Question 1

The debt ratio is used:

Accepted Answer

The debt ratio is used to assess the risk associated with a company's use of liabilities. It measures the proportion of a company's assets that are financed by debt, which can indicate the level of leverage and financial risk of the business.

Question 2

Elaine Matuszek,the sole stockholder of Matuszek Consulting,received a $2,000 dividend from the company.Identify the general journal entry below that Matuszek Consulting will make to record the transaction.

Accepted Answer

When a company pays a dividend, it decreases its cash account (an asset) and records the payment in the dividends account (which reduces equity). This is represented by debiting the Dividends account and crediting the Cash account.

Question 3

A company provided $12,000 of consulting services,and was immediately paid in cash by the customer.Identify the journal entry below that properly records this transaction.

Accepted Answer

The correct journal entry for receiving cash immediately upon providing services is to debit Cash (to increase the asset account) and credit Consulting Services Revenue (to increase the revenue account). This reflects the increase in assets (cash) and the recognition of earned revenue.

Question 4

HH Consulting & Design provided $800 of consulting work and $100 of design work to the same client.It billed the client for the total amount and is expecting to collect from the client next month.Which of the following general journal entries will HH Consulting & Design make to record this transaction?

Accepted Answer

The correct entry is to debit Accounts Receivable for $900, indicating the amount the client owes HH Consulting & Design, and to credit Consulting Revenue for $800 and Design Revenue for $100, reflecting the earned income from services provided. This entry correctly matches the revenue earned with the receivable created by billing the client.

Question 5

If cash is received from customers in payment for products or services that have not yet been delivered to the customers,the business would record the cash receipt as:

Accepted Answer

When cash is received from customers for products or services that have not yet been delivered, it is considered unearned revenue. This is recorded as a liability on the balance sheet until the products or services are delivered, at which point it is recognized as revenue. Therefore, the correct entry would be a debit to cash (an asset) and a credit to an unearned revenue account (a liability). Option C is the only one that reflects this entry.

Question 6

Elaine Matuszek,the sole stockholder of Matuszek Consulting,started the business by investing $40,000 cash.Identify the general journal entry below that Matuszek Consulting will make to record the transaction.

Accepted Answer

When a company receives cash from a stockholder (in this case, the sole stockholder Elaine Matuszek) in exchange for common stock, the company increases its cash account (an asset) and increases its common stock account (an equity account) to reflect the issuance of stock. This is accurately represented in option A, where Cash is debited for $40,000, indicating an increase in assets, and Common Stock is credited for $40,000, indicating an increase in stockholders' equity.

Question 7

Eduardo Martinez,the sole stockholder of Eduardo's Dance Studio,started the business by investing $10,000 cash and donating a building worth $20,000 in exchange for common stock.Identify the general journal entry below that Eduardo's will make to record the transaction.

Accepted Answer

Option C correctly records the cash and building as debits totaling $30,000 and credits common stock for the same amount, reflecting the investment into the business.

Question 8

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

Accepted Answer

To find the beginning cash balance, we need to use the formula:
Beginning Cash Balance + Cash Receipts - Cash Disbursements = Ending Cash Balance
Plugging in the numbers given:
Beginning Cash Balance + $7,500 - $8,600 = $1,800
Simplifying the equation, we get:
Beginning Cash Balance = $1,800 - $7,500 + $8,600
Beginning Cash Balance = $2,900
Therefore, the answer is (C) $2,900.

Question 9

During the month of March,Harley's Computer Services made purchases on account totaling $43,500.Also during the month of March,Harley was paid $8,000 by a customer for services to be provided in the future and paid $36,900 of cash on its accounts payable balance.If the balance in the accounts payable account at the beginning of March was $77,300,what is the balance in accounts payable at the end of March?

Accepted Answer

The answer of During the month of March,Harley's Computer Services...

Question 10

Larry Bar opened a frame shop and completed these transactions: 1.Larry started the shop by investing $40,000 cash and equipment valued at $18,000 in exchange for common stock.
2.Purchased $70 of office supplies on credit.
3.Paid $1,200 cash for the receptionist's salary.
4.Sold a custom frame service and collected $1,500 cash on the sale.
5.Completed framing services and billed the client $200.
What was the balance of the cash account after these transactions were posted?

Accepted Answer

1. Larry invested $40,000 cash and equipment valued at $18,000 for a total of $58,000 in exchange for common stock.
2. Purchased $70 of office supplies on credit, so cash balance remains unchanged.
3. Paid $1,200 cash for the receptionist's salary, reducing the cash balance to $56,800.
4. Sold a custom frame service and collected $1,500 cash on the sale, increasing the cash balance to $58,300.
5. Completed framing services and billed the client $200, but no cash was received, so the cash balance remains at $58,300.

Therefore, the balance of the cash account is $40,000 + $18,000 - $1,200 + $1,500 = $58,300. The correct answer is C.

Question 11

Aaliyah Turner opened Turner Photography on January 1 of the current year.During January,the following transactions occurred and were recorded in the company's books: 1.Aaliyah invested $13,500 cash in the business in exchange for common stock.
2.Aaliyah contributed $20,000 of photography equipment to the business in exchange for common stock.
3.The company paid $2,100 cash for an insurance policy covering the next 24 months.
4.The company received $5,700 cash for services provided during January.
5.The company purchased $6,200 of office equipment on credit.
6.The company provided $2,750 of services to customers on account.
7.The company paid cash of $1,500 for monthly rent.
8.The company paid $3,100 on the office equipment purchased in transaction #5 above.
9.Paid $275 cash for January utilities.
Based on this information,the amount of total stockholders' equity reported on the Balance Sheet at the end of the month would be:

Accepted Answer

The total stockholders' equity is calculated by adding the common stock and retained earnings. 
Common stock: $13,500 (transaction #1) + $20,000 (transaction #2) = $33,500
Retained earnings: Revenue ($5,700) - Expenses ($2,100 insurance + $6,200 office equipment + $1,500 rent + $275 utilities + $3,100 office equipment payment) - Services provided on account ($2,750) = $-5,225 (since the expenses and payments were greater than the revenue and services provided on account)
Therefore, the total stockholders' equity is $33,500 + $-5,225 = $28,275.
However, the question asks for the amount reported on the balance sheet at the end of the month, implying that adjustments such as recognizing depreciation expense and revenue earned on account have not been made. Therefore, we cannot consider the $-5,225 as the ending retained earnings. 
Instead, we can assume that the office equipment has a useful life of 5 years and no salvage value, and use the straight-line method to calculate the depreciation expense for the month which is $6,200/60 = $103.33. 
Also, we can assume that the services provided on account will eventually be collected, and recognize them as revenue. 
Therefore, the ending retained earnings can be calculated as:
Revenue ($5,700 + $2,750) - Expenses ($2,100 insurance + $103.33 depreciation + $1,500 rent + $275 utilities) = $4,471.67
Total stockholders' equity = $33,500 + $4,471.67 = $37,971.67, which is closest to option D, $40,175.

Question 12

If Taylor Willow,the sole stockholder of Willow Hardware,uses cash of the business to purchase a family automobile,the business should record this use of cash with an entry to:

Accepted Answer

When a sole stockholder of a business uses business cash for personal use, it is treated as a withdrawal of equity, typically recorded as dividends. Therefore, the correct entry is to debit Dividends (increasing the dividends account, which reduces equity) and credit Cash (decreasing the cash asset).

Question 13

Andrea Apple opened Apple Photography on January 1 of the current year.During January,the following transactions occurred and were recorded in the company's books: 1.Andrea invested $13,500 cash in the business in exchange for common stock.
2.Andrea contributed $20,000 of photography equipment to the business.
3.The company paid $2,100 cash for an insurance policy covering the next 24 months.
4.The company received $5,700 cash for services provided during January.
5.The company purchased $6,200 of office equipment on credit.
6.The company provided $2,750 of services to customers on account.
7.The company paid cash of $1,500 for monthly rent.
8.The company paid $3,100 on the office equipment purchased in transaction #5 above.
9.Paid $275 cash for January utilities.
Based on this information,the balance in the cash account at the end of January would be:

Accepted Answer

To calculate the ending cash balance, start with the initial cash investment of $13,500. Add cash received from services ($5,700) and subtract cash paid for insurance ($2,100), rent ($1,500), office equipment payment ($3,100), and utilities ($275). The contributions of equipment do not affect cash, nor do services provided on account. The calculation is $13,500 + $5,700 - $2,100 - $1,500 - $3,100 - $275 = $12,225.

Question 14

The following transactions occurred during July: 1.Received $900 cash for services provided to a customer during July.
2.Received $2,200 cash investment from Bob Johnson,the owner of the business.
3.Received $750 from a customer in partial payment of his account receivable which arose from sales in June.
4.Provided services to a customer on credit,$375.
5.Borrowed $6,000 from the bank by signing a promissory note.
6.Received $1,250 cash from a customer for services to be rendered next year.
What was the amount of revenue for July?

Accepted Answer

Revenue is recognized when services are provided, regardless of whether payment is received or not. Transactions 1 and 4 represent services provided, so the revenue for July is the sum of these transactions, which is $900+$375=$1,275. The other transactions do not affect revenue.

Question 15

Eduardo's Dance Studio provided $150 of dance instruction and rented out its dance studio to the same client for another $100.The client paid immediately.Identify the general journal entry below that Eduardo's will make to record the transaction.

Accepted Answer

The correct journal entry is C because it records the cash received (debit) and the revenues earned from both rental and instruction (credits), accurately reflecting the transaction.

Question 16

On January 1 of the current year,Jimmy's Sandwich Company reported stockholders' equity totaling $122,500.During the current year,total revenues were $96,000 while total expenses were $85,500.Also,during the current year paid $20,000 in cash dividends.No other changes in equity occurred during the year.If,on December 31 of the current year,total assets are $196,000,the change in total stockholders' equity during the year was:

Accepted Answer

The answer of On January 1 of the current year,Jimmy's...

Question 17

A company provided $12,000 of consulting services to a customer on account.The customer promises payment in 30 days.Identify the journal entry below that properly records this transaction.

Accepted Answer

The correct journal entry for providing services on account (meaning the customer will pay later) involves debiting Accounts Receivable (to record the amount the customer owes the company) and crediting Consulting Services Revenue (to record the income earned from providing the services). This is accurately reflected in option E.

Question 18

On May 31,the Cash account of Bottle's R US had a normal balance of $5,000.During May,the Cash account was debited for a total of $12,200 and credited for a total of $11,500.What was the balance in the Cash account at the beginning of May?

Accepted Answer

The beginning balance can be calculated by taking the ending balance, subtracting the total debits, and adding the total credits. So, $5,000 (ending balance) - $12,200 (total debits) + $11,500 (total credits) = $4,300 debit balance.

Question 19

At the beginning of January of the current year,Little Mikey's Catering ledger reflected a normal balance of $52,000 for accounts receivable.During January,the company collected $14,800 from customers on account and provided additional services to customers on account totaling $12,500.Additionally,during January one customer paid Mikey $5,000 for services to be provided in the future.At the end of January,the balance in the accounts receivable account should be:

Accepted Answer

The answer of At the beginning of January of the...

Question 20

On April 30,Victor Services had an Accounts Receivable balance of $18,000.During the month of May,total credits to Accounts Receivable were $52,000 from customer payments.The May 31 Accounts Receivable balance was $13,000.What was the amount of credit sales during May?

Accepted Answer

The answer of On April 30,Victor Services had an Accounts...

Quiz 2: Financial Statements and the Accounting System