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Account Classification Chapter 3

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

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

Journal Entry - Inventory Chapter 3

Prepare the journal entry for the following transaction:

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

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Journal Entry - Sales Chapter 3

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 3

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
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T/F: Liabilities and Equity Chapter 3

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

True / False

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T/F: T-Account Logic Chapter 3

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?

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Normal Balances Chapter 3

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.
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The Effect of Journal Entries Chapter 3

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
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What Should Be Journaled Chapter 3

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
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