TEST BANK INTERMEDIATE ACCOUNTING 9TH EDITION SPICELAND ch02

Chapter 02 Review of the Accounting Process Answer Key
True / False Questions
1.

Owners' equity can be expressed as assets minus liabilities.
TRUE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
Level of Difficulty: 1 Easy
Topic Area:

2.

Accounting equation

Debits increase asset accounts and decrease liability accounts.
TRUE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
Level of Difficulty: 1 Easy
Topic Area:

3.

Account relationships and records

Balance sheet accounts are referred to as temporary accounts because their
balances are always changing.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
Level of Difficulty: 1 Easy
Topic Area:

4.

Account relationships and records

After an unadjusted trial balance is prepared, the next step in the accounting
processing cycle is the preparation of financial statements.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember

Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
2-1
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McGraw-Hill Education.


Level of Difficulty: 1 Easy
Topic Area:

5.

Accounting processing cycle steps

Adjusting journal entries are recorded at the end of any period when financial
statements are prepared.
TRUE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-04 Identify and describe the different types of adjusting journal entries.
Level of Difficulty: 1 Easy
Topic Area:

6.

Analyze updating-Record adjusting entry

Accruals occur when the cash flow precedes either revenue or expense
recognition.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-04 Identify and describe the different types of adjusting journal entries.
Level of Difficulty: 1 Easy
Topic Area:

7.

Analyze updating-Identify type of adjustment

The adjusted trial balance contains only permanent accounts.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-05 Record adjusting journal entries in general journal format; post entries; and prepare
an adjusted trial balance.
Level of Difficulty: 1 Easy
Topic Area:

8.

Trial balance―Adjusted

The income statement summarizes the operating activity of a firm at a particular
point in time.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-06 Describe the four basic financial statements.
Level of Difficulty: 1 Easy
Topic Area:

Financial statement―Income Statement

2-2
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McGraw-Hill Education.


9.

The balance sheet can be considered a change or flow statement.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement

Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-06 Describe the four basic financial statements.
Level of Difficulty: 1 Easy
Topic Area:

10.

Financial statement―Balance sheet

The statement of cash flows summarizes transactions that caused cash to change
during a reporting period.
TRUE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-06 Describe the four basic financial statements.
Level of Difficulty: 1 Easy
Topic Area:

11.

Financial statement―Cash flow

The statement of shareholders' equity discloses the changes in the temporary
shareholders' equity accounts.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-06 Describe the four basic financial statements.
Level of Difficulty: 2 Medium
Topic Area:

12.

Financial statement―Shareholders equity

The post-closing trial balance contains only permanent accounts.
TRUE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-07 Explain the closing process.
Level of Difficulty: 1 Easy
Topic Area:

13.

The closing process

The closing process brings all temporary accounts to a zero balance and updates

the balance in the retained earnings account.
TRUE

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Blooms: Remember
2-3
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Learning Objective: 02-07 Explain the closing process.
Level of Difficulty: 1 Easy
Topic Area:

14.

The closing process

A reversing entry at the beginning of a period for salaries would include a debit to
salaries expense.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-Appendix 2B Reversing Entries.
Level of Difficulty: 2 Medium

Topic Area:

15.

Reversing entries–Appendix B

The sale of merchandise on account would be recorded in a sales journal.
TRUE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-Appendix 2C Subsidiary Ledgers and Special Journals.
Level of Difficulty: 1 Easy
Topic Area:

16.

Subsidiary ledger-Special journal–App C

The payment of cash to a supplier would be recorded in a purchases journal.
FALSE

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-Appendix 2C Subsidiary Ledgers and Special Journals.
Level of Difficulty: 1 Easy

Topic Area:

Subsidiary ledger-Special journal–App C

Multiple Choice Questions

2-4
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McGraw-Hill Education.


17.

The accounting equation can be stated as:

AA
.+
L
−
O
E
=
0.
BA
.−
L
+
O
E
=

0.
C-A
.+
L
−
O
E
=
0.
D
A
.−
L
−
O
E
=
0.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
Level of Difficulty: 2 Medium
Topic Area:

Accounting equation

2-5

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McGraw-Hill Education.


18.

Examples of external transactions include all of the following except:

A
Pa
.yi
ng
e
m
pl
oy
ee
sa
lar
ie
s.
BPu
.rc
ha
si
ng
eq
ui
p
m

en
t.
C
D
.ep
re
ci
ati
ng
eq
ui
p
m
en
t.
D
Co
.lle
cti
ng
a
re
ce
iv
ab
le.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand

Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
Level of Difficulty: 2 Medium
2-6
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McGraw-Hill Education.


Topic Area:

Analyze transaction-Record journal entry

2-7
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McGraw-Hill Education.


2-8
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McGraw-Hill Education.


19.

Examples of internal transactions include all of the following except:

A
Wr
.iti
ng

of
an
un
co
lle
cti
bl
e
ac
co
un
t.
B
Re
.co
rdi
ng
th
e
ex
pir
ati
on
of
pr
ep
ai
d
ins
ur

an
ce
.
C
Re
.co
rdi
ng
un
pa
id
sa
lar
ie
s.

2-9
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McGraw-Hill Education.


D
Pa
.yi
ng
sal
ari
es
to
co

m
pa
ny
e
m
pl
oy
ee
s.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
Learning Objective: 02-05 Record adjusting journal entries in general journal format; post entries; and prepare
an adjusted trial balance.
Level of Difficulty: 2 Medium

Analyze transaction-Record journal entry
Topic Area: Analyze updating-Record adjusting entry
Topic Area:

2-10
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McGraw-Hill Education.


20.

XYZ Corporation receives $100,000 from investors for issuing them shares of its
stock. XYZ's journal entry to record this transaction would include a:

AD
.eb
it
to
in
ve
st
m
en
ts.
B
Cr
.ed
it
to
re
tai
ne
d
ea
rni
ng
s.
C
Cr
.ed
it

to
co
m
m
on
st
oc
k.
D
Cr
.ed
it
to
re
ve
nu
e.
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 2 Medium
Topic Area:

Analyze transaction-Record journal entry

2-11
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McGraw-Hill Education.


21.

Incurring an expense for advertising on account would be recorded by:

AD
.eb
iti
ng
lia
bil
iti
es
.
BCr
.ed
iti
ng
as
se
ts.
C
D
.eb
iti
ng
an
ex

pe
ns
e.
DD
.eb
iti
ng
as
se
ts.
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 2 Medium
Topic Area:

Analyze transaction-Record journal entry

2-12
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McGraw-Hill Education.


22.

A sale on account would be recorded by:

AD
.eb
iti
ng
re
ve
nu
e.
BCr
.ed
iti
ng
as
se
ts.
CCr
.ed
iti
ng
lia
bil
iti
es
.
D
D
.eb
iti
ng
as

se
ts.
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 2 Medium
Topic Area:

Analyze transaction-Record journal entry

2-13
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McGraw-Hill Education.


23.

Mary Parker Co. invested $15,000 in ABC Corporation and received common stock
in exchange. Mary Parker Co.'s journal entry to record this transaction would
include a:

A
D
.eb
it
to
in

ve
st
m
en
ts.
B
Cr
.ed
it
to
re
tai
ne
d
ea
rni
ng
s.
C
Cr
.ed
it
to
co
m
m
on
st
oc
k.

D
D
.eb
it
to
ex
pe
ns
e.
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 2 Medium
Topic Area:

Analyze transaction-Record journal entry

2-14
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McGraw-Hill Education.


24.

Hughes Aircraft sold a four-passenger airplane for $380,000, receiving a $50,000
down payment and a 12% note for the balance. The journal entry to record this
sale would include a:

ACr
.e
di
t
to
ca
sh
.
BD
.eb
it
to
ca
sh
di
sc
ou
nt
.
C
D
.eb
it
to
no
te
re
ce
iv

ab
le.
D
Cr
.ed
it
to
no
te
re
ce
iv
ab
le.
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 3 Hard
Topic Area:

Analyze transaction-Record journal entry

2-15
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McGraw-Hill Education.

25.

Somerset Leasing received $12,000 for 24 months' rent in advance. How should
Somerset record this transaction?

A.
B.
C.
D.

Prepaid rent
Rent expense
Cash
Deferred revenue
Interest expense
Interest payable
Salaries expense
Salaries payable

12,000
12,000
12,000
12,000

12,000
12,000
12,000
12,000

AACSB: Analytical Thinking

AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 2 Medium
Topic Area:

26.

Analyze transaction-Record journal entry

Davis Hardware Company uses a perpetual inventory system. How should Davis
record the sale of merchandise, costing $620, and sold on account for $960?

A.

B.

C.
D.

Inventory
Accounts receivable
Sales
Revenue from sales
Accounts receivable
Sales revenue
Cost of goods sold
Inventory
Inventory

Gain on sale
Sales revenue
Accounts receivable
Sales revenue
Gain on sale

620
960
960
620

620
960
960
620

620
340
960

960
620
340

AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 3 Hard

Topic Area:

Analyze transaction-Record journal entry

2-16
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McGraw-Hill Education.


27.

Ace Bonding Company purchased merchandise inventory on account. The
inventory costs $2,000 and is expected to sell for $3,000. How should Ace record
the purchase?

A.
B.
C.
D.

Inventory
Accounts payable
Cost of goods sold
Deferred revenue
Sales in advance
Cost of goods sold
Inventory payable
Cost of goods sold
Profit
Sales payable

2,000

2,000

2,000
1,000
2,000
2,000
1,000

3,000
2,000
3,000

AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Learning Objective: 02-02 Record transactions using the general journal format.
Level of Difficulty: 3 Hard
Topic Area:

Analyze transaction-Record journal entry

2-17
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McGraw-Hill Education.

28.

Which of the following accounts has a balance whereby debits normally exceed
credits?

AAc
.co
un
ts
pa
ya
bl
e.
BAc
.cr
ue
d
ta
xe
s.
C
Ac
.cu
m
ul
at
ed
de
pr
ec

iat
io
n.
D
Ad
.ve
rti
si
ng
ex
pe
ns
e.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-01 Analyze routine economic events-transactions-and record their effects on a
company's financial position using the accounting equation format.
Learning Objective: 02-05 Record adjusting journal entries in general journal format; post entries; and prepare
an adjusted trial balance.
Learning Objective: 02-03 Post the effects of journal entries to general ledger accounts and prepare an
unadjusted trial balance.
Level of Difficulty: 1 Easy
Topic Area:
Topic Area:

Account relationships and records
Determine account balance-Analyze entries

2-18
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McGraw-Hill Education.


29.

An example of a contra account is:

AD
.ep
re
ci
ati
on
ex
pe
ns
e.
BAc
.co
un
ts
re
ce
iv
ab
le.
CSa
.le

s
re
ve
n
ue
.
D
Ac
.cu
m
ul
at
ed
de
pr
ec
iat
io
n.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 02-04 Identify and describe the different types of adjusting journal entries.
Level of Difficulty: 1 Easy
Topic Area:

Analyze updating-Identify type of adjustment

2-19

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McGraw-Hill Education.


2-20
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McGraw-Hill Education.


30.

Making insurance payments in advance is an example of:

A
An
.ac
cr
ue
d
re
ce
iv
ab
le
tr
an
sa
cti
on
.

B
An
.ac
cr
ue
d
lia
bil
ity
tr
an
sa
cti
on
.
C
A
.de
fer
re
d
re
ve
nu
e
tr
an
sa
cti
on

.

2-21
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McGraw-Hill Education.


D
A
.pr
ep
ai
d
ex
pe
ns
e
tr
an
sa
cti
on
.
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 02-02 Record transactions using the general journal format.
Learning Objective: 02-04 Identify and describe the different types of adjusting journal entries.
Level of Difficulty: 1 Easy

Topic Area:
Topic Area:

Analyze transaction-Record journal entry
Analyze updating-Identify type of adjustment

2-22
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McGraw-Hill Education.


2-23
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McGraw-Hill Education.


31.

Recording revenue before it is collected is an example of:

A
A
.pr
ep
ai
d
ex
pe
ns
e

tr
an
sa
cti
on
.
B
A
.de
fer
re
d
re
ve
nu
e
tr
an
sa
cti
on
.
C
An
.ac
cr
ue
d
lia
bil

ity
tr
an
sa
cti
on
.

2-24
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McGraw-Hill Education.


D
An
.ac
cr
ue
d
re
ce
iv
ab
le
tr
an
sa
cti
on
.

AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 02-04 Identify and describe the different types of adjusting journal entries.
Level of Difficulty: 1 Easy
Topic Area:

Analyze updating-Identify type of adjustment

2-25
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McGraw-Hill Education.