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Exam 2: Analyzing and Recording Transactions

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Question 101

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Increases in liability accounts are recorded as debits.

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B) False

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Question 102

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Based on the following trial balance for Sally's Salon, prepare an income statement, statement of owner's equity, and a balance sheet. Sally Crawford made no additional investments in the company during the year. $\begin{array}{c}\text { Sally's Salon}\\\text { Trial Balance}\\\text { December 31}\\.\begin{array}{|l|l|l|}\hline\text { Cash } &\$6,500 \\\hline \text { Accounts receivable } & 475 \\\hline \text { Beauty supplies } & 2,500 \\\hline \text { Beauty shop equipment } & 17,000 \\\hline \text { Accounts payable } &&\$745 \\\hline \text { S. Crawford, Capital } & &21,155\\\hline \text { S. Crawford, Withdrawals } & 36,000 \\\hline \text { Revenue earned } &&72,000\\\hline\end{array}\end{array}$ $\begin{array} {| l | l |r | } \hline \text { Beauty supplies expense } & 3,425 & \\\hline \text { Rent expense } & 6,000 & \\\hline \text { Wages expense } & & 22,000 \\\hline \text { Totals } & \$ 93,900 & \$ 93,900 \\\hline\end{array}$

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Sally's Salon
Income Statement
For Year ...

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Question 103

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Miley Block is a building consultant. Shown below are (a) several accounts in her ledger with each account preceded by an identification number, and (b) several transactions completed by Block. Indicate the accounts debited and credited when recording each transaction by placing the proper account identification numbers to the right of each transaction. $\begin{array}{l}\begin{array} { l | l | r | l } { \text { 1. } } & \text { Accounts Payable } & \text { 7. } & \text { Telephone Expense } \\\hline \text { 2. } & \text { Accounts Receivable } & 8 . & \text { Unearned Revenue } \\\hline 3 . & \text { Cash } & 9 . & \text { Miley Block, Capital } \\\hline 4 . & \text { Consulting Fees Earned } & 10 . & \text { Miley Block, Withdrawals } \\\hline 5 . & \text { Office Supplies } & 11 . & \text { Insurance Expense } \\\hline 6 . & \text { Office Supplies Expense } & 12 . & \text { Prepaid Insurance }\end{array}\\\begin{array} { l | l | c | l } & & \text { Debit } & \text { Credit } \\\hline & \text { Example: } & 2 & 4 \\\hline & \begin{array} { l } \text { Completed consulting work for a client } \\\text { who will pay at a later date. }\end{array} & & \\\hline \text { A. } & \begin{array} { l } \text { Received cash in advance from a } \\\text { customer for designing a building }\end{array} & & \\\hline \text { B. } & \text { Purchased office supplies on credit. } & & \\\hline \text { C. } & \text { Paid for the supplies purchased in B. } & & \\\hline\end{array}\end{array}$ $\begin{array} { l | l | l | l } \hline \text { D. } & \begin{array} { l } \text { Received the telephone bill of the } \\\text { business and immediately paid it. }\end{array} &\quad\quad &\quad\quad \\\hline \text { E. } & \text { Paid for a 3-year insurance policy } & &\end{array}$

Grills R Us Catering provided $1,000 of catering services and billed its client for the amount owed. Given the choices below, determine the general journal entry that Grills R Us Catering will make to record this transaction.

If cash was incorrectly debited for $100 instead of correctly crediting it for $100, the cash account's balance will be overstated (too high).

A transaction that decreases a liability and increases an asset must also affect one or more other accounts.

The balances for the accounts of Milo's Management Co. for the year ended December 31 are shown below. Each account shown had a normal balance. $\begin{array} { l | r | l | r } \text { Accounts Payable..... } & \$ 6,500 & \text { Wages Expense } \ldots \ldots \ldots & 36,000 \\\hline \text { Accounts Receivable... } & 7,000 & \text { Rent Expense } \ldots \ldots \ldots \ldots & 6,000 \\\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots & ? & & \\\hline\end{array}$ $\begin{array} { | l | r | l | r } \hline \text { Offee Supplies. } & { 1,200 } & & \\\hline \text { Building } \ldots \ldots \ldots \ldots \ldots & 125,000 & & \\\hline \text { Supplies Expense...... } & 21,500 & \text { Land } \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 50,000 \\\hline \text { D. Milo, Capital ......... } & 118,700 & \text { Unearned Management Fegt } & 4,000 \\\hline \text { Management Revenue. } & 175,000 & \text { D. Milo. Withdrawrals } & 48,000\end{array}$ Calculate the correct balance for Cash and prepare a trial balance.

At the beginning of the current year, Trenton Company's total assets were $248,000 and its total liabilities were $175,000. During the year, the company reported total revenues of $93,000, total expenses of $76,000 and owner withdrawals of $5,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $260,000. Trenton Company's debt ratio at the end of the current year is:

Paul's Landscaping purchased $500 of office supplies on credit. The company's policy is to initially record prepaid and unearned items in balance sheet accounts. Which of the following general journal entries will Paul's Landscaping make to record this transaction?

Identify the statement below that is true.

You decrease the Accounts Payable account on the ________ side of its account.

While in the process of posting from the journal to the ledger, a company failed to post a $500 debit to the Equipment account. The effect of this error will be that:

Prepaid accounts (also called prepaid expenses) are generally:

A business's record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n) :

BBB Company sends a $2,500 invoice to a customer for catering services it provided during the month. Set up the necessary T-accounts below and show how this transaction would be recorded directly in those accounts.

Explain the difference between a general ledger and a chart of accounts.

Indicate whether a debit or credit entry would be required to record the following changes in each account. a. To decrease Cash b. To increase Owner, Capital c. To decrease Accounts Payable. d. To increase Salaries Expense. e. To decrease Supplies. f. To increase Revenue. g. To decrease Accounts Receivable. h. To increase Owner, Withdrawals.

Mary Martin, the owner of Martin Consulting, withdrew $2,000 cash from the company for personal use. Identify the general journal entry below that Martin Consulting will make to record the transaction.

To increase an asset account we would ________ it and to increase a liability account, we would ________ it.

Asset accounts are decreased by debits.