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Exam 16: Accounting for Business Transactions

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Question 1

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Mary Sunny, the sole stockholder, began business as Sunny Law Firm on November 1. Record the following November transactions by making entries directly to the T-accounts provided. Next, prepare a trial balance as of November 30. a) Mary invested $15,000 cash and a law library valued at $6,000 in exchange for common stock. b) Purchased $7,500 of office equipment from John Bronx on credit. c) Completed legal work for a client and received $1,500 cash in full payment. d) Paid John Bronx $3,500 cash in partial payment of the amount owed. e) Completed $4,000 of legal work for a client on credit. f) Paid $2,000 in cash dividends. g) Received $2,500 cash as partial payment for the legal work completed for the client in (e). h) Paid $2,500 cash for the secretary's salary.

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Question 2

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The ________ is found by determining the difference between total debits and total credits for an account, including any beginning balance.

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Question 3

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The debt ratio of Company A is 0.31 and the debt ratio of Company B is 0.21. Based on this information, an investor can conclude:

Based on the following trial balance for Barry's Automotive Shop, prepare an income statement, statement of retained earnings, and a balance sheet. There were no additional stock issuances during the year. Barry's Automotive Shop Trial Balance December 31 $\begin{array}{lr}\text { Cash } & \$ 12,500 \\\text { Accounts receivable } &1,500 \\\text { Supplies } & 500 \\\text { Repair shop equipment } & 27,000 \\\text { Service truck } & 33,000\\\text { Accounts payable } && \$ 2,600 \\\text { Common Stock } && 30,000 \\\text { Retained Earnings } && 8,525 \\\text { Dividends } & 36,000\\\text { Service revenue } & & 125,00 \\\text { Supplies expense } & 3,425 & \\\text { Rent expense } & 18,000&\\\text { Utilities expense } & 5,000 \\\text { Gas expense } & 7,200 \\\text { Wages expense } & 22,000 \\\text { Totals } & \$ 166,125&\$166,125\end{array}$

For each of the following accounts, (1) identify the account as an asset, liability, equity, revenue, or expense, and (2) indicate the normal balance of the account. $\begin{array}{|l|l|l|}\hline\text { Account Title } & \text { Account Type } & \begin{array}{l}\text { Normal Balance } \\\text { (Debit or Credit) }\end{array} \\\hline \text { a. Prepaid Insurance } \\\hline \text { b. Accounts Payable } \\\hline \text { c. Common Stock } \\\hline \text { d. Utilities Expense } \\\hline \text { e. Land } \\\hline \text {f. Services Revenue } \\\hline \text {g. Notes Receivable } \\\hline \text {h. Advertising Expense } \\\hline \text {i. Snearned Revenue } \\\hline \text {j. Service Revenue }\\\hline\end{array}$

Errors made in journalizing transactions, posting to the ledger, and preparing the trial balance can still exist in a balanced trial balance.

An income statement reports the revenues earned minus expenses incurred by a business over a period of time.

Which of the following is not a step in the accounting process?

A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.

The debt ratio is used:

A column in journals and ledger accounts that is used to cross reference journal and ledger entries is the:

Posting is the transfer of journal entry information to the ledger.

For each of the accounts in the following table (1) identify the type of account as an asset, liability, equity, revenue, or expense, and (2) identify the normal balance of the account. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Account Type $\quad$$\quad$ Normal Balance a. Wages Expense b. Accounts Receivable c. Commissions Earned d. Salaries Payable e. Common Stock f. Unearned Advertising Revenue g. Salaries Expense h. Subscription Revenue i. Dividends j. Prepaid Insurance

A double-entry accounting system is an accounting system:

A tool that represents a ledger account and is used to show the effects of transactions is called a:

Review the transactions below and identify with an "X" those that would be posted as a credit in the ledger (The first one has been done for you): __X_1. Salary Payable was increased. ____ 2. Cash was decreased ____ 3. Equipment was increased ____ 4. Common Stock was increased ____ 5. Salaries Expense was increased ____ 6. Accounts Receivable was decreased ____ 7. Unearned Revenue was increased ____ 8. Dividends was increased ____ 9. Supplies was increased ____ 10. Building was increased ____ 11. Utilities Expense was increased ____ 12. Service Revenue was increased

The heading on every financial statement lists the three W's-Who (the name of the business); What (the name of the statement); and Where (the organization's address).

Stark Co. has liabilities of $105 million and total assets of $350 million. Its debt ratio is 40.0%.

A company's chart of accounts is a list of all the accounts used and includes an identification number assigned to each account.

The higher a company's debt ratio, the lower the risk of a company not being able to pay its debts.