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[Question]
163. Explain the debt ratio and its
use in analyzing a company's financial condition.
Answer:
The debt ratio is calculated by dividing total liabilities by total
assets. It reveals the percentage of the company's assets that are financed by
creditors. The higher the ratio, the more risk a company has in trying to repay
the debt with interest.
Bloom’s
Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-A2
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-A2
[Question]
164. Explain
the recording and posting processes.
Answer: Information from business transactions and
events is recorded in the journal in the form of journal entries. The journal
entries include the date, the account titles and debit and credit amounts.
Journal entries may also include a further description of the transaction.
During the posting process the debit and credit amounts recorded in the journal
are transferred to the individual accounts in the ledger.
Bloom’s
Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-P1
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-P1
[Question]
165. What
is a trial balance? What is its purpose?
Answer: The trial balance is a list of all of the
accounts in the ledger with balances at a point in time. The list is organized
by debit and credit balances. The purpose of the trial balance is to summarize
the account totals and to verify the accuracy of the total debits and credits.
If the total debits and credits are not equal, then the trial balance is out of
balance which indicates an error in the accounting records. However, even if
debits do equal credits this is no guarantee that no errors were made in
recording and posting transactions.
Bloom’s
Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-P2
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-P2
[Question]
166. Susie
and Katie Shea founded CitySlips. What are some accounting challenges they
faced when starting her business?
Answer: They had to account for many activities such
as product costs, office expenses, supplier payments and patent fees. They also
expanded sales.
Bloom’s
Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-A1
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Decision Making
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-A1
Short Answer Questions
[Question]
167. Identify which of the following
items would likely serve as a source document by marking an X in the appropriate
column. The first one is done as an example
|
|
|
Yes
|
No
|
|
Ex.
|
Credit card
|
|
X
|
|
a.
|
Credit card receipt
|
|
|
|
b.
|
Purchase order
|
|
|
|
c.
|
Invoice
|
|
|
|
d.
|
Balance sheet
|
|
|
|
e.
|
Bank statement
|
|
|
|
f.
|
Journal entry
|
|
|
|
g.
|
Electric power bill
|
|
|
|
h.
|
Employee earnings record
|
|
|
Answer:
|
|
|
Yes
|
No
|
|
Ex.
|
Credit
card
|
|
X
|
|
a.
|
Credit
card receipt
|
X
|
|
|
b.
|
Purchase
order
|
X
|
|
|
c.
|
Invoice
|
X
|
|
|
d.
|
Balance
sheet
|
|
X
|
|
e.
|
Bank
statement
|
X
|
|
|
f.
|
Journal
entry
|
|
X
|
|
g.
|
Electric
power bill
|
X
|
|
|
h.
|
Employee
earnings record
|
X
|
|
Bloom’s
Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 02-C2
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 02-C2
[Question]
168. Indicate
whether a debit or credit entry would be made to record the following changes
in each account.
a. To decrease Cash
b. To increase Common Stock
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 Retained Earnings
a. To decrease Cash
b. To increase Common Stock
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 Retained Earnings
Answer: a. Credit, b. Credit, c. Debit, d. Debit, e.
Credit, f. Credit, g. Credit, h. Credit
Bloom’s
Taxonomy: Remember
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-C4
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-C4
[Question]
169. The following is a list of
accounts and identification letters A through J for Shannon Management Co.:
|
A.
|
Common Stock
|
F.
|
Prepaid Rent
|
|
B.
|
Interest
Payable
|
G.
|
Advertising
Expense
|
|
C.
|
Land
|
H.
|
Unearned Rent
Revenue
|
|
D.
|
Dividends
|
I.
|
Commissions
Earned
|
|
E.
|
Fees Earned
|
J.
|
Notes
Receivable
|
Use the form below to identify the type of account and its normal balance. The first item is filled in as an example.
|
Type of Account
|
Normal Balance
|
||||
|
|
Asset
|
Liability
|
Equity
|
Debit
|
Credit
|
|
A.
|
|
|
X
|
|
X
|
|
B.
|
|
|
|
|
|
|
C.
|
|
|
|
|
|
|
D.
|
|
|
|
|
|
|
E.
|
|
|
|
|
|
|
F.
|
|
|
|
|
|
|
G.
|
|
|
|
|
|
|
H.
|
|
|
|
|
|
|
I.
|
|
|
|
|
|
|
J.
|
|
|
|
|
|
Answer:
|
Type of Account
|
Normal Balance
|
||||
|
|
Asset
|
Liability
|
Equity
|
Debit
|
Credit
|
|
A.
|
|
|
X
|
|
X
|
|
B.
|
|
X
|
|
|
X
|
|
C.
|
X
|
|
|
X
|
|
|
D.
|
|
|
X
|
X
|
|
|
E.
|
|
|
X
|
|
X
|
|
F.
|
X
|
|
|
X
|
|
|
G.
|
|
|
X
|
X
|
|
|
H.
|
|
X
|
|
|
X
|
|
I.
|
|
|
X
|
|
X
|
|
J.
|
X
|
|
|
X
|
|
Bloom’s Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-C4
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-C4
[Question]
170. Dolly Barton began Barton
Office Services in October and during the month completed the following
transactions:
a. Invested $10,000 cash and $15,000 of computer equipment in exchange for common stock
b. Paid $500 cash for an insurance premium covering the next 12 months
c. Completed a word processing assignment for a customer and collected $1,000 cash
d. Paid $200 cash for office supplies
e. Paid $2,000 for October's rent.
Prepare journal entries to record the above transactions. Explanations are unnecessary.
a. Invested $10,000 cash and $15,000 of computer equipment in exchange for common stock
b. Paid $500 cash for an insurance premium covering the next 12 months
c. Completed a word processing assignment for a customer and collected $1,000 cash
d. Paid $200 cash for office supplies
e. Paid $2,000 for October's rent.
Prepare journal entries to record the above transactions. Explanations are unnecessary.
Answer:
a.
|
Cash
|
10,000
|
|
|
Computer
Equipment
|
15,000
|
|
|
Common Stock
|
|
25,000
|
b.
|
Prepaid
Insurance
|
500
|
|
|
Cash
|
|
500
|
c.
|
Cash
|
1,000
|
|
|
Office Services Revenue
|
|
1,000
|
d.
|
Office
Supplies
|
200
|
|
|
Cash
|
|
200
|
e.
|
Rent
Expense
|
2,000
|
|
|
Cash
|
|
2,000
|
Bloom’s
Taxonomy: Create
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 02-A1
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: 02-A1
[Question]
171. A company sends a $1,500 bill
to a customer for delivery services rendered. Set up the necessary T-accounts
below and show how this transaction would be recorded directly in those
accounts.
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Answer:
|
Accounts Receivable
|
Delivery Fees Earned
|
||
|
1,500
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
Bloom’s
Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-A1
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-A1
[Question]
172. A
company paid $2,500 cash to satisfy a previously recorded account payable. Set
up the necessary T-accounts below and show how this transaction would be
recorded directly in those accounts.
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Answer:
|
Accounts Payable
|
Cash
|
||
|
2,500
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: 02-A1
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