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Exam 3: The Accounting Information System

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Question 121

Multiple Choice

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A company that receives money in advance of performing a service

A) debits Cash and credits Unearned Service Revenue.
B) debits Unearned Service Revenue and credits Accounts Payable
C) debits Cash and credits Prepaid Insurance.
D) debits Cash and credits Accounts Receivable.

E) A) and C)
F) A) and B)

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Question 122

Multiple Choice

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On March 1, 2014, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?

A) Yes, the company is now obligated to pay the employee, thus that event must be recorded.
B) No, hiring an employee is an important event; however it is not an economic event that should be recorded.
C) Yes, failure to record the event would cause the financial statements to be misleading.
D) No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known.

E) A) and D)
F) A) and C)

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Question 123

Multiple Choice

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Barnes Company showed the following balances at the end of its first year: Mc. 141 (count) What did Barnes Company show as total credits on its trial balance?

Selected transactions for Stockton Corporation during its first month in business are presented below: Sept. 1 Issued common stock in exchange for $30,000 cash received from investors. 5 Purchased equipment for $20,000, paying $2,000 in cash and the balance on account. 25 Paid $6,000 cash on balance owed for equipment. 30 Paid $1,000 cash dividend. Stockton's chart of accounts shows: Cash, Equipment, Accounts Payable, Common Stock, and Dividends. Instructions (a) Prepare a tabular analysis of the September transactions. The column headings should be: Cash + Equipment = Accounts Payable + Stockholders' Equity. For transactions affecting stockholders' equity, provide explanations in the right margin. (b) Journalize the transactions. Do not provide explanations. (c) Post the transactions to T-accounts.

Economic events that require recording in the financial statements are called accounting transactions.

A debit to an asset account indicates a(n)

Describe the accounting information system and the steps in the recording process.

During an accounting period, a business has numerous transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries.

The payment of a liability

At January 31, 2014, the balance in Goebel Inc.'s supplies account was $700. During February. Goebel purchased supplies of $600 and used supplies of $800. At the end of February, the balance in the Supplies account should be

All of the following statements regarding the double-entry system are true except

Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner?

Receiving payment of a portion of an accounts receivable will

Sue Sloan and Associates is a financial planning service. The account balances at December 31, 2014 are shown by the following alphabetical list: Instructions Prepare a trial balance with the accounts arranged in financial statement order.

An increase in an asset is recorded by a debit.

The best interpretation of the word "credit" is the

Posting is performed by transferring information from the

Liabilities are increased with debits and decreased with credits.

Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?

The receipt of cash in advance from a customer