Question

QUESTION 14

1. A company purchases supplies on account, what is the effect on the accounting equation?
     

   		Assets decrease; equity increases
   		Assets decrease; equity decreases
   		Liabilities decrease; equity decreases
   		Liabilities increase; equity increases
   		Liabilities increase; assets increase

4 points   

QUESTION 15

1. Unearned revenues are:
   

   		Revenues that have been earned and received in cash
   		Revenues that have been earned but not yet collected in cash
   		Liabilities created when a customer pays in advance for products or services before the revenue is earned
   		Recorded as an asset in the accounting records
   		Increases to retained earnings

4 points   

QUESTION 16

1. A debit is:
   

   		An increase in an account
   		The right-hand side of a T-account
   		A decrease in an account
   		The left-hand side of a T-account
   		An increase to a liability account

4 points   

QUESTION 17

1. Acme Company had equity of $55,000 at the end of the current year. During the year the company had a $2,000 net loss and investments by owners in exchange for stock of $7,000. Compute equity as of the beginning of the year.

   		$5,000
   		$46,000
   		$50,000
   		$52,000
   		$64,000

4 points   

QUESTION 18

1. If Beginning Retained Earnings was $184,300, the company distributed $46,000 in dividends and Ending Retained Earnings was $345,000, what was the net income for the period?

   		$154,700
   		$206,700
   		$114,700
   		$575,300
   		$160,700

4 points   

QUESTION 19

1. In which of the following situations would the trial balance not balance?

   		A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a credit to Cash
   		The purchase of office supplies on account for $3,250 was erroneously recorded in the journal as $2,350 debit to Office Supplies and credit to Accounts Payable
   		A $50 cash receipt for the performance of a service was not recorded at all
   		The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and a credit to Cash for $1,200
   		The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for $750

4 points   

QUESTION 20

1. Which of the following is the appropriate journal entry if a company performs a service and is paid immediately?
   

   		Debit to Cash, Debit to Revenue
   		Debit to Cash, Credit to Revenue
   		Debit to Accounts Receivable, Credit to Cash
   		Debit to Revenue, Credit to Accounts Receivable
   		Debit to Accounts Receivable, Credit to Revenue

4 points   

QUESTION 21

1. 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.

      i. To increase unearned revenue
      j. To increase dividends

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10 points   

QUESTION 22

1. Using the trial balance below: complete the income statement, the statement of retained earnings and a balance sheet.

   Johnny Dollar's Body Shop
   Trial Balance
   December 31, 2020
   Cash	6500
   Accounts receivable	475
   Body shop supplies	2500
   Office supples	600
   Body shop equipment	35200
   Accounts payable			1500
   Common stock			10000
   Retained earnings			11775
   Dividends	36000
   Revenue earned			95000
   Body shop supplies expense	3425
   Office supplies expense	775
   Rent expense	6000
   Utilities expense	4800
   Wages expense	22000
   	118275		118275

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Answer 1

Question 14:

The correct answer is, Liabilities increase; assets increase.

When supplies purchased on account, the supplies on hand increased. Supplies on hand is an asset which will appear in the Balance Sheet at assets side. Therefore, assets increased. The purchase is made on account. Therefore, it increases the amount of accounts payable. Accounts payable is a liability appearing in the liability side of the balance sheet. Therefore, liability increases.

Question 15:

The correct answer is, Liabilities created when a customer pays in advance for products or services before the revenue is earned.

Unearned revenue is the amount of revenue received in advance in which the products are yet to be delivered or services are yet to be performed. It will delivered or performed on a future date.
Even though unearned revenues are received in cash, it cannot be considered as revenue only when it is earned. Unearned revenue is recorded as a liability in the accounting records because of the obligation to provide product or service. It will be added to retained earnings only when the revenue is earned.

Question 16:

The correct answer is, The left-hand side of a T-account.

A debit side of a T-account is the left hand side. Posting is made on debit side means it is entered in the left hand side of the T-accounts.
A right hand side of a T-account is a credit. An increase to the liability is a Credit and decrease to the liability is debit.

Question 17:

The correct answer is $50,000.

The equity as of the beginning of the year was $50,000.

Equity at the end of the current year = $55,000
Net loss during the year = $2,000
Investments by owners in exchange for stock = $7,000.

Equity as of the beginning of the year = Equity at the end + Net loss - Investments by owners = $55,000 + $2,000 - $7,000 = $50,000

Question 18:

The correct answer is, $206,700.

Net income for the period was $206,700.

Beginning Retained Earnings = $184,300
Dividends distributed = $46,000
Ending Retained Earnings = $345,000

Net income for the period = Ending Retained Earnings + Dividends distributed - Beginning Retained Earnings
= $345,000 + $46,000 - $184,300 = $206,700

Question 19:

The correct answer is, The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for $750

The cash payment of a $750 account payable was posted as a debit to Accounts Payable and a debit to Cash for $750 - A debit to accounts payable will decrease liability and a debit to Cash will increase asset. A debit to accounts payable will reduce the credit balance in trial balance and a debit to cash will increase the debit balance in trial balance. Therefore, it will affect the trial balance and it would not balance.

A $1,000 collection of an account receivable was erroneously posted as a debit to Accounts Receivable and a credit to Cash - A debit to Accounts Receivable will increase the balance of an asset account and a credit to Cash will decrease the the balance of an asset account by the same amount. It will increase and decrease the asset by the same amount. Therefore, it won't affect the trial balance.

The purchase of office supplies on account for $3,250 was erroneously recorded in the journal as $2,350 debit to Office Supplies and credit to Accounts Payable - A debit to Office Supplies will increase the the balance of an asset account and a credit to Accounts Payable will increase the the balance of a liability account. It increases both the sides of the trial balance. Hence, it won't affect the trial balance.

A $50 cash receipt for the performance of a service was not recorded at all - No entry was made. Hence, it won't affect both sides of the trial balance.

The purchase of office equipment for $1,200 was posted as a debit to Office Supplies and a credit to Cash for $1,200. A debit to Office Supplies will increase assets and a credit to Cash will decrease assets. It will increase and decrease the asset by the same amount. Therefore, it won't affect the trial balance.

Question 20:

The correct answer is, Debit to Cash, Credit to Revenue.

When a service is performed and is paid immediately, Cash received is debited because increase in cash, being an asset is Debit and Revenue is credited because increase income being an increase in Equity is credited.

QUESTION 21:

a. To decrease Cash - A credit entry would be made because cash is an asset and decrease in asset is Credit.
b. To increase Common Stock - A credit entry would be made because Common stock is a part of Equity and increase in Equity is Credit.
c. To decrease Accounts Payable - A Debit entry would be made because Accounts Payable is a liability and decrease in liability is Debit.
d. To increase Salaries Expense - A Debit entry would be made because salaries Expense is an expense and increase in Expense is Debit.
e. To decrease Supplies - A Credit entry would be made because Supplies is an asset and decrease in asset is Credit.
f. To increase Revenue - A Credit entry would be made because revenue is an income and increase in income is credit.
g. To decrease Accounts Receivable - A Credit entry would be made because Accounts receivable is an asset and decrease in asset is Credit.
h. To increase Retained Earnings - A Credit entry would be made because Retained Earnings is a part of Equity and increase in Equity is Credit.
i. To increase unearned revenue - A Credit entry would be made because unearned revenue is a liability and increase in liability is Credit.
j. To increase dividends - A Debit entry would be made because Dividends is a reduction from Equity and decrease in Equity is Debit.

Question 22:

An income statement is prepared to ascertain the net income or loss from operations of the business. It prepared by considering revenues and expenses.
A statement of Retained Earnings shows the changes in stockholders' Equity. It includes Net income and payment of Dividends.
A balance sheet is prepared to show the financial position of the business in terms of assets and liabilities.

Johnny Dollar's Body Shop Income Statement for the year ended December 31, 2020 Revenue earned 95,000 Body shop supplies expense 3,425 Office supplies expense 775 Rent expense 6,000 Utilities expense 4,800 Wages expense 22,000 Total operating expenses 37,000 Net income 58,000 Johnny Dollar's Body Shop Statement of Retained Earnings for the year ended December 31, 2020 Beginning Retained Earnings 11,775 Net income 58,000 Dividends -36,000 Ending Retained Earnings 33,775 Johnny Dollar's Body Shop Balance Sheet as at December 31, 2020 Assets Cash Accounts receivable Body shop supplies Office supples Body shop equipment Total Assets Liabilities Accounts payable Total Liabilities Stockholders Equity Common stock Retained Earnings Total Stockholders Equity Total liabilities & Stockholders Equity 6,500 475 2,500 600 35,200 45,275 1,500 1,500 10,000 33,775 43,775 45,275