3-14
Vocabulary Quiz Name _______________
Chapter 3
1. The group of accounts maintained by a company.
2. A list of a company’s accounts.
3. The procedure of entering transaction data in the journal.
4. Events that require recording in the financial statements because
they involve affect assets, liabilities, or stockholders’ equity.
5. An accounting record in which transactions are initially recorded in
chronological order.
6. An individual accounting record of increases and decreases in a
specific asset, liability, and stockholders’ equity items.
7. A system that records the dual effect of each transaction in
appropriate accounts.
8. The procedure of transferring journal entries to the ledger accounts.
9. The left side of an account.
10. A list of accounts and their balances at a given time.
3-15
Solutions to Vocabulary Quiz
Chapter 3
1. Ledger
3-16
Multiple Choice Name _______________
Chapter 3
1. The process of identifying the specific effects of economic events on the accounting
equation is referred to as:
a. posting.
b. transaction analysis.
c. journalizing.
d. balancing.
2. When cash is received before services have been performed, which accounts are
increased?
a. cash and service revenue.
b. cash and prepaid accounts receivable.
c. cash and unearned revenue.
d. unearned revenue and service revenue.
3. Dividends are:
a. recorded on the income statement.
b. recorded as assets.
c. increased with a credit.
d. decreases on the retained earnings statement.
4. Items such as a sales slip, a check, a bill, or a cash register tape are examples of:
a. balance sheet accounts.
b. income statement accounts.
c. cost of goods sold.
d. source documents.
5. The process of entering transaction data into the journal is called:
a. posting.
b. journalizing.
c. balancing.
d. none of the above.
6. Which of the following is not a contribution of the general journal to the recording
process?
a. The determination of net income.
b. It discloses in one place the complete effect of a transaction.
c. It provides a chronological record of transactions.
d. It helps to prevent or locate errors because the debit and credit amounts for each
entry can be readily compared.
3-17
7. The basic steps in the recording process are:
a. Analyze the transaction, enter the transaction in the journal, and transfer the
information to the general ledger.
b. Enter the transaction in the journal, analyze the transaction, and transfer the
information to the general ledger.
c. Analyze the transaction, enter the transaction in the financial statements, and
enter the transaction in the journal.
d. None of the above.
8. All of the following accounts have debit balances with the exception of:
a. cash
b. wages expense.
c. unearned advertising fees.
d. prepaid insurance.
9. All of the following accounts would have credit balances with the exception of:
a. accounts payable.
b. notes payable.
c. unearned advertising fees.
d. dividends.
10. Which of the following mistakes will a trial balance most likely detect?
a. A transaction is not journalized.
b. A debit balance is recorded as a credit balance.
c. A journal entry is posted twice.
d. Incorrect accounts are used in journalizing or posting.
3-18
Answers to Multiple Choice
Chapter 3
1. b
3-19
Exercise 1 – World Wide Web Accounting Research Activity
Chapter 3
In the first three chapters of your text the authors provide examples of financial statements
found in an annual report and discuss other elements of an annual report. To learn more about
annual reports go to http://www.ibm.com/, click on Investors under Information for, Annual
Report , and How to Read Annual Reports
1. What is an annual report?
2. List and summarize the four SEC-required elements of an annual report?
3-20
Exercise 2 – World Wide Web and Accounting History Research Activity
Chapter 3
Luca Pacioli, “the Father of Accounting” was a Franciscan Monk and a contemporary of
Leonardo da Vinci. Research the history of accounting in your school library on the internet.
Use the information you find to answer the following questions.
1. How old is Accounting?
2. Who was Marion the Sumerian and what was his contribution to accounting?
3. Who was Amatino Manucci?
4. What is the name of the book Pacioli wrote?
5. Who was the first Auditor?
6. Who was William Cooper and how did he contribute to the accounting profession?
3-21
Exercise 3 – Mechanics of Accounting Activity
Chapter 3
Refer to the loan application prepared for your business in Campus Town USA in Exercises 3
of Chapters 1 and 2. Prepare journal entries, post to the general ledger, and prepare a trial
balance to support the financial statements prepared earlier.
What are some source documents that will support your transactions?
3-22
Exercise 4 – World Wide Web and Ethics Activity
Chapter 3
In response to what happened to MF Global Holdings Ltd., which was featured in the opening
vignette, go to your Internet browser and search for information about the “Corzine rule.”
Who is the securities regulator that approved this rule?
What are major elements of this rule?
What other brokerage firm had a similar problem as MF Global?
Why is it named the “Corzine rule?” What elected positions has Jon Corzine held?
3-23
Exercise 5 – Financial Statement Analysis Activity
Chapter 3
An “Investor Perspective” in Chapter 3 of your text shows the major revenue and expense
accounts of the Chicago Cubs baseball team.
1. Considering the huge increase in professional baseball players’ salaries in the last
decade, what do you think has happened to total expenses and net income of
professional baseball teams?
2. If net income has not decreased, what has been done to offset the higher salaries?
3. Do you think an increase in the selling price of tickets is appropriate considering the fact
that baseball is considered “America’s national pastime?”
4. You can meet some of the African-American baseball stars who played their greatest
years on Negro League teams at http://www.blackbaseball.com/. What do you think
these players, who helped develop baseball the exciting, skilled game that attracts
worldwide attention, would think of today’s ticket prices?
Solutions:
1. The increase in professional baseball players’ salaries has undoubtedly
increased total expenses significantly. Considering the prices paid for
3-24
Exercise 6 – Financial Statement Analysis and Mechanics of Accounting Activity
(Group Activity)
Chapter 3
Forrest Green opened Green Landscaping Service after graduating from the local university.
Forrest deposited money his grandfather had given him as a graduation gift in the name of the
business. Immediately after making the deposit, Forrest’s friend, an accounting major, told him
the Balance Sheet for Green Landscaping would look as follows:
Green Landscaping Service
Balance Sheet
June 1, 201X
Assets
Cash $10,000
After a month of operations, Forrest’s friend again helped him with a balance sheet. The
balance sheet for Green Landscaping Service on June 30, 201X is as follows:
Green Landscaping Service
Balance Sheet
June 30, 201X
Assets
Cash $ 5,000
Accounts receivable 2,200
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable 2,500
3-25
Exercise 6 – Financial Statement Analysis and Mechanics of Accounting
(Continued)
Chapter 3
Forrest’s grandfather is coming for a visit soon. Wanting to be prepared for his visit, Forrest
has asked the accounting friend for an explanation of the difference between the two balance
sheets. The only thing Forrest can recall is that he has had cash sales totaling $3,200. Help
Forrest and his friend by providing an explanation of the numerical differences and the events
that have taken place between the balance sheet dates.
Solution:
1. Paid $2,500 down and borrowed $10,000 from the bank for a truck costing
$12,500.
3-26
Exercise 7 – World Wide Web Accounting Careers Activity
Chapter 3
Your accounting professor frequently mentions individuals in your community who are CMAs.
Although you hesitate to ask the professor what a CMA is, you are curious. To learn more
about the CMA certification, go to http://www.imanet.org.
Using information gleaned from the Web, answer the following questions.
1. The acronym CMA is formed from the initials of what professional accounting
certification?
2. What is a CMA?
3. What are the objectives of the CMA Program?
4. What are the requirements for attaining and holding the CMA certification?
5. What subject areas are covered on the CMA Exam?
6. What four areas are covered in the Standards of Ethical Conduct for Management
Accountants?