Exam (elaborations) TEST BANK FOR Fundamental Accounting Principles by John Wild, Ken Shaw and Barbara Chiappetta 21st Edition
Accounting Principles -
... [Show More] 21e, TEST
BANK 3
Fundamental Accounting Principles by John Wild, Ken Shaw and Barbara
Chiappetta- 21e, TEST BANK 3
ch2 Key
1. The first step in the processing of a transaction is to analyze the transaction and source documents.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #1
2. Preparation of a trial balance is the first step in the analyzing and recording process.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #2
3. Source documents provide evidence of business transactions and are the basis for accounting entries.
TRUE
AACSB: Communication
AICPA BB: Industry
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AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #3
4. Items such as sales tickets, bank statements, checks, and purchase orders are source documents.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #4
5. An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or
expense item.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #5
6. A customer's promise to pay is called an account payable to the seller.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #6
7. Withdrawals by the owner are a business expense.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #7
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8. Land and buildings are generally recorded in the same ledger account.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #8
9. Unearned revenues are liabilities.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #9
10. Cash withdrawn by the owner of a proprietorship should be treated as an expense of the business.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #10
11. When a company provides services for which cash will not be received until some future date, the
company should record the amount charged as unearned revenue.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #11
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12. The chart of accounts is a list of all the accounts used by a company and includes an identification
number assigned to each account.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C3 Describe a ledger and a chart of accounts.
Topic: Ledger and Chart of Accounts
Wild - Chapter 02 #12
13. An account balance is the difference between the debits and credits for an account including any
beginning balance.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Topic: Accounts
Wild - Chapter 02 #13
14. Debit means the right side of an account.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #14
15. In a double-entry accounting system, the total amount debited must always equal the total amount
credited.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #15
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16. Increases in liability accounts are recorded as debits.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #16
17. Debits increase asset and expense accounts.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #17
18. Credits always increase account balances.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #18
19. Crediting an expense account decreases it.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #19
20. A revenue account normally has a debit balance.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #20
21. Accounts are normally decreased by debits.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #21
22. The owner's withdrawal account normally has a credit balance since it is an equity account.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #22
23. Asset accounts normally have credit balances and revenue accounts normally have debit balances.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #23
24. An owner's capital account normally has a debit balance.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #24
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25. A debit entry is always favorable.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Topic: Debits and Credits
Wild - Chapter 02 #25
26. A transaction that decreases an asset account and increases a liability account must also affect one or
more other accounts.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #26
27. A transaction that increases an asset and decreases a liability must also affect one or more other
accounts.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #27
28. If insurance coverage for the next three years is paid for in advance, the amount of the payment is
debited to an asset account called Prepaid Insurance.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #28
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29. The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts
Payable.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #29
30. If a company purchases land paying cash, the journal entry to record this transaction will include a debit
to Cash.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #30
31. If a company provides services to a customer on credit the selling company should credit Accounts
Receivable.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #31
32. When a company bills a customer for $600 for services rendered, the journal entry to record this
transaction will include a $600 debit to Services Revenue.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #32
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33. 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.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Topic: Debt Ratio
Wild - Chapter 02 #33
34. The higher a company's debt ratio is, the higher the risk of a company not being able to meet its
obligations.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Topic: Debt Ratio
Wild - Chapter 02 #34
35. The debt ratio is calculated by dividing total assets by total liabilities.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Topic: Debt Ratio
Wild - Chapter 02 #35
36. A company that finances a relatively large portion of its assets with liabilities is said to have a high
degree of financial leverage.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Topic: Debt Ratio
Wild - Chapter 02 #36
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37. If a company is highly leveraged, this means that it has relatively low risk of not being able to repay its
debt.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Topic: Debt Ratio
Wild - Chapter 02 #37
38. Hamilton Industries has liabilities of $105 million and total assets of $350 million. Its debt ratio is
40.0%.
FALSE
Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $105 million/$350 million = 30%
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Topic: Debt Ratio
Wild - Chapter 02 #38
39. A compound journal entry affects no more than two accounts.
FALSE
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #39
40. Posting is the transfer of journal entry information to the ledger.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Topic: Recording Transactions and Posting Entries
Wild - Chapter 02 #40
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41. Transactions are first recorded in the ledger.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #41
42. The journal is known as a book of original entry.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #42
43. A journal gives a complete record of each transaction in one place, and shows the debits and credits for
each transaction.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #43
44. The journal is known as the book of final entry because financial statements are prepared from it.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Topic: Processing Transactions
Wild - Chapter 02 #44
45. The trial balance is a list of all general ledger accounts and their balances at a point in time.
TRUE
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AICPA BB: Industry
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AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Topic: Trial Balance
Wild - Chapter 02 #45
46. Generally, the ordering of accounts in a trial balance typically follows their identification number from
the chart of accounts, that is, assets first, then liabilities, then owner's capital and withdrawals, followed
by revenues and expenses.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Topic: Trial Balance
Wild - Chapter 02 #46
47. The trial balance can serve as a replacement for the balance sheet, since debits must equal with credits.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Topic: Trial Balance
Wild - Chapter 02 #47
48. A trial balance that is in balance is proof that no errors were made in journalizing the transactions,
posting to the ledger, and preparing the trial balance.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Topic: Trial Balance
Wild - Chapter 02 #48
49. If cash was incorrectly debited for $100 instead of correctly credited for $100, the cash account is out of
balance by $100.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Apply
Difficulty: 3 Hard
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Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Topic: Transaction Analysis
Wild - Chapter 02 #49
50. The balance sheet provides a link between beginning and ending income statements.
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Topic: Financial Statements
Wild - Chapter 02 #50
51. The heading on each financial statement lists the three W's - Who (the name of the organization); What
(the name of the statement); and Where (the organization's address)
FALSE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Topic: Financial Statements
Wild - Chapter 02 #51
52. An income statement reports the revenues earned less expenses incurred by a business over a period of
time.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Topic: Financial Statements
Wild - Chapter 02 #52
53. The balance sheet reports the financial position of a company at a point in time.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA FN: Reporting
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Topic: Financial Statements
Wild - Chapter 02 #53
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