(ch2ch3)10/21

1. Multiple Choices
1. A debit to an asset account indicates
a. an error.
b. a credit was made to a liability account.
c. a decrease in the asset.
d. an increase in the asset.
2. An accountant has debited an asset account for $1,000 and credited
a liability account for $500. What can be done to complete the
recording of the transaction?
a. Nothing further must be done.
b. Debit a stockholders equity account for $500.
c. Debit another asset account for $500.
d. Credit a different asset account for $500
3. Incurring an expense in the current accounting period, which will
be paid in the following accounting period, will require:
a. a debit to an expense and a credit to a liability
b. a debit to a liability and a credit to an expense
c. a debit to an expense and a credit to cash
d. a debit to an expense and a credit to capital
4. Which of the following statements is not true?
a. Expenses increase stockholders equity.
b. Expenses have normal debit balances.
c. Expenses decrease stockholders equity.
d.
Expenses are a negative factor in the calculation of net
income.
5. A trial balance would only help in detecting which one of the
following errors?
a. A transaction that is not journalized
b. A journal entry that is posted twice
c. Offsetting errors that are made in recording the transaction
d. A transposition error when transferring the debit side of
journal entry to the ledger
6. A $75 payment for rent expense was posted as a debit to salary
expense and a credit to cash. This error will cause:

a. the trial balance to be in balance

b. the sum of the credits to exceed the sum of the debits by $75
c. the sum of the debits to exceed the sum of the credits by $75
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d. the sum of the debits to exceed the sum of the credits by $150
7. The time period assumption states that
a. a transaction can only affect one period of time.
b. estimates should not be made if a transaction affects more
than one time period.
c. adjustments to the enterprise's accounts can only be made in
the time period when the business terminates its operations.
d. the economic life of a business can be divided into
artificial time periods.
8. The revenue recognition principle dictates that revenue should be
recognized in the accounting records
a. when cash is received.
b. when it is earned.
c. at the end of the month.
d. in the period that income taxes are paid.
9. Under the accrual basis of accounting
a. cash must be received before revenue is recognized.
b. net income is computed by matching cash outflows against
cash inflows.
c. events that change a company's financial statements are
recognized in the period they occur rather than in the
period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis
of accounting before financial statements are prepared under
generally accepted accounting principles.
10. Unearned revenues are
a. received and recorded as liabilities before they are earned.
b. earned and recorded as liabilities before they are received.
c. earned but not yet received or recorded.
d. earned and already received and recorded.
Trial balance ()
The bookkeeper for Reese Lawn Mowing Service made a number of
errors in journalizing and posting as described below:
1. A debit posting to accounts receivable for $500 was omitted.
2. A payment of accounts payable for $600 was credited to cash and
debited to accounts receivable.
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3. A credit to accounts receivable for $450 was posted as $45.

4. A cash purchase of equipment for $683 was journalized as a debit
to equipment and a credit to notes payable. The credit posting
was made for $638.
5. A debit posting of $200 for purchase of supplies was credited to
supplies.
6. A debit to repairs expense for $492 was posted as $429.
7. A debit posting for wages expense for $600 was made twice.
8. A cash purchase of supplies for $700 was journalized and posted as
a debit to supplies for $70 and a credit to cash for $70.
Instructions
For each error, indicate (a) whether the trial balance will balance; if the trial balance
will not balance, indicate (b) the amount of the difference, and (c) the trial balance
column that will have the larger total. Consider each error separately. Use the
following form, in which error (1) is given as an example.
(A)
(B)
(C)
Error
In Balance
Difference
Larger Column
1
No
$500
Credit

Error
1
2
3
4
5
6
7
8

(A)

(B)

(C)

In Balance
No
Yes
No
No
No
No
No
Yes

Difference
$500

405
45
400
63
600

Larger Column
Credit

Debit
Debit
Credit
Credit
Debit

2. The trial balance of Greer Company shown below does not balance.
GREER COMPANY
Trial Balance
June 30, 2003
Cash

Debit
2,699

Credit

Accounts Receivable
7,600
Supplies
600
Equipment
8,300
Accounts Payable
$ 9,766
Common Stock
1,952
Dividends
1,500
Service Revenue
15,200
Wages Expense
3,800
Repair Expense
1,600
Totals
$26,099
$26,918
An examination of the ledger and journal reveals the following
errors:
1. Each of the above listed accounts has a normal balance per the
general ledger.
2. Cash of $270 received from a customer on account was debited to
Cash $720 and credited to Accounts Receivable $720.
3. Dividends of $300 paid to stockholders was posted as a credit to
Dividends, $300 and a credit to Cash $300.
4. Wages Expense of $300 was omitted from the trial balance.
5. The purchase of equipment on account for $700 was recorded as a
debit to Repair Expense and a credit to Accounts Payable for $700.
6. Services were performed on account for a customer, $620, for
which Accounts Receivable was debited $620 and Service Revenue was
credited $62.
7. A payment on account for $225 was credited to Cash for $225 and
credited to Accounts Payable for $252.
Instructions
Prepare a correct trial balance.
3. Based on the following transactions that occurred during 20X3,
prepare a trial balance dated December 31, 20X3, for Taylor Oil
Company.
a. Philip Taylor invested $13,000 cash in the business.
b. Purchased $500 of supplies on account.
c. Bought equipment on account, $5,000.
d. Performed $6,000 of services on account.
e. Performed $3,000 of services for cash.
f. Paid $3,000 on equipment purchased in transaction c.
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g. Paid salaries to employees for the current period, $2,500.

4.
1. Geier Company prepares monthly financial statements. On July 1, the Office
Supplies account had a balance of $3,000. During July, additional office supplies
were purchased for $3,800 and that amount was debited to Office Supplies Expense.
On July 31, a physical count of office supplies revealed that there was $2,000 on
hand. Prepare the adjusting journal entry that Geier Company should make on July
31.
2. Reese Rental Agency prepares monthly financial statements. On September 1, a
check for $4,800 was received from a tenant for six months rent. The full amount
was credited to Rental Revenue. Prepare the adjusting entry the company should
make on September 30.
5. Harrison Company initially records all prepaid expenses as expenses and all
unearned revenues as revenues. Given the following information, prepare the
necessary adjusting entries at year-end, December 31, 20X5.
(a) On January 3, 20X5, $3,500 of supplies were purchased. A count
revealed $700 still on hand at December 31, 20X5.
(b) On January 4, 20X5, a $21,000 payment was made to an
insurance agency for two and a half years of insurance.
(c) On June 30, 20X5, received nine months rent in advance from a
tenant, $8,100.
(d) On August 1, 20X5, received six months rent in advance from a
tenant, $4,800.