Deck 2: Transaction Analysis

Question 1

An accrued liability is a liability for an expense that has not yet been paid.

Answer 1

True

Question 2

Which of the following is a business transaction?

A)A company signs a contact for services to be provided during the first quarter of the next fiscal year.
B)A company pays its employees a year-end bonus.
C)A company hires a new marketing manager.
D)A company applies for a mortgage that will be used to purchase a new office building.

Answer 2

B

Question 3

A record of all the changes in a particular asset during a period of time is found in a(n):

A)transaction.
B)trial balance.
C)prior period's balance sheet.
D)account.

Answer 3

D

Question 4

An accounts receivable represents the promise of the business to pay a debt.

Question 5

Prepaid rent is an expense because the payment provides a future benefit of the company.

Question 6

Cost of goods sold is an example of a revenue account.

Question 7

Which transaction decreases stockholders' equity?

A)sale of common stock
B)cash purchase of land
C)total revenues greater than total expenses for the period
D)total expenses greater than total revenues for the period

Question 8

A transaction is any event that has a financial impact on the business and that can be measured reliably.

Question 9

Assets include cash, land, and accounts payable.

Question 10

Which of the following is a CORRECT statement?

A)Shareholders' equity is also called proprietorship equity.
B)A proprietorship has more than one capital account.
C)A partnership has a separate owner's equity account for each partner.
D)Retained earnings is the owner's investment in the corporation.

Question 11

Business events are recorded even if the financial impact cannot be measured.

Question 12

Which account includes balances in multiple checking accounts?

A)Accounts Receivable
B)Notes Receivable
C)Cash
D)Prepaid Expenses

Question 13

Interest payable, income tax payable and salary payable are all examples of:

A)accrued liabilities.
B)prepaid expenses.
C)expenses of future periods.
D)retained earnings.

Question 14

Which transaction increases stockholders' equity?

A)sale of common stock
B)dividends that are declared and paid
C)expenses greater than revenues for the period
D)payment of operating expenses

Question 15

Transactions provide objective information about the financial impact of an exchange on an entity.

Question 16

The account is the basic summary device of accounting.

Question 17

Which transaction decreases stockholders' equity?

A)Inventory was purchased on account.
B)Services were performed on account.
C)Services were performed and cash was immediately received from the customers.
D)Employees worked one week and were paid at the end of the week.

Question 18

A prepaid expense is an asset.

Question 19

Which of the following is NOT a business transaction?

A)A company buys goods on account.
B)A company sells land for cash.
C)A company fired 10 percent of the employees due to lackluster sales.
D)A company borrows money from the bank.

Question 20

All of the following accounts would be considered assets EXCEPT for:

A)Cash.
B)Retained Earnings.
C)Prepaid Expenses.
D)Notes Receivable.

Question 21

A company performs services for a client on account. When the company receives the cash from the customer one month later:

A)a revenue account is increased.
B)a liability account is decreased.
C)there is no change in total assets.
D)an expense account is decreased.

Question 22

A company performed services for a customer for cash. This transaction increased assets and:

A)decreased stockholders' equity.
B)increased liabilities.
C)increased expenses.
D)increased revenues.

Question 23

When a company pays an amount it owes a creditor:

A)assets are decreased and net income is decreased.
B)assets are decreased and liabilities are increased.
C)liabilities are decreased and net income is increased.
D)assets are decreased and liabilities are decreased.

Question 24

Which of the following transactions will increase one asset and decrease another asset?

A)the purchase of office supplies on account
B)the performance of services on account
C)the purchase of equipment for cash
D)the performance of services for cash

Question 25

When a business purchases land with a note payable:

A)both assets and stockholders' equity are increased.
B)assets are decreased and stockholder's equity is increased.
C)both assets and liabilities are increased.
D)assets are increased and liabilities are decreased.

Question 26

When a company borrows cash from the bank:

A)total assets remain the same.
B)liabilities are increased.
C)retained earnings is decreased.
D)total liabilities remain the same.

Question 27

A company received cash in exchange for issuing stock. This transaction increased assets and:

A)increased expenses.
B)increased revenues.
C)increased liabilities.
D)increased stockholders' equity.

Question 28

If a company declares and pays a dividend to its stockholders, both cash and expenses will decrease.

Question 29

Company Z sells land for the same amount it paid for it three years ago. When the company records this transaction:

A)assets and stockholders' equity are increased.
B)one asset is increased and another asset is decreased.
C)one liability is increased and another liability is decreased.
D)assets are increased and liabilities are decreased.

Question 30

A company receives an utility bill and immediately pays it. With this transaction:

A)stockholders' equity is decreased.
B)expenses are decreased.
C)assets are increased.
D)liabilities are increased.

Question 31

As a practical matter most companies prepare financial statements:

A)after every transaction.
B)only when both the balance sheet and income statement are affected.
C)at the end of the accounting period.
D)at the close of every business day.

Question 32

List and briefly discuss the three major components of stockholders' equity.

Question 33

When a company borrows money from the bank, which type of account(s)is(are)increased?

A)asset account only
B)retained earnings only
C)liability account only
D)both asset and liability accounts

Question 34

Which of the following transactions will increase stockholders' equity?

A)The company pays a dividend to its shareholders.
B)The company issues common stock to new shareholders.
C)The company purchases equipment.
D)The company makes a payment on account.

Question 35

If a company performs services on account, the revenue is not earned until the cash is collected.

Question 36

An account payable is recorded when a formal promissory note is signed.

Question 37

When services are performed on account:

A)cash is increased.
B)revenue will not be recorded until the cash is received from the customer.
C)accounts receivable is increased.
D)accounts payable is increased.

Question 38

Define and provide an example of each of the following.

Question 39

Each transaction has either an equal effect on both the left- and right-sides of the accounting equation, or an offsetting effect (both positive and negative)on the same side of the equation.

Question 40

The debt created by a business when it makes a purchase of inventory on account is a(n):

A)revenue.
B)account receivable.
C)note payable.
D)account payable.

Question 41

A company had credit sales of $46,000 and cash sales of $12,000 during the month of May. Also during May, the company paid wages of $16,000 and utilities of $5800. It also received payments from customers on account totaling $7000. At the beginning of May, the company had a cash balance of $25,000. What is the company's cash balance at the end of May?

A)$15,200
B)$22,200
C)$37,000
D)$44,000

Question 42

Paying a repair bill as soon as it was received would:

A)increase expenses.
B)increase liabilities.
C)increase stockholders' equity.
D)decrease revenues.

Question 43

Purchasing supplies on account would:

A)increase total assets and decrease total liabilities.
B)increase total liabilities and decrease total assets.
C)increase total assets and increase total liabilities.
D)increase total liabilities and increase stockholders' equity.

Question 44

A company had credit sales of $33,000 and cash sales of $23,000 during the month of May. Also during May, the company paid wages of $26,000 and utilities of $12,000. It also received payments from customers on account totaling $5200. What was the company's net income for the month?

A)$23,000
B)$18,000
C)$56,000
D)$94,000

Question 45

Which of the following transactions would decrease an asset and decrease stockholders' equity?

A)payment of an accounts payable
B)performance of a service for a client on account
C)borrowing money from the bank for thirty days
D)declaration and payment of a dividend to the shareholders

Question 46

A company purchased supplies of $5000 on account. How does this transaction affect the accounting equation?

A)Add $5000 to Supplies and add $5000 to Notes Payable.
B)Add $5000 to Supplies and subtract $5000 from Cash.
C)Add $5000 to Supplies Expense and add $5000 to Notes Payable.
D)Add $5000 to Supplies and add $5000 to Accounts Payable.

Question 47

A company completed the following transactions during the month of October: I. Purchased office supplies on account, $5600.
II. Provided services for cash, $22,000.
III. Provided services on account, $36,000.
IV. Collected cash from a customer on account, $27,000.
V. Paid the monthly rent of $3800.
What was the company's total revenue for the month?

A)$22,000
B)$36,000
C)$58,000
D)$85,000

Question 48

A company received $33,000 cash and issued common stock in exchange. How does this transaction affect the accounting equation?

A)Add $33,000 to Cash and add $33,000 to Retained Earnings.
B)Add $33,000 to Cash and add $33,000 to Revenue.
C)Add $33,000 to Dividends and subtract $33,000 from Retained Earnings.
D)Add $33,000 to Cash and add $33,000 to Common Stock.

Question 49

Muddle Company performs a service for one of its customers and immediately collects the cash. This transaction will:

A)have no effect on liabilities.
B)decrease net income.
C)decrease Retained Earnings.
D)increase Accounts Receivable.

Question 50

For a new business, the beginning balance of retained earnings equals:

A)cash invested by the stockholders.
B)beginning balance of the common stock account.
C)zero.
D)budgeted net income for the first year.

Question 51

A company completed the following transactions during the month of October: I. Purchased office supplies on account, $4800.
II. Provided services for cash, $22,000.
III. Provided services on account, $12,000.
IV. Collected cash from a customer on account, $7400.
V. Paid the monthly rent of $18,000.
What was the company's net income for the month?

A)$12,000
B)$16,000
C)$34,000
D)$52,000

Question 52

When preparing the financial statements from a spreadsheet that shows the results of a transaction analysis:

A)a statement of retained earnings is not required.
B)the balance sheet reports the beginning balance of retained earnings.
C)assets, liabilities, and stockholders' equity are reported on the balance sheet.
D)revenues, expenses, and dividends are reported on the income statement.

Question 53

Jenkins Company began business in June when stockholders invested $85,000 in the business, which in turn issued its common stock to them. Jenkins Company then purchased a building for $40,000 cash and inventory for $21,000 cash, performed services for clients for $10,000 cash, purchased supplies for $10,000 cash, and paid utilities of $7000 cash. What is the amount of cash at the end of June?

A)$24,000
B)$17,000
C)$34,000
D)$38,000

Question 54

Receiving a payment from a customer on account:

A)increases stockholders' equity.
B)has no effect on total assets.
C)decreases stockholders' equity.
D)decreases liabilities.

Question 55

Linda Keller opened a consulting firm, Keller Consulting P.C. During its first month of operations, the following transactions were completed: I. Linda invested $30,000 in the business, which in turn issued common stock to her.
II. The business purchased equipment on account for $63,000.
III. The business provided consulting services on account, $12,000.
IV. The business paid salaries to the receptionist, $2,000.
V. The business received cash from a customer as payment on account $6,000.
VI. The business borrowed $13,000 from the bank, issuing a note payable.
At the end of the month, total liabilities are:

A)$13,000.
B)$63,000.
C)$76,000.
D)$75,000.

Question 56

To compute ending balance of retained earnings on the statement of retained earnings:

A)net loss is added to the beginning balance of retained earnings and dividends that were declared and paid are subtracted from the beginning balance of retained earnings.
B)net income and dividends are both added to the beginning balance of retained earnings.
C)net loss and dividends are both added to the beginning balance of retained earnings.
D)net income is added to the beginning balance of retained earnings.

Question 57

Lori Nichols started an engineering firm, Engineering Enterprises P.C. During its first month of operations, the following transactions were completed: I. Lori invested $35,000 in the business, which in turn issued common stock to her.
II. The business purchased equipment on account for $10,000.
III. The business provided engineering services on account, $13,000.
IV. The business paid salaries to the receptionist, $4000.
V. The business received cash from a customer as payment on account $11,000.
VI. The business borrowed $13,000 from the bank, issuing a note payable.
At the end of the month, cash equals:

A)$35,000.
B)$44,000.
C)$55,000.
D)$86,000.

Question 58

To compute the ending balance of retained earnings:

A)the beginning balance in retained earnings will be negative for a new business.
B)net loss for the period is subtracted from the beginning balance of retained earnings.
C)dividends are added to the beginning balance of retained earnings.
D)common stock sold during the period is added to the beginning balance of retained earnings.

Question 59

Performing services on account:

A)decreases both assets and liabilities.
B)increases assets and decreases stockholders' equity.
C)decreases revenues and decreases stockholders' equity.
D)increases both net income and stockholders' equity.

Question 60

If a company buys inventory on account:

A)cash decreases.
B)accounts payable increases.
C)net income increases.
D)total assets remain the same.

Question 61

A company borrowed $24,000 from the bank by signing a long-term note. How does this transaction affect the accounting equation?

A)Add $24,000 to Cash and add $24,000 to Accounts Payable.
B)Add $24,000 to Cash and add $24,000 to Notes Payable.
C)Add $24,000 to Cash and add $24,000 to Retained Earnings.
D)Add $24,000 to Accounts Receivable and add $24,000 to Accounts Payable.

Question 62

The double-entry system of accounting records the dual effects of transactions on the entity.

Question 63

Transaction analysis and the accounting equation have been used to record several transactions for a company. The transactions are now recorded on a multi-column spreadsheet. When preparing a statement of cash flows with this spreadsheet, which column would be used?

A)Cash
B)Accounts Receivable
C)Retained Earnings
D)Revenue

Question 64

The left hand side of a T account is the debit side and the right hand side is the credit side.

Question 65

In transaction analysis, the declaration and payment of dividends is recorded in the ________ and ________ columns of the accounting equation.

A)Dividends; Cash
B)Expenses; Accounts Receivable
C)Expenses; Accounts Payable
D)Retained Earnings; Cash

Question 66

A company received a utility bill for $1000 and decided to pay it next month due to a shortage of cash. How does this transaction affect the accounting equation?

A)Add $1000 to Utilities Expense and add $1000 to Cash.
B)Subtract $1000 from Cash and add $1000 to Accounts Payable.
C)Add $1000 to Accounts Receivable and subtract $1000 from Retained Earnings.
D)Add $1000 to Accounts Payable and subtract $1000 from Retained Earnings.

Question 67

A receptionist worked one month and was paid $3900 on the last day of the month. How does this transaction affect the accounting equation?

A)Add $3900 to Cash and add $3900 to Accounts Payable.
B)Add $3900 to Accounts Receivable and subtract $3900 from Cash.
C)Add $3900 to Salary Expense and subtract $3900 from Retained Earnings.
D)Subtract $3900 from Cash and subtract $3900 from Retained Earnings.

Question 68

A company declared and paid dividends of $1800. How does this transaction affect the accounting equation?

A)Add $1800 to Revenue and add $1800 to Cash.
B)Add $1800 to Dividends and add $1800 to Accounts Receivable.
C)Subtract $1800 from Retained Earnings and subtract $1800 from Cash.
D)Add $1800 to Dividend Expense and subtract $1800 from Cash.

Question 69

Transaction analysis and the accounting equation have been used to record several transactions for a company. The transactions are now recorded on a multi-column spreadsheet. When preparing a balance sheet with this spreadsheet, which column(s)would be used?

A)final balances of asset columns only
B)final balances of liability columns only
C)final balances of stockholders' equity columns only
D)all of the above

Question 70

On August 15, a customer paid $5000 for services provided a month earlier. The customer was billed on August 1. How does this transaction affect the accounting equation?

A)Add $5000 to Cash and add $5000 to Service Revenue.
B)Add $5000 to Cash and add $5000 to Retained Earnings.
C)Add $5000 to Cash and subtract $5000 from Accounts Receivable.
D)Add $5000 to Accounts Payable and add $5000 to Cash.

Question 71

On May 1, a company provided legal services for a new client. The legal fee was $2500 and the client paid, by check, before leaving the office that day. How does this transaction affect the accounting equation?

A)Add $2500 to Cash and add $2500 to Service Revenue.
B)Add $2500 to Cash and add $2500 to Retained Earnings.
C)Add $2500 to Cash and subtract $2500 from Accounts Receivable.
D)Add $2500 to Cash and subtract $2500 from Accounts Payable.

Question 72

Accounts Receivable is increased with a credit.

Question 73

The difference between the total credits and the total debits is the balance in the account.

Question 74

When using the double-entry system of accounting each transaction affects only two accounts.

Question 75

Transaction analysis and the accounting equation have been used to record several transactions for a company. The transactions are now recorded on a multi-column spreadsheet. When preparing an income statement with this spreadsheet, which column would be used?

A)Cash
B)Accounts Payable
C)Dividends
D)Retained Earnings

Question 76

A company paid $3900 for supplies that were purchased earlier in the month on account. How does this transaction affect the accounting equation?

A)Add $3900 to Supplies and add $3900 to Supplies Expense.
B)Add $3900 to Supplies Expense and subtract $3900 from Cash.
C)Add $3900 to Supplies Expense and add $3900 to Cash.
D)Subtract $3900 from Accounts Payable and subtract $3900 from Cash.

Question 77

A multistep income statement reports different types of income that include:

A)sales revenue and service revenue.
B)income tax expense, utilities expense, rent expense.
C)operating income, income before income taxes, and net income.
D)cost of goods sold and operating expenses.

Question 78

A company performed tax services for a client on account. The amount billed to the client was $22,000. How does this transaction affect the accounting equation?

A)Add $22,000 to Cash and add $22,000 to Service Revenue.
B)Add $22,000 to Cash and add $22,000 to Retained Earnings.
C)Add $22,000 to Accounts Receivable and add $22,000 to Retained Earnings.
D)Add $22,000 to Accounts Payable and add $22,000 to Service Revenue.

Question 79

In transaction analysis, revenues and expenses that arise in different transactions are recorded in the ________ column of the accounting equation.

A)Multistep
B)Common Stock
C)Dividends
D)Retained Earnings

Question 80

Indicate whether the account is an asset (A), liability (L), stockholders' equity (SE), revenue (R)or expense (E)account. Also indicate if the account would appear on the Balance Sheet (BS), Income Statement (IS), Statement of Cash Flows (CF)or the Statement of Retained Earnings (SRE).