Acct 2210 GQ#2 - Chp 3 - WCNet



SOLUTION: Acct 2210 Zeigler - Spring 2015 - Group Quiz #2 (30Pts)

Chapter 3 Material - Review for Exam #2

____1. The following general journal entry was recorded in the books of Collins & Pender, Inc:

|Cash |2,500 | |

| Revenue | |2,500 |

Based on this entry,

a. liabilities decreased.

b. assets decreased.

c. equity increased.

d. net income was unaffected.

____ 2. The following general journal entry was recorded in the books of Kesler, Kaesberg & Carter, Inc.

|Accounts Payable |1500 | |

| Cash | |1500 |

Based on this entry,

a. liabilities decreased.

b. assets increased.

c. equity decreased.

d. net income was unaffected.

____3. Teague, Boyer & Sunjic Co. collected $5,000 cash that was due on an account receivable. The company accountant recorded the entry as a debit to cash and a credit to service revenue. As a result of this error:

a. the totals of the trial balance will not be equal.

b. the amount of cash will be overstated.

c. expenses will be understated.

d. retained earnings will be overstated.

____4. Select the true statement.

a. A debit to an asset account will increase the balance of the account.

b. A debit to a liability account will increase the balance of the account.

c. A credit to a revenue account will decrease the balance of the account.

d. A credit to the retained earnings account will decrease the balance of the account.

____5. The following adjusted trial balance was drawn from the records of Daley & Weyrick, Inc.

Account Title Dr Cr

Cash 300

Equipment 3,000

Common Stock 2,700

Retained Earnings 500

Service Revenue 750

Operating Expenses 650

-------- --------

Totals ??? ??? 3,950

Based on the information in the trial balance, the amount of retained earnings reported on the year-end balance sheet, after all year-end closing entries were posted, would be:

a. $100

b. $600 (Beg R/E $500 + NI of $100)

c. $900

d. $1,250

e. $3,950

____ 6. Baxter & Karakis, Inc. began the accounting period with a $8,000 debit balance

in its accounts receivable account. During the accounting period, the company recorded

revenue on account amounting to $17,000. The accounts receivable account at the

end of the accounting period contained a $5,000 debit balance. Based on this

information, the cash collected from accounts receivable during the period is/was:

a. $19,000

b. $9,000

c. $20,000 (8000+17000-?=$5,000 normal (debit) balance) Use T-Accts to analyze

d. $25,000

____7. The journal entry to record accrued interest expense on a note payable involves:

a. a credit to interest expense and a debit to cash.

b. a credit to interest expense and a debit to interest payable.

c. a debit to interest expense and a credit to interest payable.

d. a credit to interest receivable and a debit to interest expense.

e. none of the above represent a correct entry.

____8. Zeigler, Inc. recorded the purchase of supplies on account by correctly debiting supplies, but mistakenly crediting cash. As a result of this error:

a. the period-end “Trial Balance” will not balance. (No, the TB will balance)

b. liabilities are overstated. (No, liabilities are understated by not increasing A/P)

c. expenses are overstated.

d. assets are understated.

e. both “b” and “c” are correct.

____9. Kaplan & Taylor, Inc. borrowed $10,000 from Wang National Bank on October 1, 2014. The note had a 6 percent annual interest rate and a one-year term. Which of the following general journal entries would be necessary to record the accrued interest adjustment at the December 31, 2014 company year-end?

a. Interest Expense $450

Interest Payable $450

b. Interest Payable $450

Interest Expense $450

c. Interest Expense $150

Interest Payable $150

d. Interest Payable $150

Interest Expense $150

____10. Essom & Bowman, Inc. experienced an accounting event that affected its financial statements:

| |Asse|= |

| |ts | |

|2,200 | | | |2,200 |

Which of the following reflects how this event affects the company’s financial statements?

| |Assets |= |Liab. |+ |Equity | |Rev. |( |Exp. |= |Net Inc. | |Cash Flow | | |a. | |+ | |NA | |+ | |NA | |+ | |( | |+ FA | | |b. | |+ | |+ | |NA | |NA | |NA | |NA | |+ OA | | |c. | |+ | |NA | |+ | |+ | |NA | |+ | |+ OA | | |d. | |+ | |+ | |NA | |NA | |NA | |NA | |+ FA | | | | | | | | | | | | | | | | | | | |

____ 14. Which of the following statements is true?

a. A debit entry in an asset account will decrease the account.

b. Adjusting entries are recorded at the beginning of an accounting cycle.

c. Equal totals in a trial balance proves that no errors have been made in the recording process.

d. Expense accounts normally have debit balances immediately before the closing entries are recorded.

15. Before any month-end adjustments, the December 31st trial balance for Furukawa, Pratt & Waag, Inc. indicates that the company had total revenues of $67,500 and expenses of $36,200.

Upon analysis, month-end adjustments were deemed necessary for the following items:

1. The accrued interest due on a note payable to the bank is $150.

2. Revenue earned, but not billed, is $1,900.

3. The $75 utility bill for the month was received, but not recorded.

4. $6,300 of revenue, collected in advance from a customer, has now been earned.

5. Salaries that have been incurred but not yet paid amount to $650.

6. Prepaid Rent that has expired amounts to $600.

7. A physical count of office supplies showed the use of $300 for the period.

8. Accrued interest earned on a “Certificate of Deposit” (CD) at the bank totaled $1,250.

Required (6 pts):

Analyze the effect of each adjustment above and list each (with the item number) as an addition or subtraction below to determine the correct net income for the period ending December 31st.

You must show all work below to earn credit.

ANSWER:

Net Income Before Adjustments $31,300

Add: 2) Accrued Revenue 1,900

4) Unearned Revenue 6,300

8) Accrued Interest (CD) 1,250 9,450

Less: 1) Interest Expense 150

3) Utility Expense 75

5) Salaries Expense 650

6) Rent Expense 600

7) Supplies Expense 300 < 1,775>

Net Income After Adjustments $ 38,975

Ratio Analysis: Use the following information for questions 16-18:

Falcon, Inc. had the following amounts on its 12/31/14 financial statements.

 [pic] 

____ 16. The “Return on Assets” (ROA) ratio for the company is:

a. 5%

b. 10% $20,000 net income/$200,000 total assets = 10% Note: What does this mean?

c. 20%

d. 50%

____ 17. The “Return on Equity” (ROE) ratio for the company is:

a. 5%

b. 10%

c. 20% $20,000 net income/$100,000 total equity = 20% Note: What does this mean?

d. 50%

____ 18. The “Debt-to-Assets” ratio for the company is:

a. 5%

b. 10%

c. 20%

d. 50% $100,000 total liabilities/$200,000 total assets = 50% Note: What does this mean?

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Two points below: An analysis of the ROA formula (How to influence/impact a ratio):

____ 19. Which of these transactions would immediately increase a company's “Return on Assets” ratio?

a. Received cash from customers for goods sold to them on account last month. (asset exchange: no effect)

b. Borrowed cash from a local bank. (assets up; decreases ROA due to higher denominator)

c. Paid cash on accounts payable. (assets down; increases ROA due to lower denominator)

d. Incurred expenses on account. (net income down, decreases ROA due to lower numerator)

Comment: Paying cash on accounts payable (“c”) decreases assets, but has no effect on net income. As such, reducing total assets (the denominator) increases the company's “return on assets” ratio. The point here is that mgmt (you) can influence (improve in this case) a ratio by understanding the nature of a ratio and the underlying impact of a transaction.

Good Examination #2 material – see me or our GA team with any questions.

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