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In: Accounting

6. Consider the following accounts: Utility Expense Accounts Payable Service Revenue Common Stock How many of...

6. Consider the following accounts: Utility Expense Accounts Payable Service Revenue Common Stock How many of these accounts are increased with credits? a. One. b. Two. c. Three. d. Four.

7. Schooner Inc. purchased equipment by signing a note payable. This transaction would be recorded as: a. Debit Equipment, credit Cash. b. Debit Cash, credit Notes Payable. c. Debit Notes Payable, credit Equipment. d. Debit Equipment, credit Notes Payable.

8. Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue? a. January. b. February. c. April. d. Evenly in each of the three months.

9. Which of the following regarding adjusting entries is correct? a. Adjusting entries are recorded for all external transactions. b. Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period. c. Adjusting entries are needed because we use accrual-basis accounting. d. After adjusting entries, all temporary accounts should have a balance of zero. 3 / 10

10. An adjusted trial balance: a. Is a list of all accounts and their balances after adjusting entries. b. Is a list of all accounts and their balances before adjusting entries. c. Is a list of all accounts and their balances after closing entries. d. Is a trial balance adjusted for cash-basis accounting.

Solutions

Expert Solution

Question 6

Correct Answer ---- Three

Explanation

Every liability account increases when it is credited.

Every Shareholder’s Equity account increases when credited except Dividends and Withdrawals.

And every revenue account is increased when it is credited.

Accounts payable, Service revenue and common stock are the three accounts which increase with credit. Accounts Payable is a liability account, Common stock is shareholder’s equity and Service revenue is a revenue account.

Utility expense increase when it is debited.

Question 7

Correct Answer---- Debit Equipment, credit notes payable

Explanation

Asset account is debited when it increases while liabilities are credited when they increase.

In the given question Equipment increases with simultaneous increase in notes payable. Equipment will be debited as it is purchased and Notes payable will be credited since notes payable is accepted instead of payment of cash.

Question 8

Correct Answer---- April.

Explanation

Revenue is recognized when service is rendered and service provider is eligible to collect cash against service rendered. Cash received in February is Advance received from customer. Revenue is earned when service is provided by Air France in April.

Question 9

Correct Answer ---- Adjusting entries are needed because we use accrual-basis accounting.

Explanation

Adjusting entries includes recognition of revenues and expenses which are accrued during the year.

For example Interest on bank loan may be payable in 2 years but 1 year’s Interest expense will be recorded as it is related to year ended.

Accrual-basis Accounting demands that all revenues and expense to be recorded as and when they occur and not when cash is received or paid against those revenues and expenses respectively.

Question 10

Correct Answer---- b. Is a list of all accounts and their balances before adjusting entries.

Explanation

Unadjusted trial balance is the year end or period end trial balance without any adjustments. The name already suggests that trial balance is unadjusted. Adjusting trial balance includes year and entries such as recognition of uncollected incomes and unpaid expenses.

ekkarill92 answered 1 year ago
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