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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1)
Zen Hatha opened a Yoga Studio and during a short period as a dealer completed these
transactions:
(1) Started the yoga studio, Asha Yoga Studio, by investing $50,000 in cash and
equipment with a $28,000 fair value.
(2) Purchased land valued at $35,000 and a small building valued at $80,000; paid
$30,000 cash and signed a note payable, agreeing to pay the balance over a
period of years.
(3) Purchased office supplies on credit, $100.
(4) Zen Hatha contributed his personal automobile, which had a $12,000 fair value,
for exclusive use in the business.
(5) Paid the yoga instructor salary, $500.
(6) Completed monthly yoga classes for the value of $6,500 cash.
(7) Paid $650 cash for a magazine advertisement.
(8) Paid for the supplies purchased in transaction (3).
(9) Purchased new yoga mats for the business, paying $300 cash.
(10) Completed a yoga assessment and billed the client $400.
(11) Zen Hatha withdrew $200 from the business to pay personal expenses.
(12) Received payment in full for the appraisal of transaction (10).
What was the total of the debit balances shown in the trial balance prepared after these
transactions were posted? 1) A) $167,700. B) $243,620. C) $181,900. D) $152,300. E) $173,950. Answer: C
Explanation: A) B) C) D) E) 1
2)
If, on a trial balance, the total of the debits is $7,500 and the total of the credits is $7,419,
the difference could have been caused by: 2) A) Posting only one side of an entry. B) A sliding error. C) A transposition error. D) An error in copying an account balance from the ledger to the trial balance. E) All of these answers are correct. Answer: E
Explanation: A) B) C) D) E) 3)
Eli opened a new business by investing the following assets: cash, $6,000; land, $30,000;
building, $100,000. Also, the business will assume responsibility for a note payable of
$22,000. Eli signed the note as part of his payment for the land and building. Which
journal entry should be used on the books of the new business to record the investment
by Eli? 3) A)
Cash 6,000
Land 30,000
Building 100,000
Note Payable 22,000
Eli, Capital 114,000
B)
Cash 6,000
Assets 136,000
Eli, Capital 142,000
C)
Assets 136,000
Eli, Capital 136,000
D)
Cash 6,000
Land 30,000
Building 100,000
Eli, Capital 136,000
E)
Assets 136,000
Liability 22,000
Eli, Capital 114,000
2
Answer: A
Explanation: A) B) C) D) E) 4)
Green’s Book Store purchased a new automobile that cost $25,000, made a down
payment of $4,000, and signed a note payable for the balance. The entry to record this
transaction is: 4) A)
Automobile 25,000
Cash 21,000
Janfer, Capital 4,000
B)
Automobile 25,000
Cash 25,000
C)
Cash 21,000
Note Payable 4,000
Automobile 25,000
D)
Cash 25,000
Automobile 25,000
E)
Automobile 25,000
Notes Payable 21,000
Cash 4,000
Answer: E
Explanation: A) B) C) D) E) 3
5)
A simple account form widely used in accounting education to illustrate how debits and
credits work is called a: 5) A) Ledger. B) Withdrawals account. C) T-account. D) Capital account. E) Balance column account. Answer: C
Explanation: A) B) C) D) E) 6)
A place or location within an accounting system in which the increases and decreases in
a specific asset, liability, or equity item is recorded and stored is called a(n): 6) A) Journal. B) Trial balance. C) Chart of accounts. D) Account. E) Ledger. Answer: D
Explanation: A) B) C) D) E) 7) Prepaid expenses are: 7) A) Classified as liabilities on the balance sheet. B) Payments made for economic benefits that never expire. C) Always debited to an expense account. D) Generally all combined into one account called “Miscellaneous Expenses”. E) Assets created by payments for economic benefits that are not used up until later. Answer: E
Explanation: A) B) C) D) E) 4
8)
On May 31, Don Company had an Accounts Payable balance of $57,000. During the
month of June, total credits to Accounts Payable were $34,000, which resulted from
purchases on credit. The June 30 Accounts Payable balance was $32,000. What was the
amount of payments made during June? 8) A) $84,000. B) $59,000. C) $32,000. D) $34,000. E) $57,000. Answer: B
Explanation: A) B) C) D) E) 9) The accounting cycle begins with: 9) A) Presentation of financial information to decision makers. B) Posting to the ledger. C) Preparing financial statements and other reports. D) Analysis of economic events and recording their effects. E) None of these answers is correct. Answer: D
Explanation: A) B) C) D) E) 10) A journal in which transactions are first recorded is: 10) A) A ledger. B) The cash ledger. C) A book of original entry. D) A revenue account. E) A book of final entry. Answer: C
Explanation: A) B) C) D) E) 5
11) A compound journal entry is: 11) A) A journal entry involving only two ledger accounts. B) A journal entry that affects at least four accounts. C) A journal entry involving at least two accounting periods. D) A journal entry that has three or more debits and three or more credits. E) A journal entry that affects at least three accounts. Answer: E
Explanation: A) B) C) D) E) 12)
A column in journals and accounts used to cross reference journal and ledger entries is
called the: 12) A) Posting reference. B) Credit. C) Account balance. D) Description. E) Debit. Answer: A
Explanation: A) B) C) D) E) 13) Unearned revenues are: 13) A) Revenues that have been earned but not yet collected. B) Revenues that have been earned and received. C) Increases to owners’ equity. D)
Liabilities created by advance cash payments from customers for products or
services. E) Recorded as an asset in the accounting records. Answer: D
Explanation: A) B) C) D) E) 6
14)
A liability created by the receipt of cash from customers in payment for products or
services that have not yet been delivered to the customers is: 14) A) Recorded as a credit to a prepaid expense account. B) Recorded as a credit to an unearned revenue account. C) Recorded as a debit to a prepaid expense account. D) Recorded as a debit to an unearned revenue account. E) Not recorded in the accounting records. Answer: B
Explanation: A) B) C) D) E) 15) Double-entry accounting is: 15) A) An accounting system in which errors never occur. B)
An accounting system in which the sum of the debit account balances never equals
the sum of the credit account balances. C)
An accounting system that records the effects of transactions and other events in at
least two accounts with equal debits and credits. D)
An accounting system in which each transaction affects and is recorded in two or
more accounts with unequal debits and equal credits. E) An accounting system that disregards the accounting equation, A = L + E. Answer: C
Explanation: A) B) C) D) E) 16) Which of the following statements is incorrect? 16) A) The normal balance of an expense account is a credit. B) The abnormal balance of a revenue account is a debit. C) The normal balance of an unearned revenues account is a credit. D) The normal balance of the accounts receivable account is a debit. E) The normal balance of the owner’s withdrawals account is a debit. Answer: A
Explanation: A) B) C) D) E) 7
17)
A receipt of $12,600 cash from a customer as a payment on their account was incorrectly
credited to Rent Revenue. What is the effect of this error on the financial statements of
the company? 17) A) Assets are understated by $25,200 and owners’ equity is understated by $25,200. B) Assets are understated by $12,600 and owners’ equity is understated by $12,600. C) Assets are overstated by $12,600 and owners’ equity is overstated by $12,600. D) Assets are understated by $12,600 and liabilities are understated by $12,600. E) Assets are overstated by $25,200 and owners’ equity is overstated by $25,200. Answer: C
Explanation: A) B) C) D) E) 18) A book of original entry is: 18) A) Another name for the general journal. B) Also called a ledger. C) Sometimes called a book of final entry. D) Another name for the cash account. E) A book in which amounts are posted from a journal. Answer: A
Explanation: A) B) C) D) E) 19) If the Debit and Credit column totals of a trial balance are equal, then: 19) A) All ledger account balances are correct. B) All entries from the journal have been posted to the ledger correctly. C) All transactions have been recorded correctly. D) No sliding or transposition errors have been made. E) The total debit entries and total credit entries in the ledger are equal. Answer: E
Explanation: A) B) C) D) E) 8
20)
The most flexible type of journal that can be used to record any kind of transaction is
called a: 20) A) Trial balance. B) Balance column account. C) Chart of accounts. D) General Journal. E) Ledger. Answer: D
Explanation: A) B) C) D) E) 21)
On June 30, the Cash account of Lutness Company had a normal balance of $4,300.
During July the account was debited for a total of $3,400 and credited for a total of
$3,600. What was the balance in the Cash account on August 1? 21) A) $4,100 credit. B) $4,100 debit. C) $3,400 debit. D) $-0. E) $3,400 credit. Answer: B
Explanation: A) B) C) D) E) 22)
The following is a correct journal entry:
What is this journal entry recording? 22) A) An increase in an asset and an increase in a liability. B) A decrease in an asset and a decrease in owners’ equity. C) An increase in an asset and a decrease in owners’ equity. D) An increase in owners’ equity and a decrease in assets. E) An increase in an asset and an increase in owners’ equity. Answer: E
Explanation: A) B) C) D) E) 9
23)
A $15 credit to Sales was posted as a $150 credit. By what amount is Sales out of
balance? 23) A) $150 overstated. B) $135 understated. C) $135 overstated. D) $150 understated. E) $15 understated. Answer: C
Explanation: A) B) C) D) E) 24) Which of the following statements is correct? 24) A) The left side of a T-account is the credit side. B) The right side of a T-account is the debit side. C)
Entries that decrease asset and expense accounts, or increase liability, equity, and
revenue accounts are posted as debits. D) The left side of a T-account is the debit side. E) Entries that increase asset, expense, and revenue accounts are posted as debits. Answer: D
Explanation: A) B) C) D) E) 25) A credit is used to record: 25) A) An increase in a revenue account. B) A decrease in an expense account. C) A decrease in an asset account. D) An increase in an unearned revenue account. E) All of these answers are correct. Answer: E
Explanation: A) B) C) D) E) 10
26) The process of copying journal information to the ledger is called: 26) A) Posting. B) Double-entering. C) Journalizing. D) An internal business transaction. E) An external business transaction. Answer: A
Explanation: A) B) C) D) E) 27)
While in the process of posting from the journal to the ledger, the accountant of X
Company failed to post a $50 debit to the Office Supplies account. The effect of this
error will be as follows: 27) A) The trial balance will not balance. B) The error will overstate the debits listed in the journal. C) The Office Supplies account balance will be overstated. D) The total debits in the trial balance will be larger than the total credits. E) This error will not make any difference. Answer: A
Explanation: A) B) C) D) E) 28)
An asset created by a payment for economic benefits that does not expire until some later
time is: 28) A) Recorded as a credit to an unearned revenue account. B) Recorded as a debit to a prepaid expense account. C) Recorded as a credit to a prepaid expense account. D) Recorded as a debit to an unearned revenue account. E) Not recorded in the accounting records. Answer: B
Explanation: A) B) C) D) E) 11
29)
A list of all accounts used by a company, including the identification number assigned to
each account, is called a: 29) A) Journal. B) Ledger. C) Chart of accounts. D) General Journal. E) Trial balance. Answer: C
Explanation: A) B) C) D) E) 30) A balance column ledger account is: 30) A)
An account with debit and credit columns for recording entries and a third column
for showing the balance of the account after each entry is posted. B) An account used to record the transfers of assets from a business to its owner. C)
A simple form of account that is widely used in accounting education to illustrate
the debits and credits required in recording a transaction. D) An account entered on the balance sheet. E) Another name for the withdrawals account. Answer: A
Explanation: A) B) C) D) E) 31)
During the month of November, Cornish Company had cash receipts of $3,500 and paid
out $1,000 for expenses. The November 30th cash balance was $4,300. What was the
cash balance on November 1? 31) A) $4,300. B) $2,800. C) $5,800. D) $1,800. E) $7,300. Answer: D
Explanation: A) B) C) D) E) 12
32) A record of all accounts used by a business is called a: 32) A) Ledger. B) Trial balance. C) General Journal. D) Journal. E) Book of original entry. Answer: A
Explanation: A) B) C) D) E) 33) In which of the following situations would the trial balance not balance? 33) A) $50 cash receipt for the performance of a service was not recorded. B)
The payment of a $750 account payable was posted as a debit to Accounts Payable
and a debit to Cash for $750. C)
The purchase of office supplies on account for $3,250 was incorrectly recorded in
the journal as $2,350. D)
A $1,000 collection of an account receivable was incorrectly posted as a debit to
Accounts Receivable and a credit to Cash. E)
The purchase of office equipment for $1,200 was posted as a debit to Office
Supplies. Answer: B
Explanation: A) B) C) D) E) 34) A ledger is: 34) A) A journal in which transactions are first recorded. B) A book of final entry. C)
A book in which a complete record of transactions is recorded and from which
transaction amounts are posted to the accounts. D) Another name for the bank account. E) A book of original entry. Answer: B
Explanation: A) B) C) D) E) 13
35)
An unconditional written promise to pay a definite sum of money on demand or on a
defined future date (or dates) is a(n): 35) A) Unearned revenue. B) Account payable. C) Prepaid expense. D) Account receivable. E) Promissory note. Answer: E
Explanation: A) B) C) D) E) 36) A debit entry: 36) A) Increases the owner’s withdrawals account. B) Increases asset and expense accounts. C) Decreases liability and equity accounts. D) Decreases revenue accounts. E) All of these answers are correct. Answer: E
Explanation: A) B) C) D) E) 37) A debit is used to record: 37) A) A decrease in an asset account. B) An increase in an asset account. C) A decrease in the withdrawals account. D) An increase in a liability account. E) An increase in a revenue account. Answer: B
Explanation: A) B) C) D) E) 14
38)
The purchase on credit of a delivery truck for $9,600 was posted to Delivery Trucks as a
$9,600 debit and to Rent Expense as a $9,600 debit. What effect would this error have
on the trial balance? 38) A)
The total of the Debit column of the trial balance will exceed the total of the Credit
column by $19,200. B)
The total of the Credit column of the trial balance will exceed the total of the Debit
column by $9,600. C)
The total of the Credit column of the trial balance will exceed the total of the Debit
column by $19,200. D)
The total of the Debit column of the trial balance will equal the total of the Credit
column. E)
The total of the Debit column of the trial balance will exceed the total of the Credit
column by $9,600. Answer: A
Explanation: A) B) C) D) E) 39)
If Girard Don, the owner of Girard’s Software proprietorship, uses cash of the business to
purchase a personal computer, the business should record this use of cash with an entry
to: 39) A) Debit Cash and credit Girard Don, Withdrawals. B) Debit Salary Expense and credit Cash. C) Debit Girard Don, Withdrawals and credit Cash. D) Debit Girard Don, Salary and credit Cash. E) Debit Girard Don, Capital and credit Cash. Answer: C
Explanation: A) B) C) D) E) 40) The process of transferring data from the general journal to the general ledger is called: 40) A) Journalizing. B) Posting. C) Analyzing. D) Ledgerizing. E) Recording. Answer: B
Explanation: A) B) C) D) E) 15
41)
On March 2, 2015, Lang Company provided snow removal services to a customer for
$1,000 cash. What is the impact of this transaction on the net assets of Lang? 41) A) No impact. B) Decrease of $1,000. C) Increase of $2,000. D) Decrease of $2,000. E) Increase of $1,000. Answer: E
Explanation: A) B) C) D) E) 42)
Jelly’s Grocery Store showed the following account balances at the end of 2015:
Cash $32,000
Accounts receivable 39,000
Accounts payable 27,000
Revenue 51,000
Rent expense 2,000
Insurance expense 13,600
Salary expense 8,000
Supplies 25,000
Jelly, capital 49,600
Jelly, withdrawals 8,000
If all of the accounts have normal balances, what are the totals for the trial balance? 42) A) $86,000. B) $186,600. C) $119,600. D) $127,600. E) $255,500. Answer: D
Explanation: A) B) C) D) E) 16
43)
An account used to record the owner’s investments in the business plus any more or less
permanent changes in the equity is called a(n): 43) A) Asset account. B) Expense account. C) Revenue account. D) Withdrawals account. E) Capital account. Answer: E
Explanation: A) B) C) D) E) 44)
A summary of the ledger that lists the accounts and their balances, in which the total
debit balances should equal the total credit balances, is called a(n): 44) A) Trial balance. B) Account balance. C) General Journal. D) Chart of accounts. E) Ledger. Answer: A
Explanation: A) B) C) D) E) 45)
Of the following errors, which one by itself will cause the trial balance to be out of
balance? 45) A)
A $50 cash purchase of office supplies posted as a $50 debit to Office Equipment
and a $50 credit to Cash. B)
A $200 salary payment posted as a $200 debit to Cash and a $200 credit to Salaries
Expense. C)
A $75 receipt from a customer in payment of his account posted as a $75 debit to
Cash and a $75 credit to Cash. D)
A $100 receipt from a customer in payment of his account posted as a $100 debit to
Cash and a $10 credit to Accounts Receivable. E) All of these errors will cause the trial balance to be out of balance. Answer: D
Explanation: A) B) C) D) E) 17
46) Which of the following statements is true? 46) A) The trial balance is never used to prepare financial statements. B) The trial balance is a list of the accounts in the general ledger. C) Another name for the trial balance is the “chart of accounts”. D) The trial balance is a list of all the accounts in the journal. E) A trial balance is only prepared at year end. Answer: B
Explanation: A) B) C) D) E) 47) What types of account balances are increased by credits? 47) A) Revenues and expenses. B) Liabilities and expenses. C) Owners’ equity and expenses. D) Assets and Liabilities. E) Liabilities and revenues. Answer: E
Explanation: A) B) C) D) E) 48)
The following transactions occurred during July for Hurley Services:
(1) Received $800 cash for photography services provided to customer during the
month.
(2) Received $500 cash from Barbara Blanc, the owner of the business.
(3) Received $300 from a customer in partial payment of his account receivable
which arose as a result of sales during June.
(4) Rendered photography services to a customer on credit, $1,500.
(5) Borrowed $800 from the bank by signing a promissory note.
(6) Received $500 from a customer in payment for services to be rendered next year.
How much revenue was earned in July? 48) A) $1,200. B) $7,000. C) $2,300. D) $5,500. E) $2,800. Answer: C
Explanation: A) B) C) D) E) 18
