Question 1

Wisconsin Rentals purchased office supplies on credit.The journal entry made by Wisconsin Rentals to record this transaction will include a:
A) Debit to Accounts Payable.
B) Debit to Accounts Receivable.
C) Credit to Cash.
D) Credit to Accounts Payable.
E) Credit to Retained Earnings.

Accepted Answer

Purchasing office supplies on credit means that Wisconsin Rentals owes money to the supplier, which is recorded as an increase in the Accounts Payable account. The journal entry will therefore include a credit to Accounts Payable, reflecting the liability that Wisconsin Rentals has incurred. Neither Accounts Receivable nor Retained Earnings are applicable in this scenario, and there is no cash involved in the transaction at this stage.

Question 2

Which of the following statements 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 higher assets.
D) The debt ratio is one measure of financial risk.
E) Lower financial leverage involves lower risk.

Accepted Answer

This statement is incorrect because having higher assets does not necessarily lead to higher risk. Risk is determined by the relationship between assets and liabilities, as well as other factors such as market conditions and the company's operations.

Question 3

The debt ratio is used:
A) To measure the amount of equity relative to the expenses.
B) To reflect the risk associated with a company's debts.
C) Only by banks when a business applies for a loan.
D) To determine how much debt a firm should pay off.
E) To determine who a company owes.

Accepted Answer

The debt ratio is a financial ratio that measures the proportion of a company's total debt to its total assets. This ratio reflects the risk associated with a company's debts, as a higher debt ratio indicates that a larger portion of the company's assets are financed by debt, which can make the company more vulnerable to economic downturns or changes in interest rates.

Question 4

A credit entry:
A) Increases asset and expense accounts and decreases liability, common stock, and revenue accounts.
B) Is always a decrease in an account.
C) Decreases asset and expense accounts and increases liability, common stock, and revenue accounts.
D) Is recorded on the left side of a T-account.
E) Is always an increase in an account.

Accepted Answer

A credit entry decreases asset and expense accounts, and increases liability, common stock, and revenue accounts. This is in accordance with the double-entry accounting system where debits and credits must balance.

Question 5

Management Services,Inc.provides services to clients.On May 1,a client prepaid Management Services $60,000 for a six-month contract in advance.Management Services' journal entry to record this transaction will include a:
A) Debit to Unearned Management Fees for $60,000.
B) Credit to Management Fees Earned for $60,000.
C) Credit to Cash for $60,000.
D) Credit to Unearned Management Fees for $60,000.
E) Debit to Management Fees Earned for $60,000.

Accepted Answer

When a client prepays for services, the revenue is initially recorded as unearned because the services have not been provided yet. Therefore, the journal entry to record the transaction will include a credit to Unearned Management Fees for $60,000, which reflects the liability owed to the client. There is no credit to Management Fees Earned yet, as the services have not been provided. The entry also includes a debit to Cash for $60,000, reflecting the payment received.

Question 6

An account balance is:
A) The total of the credit side of the account.
B) The total of the debit side of the account.
C) The difference between the total debits and total credits for an account including the beginning balance.
D) Assets = Liabilities + Equity
E) Always a credit.

Accepted Answer

An account balance is the difference between the total debits and total credits for an account including the beginning balance.

Question 7

Stride Rite has total assets of $425 million.Its total liabilities are $110 million.Its equity is $315 million.Calculate the debt ratio.
A) 38.6%
B) 13.4%
C) 34.9%
D) 25.9%
E) 14.9%

Accepted Answer

$110/$425 = 25.9%

Question 8

An asset created by prepayment of an expense is:
A) Recorded as a debit to an unearned revenue account.
B) Recorded as a debit to a prepaid expense account.
C) Recorded as a credit to an unearned revenue account.
D) Recorded as a credit to a prepaid expense account.
E) Not recorded in the accounting records until the earnings process is complete.

Accepted Answer

When an expense is prepaid, it is recorded as a debit to a prepaid expense account because the cash has already been spent to prepay the expense. This allows the expense to be recognized over the period in which it benefits the company, rather than all at once.

Question 9

A company has total liabilities of $550 million and total equity of $300 million.Calculate this company's debt ratio.
A) 64.7%
B) 100%
C) 54.5%
D) 1.83 to 1
E) The debt ratio cannot be determined without additional information.

Accepted Answer

$550/($550 + $300) = 64.7%

Question 10

The following transactions occurred during July:
A.Received $900 cash for services provided to a customer during July.
B.Received $2,200 cash investment from Barbara Hanson,the owner of the business.
C.Received $750 from a customer in partial payment of his account receivable,which arose from sales in June.
D.Provided services to a customer on credit,$375.
E.Signed a promissory note for a $6,000 bank loan.
F.Received $1,250 cash from a customer for services to be rendered next year.
What was the amount of revenue for July?
A) $900
B) $1,275
C) $2,525
D) $3,275
E) $11,100

Accepted Answer

900 + 375 = 1,275

Question 11

Robert Haddon contributed $70,000 in cash and some land worth $130,000 to open a new business,RH Consulting.Which of the following general journal entries will RH Consulting make to record this transaction?
A) $\begin{array}{|l|c|c|}
\hline \text { Assets } & 200,000 & \
\hline \text { Common Stock } & & 200,000 \
\hline
\end{array}$ 
B) $\begin{array}{|c|c|c|}
\hline \text { Cash and Land } & 200,000 & \
\hline \text { Common Stock } & & 200,000 \
\hline
\end{array}$ 
C) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 70,000 & \
\hline \text { Land } & 130,000 & \
\hline \text { Common Stack } & & 200,000 \
\hline
\end{array}$$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Common Stack } & 200,000 & \
\hline \text { Cash } & & 70,000 \
\hline \text { Land } & & 130,000 \
\hline
\end{array}$$
E) $$\begin{array} { | c | r | r | } 
\hline \text { Common Stock } & 200,000 & \
\hline \text { Assets } & & 200,000 \
\hline
\end{array}$$

Accepted Answer

The correct entry is to debit Cash for $70,000, debit Land for $130,000, and credit Common Stock for $200,000. This entry records the receipt of the cash and land from Robert Haddon and the issuance of common stock to him.

Question 12

During the month of February,Hoffer Company had cash receipts of $7,500 and cash disbursements of $8,600.The February 28 cash balance was $1,800.What was the January 31 beginning cash balance?
A) $700
B) $1,100
C) $2,900
D) $0
E) $4,300

Accepted Answer

Beginning balance + $7,500 - $8,600 = $1,800
Beginning balance = $2,900

Question 13

These transactions were completed by the art gallery opened by Zed Bennett.
A.Bennett started the gallery,Artery,by investing $40,000 cash and equipment valued at $18,000 in exchange for common stock.
B.Purchased $70 of office supplies on credit.
C.Paid $1,200 cash for the receptionist's salary.
D.Sold a painting for an artist and collected a $4,500 cash commission on the sale.
E.Completed an art appraisal and billed the client $200.
What was the balance of the cash account after these transactions were posted?
A) $12,230
B) $12,430
C) $43,300
D) $43,430
E) $61,430

Accepted Answer

$40,000 - $1,200 + $4,500 = $43,300

Question 14

Double-entry accounting is an accounting system:
A) That records each transaction twice.
B) That records the effects of transactions and other events in at least two accounts with equal debits and credits.
C) In which the impact of each transaction is checked twice to ensure there are no errors.
D) That may only be used if T-accounts are used.
E) That records the effects of transactions on at least two financial statements.

Accepted Answer

Double-entry accounting is an accounting system that records the effects of transactions and other events in at least two accounts with equal debits and credits, ensuring that the accounting equation always remains in balance. This system provides a more accurate picture of a company's financial position and ensures that errors are less likely to occur.

Question 15

Rocky Industries received its telephone bill in the amount of $300 and immediately paid it.Rocky's journal entry to record this transaction will include a
A) Debit to Telephone Expense for $300.
B) Credit to Accounts Payable for $300.
C) Debit to Cash for $300.
D) Credit to Telephone Expense for $300.
E) Debit to Accounts Payable for $300.

Accepted Answer

The answer of Rocky Industries received its telephone bill in...

Question 16

Which of the following is a true statement regarding debits and credits?
A) If a company earned a profit, debits will not equal credits.
B) For a business, debits are better than credits.
C) A company's books are not in balance if they have a current period loss.
D) Assets and expenses are both increased with a debit.
E) Liabilities and equity are both increased with a debit.

Accepted Answer

Assets and expenses are increased with a debit, while liabilities, equity, and revenue are increased with a credit. The other statements are false.

Question 17

Of the following accounts,the one that normally has a credit balance is:
A) Cash
B) Office Equipment
C) Sales Salaries Payable
D) Dividends
E) Sales Salaries Expense

Accepted Answer

Sales Salaries Payable is a liability account, indicating an amount owed by the company to its employees. Liabilities have credit balances, so the answer is C.

Question 18

Which of the following formulas can be 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

Accepted Answer

The debt ratio is calculated by dividing the total liabilities by the total assets, giving you an indication of how much of the company's assets are financed through debt. A higher ratio means the company has more debt relative to its assets, while a lower ratio indicates less debt and more equity financing.

Question 19

Which of the following statements is false with regard to the debt ratio?
A) It is of use to both internal and external users of accounting information.
B) A relatively high ratio is always desirable.
C) The dividing line for a high and low ratio varies from industry to industry.
D) Many factors such as the company's age, stability, profitability, and cash flow influence the determination of what would be interpreted as a high versus a low ratio.
E) The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.

Accepted Answer

A relatively high debt ratio is not always desirable as it indicates that the company is heavily reliant on debt financing, which can be risky if the company is unable to meet its debt obligations. A lower debt ratio is generally considered more favorable as it indicates a lower level of financial risk.

Question 20

A debit is used to record:
A) A decrease in an asset account.
B) A decrease in an expense account.
C) An increase in a revenue account.
D) An increase in the balance of common stock.
E) A decrease in the balance of retained earnings.

Accepted Answer

The answer of A debit is used to record:
A) A...

Quiz 2: Analyzing and Recording Transactions

Wisconsin Rentals purchased office supplies on credit.The journal entry made by Wisconsin Rentals to record this transaction will include a:

Which of the following statements is incorrect?

The debt ratio is used:

A credit entry:

Management Services,Inc.provides services to clients.On May 1,a client prepaid Management Services $60,000 for a six-month contract in advance.Management Services' journal entry to record this transaction will include a:

An account balance is:

Stride Rite has total assets of $425 million.Its total liabilities are $110 million.Its equity is $315 million.Calculate the debt ratio.

An asset created by prepayment of an expense is:

A company has total liabilities of $550 million and total equity of $300 million.Calculate this company's debt ratio.

Robert Haddon contributed $70,000 in cash and some land worth $130,000 to open a new business,RH Consulting.Which of the following general journal entries will RH Consulting make to record this transaction?

During the month of February,Hoffer Company had cash receipts of $7,500 and cash disbursements of $8,600.The February 28 cash balance was $1,800.What was the January 31 beginning cash balance?

Double-entry accounting is an accounting system:

Rocky Industries received its telephone bill in the amount of $300 and immediately paid it.Rocky's journal entry to record this transaction will include a

Which of the following is a true statement regarding debits and credits?

Of the following accounts,the one that normally has a credit balance is:

Which of the following formulas can be used to calculate the debt ratio?

Which of the following statements is false with regard to the debt ratio?

A debit is used to record: