Financial and Managerial Accounting, 10th Edition Belverd E. Needles | Marian Powers | Susan V. Crosson solutions manual and test bank

Financial and Managerial Accounting, 10th Edition Belverd E. Needles | Marian Powers | Susan V. Crosson solutions manual and test bank

Chapter 02 - Analyzing Business Transactions

TRUE/FALSE

1. When a company receives a product previously ordered, a recordable transaction has occurred.

ANS: T PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues| recording transactions

2. When a business hires a new employee, a recordable transaction has occurred.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues| recording transactions

3. The valuation issue deals with how the components of a transaction should be categorized.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

4. In accounting, to recognize means to record a transaction or event.

ANS: T PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

5. Purchase requisitions are recognized in the accounting records.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

6. When a company purchases goods that it will resell, it must record the goods in an expense account.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

7. The cost principle is a solution to the recognition issue.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

8. The recognition issue deals with when a user of financial statements should use accounting information.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

9. The most generally accepted value used in accounting is market value.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

10. Fair Value is the exchange price associated with a business transaction at the time the transaction is recognized.

ANS: T PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

11. The classification issue involves the assignment of accounts to business transactions.

ANS: T PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

12. When a company receives an order, a transaction has occurred.

ANS: F PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues| recording transactions

13. A credit to an asset account means that asset account has been increased.

ANS: F PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: T accounts

14. A debit has an unfavorable effect on an account.

ANS: F PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: T accounts

15. For a T account, an account balance is the difference in total dollars between total debit footings and total credit footings.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: T accounts

16. Column totals are called footings.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: T accounts

17. A decrease in a liability is recorded by a debit.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: T accounts| analyze transactions

18. An increase in an asset is recorded by a debit.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: T accounts| analyze transactions

19. The double-entry system is possible because all business transactions have two equal and opposite aspects.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions

20. A decrease in a stockholders' equity account is recorded with a credit.

ANS: F PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions| effects of transactions on accounting equation

21. An increase in revenue is recorded with a credit.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions| effects of transactions on accounting equation

22. Dividends should appear on the statement of retained earnings.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: dividends

23. The account Dividends has a normal credit balance.

ANS: F PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions| effects of transactions on accounting equation

24. Revenues have a normal credit balance.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions| effects of transactions on accounting equation

25. Retained Earnings has a normal debit balance.

ANS: F PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions| effects of transactions on accounting equation

26. Accounts Payable has a normal credit balance.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions| effects of transactions on accounting equation

27. When stockholders make an investment, the Common Stock account is debited.

ANS: F PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions

28. When a dividend is declared and paid, the Dividends account is debited and Cash is credited.

ANS: T PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions

29. Liabilities are established with debits and eliminated with credits.

ANS: F PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions| effects of transactions on accounting equation

30. Generally, before Accounts Receivable is debited, it is credited.

ANS: F PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: analyze transactions| effects of transactions on accounting equation

31. Generally, before Accounts Payable is debited, it is credited.

ANS: T PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: analyze transactions| effects of transactions on accounting equation

32. When payment is received for services not yet rendered, no entry is recorded until that service has been rendered.

ANS: F PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions

33. When revenue has been earned, no entry is recorded until the related cash has been collected.

ANS: F PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: analyze transactions

34. A contract is an example of a source document.

ANS: T PTS: 1 OBJ: LO3

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: analyze transactions

35. A basic storage unit for accounting data is the account.

ANS: T PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: accounts

36. In a trial balance, all debits are listed before all credits.

ANS: F PTS: 1 OBJ: LO4

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: post entries and prepare trial balance

37. A trial balance is normally prepared at the end of the day.

ANS: F PTS: 1 OBJ: LO4

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: post entries and prepare trial balance

38. When the columns of the trial balance equal each other, it means that no errors have occurred in recording and posting the transactions.

ANS: F PTS: 1 OBJ: LO4

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: post entries and prepare trial balance

39. A transposition error will cause the trial balance to be out of balance by an amount that is evenly divisible by 9.

ANS: T PTS: 1 OBJ: LO4

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: post entries and prepare trial balance

40. Recording an account with a debit balance as a credit, or vice versa, will cause the trial balance to be out of balance by an amount that is evenly divisible by 2.

ANS: T PTS: 1 OBJ: LO4

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: post entries and prepare trial balance

41. The amount of profit would always be equal to the ending cash balance.

ANS: F PTS: 1 OBJ: LO5

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: business goals

42. One can obtain a clear picture of a company's liquidity by referring to its income statement.

ANS: F PTS: 1 OBJ: LO5

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: liquidity and current liabilities

43. One can obtain a clear picture of a company's liquidity by referring to its statement of cash flows.

ANS: T PTS: 1 OBJ: LO5

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: liquidity and current liabilities

44. Revenue should be recorded when it has been earned, not when the related cash has been collected.

ANS: T PTS: 1 OBJ: LO5

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

45. Expenses should be recorded when they are paid, not when they have been incurred.

ANS: F PTS: 1 OBJ: LO5

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

46. A net income of $10,000 means that the business received $10,000 more in cash from its customers than it spent to run the business.

ANS: F PTS: 1 OBJ: LO5

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: recording transactions

47. Accounts Receivable and Accounts Payable are used when there is a time delay between a transaction and its related cash flow.

ANS: T PTS: 1 OBJ: LO5

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: recording transactions

48. The journal is a chronological record of all transactions.

ANS: T PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: recording transactions

49. Entering transactions into the journal is called posting.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: recording transactions

50. In a journal entry, assets are always recorded before liabilities.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: recording transactions

51. In a journal entry, credits are always indented.

ANS: T PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: recording transactions

52. In a journal entry, the Post. Ref. column is left blank until the entry has been posted.

ANS: T PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: posting transactions

53. It is sometimes correct for a compound entry's debit totals and credit totals to be unequal.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: posting transactions

54. The ledger account form has a Balance column.

ANS: T PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: posting transactions

55. One might see “J2” correctly placed in the Post. Ref. column of the journal.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: posting transactions

56. Despite the advantages of a computer accounting information system, posting still must be done manually.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: posting transactions

57. Journal entries are typically posted only at the end of the year.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: posting transactions

58. In a financial report, a double line is placed below the final total(s).

ANS: T

AACSB correlation: communication

PTS: 1 OBJ: SO6 LOC: Learning type: Recall

KEY: financial statements| recording transactions

59. Another name for the ledger is the book of original entry.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: posting transactions

60. The chart of accounts makes finding accounts in the ledger easier.

ANS: T PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: chart of accounts

61. All companies use the same standard set of accounts.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: chart of accounts

62. The accounts in a chart of accounts are normally listed in alphabetical order.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: chart of accounts

63. The numbering scheme of a chart of accounts should contain no gaps.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: chart of accounts

64. Wages payable is a type of expense.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: liabilities

65. Dividends are classified as an expense.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: owner's equity

66. Unearned revenues are classified as liabilities on the balance sheet.

ANS: T PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: liabilities

67. Another word for expense is debt.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: accounts

68. Office supplies are classified as an expense.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: assets

69. The Land and Building accounts may be combined into one account.

ANS: F PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: accounts

70. Investments by stockholders are recorded in the Common Stock account, not in the Retained Earnings account.

ANS: T PTS: 1 OBJ: SO6

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: owner's equity

MULTIPLE CHOICE

1. When a business records revenue before it has been earned, it has violated the measurement issue of

a.	recognition.
b.	evaluation.
c.	classification.
d.	valuation.

ANS: A PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

2. When a business reports an asset at an inflated dollar amount, it has violated the measurement issue of

a.	recognition.
b.	valuation.
c.	classification.
d.	realization.

ANS: B PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

3. When a business erroneously records expenses as assets, it has violated the measurement issue of

a.	communication.
b.	classification.
c.	valuation.
d.	recognition.

ANS: B PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

4. Which of the following is a business event that is not considered a recordable transaction?

a.	A company receives a product previously ordered.
b.	A company pays an employee for work performed.
c.	A customer inquires about the availability of a service.
d.	A customer purchases a service.

ANS: C PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

5. Which of the following is a business event that is considered a recordable transaction?

a.	A company hires a new employee.
b.	A customer purchases merchandise.
c.	A company orders a product from a supplier.
d.	An employee sends a purchase requisition to the purchasing department.

ANS: B PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

6. A purchase is recognized in the accounting records when

a.	payment is made for the item purchased.
b.	the purchase requisition is sent to the purchasing department.
c.	title transfers from the seller to the buyer.
d.	the buyer receives the seller's bill.

ANS: C PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

7. Which of the following is not a measurement issue in accounting?

a.	When to record a business transaction
b.	How to classify the items of a business transaction
c.	What value to place on a business transaction
d.	Where to record a business transaction

ANS: D PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

8. Which of the following is an illustration of the classification issue?

a.	At what amount should an old machine be shown on the balance sheet?
b.	At what point should the purchase of art supplies be recorded?
c.	Should tools be recorded as an asset or as an expense?
d.	At what point should a bill be paid for the purchase of an item?

ANS: C PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

9. The issue of deciding when to record a transaction is solved by

a.	properly classifying the transaction.
b.	deciding on a point of recognition.
c.	assigning historical cost to the transaction.
d.	analyzing the intent of management.

ANS: B PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

10. Which of the following is not a measurement issue in accounting?

a.	Valuation
b.	Recognition
c.	Evaluation
d.	Classification

ANS: C PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

11. The cost principle relates most closely to the

a.	recognition point.
b.	recognition issue.
c.	valuation issue.
d.	classification issue.

ANS: C PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: measurement issues

12. Which of the following business events is not a transaction?

a.	Signing a contract
b.	Paying wages
c.	Receiving goods
d.	Purchasing a service

ANS: A PTS: 1 OBJ: LO1

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: measurement issues

13. If Accounts Receivable has debit postings of $29,000, credit postings of $22,000, and a normal ending balance of $24,000, which of the following was its beginning balance?

a.	$31,000 Dr.
b.	$17,000 Dr.
c.	$17,000 Cr.
d.	$31,000 Cr.

ANS: B PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Application

KEY: T accounts

14. To determine the balance of a particular account, one should refer to the

a.	source documents.
b.	chart of accounts.
c.	book of original entry.
d.	ledger.

ANS: D PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Recall

KEY: post entries and prepare trial balance

15. Which of the following accounts is increased with a debit?

a.	Common Stock
b.	Rent Payable
c.	Legal Fees Earned
d.	Dividends

ANS: D PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: effects of transactions on accounting equation

16. Which of the following accounts is increased with a credit?

a.	Supplies
b.	Fees Earned
c.	Supplies Expense
d.	Dividends

ANS: B PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: effects of transactions on accounting equation

17. If Accounts Payable has debit postings of $17,000, credit postings of $14,000, and a normal ending balance of $6,000, what was its beginning balance?

a.	$9,000 Cr.
b.	$3,000 Cr.
c.	$9,000 Dr.
d.	$3,000 Dr.

ANS: A PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Application

KEY: T accounts

18. Which pair of accounts follows the rules of debit and credit in the same manner?

a.	Revenue from Services and Equipment
b.	Prepaid Rent and Advertising Expense
c.	Repair Expense and Notes Payable
d.	Common Stock and Rent Expense

ANS: B PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: effects of transactions on accounting equation

19. Which pair of accounts follows the rules of debit and credit in the opposite manner?

a.	Prepaid Insurance and Dividends
b.	Advertising Expense and Land
c.	Dividends and Medical Fees Earned
d.	Interest Payable and Common Stock

ANS: C PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: effects of transactions on accounting equation

20. Which of the following accounts has a normal credit balance?

a.	Dividends
b.	Automotive Equipment
c.	Advertising Fees Earned
d.	Interest Expense

ANS: C PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: effects of transactions on accounting equation

21. Which of the following accounts has a normal debit balance?

a.	Dividends
b.	Common Stock
c.	Unearned Fees
d.	Retained Earnings

ANS: A PTS: 1 OBJ: LO2

NAT: AACSB correlation: analytic LOC: Learning type: Comprehension

KEY: effects of transactions on accounting equation