The Accounting Information System
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Ex. 253
The accounts in the ledger of Dependable Delivery Service contain the following balances on July
31, 2017.
Accounts Receivable
$16,400
Prepaid Insurance
$ 1,800
Accounts Payable
12,400
Maintenance and Repairs Expense
1,200
Cash
?
Service Revenue
13,500
Equipment
59,360
Dividends
800
Gasoline Expense
950
Common Stock
50,000
Insurance Expense
600
Salaries and Wages Expense
6,400
Notes Payable, due 2020
28,450
Salaries and Wages Payable
900
Retained Earnings
5,200
(July 1, 2017)
Instructions
Prepare a trial balance with the accounts arranged as illustrated in the chapter, and fill in the
missing amount for Cash.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
3-78
Ex. 254
The trial balance of the Gavin Company shown below does not balance.
GAVIN COMPANY
Trial Balance
June 30, 2017
____________________________________________________________________________
Debit Credit
Cash …………………………………………………………………………………. $ 5,600
Accounts Receivable …………………………………………………………… 7,600
Supplies …………………………..……………………………………………….. 600
Equipment …………………………………………………………………………. 8,300
Accounts Payable ……………………………………………………………….. $ 12,766
Common Stock …………………………………………………………………… 1,941
Dividends ………………………………………………………………………….. 1,500
Service Revenue ………………………………………………………………… 15,200
Salaries and Wages Expense ……………………………………………….. 3,800
Maintenance and Repairs Expense ……………………………………….. 1,600
Totals ………………………………………………………………………… $29,000 $29,907
An examination of the ledger and journal reveals the following errors:
1. Each of the above listed accounts has a normal balance per the general ledger.
2. Cash of $350 received from a customer on account was debited to Cash $530 and credited to
Accounts Receivable $530.
3. Dividends of $300 paid to stockholders were posted as a credit to Dividends, $300, and a
credit to Cash $300.
4. Salaries and Wages Expense of $300 was omitted from the trial balance.
5. The purchase of equipment on account for $700 was recorded as a debit to Maintenance and
Repairs Expense and a credit to Accounts Payable for $700.
6. Services were performed on account for a customer, $510, for which Accounts Receivable
was debited $510 and Service Revenue was credited $51.
7. A payment on account for $215 was credited to Cash for $215 and credited to Accounts
Payable for $251.
Instructions
Prepare a correct trial balance.
The Accounting Information System
FOR INSTRUCTOR USE ONLY
3-79
Ex. 255
Some of the following errors would cause the debit and credit columns of the trial balance to have
unequal totals. For each of the four cases, state whether the error would cause unequal totals in
the trial balance. If the error causes unequal totals, indicate the amount of difference between the
columns and state whether the debit or credit is larger. Each case is to be considered
independently of the others.
1. A payment of $700 to a creditor was recorded by a debit to Accounts Payable of $70 and a
credit to Cash of $700.
2. A $340 payment for a printer was recorded by a debit to Equipment of $34 and a credit to
Cash for $34.
3. An account receivable in the amount of $2,000 was collected in full. The collection was
recorded by a debit to Cash for $2,000 and a debit to Accounts Payable for $2,000.
4. An account payable was paid by issuing a check for $800. The payment was recorded by
debiting Accounts Payable $800 and crediting Accounts Receivable $800.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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Ex. 256
Some of the following errors would cause the debit and credit columns of the trial balance to have
unequal totals. For each of the four cases, state whether the error would cause unequal totals in
the trial balance. If the error causes unequal totals, indicate the amount of difference between the
columns and state whether the debit or credit is larger. Each case is to be considered
independently of the others.
1. A collection on account of $400 was journalized and posted as a debit to Cash $400 and a
credit to Service Revenue $400.
2. A $950 purchase of supplies on account was recorded as a debit of $950 to Equipment and a
credit of $950 to Accounts Payable.
3. A purchase of equipment for $3,500 on account was not recorded.
4. A $270 receipt on account was recorded as a $720 debit to Cash and a $270 credit to
Accounts Receivable.
Ex. 257
Sue Sloan and Associates is a financial planning service. The account balances at December 31,
2017 are shown by the following alphabetical list:
Accounts Payable $34,000
Accounts Receivable 16,000
Buildings 120,000
Cash 24,500
Common Stock 167,700
Equipment 79,300
Land 47,000
Notes Payable 95,000
Notes Receivable 9,100
Supplies 800
Instructions
Prepare a trial balance with the accounts arranged in financial statement order.
The Accounting Information System
FOR INSTRUCTOR USE ONLY
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Ex. 258
The ledger accounts of the Get Fit Gym at July 31, 2017 are shown below:
Accounts Payable $ 12,100
Accounts Receivable 1,050
Buildings 55,400
Common Stock 65,100
Cash 9,000
Equipment 45,900
Notes Payable 45,000
Supplies 350
Dividends 10,500
Instructions
Prepare a trial balance with the ledger accounts arranged in the proper financial statement order.
Include the appropriate heading.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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COMPLETION STATEMENTS
259. An _______________ is an individual accounting record of increases and decreases in
specific assets, liabilities, and stockholders’ equity items.
260. The act of entering an amount on the left side of an account is called _______________
the account, and making an entry on the right side is called _________________ the
account.
261. _____________, ______________, and _______________ have debit normal account
balances whereas _______________, ______________, ______________, and
________________ have credit normal account balances.
262. The five subdivisions of stockholders’ equity are ______________, _______________,
_________________, __________________, and _________________.
263. The basic steps in the recording process are: _______________ each transaction, enter
the transaction in a ______________, and transfer the _______________ information to
appropriate accounts in the ________________.
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FOR INSTRUCTOR USE ONLY
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264. A sales slip, a check, and a cash register tape are examples of ________________ used
as evidence that a transaction has taken place.
265. An accounting record where transactions are initially recorded in chronological order is
called a ________________.
266. Posting is the procedure of transferring journal entries to ________________.
267. The entire group of accounts and their balances maintained by a company is called the
________________.
268. A two column list of all accounts and their balances at a given time is a ______________.
Answers to Completion Statements
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-84
MATCHING
269. Match the items below by entering the appropriate code letter in the space provided.
A. Account F. Journal
B. Normal account balance G. Posting
C. Debit H. Chart of accounts
D. Revenue account I. Trial balance
E. Ledger J. Source document
____ 1. The entire group of accounts maintained by a company.
____ 2. Transferring journal entries to ledger accounts.
____ 3. The side which increases an account.
____ 4. A list of all the accounts used by a company.
____ 5. An accounting record of increases and decreases in specific assets, liabilities, and
stockholders’ equity items.
____ 6. Left side of an account.
____ 7. Evidence that a transaction has taken place.
____ 8. Shows the debit and credit effects of specific transactions.
____ 9. A list of accounts and their balances at a given time.
____ 10. Has a credit normal balance
The Accounting Information System
FOR INSTRUCTOR USE ONLY
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SHORT-ANSWER ESSAY QUESTIONS
S-A E 270
Describe the accounting information system and the steps in the recording process.
S-A E 271
A student is considering dropping his accounting class because he cannot understand the rules
of debits and credits.
Can the student be successful in the course without an understanding of the rules of debits and
credits? Explain the rules of debits and credits in a way that will help him understand them.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-86
Solution 271 (Cont.)
S-A E 272
During a study session, a classmate states that it is not necessary to make journal entries and
then post them to the ledger. She states that it is sufficient to analyze the transaction and simply
record the information in T-accounts.
What is your response to this statement? Be brief, yet concise.
S-A E 273
An account is an important accounting record where financial information is stored until needed.
Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the
manner in which an account is increased and decreased and its normal balance.
The Accounting Information System
FOR INSTRUCTOR USE ONLY
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S-A E 274
Why is the Dividends account increased by a debit? Explain in terms of its relationship to
stockholders’ equity.
S-A E 275
Steve Rondelli, a fellow student, contends that the double-entry system means each transaction
must be recorded twice. Is Steve correct? Explain.
S-A E 276
(a) Can accounting transaction debits and credits be recorded directly in the ledger accounts?
(b) What are the advantages of first recording transactions in the journal and then posting to the
ledger?
S-A E 277
Describe the process of preparing a trial balance. What is the purpose of preparing a trial
balance? If a trial balance does not balance, identify what might be the reasons why it does not
balance. If the trial balance does balance, does that insure that the ledger accounts are correct?
Explain.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
FOR INSTRUCTOR USE ONLY
3-88
S-A E 278 (Ethics)
Robert Harder, Jr. was appointed the manager of Westbrook Properties, a recently formed
company that manages residential rental properties. Maria Valdez is the accountant. She
prepared a chart of accounts based on an analysis of the expenditures of the company. One of
the largest expense categories is Travel and Entertainment. Mr. Harder believes that it is
important to maintain a presence in the social life of the city. In this, he sharply differs from his
father, Robert Harder, Sr. the elder Mr. Harder has set up Westbrook Properties in order to test
his son’s management skills before allowing him to manage a more lucrative commercial property
business. Mr. Harder, Sr. provided the capital for Westbrook, and maintains close contact with the
company. He allowed his son, however, to hire his own employees.
Mr. Harder has asked Ms. Valdez to name the Travel and Entertainment account Property
Development. He hopes to deflect his father’s attention away from the amount he has spent on
travel and entertainment until he has proven that his methods work. When Ms. Valdez resisted,
he reminded her that he, not his father, hired her. He also reminded her that she had been
enthusiastic about his business plans when she was hired.
Required:
1. Who are the stakeholders in this situation?
2. Should Ms. Valdez agree to the change in the Travel and Entertainment account to Property
Development? Explain.
The Accounting Information System
FOR INSTRUCTOR USE ONLY
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S-A E 279 (Communication)
The following trial balance was obtained from Gentry Company‘s computer system.
RPT TR BAL
DPT ACC MGR
PRIORITY 2
RUN BY R.HAMES
SEQUENCE 997411
ACCOUNT BAL
CASH 18700
SUPPLIES 5600
ACC PAY 7500–
NOTE PAY 1200–
COMMON STOCK 10000-
DIVIDENDS 500
SERVICE REVENUE 11000-
SAL AND WAG EXP 3500
RENT EXP 900
OTHER EXP 500
BAL 0
***TRIAL BALANCE IS IN BALANCE***
Required:
1. What features make this trial balance difficult to read?
2. Prepare an improved trial balance.
Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
3-90
IFRS QUESTIONS
1. Which of the following are the same under both GAAP and IFRS?
a. The account.
b. Debit and credit rules.
c. Steps in the recording process.
d. All of these answer choices are correct.
2. Which of the following are the same under both GAAP and IFRS?
a. The journal.
b. The ledger.
c. The chart of accounts.
d. All of these answer choices are correct.
3. Which of the following is true?
a. Transaction analysis is completely different under IFRS and GAAP.
b. Most transaction are recorded differently under IFRS and GAAP.
c. Transaction analysis is the same under IFRS and GAAP, but some transactions are
recorded differently.
d. All transaction are recorded the same under IFRS and GAAP.
4. European companies rely
a. less on historical cost and more on fair values than U.S companies.
b. less on fair values and more on historical cost than U.S companies.
c. completely on fair values for financial reporting.
d. completely on historical cost for financial reporting.
5. The double-entry accounting system is the basis of accounting systems
a. worldwide.
b. worldwide, except for the U.S.
c. in the U.S. only
d. neither internationally nor in the U.S.
6. Under IFRS, the trial balance
a. follows the same format as under GAAP.
b. shows credits on the left and debits on the right.
c. include less accounts than under GAAP.
d. include more accounts than under GAAP.
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7. Which of the following statements is true regarding the recording process?
a. Because IFRS (International Financial Reporting Standards) rely more on fair value
and less on historical cost than U.S. GAAP, the double-entry accounting system is not
widely used by companies who use IFRS.
b. Both IFRS (International Financial Reporting Standards) and U.S. GAAP use the
same general rules of debits and credits and the steps in the recording process.
c. A trial balance using IFRS (International Financial Reporting Standards) is organized
by first showing the accounts from the statement of financial position followed by
accounts from the income statement; a trial balance using U.S. GAAP is organized
using the opposite order.
d. All of these answer choices are correct.
8. Under U.S. GAAP
a. currency signs are generally used in the journal, ledger, trial balance, and financial
statements.
b. Sshare Capital – Ordinary is referred to as Retained Earnings.
c. the statement of financial position is often called the statement of changes in financial
position.
d. the rules of debits and credits, and the steps in the recording process are the same as
under IFRS (International Financial Reporting Standards).