Question 1

If a transaction causes total assets of the company to increase by $2,000,then liabilities plus stockholders' equity also increases by $2,000.

Accepted Answer

This is due to the accounting equation, which states that assets = liabilities + stockholders' equity. If assets increase by $2,000, then in order for the equation to remain balanced, either liabilities or stockholders' equity (or both) must also increase by $2,000.

Question 2

On March 3,Cobra Inc.purchased a desk for $450 on account.On March 22,Cobra purchased another desk for $500 also on account,and then on March 24,Cobra paid $400 on account.At the end of March,what amount should Cobra report for desks (assuming these two desks were the only desks they had)?

Accepted Answer

Cobra purchased two desks on account for a total of $950 ($450 + $500). They made a payment of $400 on account, leaving a balance of $550 ($950 - $400). Therefore, at the end of March, Cobra should report $550 for desks.

Question 3

Posting transactions to the T-accounts involve:

Accepted Answer

Posting transactions to the T-accounts involves transferring debit and credit information from the journal to the accounts in the general ledger. Option A refers to the process of analyzing source documents to determine the effects of transactions on the company's accounts, which is done before posting transactions. Option B refers to the process of preparing a trial balance, which is done after posting transactions. Option C refers to the process of journalizing transactions, which is done before posting transactions.

Question 4

On December 1,2012,Bears Inc.signed a contract with a retailer to supply maintenance for the next calendar year.How should this transaction be recorded on December 1,2012?

Accepted Answer

Since the service is to be provided in the future, no revenue is recognized on December 1, 2012. The transaction should be recorded when the service is performed or when payment is received, depending on the accounting method used.

Question 5

After recording each transaction,total assets must equal total liabilities plus stockholders' equity.

Accepted Answer

This is the fundamental accounting equation, which states that the total assets of a business must always equal the total of its liabilities and stockholders' equity. This equation serves as a basis for double-entry bookkeeping and helps ensure the accuracy of financial statements.

Question 6

A trial balance represents the:

Accepted Answer

A trial balance is a list of all accounts and their balances at a particular date to ensure that debits equal credits. It is used to check the accuracy of the accounting system and to help identify errors.

Question 7

Finnish Motors has the following balance sheet accounts:
$$\begin{array} { l r } 
\text { Land } & \$ 150,000 \
\text { Equipment } & 90,000 \
\text { Salaries Payable } & 12,000 \
\text { Notes Payable } & 99,000 \
\text { Supplies } & 10,000 \
\text { Cash } & 25,000 \
\text { Common Stock } & 40,000 \
\text { Retained Earnings } & 100,000 \
\text { Accounts Payable } & ? \
\text { Prepaid Rent } & ?
\end{array}$$
If the company has total liabilities and stockholders' equity of $290,000,what is the balance of the company's Prepaid Rent account?

Accepted Answer

Total liabilities and stockholders' equity = $290,000Total liabilities = Notes Payable + Accounts Payable + Salaries Payable = $99,000 + Accounts Payable + $12,000Total stockholders' equity = Common Stock + Retained Earnings = $40,000 + $100,000 = $140,000Therefore, Accounts Payable = $290,000 - $99,000 - $12,000 - $140,000 = $39,000Prepaid Rent = Total assets - Total liabilities - Total stockholders' equity = ($150,000 + $90,000 + $10,000 + $25,000) - ($99,000 + $39,000 + $12,000) - $140,000 = $15,000

Question 8

A list of all account names used to record transactions of a company is referred to as a T-account.

Accepted Answer

A T-account is actually a visual representation of an account that shows the debits and credits of that account. The list of all account names used to record transactions of a company is referred to as a chart of accounts.

Question 9

Bostel wanted to expand the size of its warehouse in order to generate more profits.The company decided to purchase the building adjacent to its existing warehouse.The company pays for the building by borrowing from the bank.The purchase would be recorded as:

Accepted Answer

The purchase of the building would increase the company's assets, specifically the buildings, which would be recorded as a debit to the Buildings account. However, since the company borrowed money from the bank to purchase the building, they have a liability, which would be recorded as a credit to the Notes Payable account. Therefore, the correct entry is Debit Buildings; Credit Notes Payable.

Question 10

Posting is the process of:

Accepted Answer

Posting involves transferring the debit and credit information from the journal to individual accounts in the general ledger. Option A refers to analyzing the impact of transactions on accounting equations, which is done during the preparation of financial statements. Option B refers to the recording of transactions in a journal, which is done before posting. Option D refers to the preparation of a trial balance.

Question 11

On July 31,ALOE Inc.received $5,000 cash from a customer who previously purchased ALOE's products on account.What should ALOE Inc.record at the time it receives cash?

Accepted Answer

When ALOE Inc. receives cash from a customer who previously purchased their products on account, it means that the customer has paid their outstanding Accounts Receivable balance. Therefore, ALOE Inc. should debit Cash for $5,000 and credit Accounts Receivable for $5,000 to reflect the transaction. Option A is incorrect because it wrongly assumes that ALOE Inc. is still owed $5,000 by the customer. Option C is incorrect because it involves Accounts Payable, which is not relevant to the transaction. Option D is incorrect because there is no mention of any service being provided by ALOE Inc. in the question.

Question 12

A trial balance can best be explained as a list of:

Accepted Answer

A trial balance is a list of all accounts and their balances at a specific date. It is used to ensure that the total debit balances equal the total credit balances in the accounting system and to detect any errors in the recording of transactions.

Question 13

On July 7,2012,Saints Inc.received $10,000 in cash from a customer for services to be provided on October 10,2012.Which of the following describes how the transaction should be recorded on July 7,2012?

Accepted Answer

When a customer pays in advance for services or goods that will be provided later, the company should record it as a liability, called unearned revenue. Hence, on July 7, 2012, when Saints Inc. received $10,000 in cash from the customer, the transaction should be recorded as follows:
Debit Cash $10,000 and Credit Unearned Revenue $10,000. This entry will increase the cash balance and create a liability (unearned revenue) that will be reduced when the services are rendered on October 10, 2012. Once the services are provided, the unearned revenue account will be debited, and service revenue account will be credited for $10,000.

Question 14

Accounts Receivable account has a beginning balance of $10,000 and the company provides services of $50,000 on account during the month.The ending balance was $12,000.How much did the company receive from customers during the month?

Accepted Answer

The company started with $10,000 and added $50,000 in services, totaling $60,000. With an ending balance of $12,000, the company must have received $48,000 from customers ($60,000 - $12,000 = $48,000).

Question 15

External transactions are transactions the firm conducts with a separate economic entity,such as selling products to a customer,purchasing supplies from a vendor,paying salaries to an employee,and borrowing money from a bank.

Accepted Answer

External transactions involve interactions with other economic entities outside of the firm, such as customers, vendors, employees, and lenders.

Question 16

Clement Company paid an account payable related to a previous utility bill of $1,000.This transaction should be recorded as follows on the payment date:

Accepted Answer

The payment of an account payable decreases the liability, so Accounts Payable is debited. Cash is credited because it is decreased by the payment.

Question 17

Tomlin & Company provides music for special occasions.On January 14,the Smith family hired Tomlin for an upcoming family wedding for an agreed upon fee of $10,000.The wedding was scheduled for May 23.As part of the agreement,the Smiths paid Tomlin half of the fee at the end of April with the remaining amount due by the end of June.How would Tomlin record the receipt of the final payment in June?

Accepted Answer

Tomlin would record the receipt of the final payment in June by crediting Accounts Receivable, as the payment would settle the outstanding amount owed by the Smith family.

Question 18

Internal transactions are events that affect the financial position of the company but do not include an exchange with a separate economic entity.Examples are using supplies on hand and earning revenues after having received cash in advance from a customer.

Accepted Answer

Internal transactions are events that affect the financial position of the company without involving a separate economic entity. Examples include using supplies on hand and earning revenues after receiving cash in advance from a customer.

Question 19

Lithuanian Motors has the following balance sheet accounts:
$$\begin{array} { l c } 
\text { Land } & \$ 170,000 \
\text { Equipment } & 66,000 \
\text { Salaries Payable } & ? \
\text { Notes Payable } & 88,000 \
\text { Supplies } & 14,000 \
\text { Cash } & 26,000 \
\text { Common Stock } & 100,000 \
\text { Retained Earnings } & 40,000 \
\text { Accounts Payable } & ? \
\text { Prepaid Rent } & 12,000
\end{array}$$
If the company has total assets of $288,000,what is the balance of the company's Salaries Payable account?

Accepted Answer

The answer of Lithuanian Motors has the following balance sheet...

Question 20

The Accounts Payable account has a beginning balance of $12,000 and the company purchased $50,000 of supplies on account during the month.The ending balance was $10,000.How much did the company pay to creditors during the month?

Accepted Answer

The company purchased $50,000 of supplies on account during the month, so the total amount owed to creditors increased by $50,000. The beginning balance of Accounts Payable was $12,000, so the total amount owed to creditors was $12,000 + $50,000 = $62,000.

The ending balance of the Accounts Payable account was $10,000, which means that the company paid $62,000 - $10,000 = $52,000 to creditors during the month. Therefore, the correct answer is B.

Quiz 2: The Accounting Information System