Question 1

Customers paid $8,000 on their accounts.Which accounts are affected by this transaction?

Accepted Answer

The payment of $8,000 on the customer's account will increase the company's cash balance by $8,000. At the same time, the accounts receivable balance will decrease by $8,000 since the customer has paid their debt. There is no impact on revenue and retained earnings since this transaction only involves the payment of an existing debt.

Question 2

Which of the following journal entries would decrease Shareholders' equity?

Accepted Answer

None of the choices provided directly decrease shareholders' equity. A) and C) affect assets and liabilities but not equity directly. B) increases equity by recognizing revenue.

Question 3

This month,a company performed $517,000 of services and incurred total expenses of $438,000.If the company was paid in cash for all its services and paid cash for all its expenses,these transactions would cause:

Accepted Answer

The company performed $517,000 of services, so revenues would increase by that amount. The company also incurred $438,000 of expenses, so expenses would increase by that amount. However, if the company was paid in cash for all its services and paid cash for all its expenses, then cash would also increase by $79,000 ($517,000 - $438,000). This would not affect retained earnings, as no profits or losses were generated by these transactions.

Question 4

On the last day of the current month,a company paid $12,000 to its suppliers,of which $2,000 was for supplies received on the last day of the current month and $10,000 was for supplies received during the previous month.The $12,000 payment would be recorded as a:

Accepted Answer

The $2,000 payment for supplies received on the last day of the current month would be recorded as a debit to Supplies, while the $10,000 payment for supplies received during the previous month would be recorded as a debit to Accounts Payable. The total amount of the payment, $12,000, would be recorded as a credit to Cash. Therefore, option D is the correct answer.

Question 5

Austin Insurance (AI)earned $10,000 revenue for services provided.Which of the following is correct?

Accepted Answer

The revenue earned by Austin Insurance is recognized as revenue regardless of the timing of cash receipts, so the correct answer is to credit Revenue. Therefore, options A and B are incorrect because they suggest that the transaction is related to Accounts Receivable. Option D is also incorrect because revenue would still be credited even if cash has not been received yet.

Question 6

This month,Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now.What journal entry will Grass is Greener record this month?

Accepted Answer

The correct journal entry is to debit supplies for $4,000 and credit cash for $4,000 because the company is paying cash for supplies (fertilizer) that will be used in the future, not immediately expensing them.

Question 7

The unadjusted trial balance:

Accepted Answer

The unadjusted trial balance is created to ensure that the total debits equal the total credits in the accounting system before any adjustments are made. It is not a financial statement for external users, is not typically listed in alphabetical order, and does not necessarily demonstrate that the accounting process is error-free.

Question 8

Which of the following groups of accounts contains only those accounts that normally have credit balances?

Accepted Answer

Accounts Payable, Retained Earnings, and Service Revenue normally have credit balances. Accounts Payable and Retained Earnings are liabilities and equity accounts, respectively, which typically have credit balances. Service Revenue is an income account, which also normally has a credit balance.

Question 9

Sparkling Pools provides $1,000 of pool maintenance services during July and collects payment in August.The company performs $1,600 of pool maintenance services during July that were paid for in June.The company accepts an order to perform $500 of pool maintenance services in August and will be paid in the same month.Revenue should be credited for:

Accepted Answer

Revenue is recognized when earned, not when payment is received or made. Thus, $1,600 + $1,000 in July when services were performed, and $500 in August for the services to be performed then.

Question 10

In January,a company pays for advertising space in the local paper for ads to be run during the months of January,February,and March at $1,500 a month.The payment would be recorded in January as a:

Accepted Answer

The payment for advertising space for the months of January, February, and March is $1,500 per month, totaling $4,500. Since the advertising space has not yet been used, it is considered prepaid advertising and should be recorded as an asset. Therefore, there should be a debit of $1,500 to Advertising Expense (expense for the month of January), a debit of $3,000 to Prepaid Advertising (asset for February and March), and a credit of $4,500 to Cash. Option D is the only choice that follows this accounting principle.

Question 11

Sparkling Pools received a bill for $1,200 for running newspaper ads during the last two weeks of July; the bill will be paid on August 1.Advertising expense should be:

Accepted Answer

The expense should be recognized in the period in which it was incurred, which is July, when the ads were run. According to the matching principle in accounting, expenses are matched with the revenues they help generate within the same period. Therefore, the advertising expense should be debited in July for $1,200, reflecting the cost incurred during that period.

Question 12

Which account is least likely to be credited when an expense is recorded?

Accepted Answer

Accounts Receivable is an account that represents money that is owed to a company by its customers. When an expense is recorded, it typically means that the company has already paid for that expense. Therefore, it is unlikely that Accounts Receivable would be credited as this account represents money that is owed to the company, not money that the company owes to others.

Question 13

In January,the Huntington Beach Resort (HBR)accepts your reservation and receives your $2,000 payment for a week of sun and fun in California during spring break in March.The $2,000 would be recorded by HBR during January as a debit to:

Accepted Answer

The payment received from the customer is considered deferred revenue because the services will not be provided until March. Therefore, the $2,000 payment should be recorded as a debit to Cash and a credit to Deferred Revenue.

Question 14

The unadjusted trial balance:

Accepted Answer

The unadjusted trial balance does not include income tax expense or end-of-the-accounting period adjustments and might still balance even if there are mistakes, as it is a preliminary report before adjustments.

Question 15

Your company received payment last month for a service that you provided this month.How will the business activity of the current month affect the basic accounting equation?

Accepted Answer

Since the payment was received last month for a service provided this month, it means the revenue has been earned but not yet recognized. Therefore, the transaction will result in decreasing the liability (Deferred Revenue) and increasing Shareholders' equity (Service Revenue). Assets will not change as the payment was already received last month.

Question 16

Which of the following would eventually cause a reduction in retained earnings?

Accepted Answer

A loss on disposal of land would decrease the company's net income, which in turn would reduce its retained earnings. A, B and C would not directly impact retained earnings.

Question 17

On the 15thof the month,a company receives $8,000 in payments from customers.$1,000 is for services performed on that day and the remaining is payment for services performed in the previous month.The $8,000 cash receipt would be recorded as a:

Accepted Answer

The $8,000 cash receipt is recorded as a debit of $8,000 to Cash. $7,000 of the payment is for services performed in the previous month, which would decrease the balance in Accounts Receivable, so a credit of $7,000 is made to Accounts Receivable. The remaining $1,000 is for services performed on that day, which increases revenue and is recorded as a credit of $1,000 to Service Revenue.

Question 18

Trudy's Café paid its employees $50,000 in September for work done that month.What journal entry will Trudy's record in September,assuming Trudy's did not owe any amounts to employees at the end of August?

Accepted Answer

The correct journal entry to record wages paid is to debit Wages Expense and credit Cash. This reflects the decrease in cash and records the expense incurred by paying employees for their work.

Question 19

A customer orders a heavy duty machinery from Yukon Inc in October.Yukon manufactures it in November and ships it along with their bill in December and receives payment in January.If Yukon is to recognize revenue in January,they are following:

Accepted Answer

Yukon Inc. is recognizing revenue in January when they receive payment, which aligns with the principles of cash basis accounting. This method records revenue when cash is actually received, regardless of when the goods or services were delivered.

Question 20

All other accounts remaining the same,an increase in revenue will always:

Accepted Answer

An increase in revenue means an increase in the income earned by the company. This results in an increase in the Retained Earnings component of Shareholders' Equity, ultimately leading to an increase in Shareholders' Equity as a whole. Therefore, an increase in revenue will always increase Shareholders' Equity.

Quiz 3: The Income Statement

Customers paid $8,000 on their accounts.Which accounts are affected by this transaction?

Which of the following journal entries would decrease Shareholders' equity?

This month,a company performed $517,000 of services and incurred total expenses of $438,000.If the company was paid in cash for all its services and paid cash for all its expenses,these transactions would cause:

On the last day of the current month,a company paid $12,000 to its suppliers,of which $2,000 was for supplies received on the last day of the current month and $10,000 was for supplies received during the previous month.The $12,000 payment would be recorded as a:

Austin Insurance (AI) earned $10,000 revenue for services provided.Which of the following is correct?

This month,Grass is Greener Lawn Service pays cash for $4,000 of grass fertilizer to be used two months from now.What journal entry will Grass is Greener record this month?

The unadjusted trial balance:

Which of the following groups of accounts contains only those accounts that normally have credit balances?

In January,a company pays for advertising space in the local paper for ads to be run during the months of January,February,and March at $1,500 a month.The payment would be recorded in January as a:

Sparkling Pools received a bill for $1,200 for running newspaper ads during the last two weeks of July; the bill will be paid on August 1.Advertising expense should be:

Which account is least likely to be credited when an expense is recorded?

In January,the Huntington Beach Resort (HBR) accepts your reservation and receives your $2,000 payment for a week of sun and fun in California during spring break in March.The $2,000 would be recorded by HBR during January as a debit to:

The unadjusted trial balance:

Your company received payment last month for a service that you provided this month.How will the business activity of the current month affect the basic accounting equation?

Which of the following would eventually cause a reduction in retained earnings?

On the 15thof the month,a company receives $8,000 in payments from customers.$1,000 is for services performed on that day and the remaining is payment for services performed in the previous month.The $8,000 cash receipt would be recorded as a:

Trudy's Café paid its employees $50,000 in September for work done that month.What journal entry will Trudy's record in September,assuming Trudy's did not owe any amounts to employees at the end of August?

A customer orders a heavy duty machinery from Yukon Inc in October.Yukon manufactures it in November and ships it along with their bill in December and receives payment in January.If Yukon is to recognize revenue in January,they are following:

All other accounts remaining the same,an increase in revenue will always: