Question 1

Mary Martin, the owner of Martin Consulting, Inc., started the business by investing $40,000 cash. Identify the general journal entry below that Martin Consulting, Inc. will make to record the transaction.
A) $\begin{array} { | c | r | r | } 
\hline \text { Cash } & 40,000 & \
\hline \text { Common Stock } & & 40,000 \
\hline
\end{array}$
B) $\begin{array} { | c | r | r | } 
\hline \text { Commen Stock } & 40,000 & \
\hline \text { Cash } & & 40,000 \
\hline
\end{array}$
C) $\begin{array} { | c | r | r | } 
\hline \text { Investments } & 40,000 & \
\hline \text { Cash } & & 40,000 \
\hline
\end{array}$
D) $\begin{array} { | c | r | r | } 
\hline \text { Investments } & 40,000 & \
\hline \text { Commrnon Stock } & & 40,000 \
\hline
\end{array}$
E) $\begin{array} { | c | r | r | } 
\hline \text { Cash } & 40,000 & \
\hline \text { Increased Equity } & & 40,000 \
\hline
\end{array}$

Accepted Answer

The correct journal entry to record the owner's investment in the business is to debit Cash for $40,000, indicating an increase in the company's cash assets, and credit Common Stock for $40,000, indicating an increase in the company's equity.

Question 2

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?
A) $83,900.
B) $91,900.
C) $6,600.
D) $75,900.
E) $4,900.

Accepted Answer

Beginning Accounts Payable Balance + Purchases on Account - Payments on Accounts = Ending Accounts Payable Balance
$77,300 + $43,500 - $36,900 = Ending Accounts Payable Balance
Ending Accounts Payable = $83,900

Question 3

Andrea Apple opened Apple Photography, Inc. on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books:
1) Andrea, the stockholder, invested $13,500 cash in the business.
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:
A) $41,450.
B) $12,225
C) $18,700.
D) $15,250.
E) $13,500.

Accepted Answer

Ending Cash Balance = $13,500 (#1) - $2,100 (#3) + $5,700 (#4) - $1,500 (#7) - $3,100
(#8) - $275 (#9) = $12,225

Question 4

On January 1 of the current year, Jimmy's Sandwich Company, Inc. 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 the business paid $20,000 to the stockholders. 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 stockholders' equity during the year was:
A) A decrease of $9,500.
B) An increase of $9,500.
C) An increase of $30,500.
D) A decrease of $30,500
E) An increase of 73,500.

Accepted Answer

Beg. Stockholders' Equity + Revenues - Expenses - Dividends = End. Stockholders' Equity
$122,500 + $96,000 - $85,500 - $20,000 = Ending Stockholders' Equity
Ending Stockholders' Equity = $113,000
Change in Equity = Beginning Stockholders' Equity - Ending Stockholders' Equity
Change in Equity = $122,500 - $113,000 = $9,500 Decrease

Question 5

Identify the correct formula below 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 formula is Total Liabilities/Total Assets, which measures the percentage of total assets financed by debt.

Question 6

Identify the statement that 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

Higher assets do not necessarily indicate higher risk. In fact, higher assets may indicate stronger financial stability and less risk.

Question 7

Lu Lu's Catering has a debt ratio equal to .3 and its competitor, Able's Bakery, has a debt ratio equal to .7. Determine the statement below that is correct.
A) Able's Bakery has a smaller percentage of its assets financed with liabilities as compared to Lu Lu's.
B) Able's Bakery's financial leverage is less than Lu Lu's
C) Able's Bakery's financial leverage is greater than Lu Lu's.
D) Lu Lu's has a higher risk from its financial leverage
E) Higher financial leverage involves lower risk.

Accepted Answer

The debt ratio measures the percentage of a company's assets financed by debt. Able's Bakery has a higher debt ratio (0.7) than Lu Lu's Catering (0.3), meaning a larger percentage of Able's assets are financed by liabilities. This indicates that Able's Bakery has greater financial leverage than Lu Lu's Catering, making option C the correct choice. Options A, B, D, and E are incorrect, as they either make no sense or are the opposite of the correct answer.

Question 8

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 customer next month. Which of the following general journal entries will HH Consulting & Design make to record this transaction?
A) $\begin{array} { | l | r | r | } 
\hline \text { Design Revenue } & 100 & \
\hline \text { Consultirng Revenue } & 800 & \
\hline \text { Accounts Receivable } & & 900 \
\hline
\end{array}$

B) $\begin{array} { | c | r | r | } 
\hline \text { Accounts Payable } & 800 & \
\hline \text { Design Revenue } & & 100 \
\hline \text { Consulting Revenue } & & 800 \
\hline
\end{array}$
C) $\begin{array} { | c | r | r | } 
\hline \text { Cash } & 900 & \
\hline \text { Consulting Revenue } & & 800 \
\hline \text { Design Revenue } & & 100 \
\hline
\end{array}$
D) $\begin{array} { | c | r | r | } 
\hline \text { Cash } & 900 & \
\hline \text { Consultnig Revenue } & & 800 \
\hline \text { Design Revenue } & & 100 \
\hline
\end{array}$
E) $\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 900 & \
\hline \text { Consulting Revenue } & & 800 \
\hline \text { Design Revenue } & & 100 \
\hline
\end{array}$

Accepted Answer

The correct journal entry records the revenue earned and the amount expected to be received. Accounts Receivable is debited for the total amount of $900, and Consulting Revenue and Design Revenue are credited for $800 and $100, respectively.

Question 9

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?
A) $700.
B) $1,100.
C) $2,900.
D) $0.
E) $4,300.

Accepted Answer

Beginning Cash Balance + Cash Receipts - Cash Disbursements = Ending Cash Balance
Beginning Cash Balance + $7,500 - $8,600 = $1,800
Beginning Cash Balance - $1,100 = $1,800
Beginning Cash Balance = $2,900

Question 10

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:
A) A debit to an unearned revenue account.
B) A debit to a prepaid expense account.
C) A credit to an unearned revenue account.
D) A credit to a prepaid expense account.
E) No entry is required at the time of collection.

Accepted Answer

When cash is received from customers for products or services that have not yet been delivered, it is considered unearned revenue. Therefore, the business would record the cash receipt as a credit to an unearned revenue account. This liability account will be recognized as revenue once the product or service has been delivered to the customer. Choices A and B are not applicable since they are used for expenses prepaid or revenue that has already been earned. Choice D is incorrect, as prepaid expenses are expenses that are paid in advance, such as insurance or rent. Lastly, choice E is incorrect, as a transaction should always have a corresponding entry in the accounting records.

Question 11

Andrea Apple opened Apple Photography, Inc. on January 1 of the current year. During January, the following transactions occurred and were recorded in the company's books:
1) Andrea, the stockholder, invested $13,500 cash in the business.
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 stockholders' equity reported on the Balance Sheet at the end of the month would be:
A) $31,400.
B) $39,200.
C) $31,150.
D) $40,175.
E) $30,875.

Accepted Answer

The answer of Andrea Apple opened Apple Photography, Inc. on...

Question 12

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?
A) $ 5,000.
B) $47,000.
C) $52,000.
D) $57,000.
E) $32,000.

Accepted Answer

Beginning Accounts Receivable Balance + Credit Sales (Debits) - Customer Payments
(Credits) = Ending Accounts Receivable Balance
$18,000 + Credit Sales (Debits) - $52,000 = $13,000
Credit Sales (Debits) - $34,000 = $13,000
Credit Sales (Debits) = $47,000

Question 13

The debt ratio of Jackson's Shoes is .9 and the debt ratio of Billy's Catering is 1.0. Based on this information, an investor can conclude:
A) Billy's Catering finances a relatively lower portion of its assets with liabilities than Jackson's Shoes.
B) Billy's Catering has a lower risk from its financial leverage.
C) Jackson's Shoes has a higher risk from its financial leverage.
D) Billy's Catering has the exact same dollar amount of total liabilities and total assets.
E) Jackson's Shoes has less equity per dollar of assets than Billy's Catering.

Accepted Answer

The answer of The debt ratio of Jackson's Shoes is...

Question 14

Geraldine Parker, the owner of Gi Gi's Dance Studio, Inc., started the business by investing $10,000 cash and donating a building worth $20,000. Identify the general journal entry below that Gi Gi's will make to record the transaction.
A) $\begin{array} { | c | r | r | } 
\hline \text { Cash } & 10,000 & \
\hline \text { Common Stock } & & 30,000 \
\hline
\end{array}$
B) $\begin{array} { | l | l | l | } 
\hline \text { Cormmen Stock } & 30,000 & \
\hline \text { Cash } & & 10,000 \
\hline \text { Building } & & 20,000 \
\hline
\end{array}$
C) $\begin{array} { | l | r | r | } 
\hline \text { Cash } & 10,000 & \
\hline \text { Building } & 20,000 & \
\hline \text { Common Stock } & & 30,000 \
\hline
\end{array}$
D) $\begin{array} { | c | r | r | } 
\hline \text { Common Stock } & 30,000 & \
\hline \text { Retained Earnings } & & 30,000 \
\hline
\end{array}$
E) $\begin{array} { | c | r | r | } 
\hline \text { Cash \& Building } & 30,000 & \
\hline \text { Common Stock } & & 30,000 \
\hline
\end{array}$

Accepted Answer

The correct journal entry records the cash and building as assets (debits) and common stock as equity (credit) totaling $30,000.

Question 15

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 stockholder 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?
A) $ 900.
B) $ 1,275.
C) $ 2,525.
D) $ 3,275.
E) $11,100.

Accepted Answer

Revenues = $900 (from #1) + $375 (from #4) = $1,275

Question 16

If Taylor Willow, the owner of Willow Hardware Inc., uses cash of the business to purchase a family automobile, the business should record this use of cash with an entry to:
A) Debit Automobiles and credit Cash
B) Debit Cash and credit Salary Expense.
C) Debit Cash and credit Dividends.
D) Debit Dividends and credit Cash.
E) Debit Automobiles and credit Cash.

Accepted Answer

The purchase of a family automobile with business cash is considered a withdrawal of assets by the owner for personal use, which should be recorded as a dividend or drawing.

Question 17

Larry Bar opened an frame shop and completed these transactions:
1) Larry started the shop by investing $40,000 cash and equipment valued at $18,000.
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 a $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?
A) $300.
B) $41,500.
C) $40,300.
D) $38,500.
E) $38,700.

Accepted Answer

The answer of Larry Bar opened an frame shop and...

Question 18

Gi Gi's Bakery 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

Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $110 million/$425 million; Debt Ratio = 0.2588 = 25.9%

Question 19

Gi Gi'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 Gi Gi's will make to record the transaction.
A) $\begin{array} { | c | r | r | } 
\hline \text { Rental Revenue } & 100 & \
\hline \text { Instruction Revenue } & 150 & \
\hline \text { Cash } & & 250 \
\hline
\end{array}$
B) $\begin{array} { | c | r | r | } 
\hline \text { Accounits Payable } & 250 & \
\hline \text { Rental Revenue } & & 100 \
\hline \text { Instruction Revenue } & & 150 \
\hline
\end{array}$
C) $\begin{array} { | c | r | r | } 
\hline \text { Cash } & 250 & \
\hline \text { Rental Revenue } & & 100 \
\hline \text { Instruction Revenue } & & 150 \
\hline
\end{array}$

D) $\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 250 & \
\hline \text { Rental Revenue } & & 100 \
\hline \text { Instruction Revenue } & & 150 \
\hline
\end{array}$
E) $\begin{array} { | c | r | r | } 
\hline \text { Unearned Revenue } & 250 & \
\hline \text { Rental Revenue } & & 100 \
\hline \text { Instruction Revenue } & & 150 \
\hline
\end{array}$

Accepted Answer

The client paid immediately, so cash is debited for $250, and rental revenue and instruction revenue are credited for $100 and $150, respectively.

Question 20

On May 31, the Cash account of Bottle's R US had a normal balance of $5,000. During May, the 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?
A) A $0 balance.
B) A $4,300 debit balance.
C) A $4,300 credit balance.
D) A $5,700 debit balance.
E) A $5,700 credit balance.

Accepted Answer

Beginning Cash Balance + Debits - Credits = Ending Cash Balance
Beginning Cash Balance + $12,200 - $11,500 = $5,000
Beginning Cash Balance + $700 = $5,000; Beginning Balance = $4,300 debit balance

Quiz 2: Analyzing for Business Transactions

Mary Martin, the owner of Martin Consulting, Inc., started the business by investing $40,000 cash. Identify the general journal entry below that Martin Consulting, Inc. will make to record the transaction.

Identify the correct formula below used to calculate the debt ratio.

Identify the statement that is incorrect.

Lu Lu's Catering has a debt ratio equal to .3 and its competitor, Able's Bakery, has a debt ratio equal to .7. Determine the statement below that is correct.

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?

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:

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?

The debt ratio of Jackson's Shoes is .9 and the debt ratio of Billy's Catering is 1.0. Based on this information, an investor can conclude:

Geraldine Parker, the owner of Gi Gi's Dance Studio, Inc., started the business by investing $10,000 cash and donating a building worth $20,000. Identify the general journal entry below that Gi Gi's will make to record the transaction.

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

Gi Gi's Bakery has total assets of $425 million. Its total liabilities are $110 million. Its equity is $315 million. Calculate the debt ratio.

Gi Gi'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 Gi Gi's will make to record the transaction.

On May 31, the Cash account of Bottle's R US had a normal balance of $5,000. During May, the 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?