Question 1

All of the following statements accurately describe the debt ratio except.

Accepted Answer

A)   The dividing line for a high and low ratio varies from industry to industry.
B)   The ratio might be used to help determine if a company is capable of increasing its income by obtaining further debt.
C)   A relatively high ratio is always desirable.
D)   Many factors such as a company's age, stability, profitability and cash flow influence the determination of what would be interpreted as a high versus a low ratio.
E)   It is of use to both internal and external users of accounting information.F) B) and E)
G) A) and E)

Question 2

Identify the statement that is incorrect.

Accepted Answer

A)   Lower financial leverage involves lower risk.
B)   Higher financial leverage involves higher risk.
C)   The debt ratio is one measure of financial risk.
D)   Risk is higher if a company has more liabilities.
E)   Risk is higher if a company has higher assets.F) None of the above
G) B) and C)

Question 3

Describe the link between a business's income statement, the statement of owner's equity, and the balance sheet.

Accepted Answer

The income statement shows the amount of...

Question 4

Neither U.S. GAAP nor IFRS require the use of accrual basis accounting.

Accepted Answer

A) True 
 B)False

Question 5

Geraldine Parker, the owner of Gi Gi's Dance Studio, started the business by investing $10,000 cash and donating a building worth $20,000. Identify the general journal entry below that Gi Gi's will make to record the transaction.

Accepted Answer

A)     Cash 10,000 G. Parker, Capital 30,000\begin{array} { | l | r | r | } \hline 	ext { Cash } & 10,000 & \\hline 	ext { G. Parker, Capital } & & 30,000 \\hline\end{array} Cash  G. Parker, Capital ​10,000​30,000​​ 
B)     Cash & Building 30,000 G. Parker, Capital 30,000\begin{array} { | l | r | r | } \hline 	ext { Cash \& Building } & 30,000 & \\hline 	ext { G. Parker, Capital } & & 30,000 \\hline\end{array} Cash & Building  G. Parker, Capital ​30,000​30,000​​ 
C)     Owner’s Investments 30,000 G. Parker, Capital 30,000\begin{array} { | l | r | l | } \hline 	ext { Owner&#x27;s Investments } & 30,000 & \\hline 	ext { G. Parker, Capital } & & 30,000 \\hline\end{array} Owner’s Investments  G. Parker, Capital ​30,000​30,000​​ 
D)     Cash 10,000 Building 20,000 G. Parker, Capital 30,000\begin{array} { | l | r | l | } \hline 	ext { Cash } & 10,000 & \\hline 	ext { Building } & 20,000 & \\hline 	ext { G. Parker, Capital } & & 30,000 \\hline\end{array} Cash  Building  G. Parker, Capital ​10,00020,000​30,000​​ 
E)     G. Parker, Capital 30,000 Cash 10,000 Building 20,000\begin{array} { | l | r | r | } \hline 	ext { G. Parker, Capital } & 30,000 & \\hline 	ext { Cash } & & 10,000 \\hline 	ext { Building } & & 20,000 \\hline\end{array} G. Parker, Capital  Cash  Building ​30,000​10,00020,000​​F) B) and D)
G) A) and D)

Question 6

Identify the statement below that is correct.

Accepted Answer

A)   When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense.
B)   An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business.
C)   Promises of future payment by the customer are called accounts receivable.
D)   Accrued liabilities include accounts receivable.
E)   Increases and decreases in cash are always recorded in the owner's capital account.F) A) and B)
G) A) and E)

Question 7

Which of the following is NOT an asset account:

Accepted Answer

A)   Cash
B)   Land
C)   Services Revenue
D)   Equipment
E)   BuildingsF) A) and D)
G) B) and C)

Question 8

Smiles Entertainment had the following accounts and balances at December 31:   Account  Debit  Credit  Cash $10,000 Accounts Receivable 2,000 Prepaid Insurance 2,400 Supplies 1,000 Accounts Payable $5,000 T. Happy. Capital 4,900 Service Revenue 7,000 Salaries Expense 500 Utilities Expense 1,000 Totals $16,900‾‾$16,900‾‾\begin{array} { | l | r | r | } \hline { 	ext { Account } } &  { 	ext { Debit } } &  { 	ext { Credit } } \\hline 	ext { Cash } & \$ 10,000 & \\hline 	ext { Accounts Receivable } & 2,000 & \& & \\hline 	ext { Prepaid Insurance } & 2,400 & \\hline 	ext { Supplies } & 1,000 & \\hline 	ext { Accounts Payable } & & \$ 5,000 \\hline 	ext { T. Happy. Capital } & & 4,900 \\hline 	ext { Service Revenue } & & 7,000 \\hline 	ext { Salaries Expense } & 500 & \\hline 	ext { Utilities Expense } & 1,000 & \\hline { 	ext { Totals } } & \underline { \underline { \$ 16,900 } } & \underline { \underline { \$ 16,900 } } \\hline\end{array} Account  Cash  Accounts Receivable  Prepaid Insurance  Supplies  Accounts Payable  T. Happy. Capital  Service Revenue  Salaries Expense  Utilities Expense  Totals ​ Debit $10,0002,0002,4001,0005001,000$16,900​​​ Credit $5,0004,9007,000$16,900​​​​  Using the information in the table, calculate the company's reported net income for the period.

Accepted Answer

A)   $8,500
B)   $4,000.
C)   $1,100.
D)   $5,500.
E)   $10,400. F) B) and E)
G) A) and D)

Question 9

The higher a company's debt ratio, the lower the risk of a company not being able to meet its obligations.

Accepted Answer

A) True 
 B)False

Question 10

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

Accepted Answer

A) True 
 B)False

Question 11

The debt ratio is used:

Accepted Answer

A)   To determine how much debt a firm should pay off.
B)   To measure the ratio of equity to expenses.
C)   To determine how much debt a company should borrow.
D)   To assess the risk associated with a company's use of liabilities.
E)   Only by banks when a business applies for a loan.F) C) and E)
G) A) and C)

Question 12

A credit entry:

Accepted Answer

A)   Is recorded on the left side of a T-account.
B)   Is always a decrease in an account.
C)   Increases asset and expense accounts, and decreases liability, owner's capital, and revenue accounts.
D)   Is always an increase in an account.
E)   Decreases asset and expense accounts, and increases liability, owner's capital, and revenue accounts.F) A) and D)
G) All of the above

Question 13

A record containing all the separate accounts for a company as well as all of their balances is called the ________.

Accepted Answer

The answer of A record containing all the separate accounts...

Question 14

Jerry's Butcher Shop had the following assets and liabilities at the beginning and end of the current year:
$\begin{array} { l c c } 
& \text { Assets } & \text { Liabilities } \
\text { Beginning of the year } \$ 114,000 & \$ 68,000 \
\text { End of the year } & 135,000 & 73,000
\end{array}$
- 
If Jerry made no investments in the business but withdrew $5,000 during the year, what was the amount of net income earned by Jerry's Butcher Shop?

Accepted Answer

Beginning owner's equity = $114,000 - $6...

Question 15

Willow Rentals purchased office supplies on credit. The general journal entry made by Willow Rentals will include a:

Accepted Answer

A)   Debit to Accounts Receivable.
B)   Credit to Accounts Payable.
C)   Credit to Willow, Capital.
D)   Debit to Accounts Payable.
E)   Credit to Cash.F) B) and E)
G) B) and C)

Question 16

The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information, an investor can conclude:

Accepted Answer

A)   Company A has a lower risk from its financial leverage.
B)   Company B has more debt than Company A.
C)   Company A has 10% more assets than Company B.
D)   Company B has a lower risk from its financial leverage.
E)   Both companies have too much debt.F) B) and C)
G) B) and D)

Question 17

Jerry's Butcher Shop had the following assets and liabilities at the beginning and end of the current year:
$\begin{array} { l c c } 
& \text { Assets } & \text { Liabilities } \
\text { Beginning of the year } \$ 114,000 & \$ 68,000 \
\text { End of the year } & 135,000 & 73,000
\end{array}$
- 
If Jerry invested an additional $12,000 in the business during the year, but withdrew no assets during the year, what was the amount of net income earned by Jerry's Butcher Shop?

Accepted Answer

Beginning owner's equity = $114,000 - $6...

Question 18

The same four basic financial statements are prepared by both U.S. GAAP and IFRS.

Accepted Answer

A) True 
 B)False

Question 19

A general journal is:

Accepted Answer

A)   A ledger in which amounts are posted from a balance column account.
B)   A complete record of all transactions in chronological order from which transaction amounts are posted to the ledger accounts.
C)   Not required if T-accounts are used.
D)   A book of final entry because financial statements are prepared from it.
E)   Not necessary in electronic accounting systems.F) A) and B)
G) C) and D)

Question 20

Withdrawals by the owner are a business expense.

Accepted Answer

A) True 
 B)False

Exam 2: Analyzing and Recording Transactions

Correct Answer
verified
Beginning owner's equity = $114,000 - $6...
View Answer

A credit entry:

Correct Answer
verified

A record containing all the separate accounts for a company as well as all of their balances is called the ________.

Correct Answer
verified

Willow Rentals purchased office supplies on credit. The general journal entry made by Willow Rentals will include a:

Correct Answer
verified

Describe the link between a business's income statement, the statement of owner's equity, and the balance sheet.

Correct Answer
verified
The income statement shows the amount of...
View Answer

The same four basic financial statements are prepared by both U.S. GAAP and IFRS.

Correct Answer
verified

The debt ratio is used:

Correct Answer
verified

Identify the statement that is incorrect.

Correct Answer
verified

The higher a company's debt ratio, the lower the risk of a company not being able to meet its obligations.

Correct Answer
verified

Withdrawals by the owner are a business expense.

Correct Answer
verified

A general journal is:

Correct Answer
verified

All of the following statements accurately describe the debt ratio except.

Correct Answer
verified

Which of the following is NOT an asset account:

Correct Answer
verified

Identify the statement below that is correct.

Correct Answer
verified

Correct Answer
verified
Beginning owner's equity = $114,000 - $6...
View Answer

The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information, an investor can conclude:

Correct Answer
verified

Geraldine Parker, the owner of Gi Gi's Dance Studio, started the business by investing $10,000 cash and donating a building worth $20,000. Identify the general journal entry below that Gi Gi's will make to record the transaction.

Correct Answer
verified

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

Correct Answer
verified

Neither U.S. GAAP nor IFRS require the use of accrual basis accounting.

Correct Answer
verified

Correct Answer
verified

Exam 2: Analyzing and Recording Transactions

Correct AnswerverifiedBeginning owner's equity = $114,000 - $6...View AnswerShow Answer

A credit entry:

Correct AnswerverifiedShow Answer

A record containing all the separate accounts for a company as well as all of their balances is called the ________.

Correct AnswerverifiedShow Answer

Willow Rentals purchased office supplies on credit. The general journal entry made by Willow Rentals will include a:

Correct AnswerverifiedShow Answer

Describe the link between a business's income statement, the statement of owner's equity, and the balance sheet.

Correct AnswerverifiedThe income statement shows the amount of...View AnswerShow Answer

The same four basic financial statements are prepared by both U.S. GAAP and IFRS.

Correct AnswerverifiedShow Answer

The debt ratio is used:

Correct AnswerverifiedShow Answer

Identify the statement that is incorrect.

Correct AnswerverifiedShow Answer

The higher a company's debt ratio, the lower the risk of a company not being able to meet its obligations.

Correct AnswerverifiedShow Answer

Withdrawals by the owner are a business expense.

Correct AnswerverifiedShow Answer

A general journal is:

Correct AnswerverifiedShow Answer

All of the following statements accurately describe the debt ratio except.

Correct AnswerverifiedShow Answer

Which of the following is NOT an asset account:

Correct AnswerverifiedShow Answer

Identify the statement below that is correct.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedBeginning owner's equity = $114,000 - $6...View AnswerShow Answer

The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information, an investor can conclude:

Correct AnswerverifiedShow Answer

Geraldine Parker, the owner of Gi Gi's Dance Studio, started the business by investing $10,000 cash and donating a building worth $20,000. Identify the general journal entry below that Gi Gi's will make to record the transaction.

Correct AnswerverifiedShow Answer

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

Correct AnswerverifiedShow Answer

Neither U.S. GAAP nor IFRS require the use of accrual basis accounting.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified
Beginning owner's equity = $114,000 - $6...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The income statement shows the amount of...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
Beginning owner's equity = $114,000 - $6...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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