Question 1

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. This ensures accuracy and completeness in the recording of financial transactions.

Question 2

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 used to reflect the risk associated with a company's debts. It measures the proportion of a company's total assets that have been financed with debt, indicating how much of the company's assets are at risk of being claimed by creditors in the event of default.

Question 3

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 an asset in a prepaid expense account. This is because the expense has been paid for in advance, and the benefit of the expense will be realized over time in the future. Therefore, a debit to a prepaid expense account is required to recognize the asset created by the prepayment of the expense.

Question 4

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 measures the proportion of a company's total assets that are financed by debt. The formula to calculate the debt ratio is total liabilities divided by total assets. This can be represented mathematically as:
Debt Ratio = Total Liabilities / Total Assets

Question 5

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

The answer of These transactions were completed by the art...

Question 6

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

The answer of Stride Rite has total assets of $425...

Question 7

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

The journal entry to record the prepayment of a client for services that have not yet been rendered involves a credit to a liability account called Unearned Management Fees. This account will be decreased as the services are rendered and the revenue is earned, and will eventually be credited to Management Fees Earned. Additionally, there will be a debit to Cash to reflect the receipt of the prepayment. Therefore, only choice D accurately describes the journal entry for this transaction.

Question 8

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

The statement "Risk is higher if a company has higher assets" is incorrect. Higher assets can actually decrease risk if they generate higher profits and cash flows. It is the level of liabilities relative to assets that affects financial risk.

Question 9

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

The account balance is the difference between the total debits and total credits for an account including the beginning balance. This is known as the account's net balance.

Question 10

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 highly leveraged and may have difficulty paying back its debts. A low debt ratio is generally considered better as it shows a lower level of risk for the company.

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) 
B) 
C) 
D) 
E)

Accepted Answer

The entry should debit Cash for $70,000 and debit Land for $130,000. It should also credit Common Stock for the total amount contributed, which is $200,000. The correct entry is:

Debit Cash $70,000
Debit Land $130,000
Credit Common Stock $200,000

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

We can use the formula:

Beginning Cash Balance + Cash Receipts - Cash Disbursements = Ending Cash Balance

Plugging in the given values, we get:

Beginning Cash Balance + $7,500 - $8,600 = $1,800

Simplifying, we get:

Beginning Cash Balance = $1,800 + $1,100 = $2,900

Therefore, the answer is choice C.

Question 13

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

When Wisconsin Rentals purchases office supplies on credit, they are essentially promising to pay the supplier at a later date. This creates a liability for the company, which is recorded as an Accounts Payable. Therefore, the journal entry would include a Credit to Accounts Payable to represent the amount owed to the supplier.

Question 14

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 journal entry will include a debit to Telephone Expense for $300 to record the expense incurred and a credit to Cash for $300 to reflect the payment made.

Question 15

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 revenues are increased with a credit. Therefore, D is the only true statement regarding debits and credits in the given options.

Question 16

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 17

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

The debt ratio is calculated by dividing total liabilities by the sum of total liabilities and total equity. Here, it is $550 million / ($550 million + $300 million) = 0.647 or 64.7%.

Question 18

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, which normally has a credit balance.

Question 19

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

Revenue is recognized when services are provided, not when cash is received. Transactions a, c, d, and f all relate to the receipt of cash but not the provision of services in July. Therefore, the only transaction that generates revenue is transaction b, which is a cash investment and not revenue. Thus, the total revenue for July is $0.

Question 20

A debit is used to record a(n):
A)Decrease in an asset account.
B)Decrease in an expense account.
C)Increase in a revenue account.
D)Increase in the balance of common stock.
E)Decrease in the balance of retained earnings.

Accepted Answer

A debit decreases the balance of retained earnings, as retained earnings are part of equity, and debits decrease equity accounts.

Quiz 2: Accounting System and Financial Statements

Double-entry accounting is an accounting system:

The debt ratio is used:

An asset created by prepayment of an expense is:

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

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

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:

Which of the following statements is incorrect?

An account balance is:

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

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

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?

A credit entry:

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

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

A debit is used to record a(n) :