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Problem 2-3a – due in 14 hours – accounting | accounting

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2-3Journalizing and Posting to Accounts

Obj. 3

As illustrated, a transaction is first recorded in a journal. Periodically, the journal entries are transferred to the accounts in the ledger. The process of transferring the debits and credits from the journal entries to the accounts is called posting.

The December transactions of NetSolutions are used to illustrate posting from the journal to the ledger. By using the December transactions, an additional review of analyzing and journalizing transactions is provided.

A journal entry is shown. December 1 is the date indicated. Prepaid Insurance is debited with 2,400 shown in the Debit column. Cash is credited with 2,400 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid premium on one-year policy. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity. Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 1 entry of 2,400 is shown. The Debit column of the Cash T account is blank. Under the Cash T account, a T account for Prepaid Insurance is shown. The account number, 15, is shown in the top-right corner of the T account. On the left, in the Debit column of the Prepaid Insurance T account, a December 1 entry of 2,400 is shown. The Credit column of the Prepaid Insurance T account is blank.Enlarge ImageDynamic Exhibit 2-1Copyright © Cengage Learning. All Rights Reserved

The posting of the preceding December 1 transaction is shown in Exhibit 5. Notice that the T account form is not used in Exhibit 5. In practice, the T account is usually replaced with a standard four-column account as shown in Exhibit 5.

Exhibit 5Diagram of the Recording and Posting of a Debit and a Credit Ledger, NetSolutionsA journal entry is shown on Page 2 of a journal form. The journal is broken in two to indicate that there are transactions not listed here that occurred before the entry shown. December 1 is the date indicated. Prepaid Insurance is debited with 15 shown in the Post. Ref. column and 2,400 shown in the Debit column. Cash is credited with 11 shown in the Post Ref. column and 2,400 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid premium on one-year policy. The amounts in the Debit and Credit columns are highlighted in blue color font. Below the journal entry are two ledger accounts. The first ledger account shown is Prepaid Insurance. The account number, 15, is shown in the top-right corner. One transaction is listed. December 1, 2018 is the date indicated in the Date column. The year 2018 appears in small type above the word Dec. The Item column is blank, 2 is shown in the Post. Ref. column, and 2,400 is shown in the Debit column and the Debit Balance column. In the Debit column, 2,400 is highlighted in blue color font. The second ledger account shown is Cash. The account number, 11, is shown in the top-right corner. Three transactions are listed. In the first transaction, November 1, 2018 is the date indicated in the Date column; the Item column is blank; 1 is shown in the Post. Ref. column; and 25,000 is shown in the Debit column and the Debit Balance column. In the second transaction, November 30 is the date indicated in the Date column; the Item column is blank; 2 is shown in the Post. Ref. column; 2,000 is shown in the Credit column; and 5,900 is shown in the Debit Balance column. In the third transaction, December 1 is the date indicated in the Date column; the Item column is blank; 2 is shown in the Post. Ref. column; 2,400 is shown in the Credit column and is highlighted in blue color font; and 3,500 is shown in the Debit Balance column. Before the listings of the second and third transactions, the account is broken in two to indicate that there are transactions not listed here that occurred after the first transaction listed and before the second transaction listed here. In both ledger accounts, there is a small arrow pointing to Dec. 1 in the Date column with the words Step 1 written in bold type to the left of the arrow. In the journal entry, there is a small arrow going from the 2,400 in the Debit column to the 2,400 in the Debit column of the Prepaid Insurance ledger account with the words Step 2 written in bold type. In the journal entry, there is a small arrow going from the 2,400 in the Credit column to the 2,400 in the Credit column of the Cash ledger account with the words Step 2 written in bold type by the arrow. In both ledger accounts, a small arrow with the words Step 3 in bold type underneath the arrow points to the 2 in the Post. Ref. column. In the journal entry, there are two small arrows pointing to the 15 and 11 in the Post. Ref. column, with the words Step 4 in bold type to the left of each arrow.Enlarge Image

The debits and credits for each journal entry are posted to the accounts in the order in which they occur in the journal. To illustrate, the debit portion of the December 1 journal entry is posted to the prepaid insurance account in Exhibit 5 using the following four steps:

  1. Step 1.The date (Dec. 1) of the journal entry is entered in the Date column of Prepaid Insurance.
  2. Step 2.The amount (2,400) is entered into the Debit column of Prepaid Insurance.
  3. Step 3.The journal page number (2) is entered in the Posting Reference (Post. Ref.) column of Prepaid Insurance.
  4. Step 4.The account number (15) is entered in the Posting Reference (Post. Ref.) column in the journal.

As shown in Exhibit 5, the credit portion of the December 1 journal entry is posted to the cash account in a similar manner.

The remaining December transactions for NetSolutions are analyzed and journalized in the following paragraphs. These transactions are posted to the ledger later in this chapter (see Exhibit 6). To simplify, some of the December transactions are stated in summary form. For example, cash received for services is normally recorded on a daily basis. However, only summary totals are recorded at the middle and end of the month for NetSolutions.

A journal entry is shown. December 1 is the date indicated. Rent Expense is debited with 53 shown in the Post. Ref. column and 800 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 800 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid rent for December. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (the word Expense is set in parentheses). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 1 entry of 800 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (the word Expense is set in parentheses) in the accounting equation, a T account for Rent Expense is shown. The account number, 53, is shown in the top-right corner of the T account. On the left, in the Debit column of the Rent Expense T account, a December 1 entry of 800 is shown. The Credit column of the Rent Expense T account is blank.Enlarge ImageA journal entry is shown. December 1 is the date indicated. Rent Expense is debited with 53 shown in the Post. Ref. column and 800 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 800 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid rent for December. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (the word Expense is set in parentheses). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 1 entry of 800 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (the word Expense is set in parentheses) in the accounting equation, a T account for Rent Expense is shown. The account number, 53, is shown in the top-right corner of the T account. On the left, in the Debit column of the Rent Expense T account, a December 1 entry of 800 is shown. The Credit column of the Rent Expense T account is blank.Enlarge ImageA journal entry is shown. December 1 is the date indicated. Cash is debited with 11 shown in the Post. Ref. column and 360 shown in the Debit column. Unearned Rent is credited with 23 shown in the Post. Ref. column and 360 shown in the Credit column. A journal entry explanation is given below the journal entry: Received advance payment for three months' rent on land. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity. Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the left, in the Debit column of the Cash T account, a December 1 entry of 360 is shown. The Credit column of the Cash T account is blank. Under Liabilities in the accounting equation, a T account for Unearned Rent is shown. The account number, 23, is shown in the top-right corner of the T account. On the right, in the Credit column of the Unearned Rent T account, a December 1 entry of 360 is shown. The Debit column of the Unearned Rent T account is blank.Enlarge ImageDynamic Exhibit 2-1Copyright © Cengage Learning. All Rights ReservedBusiness Connection

Microsoft’s Unearned Revenue

Microsoft Corporation develops, manufactures, licenses, and supports a wide range of computer software products, including, Word®, Excel®, and the Xbox® gaming system. When Microsoft sells its products, it also provides technical support and periodic updates on those products for a period of time. Thus, at the time of sale, a portion of the proceeds is unearned (deferred) for these services. As time passes and services are provided to customers, Microsoft records a portion of its unearned (deferred) revenue as revenue.

To illustrate, the following excerpt was taken from a recent financial statement of Microsoft:

Unearned revenue … include(s) payments for: post-delivery support and consulting services to be performed in the future; Xbox Live subscriptions and prepaid points; Microsoft Dynamics business solutions products; Office 365 subscriptions; Skype prepaid credits and subscriptions; Bundled Offerings; and other offerings for which we have been paid in advance….

During a recent year, Microsoft recognized as revenue $48,498 million of unearned revenue, which is 57% of its total revenues. For a recent year ending June 30, Microsoft also reported on its balance sheet a liability for unearned revenue of $33,909 million. Thus, the recording of unearned revenue is a significant item for Microsoft.

Source: Microsoft Corporation, Form 10-K, For the Year Ended June 30, 2016.A journal entry is shown. December 4 is the date indicated. Office Equipment is debited with 18 shown in the Post. Ref. column and 1,800 shown in the Debit column. Accounts Payable is credited with 21 shown in the Post. Ref. column and 1,800 shown in the Credit column. A journal entry explanation is given below the journal entry: Purchased office equipment on account. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity. Under Assets in the accounting equation, a T account for Office Equipment is shown. The account number, 18, is shown in the top-right corner of the T account. On the left, in the Debit column of the Office Equipment T account, a December 4 entry of 1,800 is shown. The Credit column of the Office Equipment T account is blank. Under Liabilities in the accounting equation, a T account for Accounts Payable is shown. The account number, 21, is shown in the top-right corner of the T account. On the right, in the Credit column of the Accounts Payable T account, a December 4 entry of 1,800 is shown. The Debit column of the Accounts Payable T account is blank.Enlarge ImageA journal entry is shown. December 6 is the date indicated. Miscellaneous Expense is debited with 59 shown in the Post. Ref. column and 180 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 180 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid for newspaper advertisement. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Expense). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 6 entry of 180 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (Expense) in the accounting equation, a T account for Miscellaneous Exp. is shown. The account number, 59, is shown in the top-right corner of the T account. On the left, in the Debit column of the Miscellaneous Exp. T account, a December 6 entry of 180 is shown. The Credit column of the Miscellaneous Exp. T account is blank.Enlarge ImageA journal entry is shown. December 11 is the date indicated. Accounts Payable is debited with 21 shown in the Post. Ref. column and 400 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 400 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid creditors on account. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity. Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 11 entry of 400 is shown. The Debit column of the Cash T account is blank. Under Liabilities in the accounting equation, a T account for Accounts Payable is shown. The account number, 21, is shown in the top-right corner of the T account. On the left, in the Debit column of the Accounts Payable T account, a December 11 entry of 400 is shown. The Credit column of the Accounts Payable T account is blank.Enlarge ImageJournalizing and Posting to AccountsEnlarge ImageA journal entry is shown on Page 3 of a journal form. December 13 is the date indicated in the Date column. The year 2018 appears in small type above the word Dec. Wages Expense is debited with 51 shown in the Post. Ref. column and 950 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 950 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid two weeks' wages. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Expense). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 13 entry of 950 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (Expense) in the accounting equation, a T account for Wages Expense is shown. The account number, 51, is shown in the top-right corner of the T account. On the left, in the Debit column of the Wages Expense T account, a December 13 entry of 950 is shown. The Credit column of the Wages Expense T account is blank.Enlarge ImageLink to Apple

In a recent year, Apple incurred advertising expense of $1.2 billion. Apple reports advertising expense as part of Selling, General, and Administrative Expenses.

Business Connection

Computerized Accounting Systems

Computerized accounting systems are widely used by even the smallest companies. These systems simplify the record-keeping process in that transactions are recorded in electronic forms. Forms used to bill customers for services provided are often completed using drop-down menus that list services that are normally provided to customers. An auto-complete entry feature may also be used to fill in customer names. For example, type “ca” to display customers with names beginning with “Ca” (Caban, Cahill, Carey, and Caswell). And to simplify data entry, entries are automatically posted to the ledger accounts when the electronic form is completed.

One popular accounting software package used by small- to medium-sized businesses is QuickBooks®. Some examples of using QuickBooks to record accounting transactions are illustrated and discussed in Chapter 5.

Journalizing and Posting to AccountsEnlarge ImageA journal entry is shown. December 16 is the date indicated. Accounts Receivable is debited with 12 shown in the Post. Ref. column and 1,750 shown in the Debit column. Fees Earned is credited with 41 shown in the Post. Ref. column and 1,750 shown in the Credit column. A journal entry explanation is given below the journal entry: Fees earned on account. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Revenue). Under Assets in the accounting equation, a T account for Accounts Receivable is shown. The account number, 12, is shown in the top-right corner of the T account. On the left, in the Debit column of the Accounts Receivable T account, a December 16 entry of 1,750 is shown. The Credit column of the Accounts Receivable T account is blank. Under Owner's Equity (Revenue) in the accounting equation, a T account for Fees Earned is shown. The account number, 41, is shown in the top-right corner of the T account. On the right, in the Credit column of the Fees Earned T account, a December 16 entry of 1,750 is shown. The Debit column of the Fees Earned T account is blank.Enlarge ImageJournalizing and Posting to AccountsEnlarge ImageDynamic Exhibit 2-1Copyright © Cengage Learning. All Rights ReservedExample Exercise 2-3

Journal Entry for Fees Earned

Obj. 3

  1. Prepare a journal entry on August 7 for the fees earned on account, $115,000.
    Follow My Example 2-3
    Answer

Practice Exercises: PE 2-3A, PE 2-3B

A journal entry is shown. December 20 is the date indicated. Accounts Payable is debited with 21 shown in the Post. Ref. column and 900 shown in the Debit column. Cash is credited—with 11 shown in the Post. Ref. column and 900 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid creditors on account. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity. Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 20 entry of 900 is shown. The Debit column of the Cash T account is blank. Under Liabilities in the accounting equation, a T account for Accounts Payable is shown. The account number, 21, is shown in the top-right corner of the T account. On the left, in the Debit column of the Accounts Payable T account, a December 20 entry of 900 is shown. The Credit column of the Accounts Payable T account is blank.Enlarge ImageA journal entry is shown. December 21 is the date indicated. Cash is debited with 11 shown in the Post. Ref. column and 650 shown in the Debit column. Accounts Receivable is credited with 12 shown in the Post. Ref. column and 650 shown in the Credit column. A journal entry explanation is given below the journal entry: Received cash from customers on account. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity. Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the left, in the Debit column of the Cash T account, a December 21 entry of 650 is shown. The Credit column of the Cash T account is blank. Under the Cash T account, a T account for Accounts Receivable is shown. The account number, 12, is shown in the top-right corner of the T account. On the right, in the Credit column of the Accounts Receivable T account, a December 21 entry of 650 is shown. The Debit column of the Accounts Receivable T account is blank.Enlarge ImageJournalizing and Posting to AccountsEnlarge ImageA journal entry is shown. December 23 is the date indicated. Supplies is debited with 14 shown in the Post. Ref. column and 1,450 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 1,450 shown in the Credit column. A journal entry explanation is given below the journal entry: Purchased supplies. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity. Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 23 entry of 1,450 is shown. The Debit column of the Cash T account is blank. Under the Cash T account, a T account for Supplies is shown. The account number, 14, is shown in the top-right corner of the T account. On the left, in the Debit column of the Supplies T account, a December 23 entry of 1,450 is shown. The Credit column of the Supplies T account is blank.Enlarge ImageA journal entry is shown. December 27 is the date indicated. Wages Expense is debited with 51 shown in the Post. Ref. column and 1,200 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 1,200 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid two weeks' wages. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Expense). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 27 entry of 1,200 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (Expense) in the accounting equation, a T account for Wages Expense is shown. The account number, 51, is shown in the top-right corner of the T account. On the left, in the Debit column of the Wages Expense T account, a December 27 entry of 1,200 is shown. The Credit column of the Wages Expense T account is blank.Enlarge ImageA journal entry is shown. December 31 is the date indicated. Utilities Expense is debited with 54 shown in the Post. Ref. column and 310 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 310 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid telephone bill. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Expense). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 31 entry of 310 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (Expense) in the accounting equation, a T account for Utilities Expense is shown. The account number, 54, is shown in the top-right corner of the T account. On the left, in the Debit column of the Utilities Expense T account, a December 31 entry of 310 is shown. The Credit column of the Utilities Expense T account is blank.Enlarge ImageA journal entry is shown on Page 4 of a journal form. December 3 is the date indicated in the Date column. The year 2018 appears in small type above the word Dec. Utilities Expense is debited with 54 shown in the Post. Ref. column and 225 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 225 shown in the Credit column. A journal entry explanation is given below the journal entry: Paid electric bill.Enlarge ImageBelow the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Expense). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 31 entry of 225 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (Expense) in the accounting equation, a T account for Utilities Expense is shown. The account number, 54, is shown in the top-right corner of the T account. On the left, in the Debit column of the Utilities Expense T account, a December 31 entry of 225 is shown. The Credit column of the Utilities Expense T account is blank.Enlarge ImageA journal entry is shown. December 31 is the date indicated. Cash is debited with 11 shown in the Post. Ref. column and 2,870 shown in the Debit column. Fees Earned is credited with 41 shown in the Post. Ref. column and 2,870 shown in the Credit column. A journal entry explanation is given below the journal entry: Received fees from customers. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Revenue). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the left, in the Debit column of the Cash T account, a December 31 entry of 2,870 is shown. The Credit column of the Cash T account is blank. Under Owner's Equity (Revenue) in the accounting equation, a T account for Fees Earned is shown. The account number, 41, is shown in the top-right corner of the T account. On the right, in the Credit column of the Fees Earned T account, a December 31 entry of 2,870 is shown. The Debit column of the Fees Earned T account is blank.Enlarge ImageA journal entry is shown. December 31 is the date indicated. Accounts Receivable is debited with 12 shown in the Post. Ref. column and 1,120 shown in the Debit column. Fees Earned is credited with 41 shown in the Post. Ref. column and 1,120 shown in the Credit column. A journal entry explanation is given below the journal entry: Fees earned on account. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Revenue). Under Assets in the accounting equation, a T account for Accounts Receivable is shown. The account number, 12, is shown in the top-right corner of the T account. On the left, in the Debit column of the Accounts Receivable T account, a December 31 entry of 1,120 is shown. The Credit column of the Accounts Receivable T account is blank. Under Owner's Equity (Revenue) in the accounting equation, a T account for Fees Earned is shown. The account number, 41, is shown in the top-right corner of the T account. On the right, in the Credit column of the Fees Earned T account, a December 31 entry of 1,120 is shown. The Debit column of the Fees Earned T account is blank.Enlarge ImageA journal entry is shown. December 31 is the date indicated. Chris Clark, Drawing is debited with 32 shown in the Post. Ref. column and 2,000 shown in the Debit column. Cash is credited with 11 shown in the Post. Ref. column and 2,000 shown in the Credit column. A journal entry explanation is given below the journal entry: Chris Clark withdrew cash for personal use. Below the journal form, the accounting equation impact is illustrated. The accounting equation is shown: Assets equals Liabilities plus Owner's Equity (Drawing). Under Assets in the accounting equation, a T account for Cash is shown. The account number, 11, is shown in the top-right corner of the T account. On the right, in the Credit column of the Cash T account, a December 31 entry of 2,000 is shown. The Debit column of the Cash T account is blank. Under Owner's Equity (Drawing) in the accounting equation, a T account for Chris Clark, Drawing is shown. The account number, 32, is shown in the top-right corner of the T account. On the left, in the Debit column of the Chris Clark, Drawing T account, a December 31 entry of 2,000 is shown. The Credit column of the Chris Clark, Drawing T account is blank.Enlarge ImageExample Exercise 2-4

Journal Entry for Owner’s Withdrawal

Obj. 3

  1. Prepare a journal entry on December 29 for the payment of $12,000 to the owner of Smartstaff Consulting Services, Dominique Walsh, for personal use.
    Follow My Example 2-4
    Answer

Practice Exercises: PE 2-4A, PE 2-4B

Exhibit 6 shows the December 31, 2018 ledger for NetSolutions after the transactions for both November and December have been posted.

Exhibit 6

General Ledger for NetSolutions on December 31, 2018

Ten accounts from NetSolutions' ledger are shown. The first account shown is Cash. The account number, 11, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 1, Post. Ref. 1, Debit 25,000, Debit Balance 25,000. Nov. 5, Post. Ref. 1, Credit 20,000, Debit Balance 5,000. Nov. 18, Post. Ref. 1, Debit 7,500, Debit Balance 12,500. Nov. 30, Post. Ref. 1, Credit 3,650, Debit Balance 8,850. Nov. 30, Post Ref. 1, Credit 950, Debit Balance 7,900. Nov. 30, Post. Ref. 2, Credit 2,000, Debit Balance 5,900. Dec. 1, Post. Ref. 2, Credit 2,400, Debit Balance 3,500. Dec. 1, Post. Ref. 2, Credit 800, Debit Balance 2,700. Dec. 1, Post. Ref. 2, Debit 360, Debit Balance 3,060. Dec. 6, Post. Ref. 2, Credit 180, Debit Balance 2,880. Dec. 11, Post. Ref. 2, Credit 400, Debit Balance 2,480. Dec. 13, Post. Ref. 3, Credit 950, Debit Balance 1,530. Dec. 16, Post. Ref. 3, Debit 3,100, Debit Balance 4,630. Dec. 20, Post. Ref. 3, Credit 900, Debit Balance 3,730. Dec. 21, Post. Ref. 3, Debit 650, Debit Balance 4,380. Dec. 23, Post. Ref. 3, Credit 1,450, Debit Balance 2,930. Dec. 27, Post. Ref. 3, Credit 1,200, Debit Balance 1,730. Dec. 31, Post. Ref. 3, Credit 310, Debit Balance 1,420. Dec. 31, Post. Ref. 4, Credit 225, Debit Balance 1,195. Dec. 31, Post. Ref. 4, Debit 2,870, Debit Balance 4,065. Dec. 31, Post. Ref. 4, Credit 2,000, Debit 2,065. The second account shown is Accounts Receivable. The account number, 12, is in the top-right corner. The 2018 transactions listed are as follows: Dec. 16, Post. Ref. 3, Debit 1,750, Debit Balance 1,750. Dec. 21, Post. Ref. 3, Credit 650, Debit Balance 1,100. Dec. 31, Post. Ref. 4, Debit 1,120, Debit Balance 2,220. The third account shown is Supplies. The account number, 14, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 10, Post. Ref. 1, Debit 1,350, Debit Balance 1,350. Nov. 30, Post. Ref. 1, Credit 800, Debit Balance 550. Dec. 23, Post. Ref. 3, Debit 1,450, Debit Balance 2,000. The fourth account shown is Prepaid Insurance. The account number, 15, is in the top-right corner. The 2018 transaction listed is as follows: Dec. 1, Post. Ref. 2, Debit 2,400, Debit Balance 2,400. The fifth account shown is Land. The account number, 17, is in the top-right corner. The 2018 transaction listed is as follows: Nov. 5, Post. Ref. 1, Debit 20,000, Debit Balance 20,000. The sixth account shown is Office Equipment. The account number, 18, is in the top-right corner. The 2018 transaction listed is as follows: Dec. 4, Post. Ref. 2, Debit 1,800, Debit Balance 1,800. The seventh account shown is Accounts Payable. The account number, 21, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 10, Post. Ref. 1, Credit 1,350, Credit Balance 1,350. Nov. 30, Post. Ref. 1, Debit 950, Credit Balance 400. Dec. 4, Post. Ref. 2, Credit 1,800, Credit Balance 2,200. Dec. 11, Post. Ref. 2, Debit 400, Credit Balance 1,800. Dec. 20, Post. Ref. 3, Debit 900, Credit Balance 900. The eighth account shown is Unearned Rent. The account number, 23, is in the top-right corner. The 2018 transaction listed is as follows: Dec. 1, Post. Ref. 2, Credit 360, Credit Balance 360. The ninth account shown is Chris Clark, Capital. The account number, 31, is in the top-right corner. The 2018 transaction listed is as follows: Nov. 1, Post. Ref. 1, Credit 25,000, Credit Balance 25,000. The tenth account shown is Chris Clark, Drawing. The account number, 32, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 30, Post. Ref. 2, Debit 2,000, Debit Balance 2,000. Dec. 31, Post. Ref. 4, Debit 2,000, Debit Balance 4,000.Enlarge ImageSix accounts from NetSolutions' ledger are shown. The first account shown is Fees Earned. The account number, 41, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 18, Post. Ref. 1, Credit 7,500, Credit Balance 7,500. Dec. 16, Post. Ref. 3, Credit 3,100, Credit Balance 10,600. Dec. 16, Post. Ref. 3, Credit 1,750, Credit Balance 12,350. Dec. 31, Post. Ref. 4, Credit 2,870, Credit Balance, 15,220. Dec. 31, Post. Ref. 4, Credit 1,120, Credit Balance 16,340. The second account shown is Wages Expense. The account number, 51, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 30, Post. Ref. 1, Debit 2,125, Debit Balance 2,125. Dec. 13, Post. Ref. 3, Debit 950, Debit Balance 3,075. Dec. 27, Post. Ref 3, Debit 1,200, Debit Balance 4,275. The third account shown is Supplies Expense. The account number, 52, is in the top-right corner. The 2018 transaction listed is as follows: Nov. 30, Post. Ref. 1, Debit 800, Debit Balance 800. The fourth account shown is Rent Expense. The account number, 53, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 30, Post. Ref. 1, Debit 800, Debit Balance 800. Dec. 1, Post. Ref. 2, Debit 800, Debit Balance 1,600. The fifth account shown is Utilities Expense. The account number, 54, is in the top-right corner. The 2018 transactions are listed as follows: Nov. 30, Post. Ref. 1, Debit 450, Debit Balance 450. Dec. 31, Post. Ref. 3, Debit 310, Debit Balance 760. Dec. 31, Post. Ref. 4, Debit 225, Debit Balance 985. The sixth account shown is Miscellaneous Expense. The account, number, 59, is in the top-right corner. The 2018 transactions listed are as follows: Nov. 30, Post. Ref. 1, Debit 275, Debit Balance 275. Dec. 6, Post. Ref. 2, Debit 180, Debit Balance 455.Enlarge ImageExample Exercise 2-5

Missing Amount from an Account

Obj. 3

  1. On March 1, the cash account balance was $22,350. During March, cash receipts totaled $241,880, and the March 31 balance was $19,125. Determine the cash payments made during March.
    Follow My Example 2-5
    AnswerUsing the following T account, solve for the amount of cash payments (indicated by ? ):

Practice Exercises: PE 2-5A, PE 2-5B

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July 1, 2023
    

Question 1  of 38

Which of the following is NOT true of an effective accounting system?

  

The system must accommodate changes in the business over time.  

The system must provide minimal benefits at whatever cost is necessary.  

The system must work smoothly with your personnel and organizational structure.  

The system has internal controls to help the owner(s) control the business.

 

Question 2  of 38

Which of the following are characteristics of an effective manual accounting system, but NOT characteristics of an effective computerized accounting system?

  

Flexibility  

Control  

Compatibility  

All of these features are needed by both accounting systems.

 

Question 3  of 38

A check was written by a business for $329, but recorded in the cash payments journal as $239. How would this error be included on the bank reconciliation?

  

A deduction on the book side  

An addition on the book side  

An addition on the bank side  

A deduction on the bank side

 

Question 4  of 38

Which of the following are internal control procedures commonly used by companies to protect their assets?

  

a) Mandatory vacations for employees  

b) The purchase of fidelity bonds on cashiers  

c) Both A and B  

d) Neither A nor B

 

Question 5  of 38

Which of the following is the first step in the purchasing and payment process?

  

The purchaser receives the inventory and prepares a receiving report.  

The purchaser sends a purchase order to the supplier.  

The supplier ships the goods and sends an invoice to the purchaser.  

The purchaser sends a check to the supplier.

 

Question 6  of 38

Which of the following items does NOT cause a difference in the bank balance and the book balance on a bank reconciliation?

  

Deposits in transit  

Outstanding checks  

Canceled checks  

Nonsufficient funds checks

 

Question 7  of 38

Which of the following describes the internal control procedure "separation of duties?"

  

Cashiers must not have access to accounting records.  

The information system is critical.  

External auditors will monitor internal controls.  

Pre-number invoices and other documents.

 

Question 8  of 38

Table 9.1 

The following information is from the 2008 records of Armadillo Camera Shop: 

Accounts Receivable, December 31, 2008$20,000(debit) 

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment600(debit) 

Net credit sales for 2008 95,000 

Accounts written off as uncollectible during 20087,000  

Cash sales during 2008 27,000  

Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method. Management estimates that 3% of net credit sales will be uncollectible. Which of the following will be the amount of net accounts receivable after adjustment?

  

$17,150  

$16,550    

$17,750  

$13,000

 

Question 9  of 38

Which of the following is the proper accounting treatment for research and development costs?

  

Research and development costs must be expensed.  

Research and development costs must be capitalized and expensed each year to the extent that their value has declined.  

Research and development costs must be capitalized and amortized over 70 years or less.  

Research and development costs must be capitalized and amortized over 20 years or less.

 

Question 10  of 38

Which of the following is NOT considered a plant asset?

  

Building  

Copyright  

Land  

Equipment

 

Question 11  of 38

Kelly Petroleum Products owns fully depreciated equipment that was purchased for $26,500. The equipment had an estimated useful life of 8 years and an estimated residual value of $2,500. The equipment was sold for $2,700. Which of the following is the correct entry to record the transaction?

  

Accumulated depreciation 26,500 Cash 2,700 Gain on sale of equipment 2,700 Equipment 26,500  

Accumulated depreciation 24,000 Cash 2,700 Gain on sale of equipment 200 Equipment 26,500  

Accumulated depreciation 26,500 Cash 2,700 Equipment 23,800  

None of the above

 

Question 12  of 38

Which of the following would be expensed rather than capitalized?

  

Oil change and lubrication  

Major engine overhaul  

Addition to storage capacity  

Modification for new use

 

Question 13  of 38

In which of the following periods should the expense for warranty costs be recorded?

  

The period when the product is repaired or replaced  

The period when cash is collected for the sale of the product  

The period when cash is paid to repair or replace the product  

The period when the product is sold

 

Question 14  of 38

A company issues two thousand $1,000 bonds at 98. Which of the following is the entry to record this transaction? 

 

  

A  

B  

C  

D  

 

Question 15  of 38

How much cash will be received if a corporation issues $6,000,000 of 10% bonds at 102?

  

$6,012,000  

$6,000,000  

$6,120,000      

$5,880,000

 

Question 16  of 38

Which of the following is TRUE of the statement of cash flows?

  

The statement of cash flows shows where cash came from and how cash was spent.  

The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year".  

The statement of cash flows reports why cash increased or decreased during the period.  

All of the above are true of the statement of cash flows.

 

Question 17  of 38

Which of the following statements about the information included on a statement of cash flows is TRUE?

  

The statement of cash flows contains information about the business's percentage change in each item of revenue and expense.  

The statement of cash flows contains information about the differences between net income and additions to retained earnings.  

The statement of cash flows contains information about stock splits and stock dividends distributed by the company. 

The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods.

 

Question 18  of 38

Case 17.3 

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007. 

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

 

Refer to Case 17.3. What would vertical analysis report with respect to 2007 net sales revenue?

  

Vertical analysis would report a 2.60% decrease in net sales revenue.  

Vertical analysis would report cost of goods sold as 79.19% of net sales revenue.  

Vertical analysis would report a dividend yield of $8.20.  

Vertical analysis would report net sales revenue as the 100% base amount.

 

Question 19  of 38

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

  

The day's sales in receivables is a measure of a company's ability to pay liabilities with current assets.  

The inventory turnover ratio is a measure of a company's ability to pay liabilities with current assets.  

The current ratio is a measure of a company's ability to pay liabilities with current assets.  

The acid-test ratio is a measure of a company's ability to pay liabilities with current assets.

 

Question 20  of 38

Case 17.3 

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007. 

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

 

Refer to Case 17.3. What would vertical analysis report with respect to 2007 income tax expense?

  

Vertical analysis would report a $7,500 increase income tax expense.  

Vertical analysis would report income tax expense as 27.59% of net income before income tax.  

Vertical analysis would report income tax expense as 4.93% of net sales revenue.  

Vertical analysis would report a 45.45% increase in income tax expense.

 

Question 21  of 38

Which of the following are purposes of internal control?

  

One of the purposes of internal control is to encourage employees to follow company policy.  

One of the purposes of internal control is to ensure accurate, reliable accounting records.  

One of the purposes of internal control is to safeguard the company's assets.  

All of the statements above are true.

 

Question 22  of 38

A company received a bank statement showing a balance of $62,300. Reconciling items were outstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjusted bank balance?

  

$70,850  

$72,250  

$60,850  

$69,350  

 

Question 23  of 38

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $7,400. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

  

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Loss on exchange of equipment 600 Cash 10,000 Refrigeration equipment 10,000  

Refrigeration equipment 10,000 Accumulated depreciation 10,000 Gain on exchange of equipment 600 Cash 12,000 Refrigeration equipment 7,400  

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Cash 10,000 Refrigeration equipment 9,400  

None of the above

 

Question 24  of 38

Which of the following is the type of account that represents taxes withheld from employees' gross pay?

  

Asset  

Expense  

Contra asset  

Liability

 

Question 25  of 38

Which of the following is the correct order of the sections on a statement of cash flows?

  

The correct order is operating, financing, investing.  

The correct order is investing, operating, financing.  

The correct order is operating, investing, financing.  

The correct order is financing, investing, operating.

 

Question 26  of 38

Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?

  

The inventory turnover ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The day's sales in receivables is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The current ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The acid-test ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

 

Question 27  of 38

Which of the following is the formula to compute the dividend yield?

  

The formula is (total stockholders' equity − preferred equity) / number of shares of common stock outstanding.  

The formula is annual dividend per share of common stock / market price per share of common stock.  

The formula is market price per share of common stock / earnings per share.  

The formula is (net income − preferred dividends) / number of shares of common stock outstanding.

 

Question 28  of 38

Which of the following is a method of establishing control over collections of accounts receivable?

  

Designate an authorized check signer.  

Allow no one but the bookkeeper to handle cash.  

Set up a petty cash fund.  

Establish a bank lock-box system.

 

Question 29  of 38

Case 16.1 

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007, financial statements. 

 December 31, 2006December 31, 2007

Accounts receivable $100,000$110,000

Cost of goods sold 560,000

Sales revenue 830,000

Accounts payable* 67,00075,000

Inventory 105,00086,000

Salary payable 10,00013,000

Salary expense 45,00049,000

 

*Relates solely to the acquisition of inventory 

 

Refer to Case 16.1. What will appear in the operating activities section related to accounts payable?

  

The increase of $8,000 will be added to net income.     

The increase of $8,000 will be subtracted from cost of goods sold.  

The increase of $8,000 will be added to cost of goods sold.  

The increase of $8,000 will be subtracted from net income.

 

Question 30  of 38

Failure to record an accrued liability causes a company to:

  

understate owners' equity.  

understate liabilities.  

overstate expenses.  

overstate assets.

 

Question 31  of 38

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The amount of accrued interest on December 31 is:

  

$63.    

$75.  

$65.  

$70.

 

Question 32  of 38

The journal entry to record accrued interest on a short-term note payable must include a debit to:

  

Interest Expense and a credit to Notes Payable.  

Interest Expense and a credit to Interest Payable.  

Interest Payable and a credit to Notes Payable.  

Interest Payable and a credit to Interest Expense.

 

Question 33  of 38

Kosovo Company has $45 million in long-term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long-term liabilities?

  

Current Liabilities     Long-Term Liabilities

$15 million           $30 million

 

Current Liabilities    Long-Term Liabilities

$7.5 million$40 million

  

Current Liabilities   Long-Term Liabilities

$0 million         $45 million

  

Current Liabilities    Long-Term Liabilities

$45 million            $0 million

 

Question 34  of 38

Which is the preferred method to use when amortizing a bond discount or premium?

  

Both straight-line and market-interest rate methods of amortization are equally preferable.  

Straight-line method of amortization  

Market-interest rate method of amortization  

Effective interest method of amortization

 

Question 35  of 38

On a bond's maturity date, its face value will equal the:

  

maturity value less all interest payments.  

maturity value.  

maturity value plus all interest payments.  

present value of the bonds on its issuance date.

 

Question 36  of 38

Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond was issued at:

  

face value.  

a premium.  

a discount.  

par value.

 

Question 37  of 38

Which of the following is not an advantage of forming a corporation, as opposed to organizing as a partnership or proprietorship?

  

A corporation is a separate legal entity distinct from its owners.  

Ease of transferring ownership  

Limited liability of stockholders  

Limited taxation

 

Question 38  of 38

The number of stocks outstanding is the same as the number of stocks:

  

authorized by the board of directors.  

currently in the hands of the stockholders.  

ready to be sold to shareholders.  

issued to the shareholders.

 

default image
July 1, 2023
    

Question 1  of 38

Which of the following is NOT true of an effective accounting system?

  

The system must accommodate changes in the business over time.  

The system must provide minimal benefits at whatever cost is necessary.  

The system must work smoothly with your personnel and organizational structure.  

The system has internal controls to help the owner(s) control the business.

 

Question 2  of 38

Which of the following are characteristics of an effective manual accounting system, but NOT characteristics of an effective computerized accounting system?

  

Flexibility  

Control  

Compatibility  

All of these features are needed by both accounting systems.

 

Question 3  of 38

A check was written by a business for $329, but recorded in the cash payments journal as $239. How would this error be included on the bank reconciliation?

  

A deduction on the book side  

An addition on the book side  

An addition on the bank side  

A deduction on the bank side

 

Question 4  of 38

Which of the following are internal control procedures commonly used by companies to protect their assets?

  

a) Mandatory vacations for employees  

b) The purchase of fidelity bonds on cashiers  

c) Both A and B  

d) Neither A nor B

 

Question 5  of 38

Which of the following is the first step in the purchasing and payment process?

  

The purchaser receives the inventory and prepares a receiving report.  

The purchaser sends a purchase order to the supplier.  

The supplier ships the goods and sends an invoice to the purchaser.  

The purchaser sends a check to the supplier.

 

Question 6  of 38

Which of the following items does NOT cause a difference in the bank balance and the book balance on a bank reconciliation?

  

Deposits in transit  

Outstanding checks  

Canceled checks  

Nonsufficient funds checks

 

Question 7  of 38

Which of the following describes the internal control procedure "separation of duties?"

  

Cashiers must not have access to accounting records.  

The information system is critical.  

External auditors will monitor internal controls.  

Pre-number invoices and other documents.

 

Question 8  of 38

Table 9.1 

The following information is from the 2008 records of Armadillo Camera Shop: 

Accounts Receivable, December 31, 2008$20,000(debit) 

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment600(debit) 

Net credit sales for 2008 95,000 

Accounts written off as uncollectible during 20087,000  

Cash sales during 2008 27,000  

Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method. Management estimates that 3% of net credit sales will be uncollectible. Which of the following will be the amount of net accounts receivable after adjustment?

  

$17,150  

$16,550    

$17,750  

$13,000

 

Question 9  of 38

Which of the following is the proper accounting treatment for research and development costs?

  

Research and development costs must be expensed.  

Research and development costs must be capitalized and expensed each year to the extent that their value has declined.  

Research and development costs must be capitalized and amortized over 70 years or less.  

Research and development costs must be capitalized and amortized over 20 years or less.

 

Question 10  of 38

Which of the following is NOT considered a plant asset?

  

Building  

Copyright  

Land  

Equipment

 

Question 11  of 38

Kelly Petroleum Products owns fully depreciated equipment that was purchased for $26,500. The equipment had an estimated useful life of 8 years and an estimated residual value of $2,500. The equipment was sold for $2,700. Which of the following is the correct entry to record the transaction?

  

Accumulated depreciation 26,500 Cash 2,700 Gain on sale of equipment 2,700 Equipment 26,500  

Accumulated depreciation 24,000 Cash 2,700 Gain on sale of equipment 200 Equipment 26,500  

Accumulated depreciation 26,500 Cash 2,700 Equipment 23,800  

None of the above

 

Question 12  of 38

Which of the following would be expensed rather than capitalized?

  

Oil change and lubrication  

Major engine overhaul  

Addition to storage capacity  

Modification for new use

 

Question 13  of 38

In which of the following periods should the expense for warranty costs be recorded?

  

The period when the product is repaired or replaced  

The period when cash is collected for the sale of the product  

The period when cash is paid to repair or replace the product  

The period when the product is sold

 

Question 14  of 38

A company issues two thousand $1,000 bonds at 98. Which of the following is the entry to record this transaction? 

 

  

A  

B  

C  

D  

 

Question 15  of 38

How much cash will be received if a corporation issues $6,000,000 of 10% bonds at 102?

  

$6,012,000  

$6,000,000  

$6,120,000      

$5,880,000

 

Question 16  of 38

Which of the following is TRUE of the statement of cash flows?

  

The statement of cash flows shows where cash came from and how cash was spent.  

The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year".  

The statement of cash flows reports why cash increased or decreased during the period.  

All of the above are true of the statement of cash flows.

 

Question 17  of 38

Which of the following statements about the information included on a statement of cash flows is TRUE?

  

The statement of cash flows contains information about the business's percentage change in each item of revenue and expense.  

The statement of cash flows contains information about the differences between net income and additions to retained earnings.  

The statement of cash flows contains information about stock splits and stock dividends distributed by the company. 

The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods.

 

Question 18  of 38

Case 17.3 

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007. 

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

 

Refer to Case 17.3. What would vertical analysis report with respect to 2007 net sales revenue?

  

Vertical analysis would report a 2.60% decrease in net sales revenue.  

Vertical analysis would report cost of goods sold as 79.19% of net sales revenue.  

Vertical analysis would report a dividend yield of $8.20.  

Vertical analysis would report net sales revenue as the 100% base amount.

 

Question 19  of 38

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

  

The day's sales in receivables is a measure of a company's ability to pay liabilities with current assets.  

The inventory turnover ratio is a measure of a company's ability to pay liabilities with current assets.  

The current ratio is a measure of a company's ability to pay liabilities with current assets.  

The acid-test ratio is a measure of a company's ability to pay liabilities with current assets.

 

Question 20  of 38

Case 17.3 

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007. 

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

 

Refer to Case 17.3. What would vertical analysis report with respect to 2007 income tax expense?

  

Vertical analysis would report a $7,500 increase income tax expense.  

Vertical analysis would report income tax expense as 27.59% of net income before income tax.  

Vertical analysis would report income tax expense as 4.93% of net sales revenue.  

Vertical analysis would report a 45.45% increase in income tax expense.

 

Question 21  of 38

Which of the following are purposes of internal control?

  

One of the purposes of internal control is to encourage employees to follow company policy.  

One of the purposes of internal control is to ensure accurate, reliable accounting records.  

One of the purposes of internal control is to safeguard the company's assets.  

All of the statements above are true.

 

Question 22  of 38

A company received a bank statement showing a balance of $62,300. Reconciling items were outstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjusted bank balance?

  

$70,850  

$72,250  

$60,850  

$69,350  

 

Question 23  of 38

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $7,400. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

  

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Loss on exchange of equipment 600 Cash 10,000 Refrigeration equipment 10,000  

Refrigeration equipment 10,000 Accumulated depreciation 10,000 Gain on exchange of equipment 600 Cash 12,000 Refrigeration equipment 7,400  

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Cash 10,000 Refrigeration equipment 9,400  

None of the above

 

Question 24  of 38

Which of the following is the type of account that represents taxes withheld from employees' gross pay?

  

Asset  

Expense  

Contra asset  

Liability

 

Question 25  of 38

Which of the following is the correct order of the sections on a statement of cash flows?

  

The correct order is operating, financing, investing.  

The correct order is investing, operating, financing.  

The correct order is operating, investing, financing.  

The correct order is financing, investing, operating.

 

Question 26  of 38

Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?

  

The inventory turnover ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The day's sales in receivables is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The current ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The acid-test ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

 

Question 27  of 38

Which of the following is the formula to compute the dividend yield?

  

The formula is (total stockholders' equity − preferred equity) / number of shares of common stock outstanding.  

The formula is annual dividend per share of common stock / market price per share of common stock.  

The formula is market price per share of common stock / earnings per share.  

The formula is (net income − preferred dividends) / number of shares of common stock outstanding.

 

Question 28  of 38

Which of the following is a method of establishing control over collections of accounts receivable?

  

Designate an authorized check signer.  

Allow no one but the bookkeeper to handle cash.  

Set up a petty cash fund.  

Establish a bank lock-box system.

 

Question 29  of 38

Case 16.1 

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007, financial statements. 

 December 31, 2006December 31, 2007

Accounts receivable $100,000$110,000

Cost of goods sold 560,000

Sales revenue 830,000

Accounts payable* 67,00075,000

Inventory 105,00086,000

Salary payable 10,00013,000

Salary expense 45,00049,000

 

*Relates solely to the acquisition of inventory 

 

Refer to Case 16.1. What will appear in the operating activities section related to accounts payable?

  

The increase of $8,000 will be added to net income.     

The increase of $8,000 will be subtracted from cost of goods sold.  

The increase of $8,000 will be added to cost of goods sold.  

The increase of $8,000 will be subtracted from net income.

 

Question 30  of 38

Failure to record an accrued liability causes a company to:

  

understate owners' equity.  

understate liabilities.  

overstate expenses.  

overstate assets.

 

Question 31  of 38

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The amount of accrued interest on December 31 is:

  

$63.    

$75.  

$65.  

$70.

 

Question 32  of 38

The journal entry to record accrued interest on a short-term note payable must include a debit to:

  

Interest Expense and a credit to Notes Payable.  

Interest Expense and a credit to Interest Payable.  

Interest Payable and a credit to Notes Payable.  

Interest Payable and a credit to Interest Expense.

 

Question 33  of 38

Kosovo Company has $45 million in long-term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long-term liabilities?

  

Current Liabilities     Long-Term Liabilities

$15 million           $30 million

 

Current Liabilities    Long-Term Liabilities

$7.5 million$40 million

  

Current Liabilities   Long-Term Liabilities

$0 million         $45 million

  

Current Liabilities    Long-Term Liabilities

$45 million            $0 million

 

Question 34  of 38

Which is the preferred method to use when amortizing a bond discount or premium?

  

Both straight-line and market-interest rate methods of amortization are equally preferable.  

Straight-line method of amortization  

Market-interest rate method of amortization  

Effective interest method of amortization

 

Question 35  of 38

On a bond's maturity date, its face value will equal the:

  

maturity value less all interest payments.  

maturity value.  

maturity value plus all interest payments.  

present value of the bonds on its issuance date.

 

Question 36  of 38

Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond was issued at:

  

face value.  

a premium.  

a discount.  

par value.

 

Question 37  of 38

Which of the following is not an advantage of forming a corporation, as opposed to organizing as a partnership or proprietorship?

  

A corporation is a separate legal entity distinct from its owners.  

Ease of transferring ownership  

Limited liability of stockholders  

Limited taxation

 

Question 38  of 38

The number of stocks outstanding is the same as the number of stocks:

  

authorized by the board of directors.  

currently in the hands of the stockholders.  

ready to be sold to shareholders.  

issued to the shareholders.

 

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July 1, 2023
    

Question 1  of 38

Which of the following is NOT true of an effective accounting system?

  

The system must accommodate changes in the business over time.  

The system must provide minimal benefits at whatever cost is necessary.  

The system must work smoothly with your personnel and organizational structure.  

The system has internal controls to help the owner(s) control the business.

 

Question 2  of 38

Which of the following are characteristics of an effective manual accounting system, but NOT characteristics of an effective computerized accounting system?

  

Flexibility  

Control  

Compatibility  

All of these features are needed by both accounting systems.

 

Question 3  of 38

A check was written by a business for $329, but recorded in the cash payments journal as $239. How would this error be included on the bank reconciliation?

  

A deduction on the book side  

An addition on the book side  

An addition on the bank side  

A deduction on the bank side

 

Question 4  of 38

Which of the following are internal control procedures commonly used by companies to protect their assets?

  

a) Mandatory vacations for employees  

b) The purchase of fidelity bonds on cashiers  

c) Both A and B  

d) Neither A nor B

 

Question 5  of 38

Which of the following is the first step in the purchasing and payment process?

  

The purchaser receives the inventory and prepares a receiving report.  

The purchaser sends a purchase order to the supplier.  

The supplier ships the goods and sends an invoice to the purchaser.  

The purchaser sends a check to the supplier.

 

Question 6  of 38

Which of the following items does NOT cause a difference in the bank balance and the book balance on a bank reconciliation?

  

Deposits in transit  

Outstanding checks  

Canceled checks  

Nonsufficient funds checks

 

Question 7  of 38

Which of the following describes the internal control procedure "separation of duties?"

  

Cashiers must not have access to accounting records.  

The information system is critical.  

External auditors will monitor internal controls.  

Pre-number invoices and other documents.

 

Question 8  of 38

Table 9.1 

The following information is from the 2008 records of Armadillo Camera Shop: 

Accounts Receivable, December 31, 2008$20,000(debit) 

Allowance for uncollectible accounts, December 31, 2008, prior to adjustment600(debit) 

Net credit sales for 2008 95,000 

Accounts written off as uncollectible during 20087,000  

Cash sales during 2008 27,000  

Refer to Table 9.1. Uncollectible accounts expense is estimated by the percent-of-sales method. Management estimates that 3% of net credit sales will be uncollectible. Which of the following will be the amount of net accounts receivable after adjustment?

  

$17,150  

$16,550    

$17,750  

$13,000

 

Question 9  of 38

Which of the following is the proper accounting treatment for research and development costs?

  

Research and development costs must be expensed.  

Research and development costs must be capitalized and expensed each year to the extent that their value has declined.  

Research and development costs must be capitalized and amortized over 70 years or less.  

Research and development costs must be capitalized and amortized over 20 years or less.

 

Question 10  of 38

Which of the following is NOT considered a plant asset?

  

Building  

Copyright  

Land  

Equipment

 

Question 11  of 38

Kelly Petroleum Products owns fully depreciated equipment that was purchased for $26,500. The equipment had an estimated useful life of 8 years and an estimated residual value of $2,500. The equipment was sold for $2,700. Which of the following is the correct entry to record the transaction?

  

Accumulated depreciation 26,500 Cash 2,700 Gain on sale of equipment 2,700 Equipment 26,500  

Accumulated depreciation 24,000 Cash 2,700 Gain on sale of equipment 200 Equipment 26,500  

Accumulated depreciation 26,500 Cash 2,700 Equipment 23,800  

None of the above

 

Question 12  of 38

Which of the following would be expensed rather than capitalized?

  

Oil change and lubrication  

Major engine overhaul  

Addition to storage capacity  

Modification for new use

 

Question 13  of 38

In which of the following periods should the expense for warranty costs be recorded?

  

The period when the product is repaired or replaced  

The period when cash is collected for the sale of the product  

The period when cash is paid to repair or replace the product  

The period when the product is sold

 

Question 14  of 38

A company issues two thousand $1,000 bonds at 98. Which of the following is the entry to record this transaction? 

 

  

A  

B  

C  

D  

 

Question 15  of 38

How much cash will be received if a corporation issues $6,000,000 of 10% bonds at 102?

  

$6,012,000  

$6,000,000  

$6,120,000      

$5,880,000

 

Question 16  of 38

Which of the following is TRUE of the statement of cash flows?

  

The statement of cash flows shows where cash came from and how cash was spent.  

The statement of cash flows covers a span of time and is dated "Year Ended Month Day, Year".  

The statement of cash flows reports why cash increased or decreased during the period.  

All of the above are true of the statement of cash flows.

 

Question 17  of 38

Which of the following statements about the information included on a statement of cash flows is TRUE?

  

The statement of cash flows contains information about the business's percentage change in each item of revenue and expense.  

The statement of cash flows contains information about the differences between net income and additions to retained earnings.  

The statement of cash flows contains information about stock splits and stock dividends distributed by the company. 

The statement of cash flows contains information about the business's ability to generate positive cash flows in future periods.

 

Question 18  of 38

Case 17.3 

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007. 

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

 

Refer to Case 17.3. What would vertical analysis report with respect to 2007 net sales revenue?

  

Vertical analysis would report a 2.60% decrease in net sales revenue.  

Vertical analysis would report cost of goods sold as 79.19% of net sales revenue.  

Vertical analysis would report a dividend yield of $8.20.  

Vertical analysis would report net sales revenue as the 100% base amount.

 

Question 19  of 38

Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?

  

The day's sales in receivables is a measure of a company's ability to pay liabilities with current assets.  

The inventory turnover ratio is a measure of a company's ability to pay liabilities with current assets.  

The current ratio is a measure of a company's ability to pay liabilities with current assets.  

The acid-test ratio is a measure of a company's ability to pay liabilities with current assets.

 

Question 20  of 38

Case 17.3 

The following is a summary of information presented on the income statement of HR Flowers for December 31, 2007. 

Account 20072006

Net sales revenue $487,000100.00%$500,000

Cost of goods sold400,000 82.14% 395,000

Gross profit 157,00032.24%105,000

Selling and general expenses 70,00014.37%50,000

Net income before income tax expense 87,00017.86%55,000

Income tax expense 24,0004.93%16,500

Net income $ 63,00012.94%$ 38,500

 

Refer to Case 17.3. What would vertical analysis report with respect to 2007 income tax expense?

  

Vertical analysis would report a $7,500 increase income tax expense.  

Vertical analysis would report income tax expense as 27.59% of net income before income tax.  

Vertical analysis would report income tax expense as 4.93% of net sales revenue.  

Vertical analysis would report a 45.45% increase in income tax expense.

 

Question 21  of 38

Which of the following are purposes of internal control?

  

One of the purposes of internal control is to encourage employees to follow company policy.  

One of the purposes of internal control is to ensure accurate, reliable accounting records.  

One of the purposes of internal control is to safeguard the company's assets.  

All of the statements above are true.

 

Question 22  of 38

A company received a bank statement showing a balance of $62,300. Reconciling items were outstanding checks of $1,450 and a deposit in transit of $8,500. What is the company's adjusted bank balance?

  

$70,850  

$72,250  

$60,850  

$69,350  

 

Question 23  of 38

Lowery Food Market owns refrigeration equipment that cost $10,000 and has accumulated depreciation of $7,400. The company exchanges the equipment for new equipment worth $12,000. In addition to the old equipment, the company pays $10,000 for the new equipment. Which of the following is the correct entry to record the transaction?

  

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Loss on exchange of equipment 600 Cash 10,000 Refrigeration equipment 10,000  

Refrigeration equipment 10,000 Accumulated depreciation 10,000 Gain on exchange of equipment 600 Cash 12,000 Refrigeration equipment 7,400  

Refrigeration equipment 12,000 Accumulated depreciation 7,400 Cash 10,000 Refrigeration equipment 9,400  

None of the above

 

Question 24  of 38

Which of the following is the type of account that represents taxes withheld from employees' gross pay?

  

Asset  

Expense  

Contra asset  

Liability

 

Question 25  of 38

Which of the following is the correct order of the sections on a statement of cash flows?

  

The correct order is operating, financing, investing.  

The correct order is investing, operating, financing.  

The correct order is operating, investing, financing.  

The correct order is financing, investing, operating.

 

Question 26  of 38

Which of the following ratios is a measure of a company's ability to pay all current liabilities if they come due immediately?

  

The inventory turnover ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The day's sales in receivables is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The current ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.  

The acid-test ratio is a measure of a company's ability to pay all current liabilities if they come due immediately.

 

Question 27  of 38

Which of the following is the formula to compute the dividend yield?

  

The formula is (total stockholders' equity − preferred equity) / number of shares of common stock outstanding.  

The formula is annual dividend per share of common stock / market price per share of common stock.  

The formula is market price per share of common stock / earnings per share.  

The formula is (net income − preferred dividends) / number of shares of common stock outstanding.

 

Question 28  of 38

Which of the following is a method of establishing control over collections of accounts receivable?

  

Designate an authorized check signer.  

Allow no one but the bookkeeper to handle cash.  

Set up a petty cash fund.  

Establish a bank lock-box system.

 

Question 29  of 38

Case 16.1 

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its December 31, 2007, financial statements. 

 December 31, 2006December 31, 2007

Accounts receivable $100,000$110,000

Cost of goods sold 560,000

Sales revenue 830,000

Accounts payable* 67,00075,000

Inventory 105,00086,000

Salary payable 10,00013,000

Salary expense 45,00049,000

 

*Relates solely to the acquisition of inventory 

 

Refer to Case 16.1. What will appear in the operating activities section related to accounts payable?

  

The increase of $8,000 will be added to net income.     

The increase of $8,000 will be subtracted from cost of goods sold.  

The increase of $8,000 will be added to cost of goods sold.  

The increase of $8,000 will be subtracted from net income.

 

Question 30  of 38

Failure to record an accrued liability causes a company to:

  

understate owners' equity.  

understate liabilities.  

overstate expenses.  

overstate assets.

 

Question 31  of 38

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The amount of accrued interest on December 31 is:

  

$63.    

$75.  

$65.  

$70.

 

Question 32  of 38

The journal entry to record accrued interest on a short-term note payable must include a debit to:

  

Interest Expense and a credit to Notes Payable.  

Interest Expense and a credit to Interest Payable.  

Interest Payable and a credit to Notes Payable.  

Interest Payable and a credit to Interest Expense.

 

Question 33  of 38

Kosovo Company has $45 million in long-term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long-term liabilities?

  

Current Liabilities     Long-Term Liabilities

$15 million           $30 million

 

Current Liabilities    Long-Term Liabilities

$7.5 million$40 million

  

Current Liabilities   Long-Term Liabilities

$0 million         $45 million

  

Current Liabilities    Long-Term Liabilities

$45 million            $0 million

 

Question 34  of 38

Which is the preferred method to use when amortizing a bond discount or premium?

  

Both straight-line and market-interest rate methods of amortization are equally preferable.  

Straight-line method of amortization  

Market-interest rate method of amortization  

Effective interest method of amortization

 

Question 35  of 38

On a bond's maturity date, its face value will equal the:

  

maturity value less all interest payments.  

maturity value.  

maturity value plus all interest payments.  

present value of the bonds on its issuance date.

 

Question 36  of 38

Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond was issued at:

  

face value.  

a premium.  

a discount.  

par value.

 

Question 37  of 38

Which of the following is not an advantage of forming a corporation, as opposed to organizing as a partnership or proprietorship?

  

A corporation is a separate legal entity distinct from its owners.  

Ease of transferring ownership  

Limited liability of stockholders  

Limited taxation

 

Question 38  of 38

The number of stocks outstanding is the same as the number of stocks:

  

authorized by the board of directors.  

currently in the hands of the stockholders.  

ready to be sold to shareholders.  

issued to the shareholders.

 

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Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

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Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

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Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

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Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

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Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

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