True/FalseQuestions

1.Accountingrecordsarealsoreferredtoasthebooks.TRUE

3.Preparationofatrialbalanceisthefirststepintheanalyzingandrecordingprocess.FALSE

4.Sourcedocumentsprovideevidenceofbusinesstransactionsandarethebasisforaccounting

entries.TRUE

5.Itemssuchassalestickets,bankstatements,checks,andpurchaseordersaresource

documents.TRUE

6.Anaccountisarecordofincreasesanddecreasesinaspecificasset,liability,equity,revenue,

orexpenseitem.TRUE

7.Acustomer'spromisetopayiscalledanaccountpayabletotheseller.FALSE

9.Asprepaidexpensesareused,theexpiredcostsoftheassetsbecomeexpenses.TRUE

1().Landandbuildingsaregenerallyrecordedinthesameledgeraccount.FALSe

13.Cashwithdrawnbytheownerofaproprietorshipshouldbetreatedasanexpenseofthe

business.FALSE

15.Thechartofaccountsisalistofalltheaccountsusedbyacompanyandincludesan

identificationnumberassignedtoeachaccount.TRUE

16.Anaccountbalanceisthedifferencebetweenthedebitsandcreditsforanaccountincluding

anybeginningbalance.TRUE

18.Inadouble-entryaccountingsystem,thetotalamountdebitedmustalwaysequalthetotal

amountcredited.TRUE

19.Increasesinliabilityaccountsarerecordedasdebits.FALSE

20.Debitsincreaseassetandexpenseaccounts.TRUE

21.Creditsalwaysincreaseaccountbalances.FALS

23.Doubleentryaccountingrequiresthateachtransactionaffect,andberecordedin,atleast

twoaccounts.TRUE

24.Arevenueaccountnormallyhasadebitbalance.FALSE

25.Accountsarenormallydecreasedbydebits.FALSE

26.Theowner'swithdrawalaccountnormallyhasacreditbalancesinceitisanequity

account.FALSE

28.Anowner'scapitalaccountnormallyhasadebitbalance.FALSE

29.Adebitentryisalwaysfavorable.FALSE

30.Atransactionthatdecreasesanassetaccountandincreasesaliabilityaccountmustalso

affectoneormoreotheraccounts.TRUE

31.Atransactionthatincreasesanassetanddecreasesaliabilitymustalsoaffectoneormore

otheraccounts.TRUE

34.Ifacompanypurchaseslandpayingcash,thejournalentrytorecordthistransactionwill

includeadebittoCash.FALSE

Ifacompanyprovidesservicestoacustomeroncreditthesellingcompanyshouldcredit

AccountsReceivable.FALSE

Whenacompanybillsacustomerfor$600forservicesrendered,thejournalentrytorecord

thistransactionwillincludea$600debittoServicesRevenue.FALSE

37.Thedebtratiohelpstoassesstheriskacompanyhasoffailingtopayitsdebtsandishelpful

tobothitsownersandcreditors.TRUE

38.38.Thehigheracompany'sdebtratiois,thehighertheriskofacompanynotbeingableto

meetitsobligations.

TRUE

Thedebtratioiscalculatedbydividingtotalassetsbytotalliabilities.

FALSE40.Acompanythatfinancesarelativelylargeportionofitsassetswithliabilitiesissaid

tohaveahighdegreeoffinancialleverage.TRUE

41.Ifacompanyishighlyleveraged,thismeansthatithasrelativelylowriskofnotbeingable

torepayitsdebt.

FALSE

42.HamiltonIndustrieshasliabilitiesof$105millionandtotalassetsof$35()million.Itsdebt

ratiois40.0%.

FALSE$105million/$350million=30.0%

43.Highfinancialleverageisalwaysbadforacompany'sowners.

FALSE

44.Acompoundjournalentryaffectsnomorethantwoaccounts.

FALSE

45.Postingisthetransferofjournalentryinformationtotheledger.

TRUE

46.Transactionsarefirstrecordedintheledger.

FALSE

47.Thejournalisknownasabookoforiginalentry.

TRUE

48.Ajournalgivesacompleterecordofeachtransactioninoneplace,andshowsthedebitsand

creditsforeachtransaction.

TRUE

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:Cl

49.Thejournalisknownasthebookoffinalentrybecausefinancialstatementsareprepared

fromit.

FALSE

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Cl

5().Atrialbalancethatbalancesisnotproofofcompleteaccuracyinrecordingtransactions.

TRUE

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:P2

51.Thetrialbalanceisalistofallaccountsandtheirbalancesatapointintimetakenfromthe

ledger.

TRUE

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:P2

52.Generally,theorderingofaccountsinatrialbalancetypicallyfollowstheiridentification

numberfromthechartofaccounts,thatis,assetsfirst,thenliabilities,thenowner'scapitaland

withdrawals,followedbyrevenuesandexpenses.

TRUE

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:P2

53.Thetrialbalancecanserveasareplacementforthebalancesheet,sincedebitsmustequal

withcredits.

FALSE

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:P2

54.Atrialbalancethatisinbalanceisproofthatnoerrorsweremadeinjournalizingthe

transactions,postingtotheledger,andpreparingthetrialbalance.

FALSE

AICPAFN:DecisionMaking

Difficulty:Medium

learningObjective:P2

55.Ifcashwasincorrectlydebitedfor$100insteadofcorrectlycreditedfor$100,thecash

accountisoutofbalanceby$100.

FALSE

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:P2

56.Thebalancesheetprovidesalinkbetweenbeginningandendingincomestatements.

FALSE

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:P3

57.TheheadingoneachfinancialstatementliststhethreeW's-Who(thenameofthe

organization),What(thenameofthestatement),andWhere(theorganization^address)

FALSE

Difficulty:Medium

LearningObjective:P3

58.Anincomestatementreportstherevenuesearnedlessexpensesincurredbyabusinessover

aperiodoftime.

TRUE

Difficulty:Medium

learningObjective:P3

59.Thebalancesheetreportsthefinancialpositionofacompanyatapointintime.

TRUE

Difficulty:Medium

LearningObjective:P3

MultipleChoiceQuestions

60.Theaccountingprocessbeginswith:

A.Analysisofbusinesstransactionsandsourcedocuments.

B.Preparingfinancialstatementsandotherreports.

C.Summarizingtherecordedeffectofbusinesstransactions.

D.Presentationoffinancialinformationtodecision-makers.

E.Preparationofthetrialbalance.

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:Cl

61.Asalesinvoice:

A.Isatypeofsourcedocument.

B.Isusedbysellerstorecordthesale.

C.Isusedbybuyerstorecordpurchases.

D.Givesrisetoanentryintheaccountingprocess.

E?Allofthese.

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:C2

62.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C2

63.Sourcedocuments:

A.Includetheledger.

B,Arethesourcesofaccountinginformation.

C.Mustbeinelectronicform.

D.Arebasedonaccountingentries.

E.Includethechartofaccounts.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C2

64.Varioustypesofdocumentsandotherpapersthatcompaniesusewhentheyconducttheir

business:

A.Arecalledsourcedocuments.

B.Canincludesalestickets.

C.Arethesourceofinformationforrecordingaccountingentries.

D.Canbeinelectronicform.

E.Allofthese.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C2

65.Arecordoftheincreasesanddecreasesinaspecificasset,liability,equity,revenue,or

expenseisa(n):

A.Journal.

B.Posting.

C.Trialbalance.

D.Account.

E.Chartofaccounts.

AICPAFN:DecisionMaking

Difficulty:Easy

learningObjective:C3

67.Theaccountusedtorecordthetransfersofassetsfromabusinesstoitsowneris:

A.Arevenueaccount.

B.Theowner'swithdrawalsaccount.

C.Theowner'scapitalaccount.

D.Anexpenseaccount.

E.Aliabilityaccount.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C3

69.Unearnedrevenuesare:

A.Revenuesthathavebeenearnedandreceivedincash.

B.Revenuesthathavebeenearnedbutnotyetcollectedincash.

C.Liabilitiescreatedwhenacustomerpaysinadvanceforproductsorservicesbeforethe

revenueisearned.

D.Recordedasanassetintheaccountingrecords.

E.Increasestoowners*capital.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C3

70.Prepaidexpensesare:

A.Paymentsmadeforproductsandservicesthatdonoteverexpire.

B.Classifiedasliabilitiesonthebalancesheet.

C.Decreasesinequity.

D,Assetsthatrepresentprepaymentsoffutureexpenses.

E.Promisesofpaymentsbycustomers.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C3

71.Awrittenpromisetopayadefinitesumofmoneyonaspecifiedfuturedateisa(n):

A.Unearnedrevenue.

B.Prepaidexpense.

C.Creditaccount.

D.Notepayable.

EAccountreceivable.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C3

72.Acollectionofallaccountsandtheirbalancesusedbyabusinessiscalleda:

A.Journal.

B.Bookoforiginalentry.

C.GeneralJournal.

D.Balancecolumnjournal.

E,Ledger.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C3

73.Aledgeris:

A.Arecordcontainingincreasesanddecreasesinaspecificasset,liability,equity,revenue,or

expenseitem.

B.Ajournalinwhichtransactionsarefirstrecorded.

C.Acollectionofdocumentsthatdescribetransactionsandeventsenteringtheaccounting

process.

D.Alistofallaccountswiththeirdebitbalancesatapointintime.

E,Arecordcontainingallaccountsandtheirbalancesusedbyacompany.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C4

74.Alistofallaccountsandtheidentificationnumberassignedtoeachaccountusedbya

companyiscalleda:

A.Sourcedocument.

B.Journal.

C.Trialbalance.

D,Chartofaccounts.

E.GeneralJournal.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C4

75.Thenumberingsystemusedinacompany'schartofaccounts:

A.Isthesameforallcompanies.

B.Isdeterminedbygenerallyacceptedaccountingprinciples.

C.Dependsonthesourcedocumentsusedintheaccountingprocess.

D.Typicallybeginswithbalancesheetaccounts.

E.Typicallybeginswithincomestatementaccounts.

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C4

76.Adebitis:

A.Anincreaseinanaccount.

B.Theright-handsideofaT-account.

C.Adecreaseinanaccount.

D,Theleft-handsideofaT-account.

E.Anincreasetoaliabilityaccount.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:C5

77.TherightsideofaT-accountisa(n):

A.Debit.

B.Increase.

C.Credit.

D.Decrease.

E.Accountbalance.

79.Acreditisusedtorecord:

A.Adecreaseinanexpenseaccount.

B.Adecreaseinanassetaccount.

C.Anincreaseinanunearnedrevenueaccount.

D.Anincreaseinarevenueaccount.

E?Allofthese.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C5

80.Asimpleaccountformwidelyusedinaccountingasatooltounderstandhowdebitsand

creditsaffectanaccountbalanceiscalleda:

A.Withdrawalsaccount.

B.Capitalaccount.

C.Drawingaccount.

D.T-account.

EBalancecolumnsheet.

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:C5

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:C5

82.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C5

83.Ofthefollowingaccounts,theonethatnormallyhasacreditbalanceis:

A.Cash.

B.OfficeEquipment.

C.SalesSalariesPayable.

D.Owner,Withdrawals.

E.SalesSalariesExpense.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C5

84.Adebitisusedtorecord:

A.Adecreaseinanassetaccount.

B.Adecreaseinanexpenseaccount.

C.Anincreaseinarevenueaccount.

D.Anincreaseinthebalanceofanowner'scapitalaccount.

E,Anincreaseinthebalanceoftheowner'swithdrawalsaccount.

AACSB:A/ialytic

A1CPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C5

85.Acreditentry:

A.Increasesassetandexpenseaccounts,anddecreasesliability,owner'scapital,andrevenue

accounts.

B.Isalwaysadecreaseinanaccount.

C,Decreasesassetandexpenseaccounts,andincreasesliability,owner'scapital,andrevenue

accounts.

D.IsrecordedontheleftsideofaT-account.

E.Isalwaysanincreaseinanaccount.

AACSB:Analytic

A/CPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:C5

86.Double-entryaccountingisanaccountingsystem:

A.Thatrecordseachtransactiontwice.

B,Thatrecordstheeffectsoftransactionsandothereventsinatleasttwoaccountswithequal

debitsandcredits.

C.Inwhicheachtransactionaffectsandisrecordedintwoormoreaccountsbutthatcould

includetwodebitsandnocredits.

D.ThatmayonlybeusedifT-accountsareused.

E.Thatinsuresthaterrorsneveroccur.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:C5

87.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:Al

88.ManagementServices,Ividesservicestoclients.OnMay1,aclientprepaid

ManagementServices$60,000for6-monthsservicesinadvance.ManagementServices1

generaljournalentrytorecordthistransactionwillincludea

A.DebittoUnearnedManagementFeesfor$60,000.

B.CredittoManagementFeesEarnedfor$60,000.

C.CredittoCashfor$60,000.

D.CredittoUnearnedManagementFeesfor$60,000.

E.DebittoManagementFeesEarnedfor$60,000.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:Al

89.WisconsinRentalspurchasedofficesuppliesoncredit.Thegeneraljournalentrymadeby

WisconsinRentalswillincludea:

A.DebittoAccountsPayable.

B.DebittoAccountsReceivable.

C.CredittoCash.

D.CredittoAccountsPayable.

E.CredittoWisconsinRentals,Capital.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Easy

LearningObjective:Al

90.Anassetcreatedbyprepaymentofanexpenseis:

A.Recordedasadebittoanunearnedrevenueaccount.

B,Recordedasadebittoaprepaidexpenseaccount.

C.Recordedasacredittoanunearnedrevenueaccount.

D.Recordedasacredittoaprepaidexpenseaccount.

E.Notrecordedintheaccountingrecordsuntiltheearningsprocessiscomplete.

AACSB:A/ialytic

A1CPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:Al

91.RobertHaddoncontributed$70,000incashandlandworth$130,000toopenanew

business,RHConsulting.WhichofthefollowinggeneraljournalentrieswillRHConsulting

maketorecordthistransaction?

Assets$200,000

、RobertHaddon.Capital$200,000

CashandLand$200,000

BRobertHaddon,Capital$200,000

Cash$70,000

Land130,000

CRobertHaddon,Capital$200,000

RobertHaddon,Capital$200,000

Cash$70,000

DLand130,000

RobertHaddon,Capital200,000

FAssets$200,000

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:Al

92.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

93.OnSeptember30,theCashaccountofValueCompanyhadanormalbalanceof$5,000.

DuringSeptember,theaccountwasdebitedforatotalof$12,200andcreditedforatotalof

$11,50().WhatwasthebalanceintheCashaccountatthebeginningofSeptember?

A.A$0balance.

B.A$4,300debitbalance.

C.A$4,300creditbalance.

D.A$5,700debitbalance.

E.A$5,700creditbalance.

Beg.Bal.+$12,200-$11,500=$5,000

Beg.Bal.$4,300debit

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

94.OnApril3(),HoldenCompanyhadanAccountsReceivablebalanceof$18,000.Duringthe

monthofMay,totalcreditstoAccountsReceivablewere$52,000fromcustomerpayments.

TheMay31AccountsReceivablebalancewas$13,000.Whatwastheamountofcreditsales

duringMay?

A.$5,000.

B.$47,000.

C.$52,000.

D.$57,000.

E.$32,000.

$18,000+CreditSales-$52,000=$13,000

CreditSales=$47,000

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

95.DuringthemonthofFebruary,HofferCompanyhadcashreceiptsof$7,500andcash

disbursementsof$8,600.TheFebruary28cashbalancewas$1,800.WhatwastheJanuary31

beginningcashbalance?

A.$700.

B.$1,100.

C.$2,900.

D?$0.

E.$4,300.

Beg.Bal.+$7,500-$8,600=$1,800

Beg.Bal.=$2,900

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

96.ThefollowingtransactionsoccurredduringJuly:

1.Received$900cashforservicesprovidedtoacustomerduringJuly.

2.Received$2,200cashinvestmentfromBarbaraHanson,theownerofthebusiness.

3.Received$750fromacustomerinpartialpaymentofhisaccountreceivablewhicharose

fromsalesinJune.

4.Providedservicestoacustomeroncredit,$375.

5.Borrowed$6,000fromthebankbysigningapromissorynote.

6.Received$1,250cashfromacustomerforservicestoberenderednextyear.

WhatwastheamountofrevenueforJuly?

A.$900.

B.$1,275.

C.$2,525.

D.$3,275.

E.$11,10().

Revenues=$900(l)+$375(4)=$1,275

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

97.IfTimJones,theownerofJonesHardwareproprietorship,usescashofthebusinessto

purchaseafamilyautomobile,thebusinessshouldrecordthisuseofcashwithanentryto:

A.DebitSalaryExpenseandcreditCash.

B.DebitTimJones,SalaryandcreditCash.

C.DebitCashandcreditTimJones,Withdrawals.

D.DebitTimJones,WithdrawalsandcreditCash.

E.DebitAutomobilesandcreditCash.

AACSB:A/ialytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:A/

98.ZedBennettopenedanartgalleryandasadealercompletedthesetransactions:

1.Startedthegallery,Artery,byinvesting$40,000cashandequipmentvaluedat$18,000.

2.Purchased$70ofofficesuppliesoncredit.

3.Paid$1,200cashforthereceptionist'ssalary.

4.Soldapaintingforanartistandcollecteda$4,500cashcommissiononthesale.

5.Completedanartappraisalandbilledtheclient$200.

Whatwasthebalanceofthecashaccountafterthesetransactionswereposted?

A.$12,230.

B.$12,430.

C.$43,300.

D.$43,430.

E.$61,430.

$40,000(1)-$1,200(3)+$4,500(4)=$43,300

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

99.AtthebeginningofJanuaryofthecurrentyear,ThomasLawCenter'sledgerreflecteda

normalbalanceof$52,000foraccountsreceivable.DuringJanuary,thecompanycollected

$14,800fromcustomersonaccountandprovidedadditionalservicestocustomersonaccount

totaling$12,500.Additionally,duringJanuaryonecustomerpaidThomas$5,000forservices

tobeprovidedinthefuture.AttheendofJanuary,thebalanceintheaccountsreceivable

accountshouldbe:

A.$54,700.

B.$49,700.

C.$2,300.

D.$54,300.

E.$49,300.

$52,000beginningbalance-$14,800ofcollections+$12,500ofadditionalservicesoncredit=

$49,700.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

100.DuringthemonthofMarch,CooleyComputerServicesmadepurchasesonaccount

totaling$43,500.AlsoduringthemonthofMarch,Cooleywaspaid$8,000byacustomerfor

servicestobeprovidedinthefutureandpaid$36,900ofcashonitsaccountspayablebalance.

IfthebalanceintheaccountspayableaccountatthebeginningofMarchwas$77,30(),whatis

thebalanceinaccountspayableattheendofMarch?

A.$83,900.

B.$91,900.

C.$6,600.

D.$75,900.

E.$4,900.

Beginningbalanceof$77,300+$43,500ofpurchasesonaccount-$36,900ofpaymentson

account=$83,900.

AACSB:A/jalytic

A1CPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

101.OnJanuary1ofthecurrentyear,Bob'sLawnCareServicereportedowner'scapital

totaling$122,500.Duringthecurrentyear,totalrevenueswere$96,000whiletotalexpenses

were$85,500.Also,duringthecurrentyearBobwithdrew$20,000fromthecompany.No

otherchangesinequityoccurredduringtheyear.If,onDecember31ofthecurrentyear,total

assetsare$196,000,thechangeinowner'scapitalduringtheyearwas:

A.Adecreaseof$9,500.

B.Anincreaseof$9,500.

C.Anincreaseof$30,500.

D.Adecreaseof$30,500

E.Impossibletodeterminefromtheinformationprovided.

Duringtheyear,revenueswere$96,000whileexpenseswere$85,50()andwithdrawalswere

$20,000.Sincetherewerenootherchangesinequity,equitymusthavedecreasedby$9,500.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:Al

102.AndreaConawayopenedWonderlandPhotographyonJanuary1ofthecurrentyear.

DuringJanuary,thefollowingtransactionsoccurredandwererecordedinthecompany*sbooks:

1.Conawayinvested$13,500cashinthebusiness.

2.Conawaycontributed$20,000ofphotographyequipmenttothebusiness.

3.Thecompanypaid$2,100cashforaninsurancepolicycoveringthenext24months.

4.Thecompanyreceived$5,700cashforservicesprovidedduringJanuary.

5.Thecompanypurchased$6,200ofofficeequipmentoncredit.

6.Thecompanyprovided$2,750ofservicestocustomersonaccount.

7.Thecompanypaidcashof$1,500fbrmonthlyrent.

8.Thecompanypaid$3,100ontheofficeequipmentpurchasedintransaction#5above.

9.Paid$275cashforJanuaryutilities.

Basedonthisinformation,thebalanceinthecashaccountattheendofJanuarywouldbe:

A.$41,450.

B.$12,225

E$18,70().

D.$15,250.

E.$13,50().

(1)$13,50()-(3)$2,100+(4)5,70()-(7)$1,500-(8)$3,10()-(9)$275=$12,225

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:Al

103.BasedontheinformationincludedinQuestion#102,thebalanceintheAndreaConaway,

CapitalaccountreportedontheStatementofOwner'sEquityattheendofthemonthwouldbe:

A.$31,400.

B.$39,200.

C.$31,150.

D.$40,175.

百$3(),875.

(1)$13,500+(2)$20,000+(4)$5,700+(6)$2,750-(7)$1,500-(9)$275=$40,175.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:AI

104.Thedebtratioisused:

A.Tomeasuretherelationofequitytoexpenses.

B,Toreflecttheriskassociatedwithacompany*sdebts.

C.OnlybybankswhenabusinessappliesforaIoan.

D.Todeterminehowmuchdebtafirmshouldpayoff.

E.Allofthese.

AACSB:A/ialytic

A1CPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:A2

105.Whichofthefollowingistheformulausedtocalculatethedebtratio?

A.TotalEquity/TotalLiabilities.

B.TotalLiabilities/TotalEquity.

C.TotalLiabilities/TotalAssets.

D.TotalAssets/TotalLiabilities.

E.TotalEquity/TotalAssets.

AACSB:Analytic

A1CPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:A2

106.Whichofthefollowingstatementsisincorrect?

A.Higherfinancialleverageinvolveshigherrisk.

B.Riskishigherifacompanyhasmoreliabilities.

C,Riskishigherifacompanyhashigherassets.

D.Thedebtratioisonemeasureoffinancialrisk.

E.Lowerfinancialleverageinvolveslowerrisk.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:A2

107.StrideRitehastotalassetsof$425million.Itstotalliabilitiesare$110million.Itsequityis

$315million.Calculatethedebtratio.

A.38.6%.

B.13.4%.

C.34.9%.

D.25.9%.

E14.9%.

$110million/$425million=25.9%

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:A2

108.StrideRitehastotalassetsof$385million.Itstotalliabilitiesare$100millionandits

equityis$285million.Calculateitsdebtratio.

A.35.1%.

B.26.0%.

C38.5%.

D.28.5%.

E.58.8%.

$100million/$385million=26.0%

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Medium

LearningObjective:A2

109.Whichofthefollowingstatementsdescribingthedebtratioisfalse?

A.Itisofusetobothinternalandexternalusersofaccountinginformation.

B,Arelativelyhighratioisalwaysdesirable.

C.Thedividinglineforahighandlowratiovariesfromindustrytoindustry.

D.Manyfactorssuchasacompany'sage,stability,profitabilityandcashflowinfluencethe

determinationofwhatwouldbeinterpretedasahighversusalowratio.

E.Theratiomightbeusedtohelpdetermineifacompanyiscapableofincreasingitsincomeby

obtainingfurtherdebt.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:A2

11().Attheendofthecurrentyear,NormanCompanyreportedtotalliabilitiesof$300,000and

totalequityof$100,000.Thecompany'sdebtratioonthelastyear-endwas:

A.300%.

B.33.3%

C.75.0%.

D.$400,000.

E.Cannotbedeterminedfromtheinformationprovided.

Onthelastyear-end,totalliabilitieswere$300,000andtotalequitywas$100,000.Thatmeans

totalassetswere$400,000.Therefore,thedebttoassetsratiowas$300,000/$400,000or

75.0%.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:A2

111.Atthebeginningofthecurrentyear,TauntonCompany'stotalassetswere$248,000and

itstotalliabilitieswere$175,000.Duringtheyear,thecompanyreportedtotalrevenuesof

$93,000,totalexpensesof$76,000andownerwithdrawalsof$5,00().Therewerenoother

changesinowner'scapitalduringtheyearandtotalassetsattheendoftheyearwere$260,000.

TauntonCompany*sdebtratioattheendofthecurrentyearis:

A.70.6%.

B.67.3%.

C.32.7%.

D.48.6%.

E.Cannotbedeterminedfromtheinformationprovided.

Iftotalassetswere$248,000andtotalliabilitieswere$175,000,totalequitywas$73,000atthe

beginningoftheperiod.Addtothatfigure$93,000ofrevenuesduringtheyearandsubtract

$76,000ofexpensesand$5,000ofwithdrawalsduringtheyearandequityobviouslyendedthe

yearat$85,000.Iftotalassetsattheendoftheyearwere$260,000andtotalequitywas$85,000,

totalliabilitieswere$175,000.Thus,thedebtratiowas$175,000/$260,000=67.3%.

AACSB:Analytic

AICPAFN:DecisionMaking

Difficulty:Hard

LearningObjective:A2

112.Theprocessoftransferringgeneraljournalinformationtotheledgeris:

A.Double-entryaccounting.

B.Posting.

C.Balancinganaccount.

D.Journalizing.

E.Notrequiredunlessdebitsdonotequalcredits