Finance Chapter 3 An external event involves interaction between an entity and its environment.

Chapter 3: Processing Accounting Information

True / False

1. An external event involves interaction between an entity and its environment.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-01 – LO: 03-01

KEYWORDS:

Bloom’s: Remembering

2. The initial step in the recording process is posting.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

3. The issuance of stock decreases a company’s assets and increases its stockholders’ equity.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

4. Payment of a dividend decreases both cash and stockholders’ equity of the distributing business.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

5. Under the cost principle, assets are always carried at their original cost or historical cost.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

6. Every accounting transaction affects both the balance sheet and the income statement.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

7. The accounting equation must balance after each transaction.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

8. Dividends are a determinant of net income.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

9. If a company purchases equipment by issuing a note payable, its total assets will not change.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Remembering

10. A company’s chart of accounts will reflect the nature of its business.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Remembering

11. The origins of single-entry accounting were documented in a book written by Pacioli over 500 years ago. It includes

the concepts of bookkeeping that are still applied today.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Remembering

12. There is a universal chart of accounts that is applicable to all businesses.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Remembering

13. A T account for Cash cannot contain any credits.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Remembering

14. A debit entry increases assets, decreases liabilities, or decreases stockholders’ equity.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

15. The normal balance of the Dividends account is a credit.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

16. Under the double-entry system of accounting, every transaction is entered in at least two accounts on opposite sides of

T accounts.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

17. A debit is a negative entry.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

18. With few exceptions, the balance of all accounts should be on the side of the T account that causes the increase.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

19. The credit side of an account is the right side while the debit side is the left side.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

20. When making a general journal entry, there can only be one debit and one credit.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

21. Every business transaction is recorded by a debit to a balance sheet account and a credit to an income statement

account.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-06 – LO: 03-06

KEYWORDS:

Bloom’s: Remembering

22. Only events that can be measured will be reflected in the journal entries.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-01 – LO: 03-01

FACC.PONO.13.03-06 – LO: 03-06

KEYWORDS:

Bloom’s: Remembering

23. The ledgers are an example of an accounting book of original entry.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-06 – LO: 03-06

KEYWORDS:

Bloom’s: Remembering

24. The general journal is often used to record repetitive transactions.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-06 – LO: 03-06

KEYWORDS:

Bloom’s: Remembering

25. The general ledger is sometimes called the book of original entry because it is the accounting record where

transactions are first recorded.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-06 – LO: 03-06

KEYWORDS:

Bloom’s: Remembering

26. Every transaction affects equal numbers of ledger accounts and is recorded by equal dollar amounts of debits and

credits.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-06 – LO: 03-06

KEYWORDS:

Bloom’s: Remembering

27. A trial balance is the listing of each account and its balance at a specific point in time.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-07 – LO: 03-07

KEYWORDS:

Bloom’s: Remembering

28. The equality of debits and credits in a trial balance means that all entries were correctly posted to the accounts.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-07 – LO: 03-07

KEYWORDS:

Bloom’s: Remembering

29. A trial balance can be distributed to stockholders in place of the balance sheet.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-07 – LO: 03-07

KEYWORDS:

Bloom’s: Remembering

30. A trial balance that balances provides proof that all transactions were correctly journalized and posted to the ledger.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-07 – LO: 03-07

KEYWORDS:

Bloom’s: Remembering

31. All transactions refer to external events.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-01 – LO: 03-01

KEYWORDS:

Bloom’s: Remembering

32. The payment of wages to employees is an internal event.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-01 – LO: 03-01

KEYWORDS:

Bloom’s: Remembering

33. The use of equipment in a company is an external event.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-01 – LO: 03-01

KEYWORDS:

Bloom’s: Remembering

34. A source document is a record used to accumulate amounts for each individual asset, liability, revenue, expense, and

component of stockholders’ equity.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-02 – LO: 03-02

KEYWORDS:

Bloom’s: Remembering

35. Not all recognizable events are supported by a standard source document.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-02 – LO: 03-02

KEYWORDS:

Bloom’s: Remembering

36. Debits are good and credits are bad in financial terms.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Remembering

37. A trial balance is a financial statement.

a.

True

b.

False

ANSWER:

False

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-07 – LO: 03-07

KEYWORDS:

Bloom’s: Remembering

38. A trial balance can be as informal as an adding machine tape with the account titles penciled in next to the debit and

credit amounts.

a.

True

b.

False

ANSWER:

True

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-07 – LO: 03-07

KEYWORDS:

Bloom’s: Remembering

Multiple Choice

39. Which one of the following statements is true?

a.

External events (transactions) involve interactions between an entity and a party outside the entity.

b.

Every event or transaction which affects an entity is identified from a source document.

c.

All economic events can be reliably measured.

d.

The movement of raw material into production is an external event.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.02-01 – LO: 03-01

KEYWORDS:

Bloom’s: Understanding

40. Which of the following is an internal event (transaction)?

a.

Life guard salaries are paid by a swim club.

b.

Dividends are distributed to shareholders.

c.

Eggs used to make omelets in a restaurant are purchased.

d.

None of these choices.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.02-01 – LO: 03-01

KEYWORDS:

Bloom’s: Applying

41. All of the following are external events (transactions) except for

a.

a department store recognizing losses from shoplifting.

b.

a department store running ads in a local newspaper.

c.

a department store purchasing merchandise from a clothing manufacturer.

d.

a department store selling clothing to customers on credit.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.02-01 – LO: 03-01

KEYWORDS:

Bloom’s: Applying

42. Which of the following events (transactions) is an internal event for a business entity?

a.

An accountant provides services for clients.

b.

An accountant purchases computer equipment to maintain business records and prepare legal documents.

c.

An accountant receives cash payments from clients for services performed.

d.

Periodically, part of the cost of the computer equipment used by an accountant is assigned to depreciation

expenses.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.02-01 – LO: 03-01

KEYWORDS:

Bloom’s: Applying

43. All of the following events (transactions) would be identified from standard source documents except for

a.

freight charges for merchandise purchased from suppliers.

b.

the amount to be paid to settle a lawsuit for discrimination in hiring employees.

c.

wages to be paid to hourly employees.

d.

commissions earned by sales employees.

ANSWER:

b

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-02 – LO: 03-02

KEYWORDS:

Bloom’s: Applying

44. Which of the following statements is true?

a.

Only the effects of internal transactions must be recognized and recorded in the entity’s accounting system.

b.

An internal event is a transaction between an entity and its environment.

c.

Not all recognizable events are supported by a standard source document.

d.

Only the effects of external events must be recognized, measured, and recorded in an entity’s accounting

system.

ANSWER:

c

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-02 – LO: 03-02

KEYWORDS:

Bloom’s: Understanding

45. Which of the following would be a case where an event as a transaction is not supported by a source document?

a.

a purchase of inventory on credit

b.

a cash sale

c.

a credit sale

d.

None of these choices

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-02 – LO: 03-02

KEYWORDS:

Bloom’s: Understanding

46. Which of the following statements is false?

a.

Checks and deposit slips are the main source of documents backing up the bank statement.

b.

Retailers use cash register tapes to recognize sales.

c.

Stock certificates are evidence of being a creditor of the company.

d.

Time cards are used as the source of information to record wages.

ANSWER:

c

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-02 – LO: 03-02

KEYWORDS:

Bloom’s: Understanding

47. The purchase of office equipment on credit has what effect on the accounting equation?

a.

Assets increase and liabilities increase

b.

Liabilities increase and stockholders’ equity decreases.

c.

Assets decrease and stockholders’ equity decreases

d.

Assets decrease and liabilities decrease.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

48. The payment of employee salaries has what effect on the accounting equation?

a.

Assets decrease and stockholders’ equity decreases.

b.

Liabilities decrease and stockholders’ equity decreases.

c.

Assets decrease and liabilities increase.

d.

Assets increase and liabilities decrease.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

49. During November, ABC, Inc. purchased office supplies for cash. The supplies will be used in November. What effect

does this purchase transaction have on the accounting equation?

a.

Assets increase and stockholders’ equity decreases.

b.

Assets increase and liabilities increase.

c.

Assets decrease and liabilities decrease.

d.

There is no effect on the accounting equation as one asset account increases while another asset account

decreases.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

50. XYZ Corp. made cash sales to customers. What effect does this transaction have on the accounting equation?

a.

Liabilities increase and stockholders’ equity increases.

b.

There is no effect on the accounting equation as one asset account increases while another asset account

decreases.

c.

Assets increase and liabilities increase.

d.

Assets increase and stockholders’ equity increases.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

51. Blake and Ryan each invest $30,000 in a business and are given shares of stock in Jones Industries as evidence of their

ownership interests. For this transaction, identify the effect on the accounting equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decreases.

d.

Liabilities decrease and assets decrease.

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

52. A truck is purchased on credit. For this transaction, identify the effect on the accounting equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and owners’ equity increases.

c.

Liabilities increase and owners’ equity decreases.

d.

Liabilities decrease and assets decrease.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

53. Services are provided for customers who are sent bills for the amount they owe. For this transaction, identify the effect

on the accounting equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decreases.

d.

Liabilities decrease and assets decrease.

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

54. Payment is received from customers who were billed earlier for services provided for them. For this transaction,

identify the effect on the accounting equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decreases.

d.

There is no effect on the accounting equation as one asset account increases while another asset account

decreases.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

55. Payment is made for land purchased earlier on credit. For this transaction, identify the effect on the accounting

equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decrease.

d.

Liabilities decrease and assets decrease.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

56. A bill is received for electric service; the charge for the electricity is recorded, but payment will be made later. For this

transaction, identify the effect on the accounting equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decreases.

d.

Liabilities decrease and assets decrease.

ANSWER:

c

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

57. Payment is made for an electric bill which was received and recorded earlier. For this transaction, identify the effect

on the accounting equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decreases.

d.

Liabilities decrease and assets decrease.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

58. Services are provided for customers who pay for the services immediately. For this transaction, identify the effect on

the accounting equation.

a.

Assets increase and liabilities increase.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decreases.

d.

Liabilities decrease and assets decrease.

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

59. Owners of Tri-States Industries, Ralph and Maureen, are sent a dividend check from the company. For this

transaction, what is the effect on the accounting equation for Tri-States Industries?

a.

Assets decrease and stockholders’ equity decreases.

b.

Assets increase and stockholders’ equity increases.

c.

Liabilities increase and stockholders’ equity decreases.

d.

Liabilities increase and stockholders’ equity decreases.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

60. One effect on the accounting equation when a firm borrows money is

a.

stockholders’ equity decreases.

b.

assets increase.

c.

liabilities decrease.

d.

assets decrease.

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

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

a.

stockholders’ equity decreases.

b.

liabilities decrease.

c.

liabilities increase.

d.

total assets remain the same.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

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.

ANSWER:

c

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

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.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

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

a.

Revenues decrease Forman’s stockholders’ equity.

b.

Expenses decrease Marcus’ stockholders’ equity.

c.

Expenses increase Marcus’ stockholders’ equity.

d.

None of these answer choices is correct.

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

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 Horizon Sailing during the past month.

b.

Dividends are paid by Horizon Sailing.

c.

Customers are billed for sales made on credit by Horizon Sailing.

d.

A new computer is purchased on credit by Horizon Sailing.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

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 Ernest White 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 6 months ago.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

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

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

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

ANSWER:

c

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Applying

69. Given a current ratio of 5 to 3, what is the effect of paying a supplier within 30 days of the purchase?

a.

The current ratio would increase.

b.

The current ratio would decrease.

c.

The current ratio would remain the same.

d.

Unable to determine.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Analyzing

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.

Unable to determine.

ANSWER:

c

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Analyzing

Chapter 3: Processing Accounting Information

Hennigan Company

Use the five transactions for Hennigan Company described below to answer the question(s) that follow(s).

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 Company 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 Company. Payment is due from

the customers in 30 days.

31

Hennigan receives $500 in payments from the customers that were billed for

Company on December 20.

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

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Analyzing

72. Refer to the transactions for Hennigan Rentals.

Based on the October 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.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Analyzing

73. Refer to the transactions for Hennigan Rentals.

Based on the October 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.

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Analyzing

74. Refer to the transactions for Hennigan Rentals.

Based on the October 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.

d.

a debit in Accounts Receivable for $150.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Analyzing

75. 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

ANSWER:

c

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

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

a.

revenue; revenue

b.

revenue; expense

c.

expense; revenue

d.

expense; expense

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

KEYWORDS:

Bloom’s: Understanding

77. 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.

ANSWER:

b

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

FACC.PONO.13.03-05 – LO: 03-05

KEYWORDS:

Bloom’s: Analyzing

78. 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 rent for three months in advance.

c.

The entry to record accrued wages payable.

d.

The entry to record revenue earned but not yet received.

ANSWER:

a

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-03 – LO: 03-03

FACC.PONO.13.03-05 – LO: 03-05

FACC.PONO.13.03-06 – LO: 03-06

KEYWORDS:

Bloom’s: Understanding

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

numbers, which are used by a company is a(an)

a.

Account

b.

General Journal

c.

General Ledger

d.

Chart of Accounts

ANSWER:

d

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Understanding

80. 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.

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

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Analyzing

81. 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.

ANSWER:

d

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Understanding

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

and expense item is a(an)

a.

Chart of accounts

b.

General Journal

c.

General Ledger

d.

Account

ANSWER:

d

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

FACC.PONO.13.03-04 – LO: 03-04

KEYWORDS:

Bloom’s: Remembering