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Exam 2: Analyzing and Recording Transactions

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Question 71

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A journal gives a complete record of each transaction in one place and shows the debits and credits for each transaction.

A) True
B) False

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Question 72

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When a company provides services for which cash will not be received until some future date,the company should record unearned revenue for the amount charged to the customer.

A) True
B) False

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Question 73

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The following trial balance was prepared from the general ledger of Hal's Auto Repair. $\begin{array}{c}\text {HAL'S AUTO REPAIR}\\\text {Trial Balance}\\\text {October 31}\\\begin{array}{|l|r|r|}\hline\text { Account } & \text { Debit }&\text { Credit }\\\hline \text { Cash } & \$ 975 \\\hline \text { Accounts receivable } & 3,800 \\\hline \text { Supplies } & 500 \\\hline \text { Repair equipment } & 13,000 \\\hline \text { Office equipment } & 6,600 \\\hline \text { Accounts payable } & & \$ 4,510 \\\hline \text { Common stock } & & 10,000 \\\hline \text { Retained earnings } & & 13,000 \\\hline \text { Dividends } & 4,200 & \\\hline \text { Repair fees earned } & & 10,875 \\\hline \text { Supplies expense } & \underline{8,600} & \\\hline \text { Totals } & \$ 37.675 & \$ 38,385 \\\hline \end{array}\end{array}$ Since the trial balance did not balance,you decided to examine the accounting records.You found that the following errors had been made: 1.A purchase of supplies on account for $245 was posted as a debit to Supplies and as a debit to Accounts Payable. 2.An investment of $500 cash by the owner was debited to Common Stock and credited to Cash. 3.In computing the balance of the Accounts Receivable account,a debit of $600 was omitted from the computation. 4.One debit of $300 to the Dividends account was posted as a credit. 5.Office equipment purchased for $800 was posted to the Repair Equipment account. 6.One entire entry was not posted to the general ledger.The transaction involved the receipt of $125 cash at the time repair services were performed. Prepare a corrected trial balance for the Hal's Auto Repair as of October 31.

Increases in liability accounts are recorded as debits.

As prepaid expenses are used up,the costs of these assets become expenses.

Unearned revenues are classified as liabilities.

The first step in the analyzing and recording process is to analyze each transaction and event from source documents.

The debt ratio is used:

The credit purchase of a delivery truck for $4,700 was posted to Delivery Trucks as a $4,700 debit and to Accounts Payable as a $4,700 debit.What effect would this error have on the trial balance?

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

Items such as sales slips,invoices,checks,and purchase orders are source documents.

Which of the following statements is correct?

Josephine's Bakery had the following assets and liabilities at the beginning and end of the current year: $\begin{array}{|l|r|r|}\hline & \text { Assets } & \text { Liabilities } \\\hline \text { Beginning of the year } & \$ 114,000 & \$ 68,000 \\\hline \text { End of the year } & 135,000 & 73,000 \\\hline\end{array}$ If the owners made no investments and dividends of $5,000 were paid during the year,what was the amount of net income earned by Josephine's Bakery during the current year?

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

A ledger is:

The balances for the accounts of Lance's Consulting Firm,Inc.for the year ended December 31 are shown below.Each account shown had a normal balance. $\begin{array} { l r l r } \text { Accounts payable } & \$ 6,400 & \text { Wages expense } & \$ 35,000 \\\text { Accounts receivable } & 7,000 & \text { Rent expense } & 5,000 \\\text { Cash } & 10,000 & \text { Retained earnings } & 68,700 \\\text { Office supplies } & 1,000 & \text { Land } & 53,000 \\\text { Building } & 99,000 & \text { Unearned revenue } & 7,000 \\\text { Supplies expense } & 15,000 & \text { Dividends } & 20,000 \\\text { Consulting revenue } & 150,000 & \text { Common stock } & 12,900\end{array}$ Calculate the debt ratio.

Leonard Matson completed these transactions during December of the current year: Prepare general journal entries to record these transactions.

Another name for the balance sheet is the statement of financial position.

Prepaid expenses are:

Describe source documents and their purpose.