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Account Classification Chapter 2

What type of account is increased with a debit but is a decrease to retained earnings?

  1. Liability
  2. Asset
  3. Revenue
  4. Expense

Current Assets Chapter 2

The Kelly Company purchased a building for $75,000 in cash. What is the effect on current assets?

  1. Increase in current assets
  2. Decrease in current assets
  3. No effect on current assets
  4. Unable to determine

Journal Entry - Inventory Chapter 2

Prepare the journal entry for the following transaction:

Purchased $16,000 of inventory, paid $12,000 in cash and the rest remained on account.

Journal Entry 1
Inventory 16,000
Cash 12,000
Accounts Payable 4,000

Journal Entry - Sales Chapter 2

Prepare the journal entry for the following transaction:

Sold $90,000 of goods to customers, receiving $65,000 in cash and the remained on account.

Journal Entry 2
Cash 65,000
Accounts Receivable 25,000
Revenue 90,000

Land Purchased With Cash Chapter 2

Determine the effect on a company’s Assets and Net Income from the following transaction: land is purchased with cash.

Assets Net Income
A Decreased Decreased
B Decreased No effect
C Increased No effect
D Increased Increased
E None of the above

Retained Earnings Chapter 2

Which of the following would increase retained earnings?

  1. an increase to an expense account.
  2. an increase to a revenue account.
  3. a cash dividend being declared and paid to stockholders.
  4. issuance of additional shares of common stock.

An increase in a Revenue account increases Net Income, which in turn would increase Retained Earnings.

T/F: Liabilities and Equity Chapter 2

The payment of a liability in cash will decrease stockholders’ equity.

True / False

False

T/F: T-Account Logic Chapter 2

A T-account shows total debits of $26,000 and total credits of $20,000; therefore, it has a $6,000 debit balance.

True / False?

True

Normal Balances Chapter 2

For each account listed below, mark whether it has a debit or credit normal balance.

Account Debit Credit
Revenues
Correct
Incorrect
Revenues increase Income. An increase in Income increases Retained Earnings. An increase in Retained Earnings is a credit. Therefore Revenues are credits.
Assets
Correct
Incorrect
Assets live on the left side of the accounting equation and are therefore normal debit accounts. They are also the A in the DEAD acronym.
Retained Earnings
Correct
Incorrect
Retained Earnings lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.
Inventory
Correct
Incorrect
Inventory is an asset, and assets are debited
Prepaid Insurance
Correct
Incorrect
Prepaid Insurance is an asset, and assets are debited
Prepaid Rent
Correct
Incorrect
Prepaid Rent is an asset, and assets are debited
Prepaid Expenses
Correct
Incorrect
Prepaid Expenses is an asset, and assets are debited
Accounts Receivable
Correct
Incorrect
Accounts Receivable is an asset, and assets are debited
Expenses
Correct
Incorrect
Expenses decrease Income. A decrease in Income decreases Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Expenses are debits. Also, Expenses are in the E in the DEAD acronym.
Insurance Expense
Correct
Incorrect
Insurance Expense is an Expense, and Expenses are debited
Accounts Payable
Correct
Incorrect
Accounts Payable are Liabilities and Liabilities are credited.
Cost of Goods Sold
Correct
Incorrect
Cost of Goods Sold is an Expense, and Expenses are debited
Dividends
Correct
Incorrect
Dividends decrease Retained Earnings. A decrease in Retained Earnings is a debit. Therefore Dividends are debits. Also, Dividends are in the D in the DEAD acronym.
Land
Correct
Incorrect
Land is an asset, and assets are debited
Liabilities
Correct
Incorrect
Liabilities live on the right side of the accounting equation and are therefore normal credit accounts. They are also the opposite of Assets, if that helps you remember.
Cash
Correct
Incorrect
Cash is an asset, and assets are debited
Notes Payable
Correct
Incorrect
Notes Payable are Liabilities and Liabilities are credited.
Rent Expense
Correct
Incorrect
Rent Expense is an Expense, and Expenses are debited
Capital Stock
Correct
Incorrect
Capital Stock lives on the right side of the accounting equation, as a part of Owner's Equity, and are therefore credits.

Solving for Missing Amounts Chapter 2

A company had the following account balances at the end of its first year of operations. Find the missing amounts.


Cash 1,300 Accounts receivable ?
Inventory 400 Property and equipment 1200
Accounts payable 500 Salaries payable 800
Common Stock 1475 Retained earnings 525
Revenue 2500 Expenses ?
Net Income 570 Dividends ?
  1. Determine Accounts Receivable
  2. Determine Expenses
  3. Determine Dividends
  1. Accounts Receivable - 400
  2. Expenses - 1,930
  3. Dividends - 45

The Effect of Journal Entries Chapter 2

For each of the following transactions listed below, select the two effects it will have:

Transaction Effect 1 Effect 2
1 Provided services and received cash
Correct Incorrect
2 Provided services on account
Correct Incorrect
3 Received payment from customers on account
Correct Incorrect
4 Received payment in advance from customers
Correct Incorrect
5 Paid wages earned this week
Correct Incorrect
6 Paid 6 month’s rent in advance
Correct Incorrect
7 Borrowed cash from the bank and signed a note
Correct Incorrect
8 Loaned cash to employee who signed a note
Correct Incorrect
9 Purchased equipment with cash
Correct Incorrect
10 Purchases supplies on account
Correct Incorrect
11 Received cash and issued stock
Correct Incorrect
12 Paid for supplies bought earlier on account
Correct Incorrect
13 Paid dividends to stockholders
Correct Incorrect
Transaction Effect 1 Effect 2
14 Provided services and received cash Increase an Asset Increase Revenue
15 Provided services on account Increase an Asset Increase Revenue
16 Received payment from customers on account Increase an Asset Decrease an Asset
17 Received payment in advance from customers Increase an Asset Increase a Liability
18 Paid wages earned this week Increase an Expense Decrease an Asset
19 Paid 6 month’s rent in advance Increase an Asset Decrease an Asset
20 Borrowed cash from the bank and signed a note Increase an Asset Increase a Liability
21 Loaned cash to employee who signed a note Increase an Asset Decrease an Asset
22 Purchased equipment with cash Increase an Asset Decrease an Asset
23 Purchases supplies on account Increase an Asset Increase a Liability
24 Received cash and issued stock Increase an Asset Increase Stockholders' Equity
25 Paid for supplies bought earlier on account Decrease an Asset Decrease a Liability
26 Paid dividends to stockholders Decrease an Asset Decrease Stockholders' Equity

What Should Be Journaled Chapter 2

A company experienced the following financial events on Sept. 29, Year 1. How many of these economic events would require a journal entry on that day?

  1. The company signed a new contract with an employees’ union that requires a $2.00 per hour increase in wages and a longer lunch break, effective 10/1/Y1.
  2. The company president is retiring and will be replaced by the vice president of finance who will be paid $50,000 more per year.
  3. The company purchased a fire insurance policy for $5,000 that will pay $1,000,000 if the facility is destroyed. The policy insures the company from 11/1/Y1 - 10/31/Y2
  1. One
  2. Two
  3. Three
  4. None

Account Classifications Chapter 2

Accounts payable $12,000 Accounts Receivable 20,900
Furniture 5,000 Accumulated Depreciation 6,500
Building 82,000 Cash 21,500
Common Stock ? Sales Revenue 90,700
Cost of Goods Sold 51,500 Depreciation Expense 1,450
Dividends 6,600 Note Payable (due 3/1 Year 4) 20,000
Marketable Securities 1,400 Prepaid Expenses 18,000
Salaries Payable 2,800 Land 38,000
Note Payable (due 5/30 Year 2) 12,400 Service Revenue 22,550
Retained Earnings (1/1 Year 1 ) 39,700 Salary Expense 18,000
Accrued Expenses Payable 1,500 Unearned Revenue 30,500
Utilities Expense 5,400
  1. Determine Total assets on December 31, Year 1
  2. Determine Current Liabilities on December 31, Year 1
  3. Determine Net Income for the year ended December 31, Year 1
  4. Determine the total amount of Common Stock on December 31, Year 1
  1. Total Assets - 180,300
  2. Current Liabilities - 59,200
  3. Net Income - 36,900
  4. Common Stock - 31,100