Ch7 Complete Test Bank Accounting Information Systems

Chapter 7

Accounting Information Systems

MATCHING

1. Match the following terms with the descriptions below.

A. Account

B. Accounting cycle

C. Contra account

D. General journal

E. General ledger

F. Master file

G. Permanent account

H. Post-closing trial balance

I. Posting

J. Transaction files

K. Trial balance

L. Journal entry

_____ 1. A journal in a computer-based transaction system

_____ 2. An account with an opposite balance to the normal balance of its associated

account

_____ 3. A time period between financial statements

_____ 4. The journal used to record both the account(s) to be debited and the

accounts(s) to be credited

_____ 5. A ledger in a computer-based transaction system

_____ 6. A trial balance prepared after the closing entries have been posted.

_____ 7. A place where the results of events affecting that item are recorded

_____ 8. A listing of all general ledger accounts and their respective balances to ensure

that debits equal credits

_____ 9. The process of recording the appropriate part of a journal entry to the affected

account in the ledger

_____10. A collection of specific asset, liability, and owners’ equity accounts

_____11. The recorded effect of an accounting event

_____12. An asset, liability, or owners’ equity account whose balance is carried over

from year to year

Answers:

1. J; 2. C; 3. B; 4. D; 5. F; 6. H; 7. A; 8. K; 9. I; 10. E; 11. L; 12. G

2. Match the following terms with the descriptions below.

A. Adjusting entry

B. Business event

C. Chart of accounts

D. Closing entry

E. Expense accrual

F. Expense deferral

G. Revenue accrual

H. Revenue deferral

_____ 1. An adjusting entry that occurs when a company uses previously purchased

assets in an attempt to generate revenue in future periods

_____ 2. An internal entry made to bring up to date the accounts for internal events

prior to preparing financial statements

_____ 3. An adjusting entry that occurs when a company has been paid in advance for

services to be performed in a future period

_____ 4. An event that management wants to plan and evaluate

_____ 5. An organizational scheme used to classify accounts as assets, liabilities, or

owners’ equity

_____ 6. An adjusting entry that occurs when expenses are incurred in one accounting

period and payment is made in a later period

_____ 7. An entry made to transfer the balance of temporary accounts to retained

earnings and determine net income or loss for a time period

_____ 8. An adjusting entry that recognizes when a revenue is earned but the payment

to the firms will occur in a subsequent accounting period

Answers: 1.F; 2.A; 3.H; 4.B; 5.C; 6.E; 7.D; 8.G

3. The following is a list of the eight steps in the accounting cycle. Match the numbers 1 though 8 to the events below to indicate the sequence of the accounting cycle steps.

_____ A. Prepare an adjusted trial balance

_____ B. Prepare financial statements

_____ C. Identify, analyze, and record events in journal

_____ D. Prepare postclosing trial balance

_____ E. Make closing entries in journal and post to ledger

_____ F. Enter adjusting entries in journal and post to ledger

_____ G. Post entries from journal to ledger

_____ H. Prepare trial balance

Answers: A.5; B.6; C.1; D.8; E.7; F.4; G.2; H.3

4. Match the combination of changes in the accounting equation described below with the events listed below.

A. Assets increase; assets decrease

B. Assets increase; liabilities increase

C. Assets increase; owner’s equity increases

D. Assets decrease; liabilities decrease

E. Assets decrease; owner’s equity decreases

F. Liabilities increase; liabilities decrease

G. Liabilities increase; owners’ equity decreases

H. Liabilities decrease; Owners’ equity increases

I. Owners’ equity increases; owners’ equity decreases

J. Not recorded in accounting system

_____ 1. Borrowed cash

_____ 2. Purchased a truck by paying cash

_____ 3. Major client goes out of business

_____ 4. Paid dividend to owners

_____ 5. Creditor takes stock in the company in exchange for retiring debt

_____ 6. Paid note that came due

_____ 7. Customer pays bill in cash

_____ 8. Owner made contribution to firm

Answers: 1. B; 2. A; 3. J; 4. E ; 5. H; 6. D; 7. A; 8. C

5. Match the combination of changes in the accounting equation described below with the events listed below.

A. Assets increase; assets decrease

B. Assets increase; liabilities increase

C. Assets increase; owner’s equity increases

D. Assets decrease; liabilities decrease

E. Assets decrease; owner’s equity decreases

F. Liabilities increase; liabilities decrease

G. Liabilities increase; owners’ equity decreases

H. Liabilities decrease; owners’ equity increases

I. Owners’ equity increases; owners’ equity decreases

J. Not recorded in accounting system

_____ 1. Paid an accounts payable

_____ 2. Purchased land by giving stock to the seller

_____ 3. Owner withdraws cash for personal use

_____ 4. Receive cash in advance for services that will be performed later

_____ 5. Borrowed money from bank by signing a note payable

_____ 6. Services promised in 4 above are performed

_____ 7. Customer who owes firm money goes bankrupt

_____ 8. Lose major customer to competitor

_____ 9. Company signs a new 5-year note to replace 1-year note that came due

_____10. Purchased inventory with cash

Answers: 1.D; 2.C; 3.E; 4.B; 5.B; 6.H; 7.E; 8.J; 9.F; 10.A

1. For each of the following transactions, indicate its impact ( + or –) on the accounting equation.

Transaction Asset = Liability + Owners’ Equity

A. Owner put $10,000 into business + +

B. Paid cash on note

C. Received cash for services rendered

D. Purchased equipment on credit

E. Paid electric bill for the month

F. Purchased inventory on account

G. Owner withdrew cash from business

for personal use.

1. Paid salary of employee with cash
2. Collected an accounts receivable

Answers:

Transaction Asset = Liability + Owners’ Equity

B. Paid cash on note – –

C. Received cash for services rendered + +

D. Purchased equipment on credit + +

E. Paid electric bill for the month – –

F. Purchased inventory on account + –

G. Owner withdrew cash from business

for personal use. – –

1. Paid salary of employee with cash – –
2. Collected an accounts receivable +/–
3. For each of the following transactions indicate its impact ( + or –) on the accounting equation.

Transaction Asset = Liability + Owners’ Equity

A. Paid money on bank loan – –

B. Received cash from note payable

C. Paid cash for services rendered

D. Paid cash for 1 year rent in advance

E. Purchased inventory on account

F. Owner put his cash in business checking

G. Paid interest on note payable

1. Collected an accounts receivable
2. Received cash for services rendered

Answers:

Transaction Asset = Liability + Owners’ Equity

B. Received cash from note payable + +

C. Paid cash for services rendered – –

D. Paid cash for 1 year rent in advance +/-

E. Purchased inventory on account + +

F. Owner put his cash in business checking + +

G. Paid interest on note payable – –

1. Collected an accounts receivable +/–
2. Received cash for services rendered + +

8. Indicate the normal balance of the following accounts

Answers:

9. For each of the following events, using debits and credits indicate the increase or decrease in particular account affected by the transaction.

Answers:

10. Place each of the following accounting elements in the financial statement(s) in which it would be reported:

(a.) Inventory

(b.) Credit sales

(c.) Cash dividends

(d.) Common stock

(e.) Expenses

Answers:

11. Place each of the following accounting elements in the financial statement(s) in which it would be reported:

(a.) Service revenue (cash and credit)

(b.) Retained earnings

(c.) Net income

(d.) Accounts receivable

(e.) Unearned fees

12. Accountants use the term credit to refer to

A) a firm’s good accounting events.

B) a reduction in amounts owed.

C) events that increases in accounts.

D) an amount entered on the right-hand side of an account.

13. Accountants use the term debit to refer to

A) events that are negative for the firm.

B) a reduction in amounts owed.

C) events that increases accounts.

D) an amount entered on the left-hand side of an account.

14. Debit and credit mean which of the following.

Debit Credit

A). Increase Decrease

B) Positive Negative

C) Decrease Increase

D) Left Right

15. Which of the following is not a characteristic of an accounting event?

A) Must be the result of a management decision

B) Must be specific to the entity for which records are being kept

C) Must be measurable in monetary term

D) Must impact the entity’s assets, liabilities, and/or owners’ equity

16. Which of the following terms is used to refer to balance sheet accounts?

A) Permanent accounts

B) Temporary accounts

C) Contra accounts

D) Tangible accounts

17. Debiting an account always means

A) entering an amount on the right side of the account.

B) entering an amount on the left side of the account.

C) increasing the account balance.

D) decreasing the account balance.

18. All of the following accounts are increased by credits except:

A) liabilities.

B) revenues.

C) assets

D) contributed capital accounts.

19. Which of the following accounts are decreased by credits?

A) Liabilities

B) Revenues

C) Assets

D) Contributed capital accounts

20. All of the following accounts are decreased by debits except:

A) liabilities.

B) revenues.

C) assets.

D) contributed capital accounts.

21. Expenses are increased with ______ because they ______ owners’ equity.

A) debits, decrease

B) credits, increase

C) debits, increase

D) credits, decrease

22. Revenues are increased with ______ because they ______ owners’ equity.

A) debits, decrease

B) credits, increase

C) debits, increase

D) credits, decrease

23. The entry to record a purchase of supplies on account would include a:

A) debit to cash.

B) debit to accounts receivable.

C) credit to supplies.

D) credit to accounts payable.

24. The entry to record the full payment of the premium on a two-year insurance policy would include a:

A) debit to insurance expense.

B) debit to prepaid insurance.

C) credit to accounts receivable.

D) credit to accounts payable.

25. The entry to record collections from credit customers would include a:

A) debit to accounts payable.

B) credit to cash.

C) debit to unearned revenue.

D) credit to accounts receivable.

26. A chronological record of accounting events is maintained in the:

A) general journal.

B) general ledger.

C) trial balance.

D) T-accounts.

27. Which of the following is not a part of the formal process of recording accounting events?

1. General journal
2. General ledger
3. T-accounts
4. All of the above are part of the formal process of recording accounting events.

28. A record of all accounts, showing account activity and cumulative balances is maintained

in the:

A) general journal.

B) trial balance.

C) general ledger.

D) financial statements.

29. Which of the following is an index for the accounts listed in the ledger?

A) Chart of accounts.

B) Trial balance.

C) Adjusted trial balance.

D) Ledger account index.

30. The accounts in the ledger are listed in what type of order?

A) In the order they appear on the financial statements

B) Alphabetical

C) Size of the account

D) Random

31. The fact that a trial balance is in balance:

A) guarantees that correct accounts have been debited and credited.

B) proves the equality of debits and credits.

C) assures the preparer that all journal entries were made.

D) all of the above are correct.

32. All of the following are categories of adjusting entries except:

A) accruals.

B) deferrals.

C) estimated allocations.

D) estimated payments.

33. The adjusting entry to accrue interest earned would include a:

A) credit to interest payable.

B) debit to interest receivable.

C) debit to cash.

D) credit to interest expense.

34. The year-end accrual adjustment to record the estimated expense for a telephone bill not yet received would include a:

A) debit to telephone payable.

B) debit to cash.

C) credit to accounts payable.

D) credit to prepaid telephone expense.

35. On November 4, 2010, Blazek, Inc. received $24,000 in advance for work to be performed over the next several months. By December 31, 2010, one-third of the amount had been earned. The required adjusting entry would be:

A)

B)

C)

D) No adjusting entry is required

36. Which of the following could not be an adjusting entry?

A) An increase in an expense and a decrease in an asset

B) A decrease in a liability and an increase in a revenue

C) A decrease in an asset and a decrease in a liability

D) An increase in an expense and an increase in a liability

37. Which of the following could not be an adjusting entry?

A) An increase in an expense and a decrease in an asset

B) A decrease in a liability and an increase in a revenue

C) A decrease in a asset and a decrease in a liability

D) An increase in an expense and an increase in a liability

38. Only one of the following could be an adjusting entry. Which one is it?

A) An increase in an asset and an increase in a liability

B) An increase in an expense and an increase in a revenue

C) A decrease in an asset and a decrease in a expense

D) A decrease in an asset and an increase in a liability

39. Kate Corporation began the year with $6,200 in supplies and purchased $12,500 in supplies during the year. At year-end, $5,100 in supplies remained on hand. The required adjusting entry would be

A)

B)

C)

D)

40. The adjusting entry to record depreciation of a building would be:

A)

B)

C)

D)

41. An example of a permanent account is the:

A) utilities expense account.

B) unearned revenue account.

C) service revenue account.

D) depreciation expense account.

42. Closing entries are necessary to update the:

A) income summary account.

B) cash account.

C) retained earnings account.

D) capital stock account.

43. After closing entries are made, which accounts do not have balances?

A) Assets, Liabilities, and Owners’ Equity

B) Revenues, Expenses, and Liabilities

C) Assets, Revenues, and Owners’ Equity

D) Revenues, Expenses, Gains and Losses

44. After closing entries are made, which of the following grouping of accounts will all have balances?

A) Assets, Revenue, Liability

B) Liabilities, Assets, Expenses

C) Owners’ Equity, Assets, Liabilities

D) Assets, Liabilities, Expenses

45. As a result of closing entries which of the following is true?

A) Cash is increased.

B) Retained earnings is increased by the amount of income earned during the year.

C) Total assets are increased by the amount of income earned during the year.

D) Liabilities are decreased by the amount of income earned during the year.

46. The ______ lists only the permanent accounts of an organization.

A) post-closing trial balance

B) trial balance

C) adjusted trial balance

D) income statement

47. What would be the most likely explanation for the following journal entry?

A) Performed a service and immediately received the cash

B) Performed a service and billed the customer

C) Performed a service for a customer who had paid for the service ahead of time

D) Recorded the receipt of cash from a customer for services previously performed

48. How did the following journal entry affect the accounting equation?

A) Increased assets and increased liabilities

B) Decreasing assets and increased owners’ equity

C) Increasing liabilities and decreased owners’ equity

D) Increasing assets and increased owners’ equity

49. How did the following journal entry affect the accounting equation?

A) Increased assets and increased liabilities

B) Decreased assets and increased owners’ equity

C) Increased liabilities and decreased owners’ equity

D) Increased assets and increased owners’ equity

50. How did the following journal entry affect the accounting equation?

A) Increased assets and increased liabilities

B) Decreased liabilities and increased owners’ equity

C) Increased assets and increased owners’ equity

D) Decreased assets and decreased owners’ equity

51. How did the following journal entry affect the accounting equation?

A) Increased assets and increased liabilities

B) Decreased assets and increased owners’ equity

C) Decreased assets and decreased owners’ equity

D) Increased liabilities and decreased owners’ equity

52. How did the following journal entry affect the accounting equation?

A) Decreased liabilities and increased owners’ equity

B) Increased assets and increased liabilities

C) Decreased assets and increased owners’ equity

D) Increased liabilities and increased owners’ equity

53. Computek, Inc. has one revenue account, service revenue, which is to be closed out at year-end. The closing entry would be:

A)

B)

C)

D)

54. The last step in the accounting cycle is to prepare:

A) the post-closing trial balance.

B) adjusting entries.

C) financial statements.

D) closing entries.

55. Clio, Inc. has one expense account, salary expense, which is to be closed out at year-end. The closing entry would be:

A)

B)

C)

D)

56. Which of these steps in the accounting cycle comes first?

A) Posting

B) Adjusting entries

C) Financial statements

D) Closing entries

57. Which of the following cases would require an adjusting entry to accrue revenue?

A) A client has paid for services in advance.

B) Customers have been billed for services but not yet paid.

C) Capital stock has been issued for cash but not yet paid for.

D) Interest on a note receivable will not be received until the note is paid off next year.

58. Which of the following cases would not require an adjusting entry?

A) A client has paid for services in advance.

B) Paid for three months rent in advance.

C) Capital stock has been issued for cash but not yet paid for.

D) Interest on a note receivable will not be received until the note is paid off next year.

59. All adjusting entries involve:

A) credits to income statement accounts.

B) debits to income statement account.

C) at least one income statement and one balance sheet account.

D) the decrease of an asset or the increase in a liability account.

61. Dividends are listed on the:

A) balance sheet.

B) income statement .

C) statement of financial position.

D) statement of retained earnings.

62. Capital stock is listed on the:

A) balance sheet only.

B) statement of stockholders’ equity only.

C) balance sheet and the income statement.

D) statement of stockholders’ equity and the balance sheet.

63. The ending cash balance can be found on the:

A) balance sheet and statement of cash flows.

B) balance sheet only.

C) statement of cash flows only.

D) balance sheet and income statement.

64. Net income would increase as a result of which of the following adjustments?

A) Recording depreciation

B) Accruing a revenue

C) Accruing an expense

D) Adjusting a prepaid account

65. Net income would decrease as a result of which of the following adjustments?

A) Adjusting an unearned revenue account

B) Accruing a revenue

C) Accruing an expense

D) Billing a customer for services rendered

66. If the year-end depreciation adjustment was not recorded,

A) assets and owners’ equity would be understated.

B) liabilities and owners’ equity would be overstated.

C) assets and net income would be overstated.

D) net income and owners’ equity would be understated.

67. If an adjustment for revenue that has been earned but not recorded was not made,

A) net income and assets would be understated.

B) liabilities and owners’ equity would be understated.

C) assets and owners’ equity would be overstated.

D) revenues and liabilities would be overstated.

68. If an adjustment for expense that has been incurred but not paid was not recorded,

A) net income and assets would be understated.

B) liabilities and owners’ equity would be understated.

C) assets and owners’ equity would be overstated.

D) revenues and liabilities would be overstated.

69. A firm issued stock for cash. How would this affect the accounting equation?

A)

B)

C)

D)

70. A firm billed clients for services rendered. How would this affect the fundamental accounting equation?

A)

B)

C)

D)

71. A firm received and paid a utilities bill. How would this affect the elements of the fundamental accounting equation?

A)

B)

C)

D)

72. A firm paid for goods, which had been purchased in an earlier period. How would this affect assets and equities?

A)

B)

C)

D)

73. A firm billed a customer for services but did not collect cash. What is the effect of this transaction?

A) Increases assets, increases revenues

B) Increases assets, decreases assets

C) Decreases assets, increases expenses

D) Decreases assets, decreases liabilities

74. A firm received a payment in advance on a customer’s special order. What is the effect of this transaction?

A) Increases assets, increases revenues

B) Increases assets, increases liabilities

C) Decreases assets, increases expenses

D) Decreases assets, decreases liabilities

75. Which of the following results in a revenue event?

A) Stock is issued for cash.

B) A telephone bill is received but not paid.

C) A customer pays for merchandise purchased earlier.

D) A customer buys merchandise but does not pay for it.

76. On April 1, 2010, a firm borrowed $100,000 on a 6 percent note. The note is due on April 1, 2011. No interest is to be paid until then. What amount of interest expense should it report in its income statement for December 31, 2010?

A) $0

B) $1,500

C) $4,500

D) $6,000

77. A company began the month with $400 of supplies and purchased $1,000 more. At the end of the month, $300 of supplies were on hand. The expense for the month was:

A) $1,400.

B) $1,300.

C) $1,100.

D) $1,000.

78. On which financial statement would salaries expense appear?

A) Statement of stockholders’ equity

B) Statement of cash flows

C) Income statement

D) Balance sheet

79. Which of the following appears on both the income statement and the statement of stockholders’ equity?

A) Net income

B) Operating income

C) Retained earnings

D) Unearned revenue

80. Where would the issuance of stock for cash be reported?

A) On both the income statement and the statement of cash flows

B) On both the statement of cash flows and the statement of stockholders’ equity

C) On the statement of cash flows but not the statement of stockholders’ equity

D) On neither the income statement nor the statement of cash flows

81. Which of the following association of accounts and statements is not correct?

1. Cash and Balance Sheet.
2. Revenue and Income Statement.
3. Dividends Paid and Income Statement
4. Prepaid Insurance and Balance Sheet

83. On September 1, 2010, Olpe Corporation paid $2,400 for a 1-year insurance policy. What amount of expense should Olpe report for the year ended December 31, 2010?

A) $800

B) $1,200

C) $2,400

D) $0

84. On November 1, 2010 Clyde Corp paid $6,000 for six months’ rent in advance. What is

the appropriate adjusting entry for December 31, 2010?

A) No adjustment needed because no cash paid.

B) Prepaid Rent $4,000

Rent Expense $4,000

C) Rent Expense $2,000

Cash $2,000

D) Rent Expense $2,000

Prepaid Rent $2,000

85. On November 1, 2010 Clyde Corp received $6,000 for six months’ rent in advance. What is the appropriate adjusting entry for December 31, 2010?

A) No adjustment needed because no cash paid.

B) Unearned Rent $4,000

Rent Expense $4,000

C) Unearned Rent $2,000

Rent Income $2,000

D) Cash $2,000

Rent Income $2,000

86. Net income would decrease as a result of which of the following adjustments?

A) Adjusting unearned revenue

B) Accruing a revenue

C) Accruing an expense

D) Recording revenue earned but not received

87. Which of the following is not an accounting event?

A) A customer places an order for goods.

B) A firm issues stock for cash.

C) A firm received, but did not pay, a bill for advertising.

D) A firm purchased equipment on account.

88. Valhalla Company sold goods on account to a customer for $75,000. The goods cost Valhalla $60,000. How should Valhalla report this transaction?

A) Revenue of $75,000; expense $60,000

B) Revenue, $75,000.

C) Revenue and operating cash inflows, $15,000.

D) Revenue, $15,000.

89. Which of the following events results in a revenue event?

A) A customer pays for services to be provided over the next four months.

B) A customer pays for merchandise previously purchased on account.

C) A customer purchases merchandise on open account.

D) A bank loan is obtained.

90. Palisades Corporation purchased equipment by signing a long-term note payable. What was the effect of this transaction?

A) Increased assets and increased liabilities

B) Increased assets and increased owners’ equity

C) Increased assets and decreased owners’ equity

D) Increased owners’ equity and decreased liabilities

91. Which financial statement would report a firm’s total profits accumulated to date minus distributions to owners?

A) Income statement

B) Statement of cash flows

C) Balance sheet

D) Statement of cost of goods sold

92. On which financial statement would unearned revenue be reported?

A) Balance sheet

B) Income statement

C) Statement of cash flows

D) None; unearned revenue would not be reported in the financial statements

93. Smithville Company purchased machinery four years ago for $24,000. Smithville estimates that the machinery will have a total useful life of six years. What amount will Smithville include in total assets for machinery?

A) $24,000

B) $8,000

C) $16,000

D) $4,000

94. If a company fails to accrue the appropriate wage expense at the end of the accounting period,

A) owners’ equity and current assets will both be overstated.

B) current liabilities and current assets will both be understated.

C) net income will be overstated and current liabilities will be understated.

D) current assets will be overstated and net income will be understated.

95. Which of the following accounts would be closed at the end of a period?

A) Sales

B) Retained earnings

C) Unearned revenue

D) Prepaid expense

96. Which of the following accounts would normally have a credit balance?

A) Accounts receivable

B) Retained earnings

C) Inventory

D) Depreciation expense

97. Which of the following accounts would normally have a debit balance?

A) Accounts payable

B) Retained earnings

C) Inventory

D) Accumulated depreciation

98. When a firm has net income, which of the following is not an appropriate closing entry?

A) Debit sales, credit income summary

B) Debit retained earnings, credit income summary

C) Debit income summary, credit insurance expense

D) Debit income summary, credit depreciation expense

99. In a computer-based transaction system, which of the following serves as the journal?

A) Master file

B) Transaction file

C) Accumulation file

D) Data file

100. The master file in a computer-based transaction system serves as which of the following?

A) Journal

B) Income statement

C) Ledger

D) Post-closing trial balance

101. Which of the following is not an advantage of the computer-based transaction system?

A) Transactions can be posted much more quickly than a manual system

B) Internal controls and edit checks can prevent and detect errors

C) A wide variety of reports can be prepared

D) Computer can determine which events are most significant for analysis

102. A database system differs from manual and computer-based transactions system in that:

A) a database system contains information about business events and accounting events.

B) a database system only produces accounting reports.

C) a database system produces more financial statements than transaction based systems.

D) a database system produces only nonaccounting reports.

103. Answer the following two questions:

(a.) What are adjusting entries and why are they necessary?

(b.) What are closing entries and why are they necessary?

Answers:

Adjusting entries are journal entries prepared at the end of an accounting period prior to the preparation of financial statements. They serve to update account balances to reflect all revenues and expenses earned/incurred during the accounting period in order to properly measure net income for the period as well as the financial position of the company.

Closing entries are journal entries prepared at the end of an accounting period after the preparation of financial statements. They serve to close out all revenue and expense accounts in order to start the next accounting period with zero balances in each revenue and expense account. Closing entries also update the retained earnings account to reflect the appropriate year-end balance in that account.

104. Merta Inc. reported revenues of $500,000, expenses of $340,000 and operating income of $160,000. Explain the information contained in each of these figures.

105. How would the balance sheet and income statement be affected if a $2,000 accrued expense was recorded as $3,000?

106. Some accounts are increased with debits and others with credits. Wouldn’t recording transactions be easier if all accounts were increased with debits and decreased with credits?

107. Describe the difference between a computer-based transaction system and a database system. What are the advantages of the database system?

108. Any event reported on the income statement has impacted the balance sheet. Explain

why this is true.

109. Prepare journal entries to record the following transactions:

(a.) purchased $3,500 of supplies on account.

(b.) paid $4,800 for a two-year insurance policy.

(c.) performed a service and immediately collected $600.

(d.) paid the monthly utility bill, $200.

(e.) paid one-half of the amount owed for the supplies purchased in (a) above.

(f.) performed a service and billed the customer $800.

(g.) borrowed $1,000 by signing a note payable.

(h.) received the amount owed from the customer of (f) above.

Answers:

110. Prepare journal entries to record the following transactions:

(a.) Purchased $12,500 of inventory on account.

(b.) Paid $1,800 for office supplies.

(c.) Performed a service and immediately collected $600.

(d.) Paid the monthly rent, $1,150.

(e.) Paid 20 percent of the amount owed for the inventory purchased in (a) above.

(f.) Sold products for $8,000 on account that cost $4,500.

(g.) Borrowed $12,000 by signing a note payable.

(h.) Received the amount owed from the customer of (f) above.

Answers:

111. The unadjusted trial balance of Mitchell Corporation is presented below, together with the information for necessary adjustments. Prepare the required adjusting entries and indicate what effect each adjustment has on net income—increase, decrease, or no effect.

Adjustment data:

(a.) Unused supplies on hand, $250

(b.) Unexpired rent, $3,250

(c.) Depreciation on equipment, $1,200

(d.) Portion of unearned fees not yet earned, $1,300

(e.) Accrued interest on the note, $400

(f.) Fees earned but not recorded and not received, $600

Answers:

112. The unadjusted trial balance of T.C. Corporation is presented below, together with the information for necessary adjustments. Prepare the required adjusting entries and indicate what effect each adjustment has on net income—increase, decrease, or no effect.

Adjustment data:

(a.) Unused supplies on hand, $1,050

(b.) Unexpired rent, $1,250

(c.) Depreciation on equipment, $1,200

(d.) Portion of unearned fees not yet earned, $1,900

(e.) Accrued interest on the note, $600

(f.) Fees earned but not recorded and not received, $1,600

Answers:

113. The following adjusted trial balance was taken from the accounting records of Rock Corporation. Prepare the closing entries for Dec 31, 2010. Was the company profitable?

114. Adams Company completed the following transactions during March:

(a.) Purchased inventory on open account, $28,000

(b.) Purchased $900 of supplies for cash

(c.) Sold on open account for $35,000 merchandise that had cost $23,000

(d.) Employees earned $6,000 during March and were paid $5,00.

(e.) Collected $30,000 from credit customers

(f.) Paid $25,000 to suppliers for merchandise purchases

(g.) Used up $700 of supplies during March

Using the form shown below, indicate the effect of each event on the assets, liabilities, and owners’ equity of Adams Company. Use + or increases and - for decreases.

(a.)

(b.)

(c.)

(d.)

(e.)

(f.)

(g.)

Using debits and credits make the entries for the same events

(a)

Answers:

115. The following information was taken from Dukas Corporation’s adjusted trial balance on December 31, 2010:

Required:

(A.) Prepare the income statement.

(B.) Prepare the December 31 balance sheet.

Answers:

(A.) Net income:

(B.) Balance Sheet

116. The following information was taken from Royce Corporation’s adjusted trial balance on December 31, 2010:

Accounts payable

$ 25,000

Accounts receivable

40,000

Buildings

250,000

Cash

20,000

Common stock

260,000

Cost of merchandise sold

355,000

Depreciation expense

20,000

Interest expense

1,000

Inventory

60,000

Retained Earnings (Beginning balance)

88,000

Revenue

435,000

Supplies

2,000

Wages expense

60,000

Required:

(A) Prepare the closing entries for Royce

(B.) Prepare the income statement.

(C.) Prepare the December 31 balance sheet.

Answers:

1. Closing Entries

Retained Earnings $ 1,000

Revenue 435,000

Cost of Merch Sold $355,000

Wages Expense 60,000

Depreciation Expense 20,000

Interest Expense 1,000

(B) Net income:

Revenue

$435,000

Expenses

_______

Cost of merchandise sold

$355,000

Wages expense

60,000

Depreciation expense

20,000

Interest expense

1,000

Total Expenses

436,000

Net Loss

<$ 1,000>

(C.) Balance Sheet

Assets

Cash $ 20,000

A/R 40,000

Inventory 60,000

Supplies 2,000

Building 250,000

Total Assets $372,000

Liabilities

A/P $ 25,000

Owners’ Equity

Common Stock $260,000

Retained Earnings 87,000 $347,000

Total Liabilities and OE $372,000

117. The following transactions occurred during Klein Corporation’s first month of operations, June 2010. Journalize the transactions in a general journal, post the transactions to the appropriate T-Accounts, and prepare a trial balance.

(a) Issued $20,000 of capital stock for cash

(b) Purchased $250 of office supplies on account

(c) Borrowed $1,000 from the bank and signed a note payable for that amount

(d) Billed a client $450 for services rendered

(e) Received and immediately paid the utility bill for the month, $270

(f) Performed a service and immediately collected $200

(g) Paid for the office supplies purchased in transaction (b)

(h) Received $150 from a client who had previously been billed

(i) Recorded, but did not pay, the telephone bill for the month, $160

(j) Declared a paid a $300 dividend to stockholders

(k) Received a $500 deposit from a client for work to be performed next month.

Answers:

118. The following adjusted trial balance was taken from the accounting records of Shipley

Corporation as of December 31, 2010:

Required:

A. Prepare the closing entries for December 31, 2010. Was the company profitable?

B. Prepare Shipley’s Income Statement

C. Prepare Shipley’s Balance Sheet

Answers:

A.

Management Fees Earned

89,500

Appraisal Fees Earned

12,700

Retained Earnings

102,200

Retained Earnings

97,100

Salaries Expense

46,800

Advertising Expense

18,300

Depreciation Expense

4,200

Supplies Expense

4,600

Interest Expense

3,100

Utilities Expense

7,700

Rent Expense

8,500

Insurance Expense

3,900

B.

Shipley Corporation

Income Statement

For the Year Ended December 31, 2010

Revenues:

Management Fees Earned $89,500

Appraisal Fees Earned 12,700

Total Revenues $102,200

Expenses:

Salaries Expense $46,800

Advertising Expense 18,300

Depreciation Expense 4,200

Supplies Expense 4,600

Interest Expense 3,100

Utilities Expense 7,700

Rent Expense 8,500

Insurance Expense 3,900

Total Expenses 97,100

Net Income $ 5,100

C.

Shipley Corporation

Balance Sheet

At December 31, 2010

Current Assets

Cash $27,500

Accounts Receivable 8,600

Supplies 3,100

Prepaid Rent 4,700

Total Current Assets $43,900

Property, Plant, and Equipment

Equipment $43,800

Less: Accumulated Depreciation 8,200

Total Long-Term Assets $35,600

Total Assets $79,500

Liabilities:

Accounts Payable $ 5,600

Salaries Payable 1,700

Notes Payable 20,000

Total Liabilities $27,300

Stockholders’ Equity

Capital Stock $35,000

Retained Earnings 17,200

Total Stockholders’ Equity $52,200

Total Liabilities and Stockholders’ Equity $79,500