) It is of use to both internal and external users of accounting information.
B) A relatively low ratio signifies lower risk.
C) The ratio is computed by dividing total liabilities by total assets.
D) Higher financial leverage means greater risk.
E) The ratio is computed by dividing total equity by total liabilities.
148) At the end of the current year, James Co. reported total liabilities of $300,000 and total
equity of $100,000. The company’s debt ratio was:
A) 300%.
B) 33%.
C) 75%.
D) 67%.
E) $400,000.
149) At the beginning of the current year, Snell Co. total assets were $248,000 and its total
liabilities were $174,200. During the year, the company reported total revenues of $93,000, total
expenses of $76,000 and dividends of $5,000. There were no other changes in equity during the
year and total assets at the end of the year were $260,000. The company’s debt ratio at the end of
the current year is:
A) 70%.
B) 67%.
C) 32%.
D) 48%.
E) 142%.
150) The process of transferring general journal entry information to the ledger is called:
A) Double-entry accounting.
B) Posting.
C) Balancing an account.
D) Journalizing.
E) Not required unless debits do not equal credits.
151) A column in journals and ledger accounts that is used to cross reference journal and ledger
entries is the:
A) Account balance column.
B) Debit column.
C) Posting reference column.
D) Credit column.
E) Description column.
152) A complete record of each transaction in one place is called a(n):
A) Account balance.
B) Ledger.
C) Journal.
D) Trial balance.
E) Cash account.
153) A general journal provides a place for recording all of the following except:
A) The transaction date.
B) The names of the accounts involved.
C) The amount of each debit and credit.
D) An explanation of the transaction.
E) The balance in each account.
154) The balance column in a ledger account is:
A) An account entered on the balance sheet.
B) A column for showing the balance of the account after each entry is posted.
C) Another name for the dividends account.
D) An account used to record the transfers of assets from a business to its stockholders.
E) A simple form of account that is widely used in accounting to illustrate the debits and credits
required in recording a transaction.
155) Which of the following is not one of the four steps of processing transactions?
A) Record journal entry.
B) Analyze transactions using the accounting equation.
C) Identify transactions and source documents.
D) Ensure assets are equal to liabilities.
E) Post entry to ledger.
156) A record in which the effects of transactions are first recorded and from which transaction
amounts are posted to the ledger is a(n):
A) Account.
B) Trial balance.
C) Journal.
D) T-account.
E) Balance column account.
157) Centurion Co. had the following accounts and balances at December 31:
Account
Debit
Credit
Cash
$
10,000
Accounts Receivable
2,000
Prepaid Insurance
2,400
Supplies
1,000
Accounts Payable
$
5,000
Common Stock
4,900
Service Revenue
7,000
Salaries Expense
500
Utilities Expense
1,000
Totals
$
16,900
$
16,900
Using the information in the table, calculate the company’s reported net income for the period.
A) $1,100.
B) $4,000.
C) $8,500
D) $10,400.
E) $5,500.
158) Jackson Services had the following accounts and balances at December 31:
Account
Debit
Credit
Cash
$
20,000
Accounts Receivable
6,000
Prepaid Insurance
1,500
Supplies
5,000
Accounts Payable
$
500
Common Stock
16,200
Dividends
1,000
Service Revenue
20,000
Utilities Expense
2,000
Salaries Expense
1,200
Totals
$
36,700
$
36,700
Using the information in the table, calculate the company’s reported net income for the period.
A) $16,800.
B) $15,800.
C) $15,300.
D) $10,300.
E) $23,200.
159) Cloud Solutions had the following accounts and balances as of December 31:
Debit
Credit
$
20,000
2,000
500
$
4,000
7,000
500
1,400
1,500
14,900
$
25,900
$
25,900
Using the information in the table, calculate the total assets reported on the balance sheet for the
period.
A) $24,900.
B) $25,400.
C) $22,500.
D) $25,900.
E) $23,400.
160) At the end of its first month of operations, JMP Consulting reported net income of $25,000.
They also had account balances of: Cash, $18,000; Office Supplies, $2,000; and Accounts
Receivable, $10,000. Stockholders’ total investments for this first month was $5,000. There were
no dividends in the first month.
Calculate the amount of total stockholders’ equity reported on the balance sheet at month-end.
A) $30,000
B) $25,000
C) $20,000
D) $5,000
E) $7,000
161) Identify the accounts that would normally have balances in the debit column of a business’s
trial balance.
A) Assets and expenses.
B) Assets and revenues.
C) Revenues and expenses.
D) Liabilities and expenses.
E) Liabilities and dividends.
162) Identify the accounts that would normally have balances in the credit column of a business’s
trial balance
A) Liabilities and expenses.
B) Assets and revenues.
C) Revenues and expenses.
D) Revenues and liabilities.
E) Dividends and liabilities.
163) Which of the following is not a step in the accounting process?
A) Analyze each transaction and event using the accounting equation.
B) Identify each transaction and event from source documents.
C) Record relevant transactions and events in a journal.
D) Post journal information to ledger accounts.
E) Ensure all cash is distributed to stockholders at the end of each period.
164) A bookkeeper has debited an asset account for $3,500 and credited a liability account for
$2,000. Which of the following would be an incorrect way to complete the recording of this
transaction:
A) Credit another asset account for $1,500.
B) Credit another liability account for $1,500.
C) Credit a revenue account for $1,500.
D) Credit the common stock account for $1,500.
E) Debit another asset account for $1,500.
165) A list of all ledger accounts and their balances at a point in time is called a(n):
A) Account balance.
B) Trial balance.
C) Ledger.
D) Chart of accounts.
E) General Journal.
166) Identify the statement below that is true.
A) A trial balance can replace the need for financial statements.
B) The trial balance presents net income for a period of time.
C) Another name for the trial balance is the chart of accounts.
D) The trial balance is a list of all accounts from the ledger with their balances at a point in time.
E) The trial balance is another name for the balance sheet as long as debits balance with credits.
167) While in the process of posting from the journal to the ledger, a company failed to post a
$500 debit to the Equipment account. The effect of this error will be that:
A) The Equipment account balance will be overstated.
B) The trial balance will not balance.
C) The error will overstate the debits listed in the journal.
D) The total debits in the trial balance will be larger than the total credits.
E) The error will overstate the credits listed in the journal.
168) A $15 credit to Sales was posted as a $150 credit. By what amount is the Sales account in
error?
A) $150 understated.
B) $135 overstated.
C) $150 overstated.
D) $15 understated.
E) $135 understated.
169) At year-end, a trial balance showed total credits exceeding total debits by $4,950. This
difference could have been caused by:
A) An error in the general journal where a $4,950 increase in Accounts Receivable was recorded
as an increase in Cash.
B) A net income of $4,950.
C) The balance of $49,500 in Accounts Payable being entered in the trial balance as $4,950.
D) The balance of $5,500 in the Office Equipment account being entered on the trial balance as a
debit of $550.
E) An error in the general journal where a $4,950 increase in Accounts Payable was recorded as
a decrease in Accounts Payable.
170) Identify the item below that would cause the trial balance to not balance?
A) A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts
Receivable and a credit to Cash.
B) The purchase of office supplies on account for $3,250 was erroneously recorded in the journal
as $2,350 debit to Office Supplies and $2,350 credit to Accounts Payable.
C) A $50 cash receipt for the performance of a service was not recorded at all.
D) The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and a
credit to Cash for $1,200.
E) The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a
debit to Cash for $750.
171) The credit purchase of a new oven for $4,700 was posted to Kitchen Equipment as a $4,700
debit and to Accounts Payable as a $4,700 debit. What effect would this error have on the trial
balance?
A) The total of the Debit column of the trial balance will exceed the total of the Credit column
by $4,700.
B) The total of the Credit column of the trial balance will exceed the total of the Debit column by
$4,700.
C) The total of the Debit column of the trial balance will exceed the total of the Credit column by
$9,400.
D) The total of the Credit column of the trial balance will exceed the total of the Debit column
by $9,400.
E) The total of the Debit column of the trial balance will equal the total of the Credit column.
172) On a trial balance, if the Debit and Credit column totals are equal, then:
A) All transactions have been recorded correctly.
B) All entries from the journal have been posted to the ledger correctly.
C) All ledger account balances are correct.
D) Equal debits and credits have been recorded for transactions.
E) The balance sheet would be correct.
173) Identify which error will cause the trial balance to be out of balance.
A) A $200 cash salary payment posted as a $200 debit to Cash and a $200 credit to Salaries
Expense.
B) A $100 cash receipt from a customer in payment of her account posted as a $100 debit to
Cash and a $10 credit to Accounts Receivable.
C) A $75 cash receipt from a customer in payment of her account posted as a $75 debit to Cash
and a $75 credit to Cash.
D) A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment and a $50
credit to Cash.
E) An $800 prepayment from a customer for services to be rendered in the future was posted as
an $800 debit to Unearned Revenue and an $800 credit to Cash.
174) A $130 credit to Supplies was credited to Fees Earned by mistake. By what amounts are the
accounts under- or overstated as a result of this error?
A) Supplies, understated $130; Fees Earned, overstated $130.
B) Supplies, understated $260; Fees Earned, overstated $130.
C) Supplies, overstated $130; Fees Earned, overstated $130.
D) Supplies, overstated $130; Fees Earned, understated $130.
E) Supplies, overstated $260; Fees Earned, understated $130.
175) All of the following are asset accounts except:
A) Accounts Receivable.
B) Buildings.
C) Supplies expense.
D) Equipment.
E) Prepaid insurance.
176) Compare the list of accounts below and choose the list that contains only accounts that
would be classified as asset accounts on the Chart of Accounts.
A) Accounts Payable; Cash; Supplies.
B) Unearned Revenue; Accounts Payable; Dividends.
C) Building; Prepaid Insurance; Supplies Expense.
D) Cash; Prepaid Insurance; Equipment.
E) Notes Payable; Cash; Dividends.
177) Which financial statement reports an organization’s financial position at a single point in
time?
A) Income statement.
B) Balance sheet.
C) Statement of retained earnings.
D) Cash flow statement.
E) Trial balance.