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Exam 2: Financial Statements and the Accounting System

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Question 21

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Gi Gi's Bakery has total assets of $425 million.Its total liabilities are $110 million.Its equity is $315 million.Calculate the debt ratio.

A) 38.6%.
B) 13.4%.
C) 34.9%.
D) 25.9%.
E) 14.9%.

F) A) and D)
G) All of the above

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Question 22

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A company provided $12,000 of consulting services to a customer on account.The customer promises payment in 30 days.Identify the journal entry below that properly records this transaction.

A) $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 12,000 & \\\hline \text { Cash } & & 12,000 \\\hline\end{array}$
B) $\begin{array}{|l|r|l|}\hline \text { Cash } & 12,000 & \\\hline \text { Consulting services revenue } & & 12,000 \\\hline\end{array}$
C) $\begin{array}{|l|r|r|}\hline \text { Consulting services revenue } & 12,000 & \\\hline \text { Cash } & & 12,000 \\\hline\end{array}$
D) $\begin{array}{|l|r|l|}\hline \text { Accounts payable } & 12,000 & \\\hline \text { Consulting services revenue } & & 12,000 \\\hline\end{array}$
E) $\begin{array}{|l|r|r|}\hline \text { Accounts Receivable } & 12,000 & \\\hline \text { Consulting services revenue } & & 12,000 \\\hline\end{array}$

F) A) and B)
G) B) and C)

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Question 23

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A transaction that decreases a liability and increases an asset must also affect one or more other accounts.

A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n) :

The following transactions occurred during July: 1.Received $900 cash for services provided to a customer during July. 2.Received $2,200 cash investment from Bob Johnson,the owner of the business. 3.Received $750 from a customer in partial payment of his account receivable which arose from sales in June. 4.Provided services to a customer on credit,$375. 5.Borrowed $6,000 from the bank by signing a promissory note. 6.Received $1,250 cash from a customer for services to be rendered next year. What was the amount of revenue for July?

When a company bills a customer for $700 for services rendered,the journal entry to record this transaction will include a $700 debit to Services Revenue.

A company's formal promise to pay (in the form of a promissory note) a future amount is a(n) :

Annie's Catering received $800 cash from a customer for catering services to be provided next month.Given the choices below,determine the general journal entry that Annie's Catering will make to record the cash receipt.Assume the company's policy is to initially record prepaid and unearned items in balance sheet accounts.

Unearned revenue is a liability that is settled in the future when a company delivers its products or services.

Asset accounts normally have debit balances and revenue accounts normally have credit balances.

Identify the statement below that is correct.

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

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

Identify the account below that is classified as a liability in a company's chart of accounts:

Debit means increase and credit means decrease for all accounts.

A transaction that credits an asset account and credits a liability account must also affect one or more other accounts.

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

Indicate whether a debit or credit entry would be required 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 Dividends.

Debits increase asset and expense accounts.

The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.