Financial Accounting, 7e Harrison/Horngren Test Item File
Chapter 2: Transaction Analysis
2.1-1 A journal entry is an event that has a financial impact on the business that can be reliably measured.
Answer: False LO: 2-1 Diff: 2 EOC: S2-5 2.1-2 The trial balance is a NOT a formal accounting statement.
Answer: True LO: 2-1 Diff: 1 EOC: S2-25 2.1-3 Accrued Liabilities is a liability account.
Answer: True LO: 2-1 Diff: 1
EOC: E2-28
2.1-4 The retained earnings account represents the excess of net income over dividends retained in the business
since its inception.
Answer: True LO: 2-1 Diff: 1 EOC: P2-50A 2.1-5 Expense accounts always represent expired assets.
Answer: False LO: 2-1 Diff: 2
EOC: E2-11
2.1-6 The dividends account indicates an increase in common stock.
Answer: False LO: 2-1 Diff: 2 EOC: E2-15
2.1-7 Double-entry accounting records only those transactions affecting the income statement.
Answer: False LO: 2-1 Diff: 2 EOC: QC 8 2.1-8 The purchase of office equipment for cash would increase both an asset and a liability account.
Answer: False LO: 2-1 Diff: 2 EOC: P2-49A 2.1-9 Which of the following is NOT an asset account?
A. Accounts Receivable
B. C.
D.
Prepaid Rent Common Stock
All of these are asset accounts.
LO: 2-1
Diff: 2
EOC: P2-49A
1
Answer: C
2.1-10 Prepaid expense accounts appear on: A. the income statement. B. the balance sheet.
C. the statement of retained earnings and on the income statement.
D.
both the income statement and balance sheet.
Answer: B
LO: 2-1
Diff: 2
EOC: P2-56A
2.1-11 The term \ A. records both sides of each transaction in the accounts affected.
B. computes the income statement and balance sheet effect of each transaction. C. identifies both the cash inflows and the cash outflows.
D.
uses both the general journal and the general ledger when recording transactions.
Answer: A
LO: 2-1
Diff: 2
EOC: QC 8
2.1-12 A company received cash in exchange for issuing stock. This transaction increased assets and:
a. increased expenses. b. increased revenues. c. increased liabilities. d. increased equity. Answer: D
LO: 2-1
Diff: 1
EOC: E2-16
2.1-13 A company purchased office supplies for cash. This transaction increased assets and:
A. increased equity. B. increased liabilities. C. increased revenues. D. decreased assets. Answer: D
LO: 2-1
Diff: 1
EOC: QC 10
2
2.1-14 A company performed services for a customer on account. This transaction increased assets and:
A. decreased equity. B. increased liabilities. C. increased expenses. D. increased revenues. Answer: D
LO: 2-1
Diff: 1
EOC: QC 3
2.1-15 A company paid cash for employee wages. This transaction:
A. increased cash and increased expenses. B. increased cash and decreased expenses. C. decreased cash and increased expenses. D. decreased cash and decreased revenues. Answer: C
LO: 2-1
EOC: S2-5
Diff: 1
2.1-16 A company paid cash for an amount owed to a creditor. This transaction decreased cash and:
A. decreased revenues. B. decreased liabilities. C. decreased expenses. D. increased expenses. Answer: B
Diff: 1
EOC: E2-16
LO: 2-1
2.1-17 The owner of a business paid cash from his personal checking account to purchase an automobile for his
personal use. This transaction:
A. increased a liability account and increased liabilities. B. decreased cash and increased expenses. C. increased assets and increased owners’ equity. D. is not a transaction recognized by the business. Answer: D
LO: 2-1
Diff: 2
EOC: E2-15
3
2.1-18 Which type of account is increased when a company records a debt?
A. Expense B. Retained earnings C. Liability
D. None of the above are correct. Answer: C
LO: 2-1
Diff: 2
EOC: QC 1
2.1-19 All of the following accounts would be considered assets EXCEPT for:
A. cash.
B. retained earnings. C. prepaid expenses. D. notes receivable. Answer: B
LO: 2-1
Diff: 1
EOC: S2-9
2.1-20 What type of account is prepaid insurance?
A. A liability B. An expense C. Stockholders’ equity D. An asset Answer: D
LO: 2-1
Diff: 2
EOC: P2-49A
2.1-21 Which of the following accounts are a standard component of stockholders’ equity?A. Prepaid Expenses B. Dividends
C. Additional Paid In Stock D. Unearned Income Answer: B
LO: 2-1
Diff: 2
EOC: P2-50A
4
2.1-22 Notes payable, accounts payable, taxes payable and salaries payable are all examples of:
A. liabilities. B. revenues. C. expenses. D. assets. Answer: A
LO: 2-1
Diff: 1
EOC: S2-9
2.1-23 Which type of account is decreased when a company pays its employees with cash?
A. A liability B. A prepaid asset C. An asset D. Owners’ equity Answer: C
LO: 2-1
Diff: 2
EOC: S2-5
2.1-24 Which of the following business events would NOT be recorded in a company’s accounting records?A. The company paid a monthly utility bill of $1,000.
B. The company issued 100 shares of common stock for $75,000.
C. The company purchased two acres of land for future plant expansion for $600,000.
D. The company signed a contract to provide services in the next accounting period for $125,000. Answer: D
LO: 2-1
Diff: 2
EOC: P2-52A
5