21 a sells a product from its inventory to a customer on account what effect does th 4352187

21.A sells a product from its inventory to a customer on account. What effect does this transaction have on a firm's accounting system?

a.total assets increase and revenues increase by the same amount

b.revenues increase and expenses increase by the same amount

c.merchandise inventory decreases and revenues increase by the same amount

d.accounts receivable increases and expenses increase but by different amounts

22.An owner invests $100,000 in the business. Which of the following statements is NOT true?

a.the transaction is a financing activity

b.owners' equity would increase

c.total assets would increase

d.the transaction will be reported on the income statement

23.Memory Collectibles purchased $25,000 of inventory on account. Which of the following statements is NOT true?

a.assets and liabilities would increase

b.the transaction would be summarized and reported on the balance sheet

c.when cash payment is made on the account, expenses will increase

d.an entry would be made in both a control account and subsidiary account

24.On July 1, 2007, Smart Company purchased a four-year fire insurance policy for $4,800. Regarding this event, what amounts should be reported on the December 31, 2007 balance sheet and income statement, respectively?

Balance Sheet                       Income Statement

a.$1,200 prepaid asset            $3,600 insurance expense

b.$   600 prepaid asset            $1,200 insurance expense

c.$4,200 prepaid asset            $   600 insurance expense

d.$4,800 prepaid asset            $       0 insurance expense

25.On December 31, 2007, Sean counted the office supplies on hand that amounted to $2,500. The firm had $1,900 of supplies on hand on January 1, 2007 and had purchased $6,000 of supplies during the year. What was the total supplies expense for the year?

a.$6,600

b.$3,500

c.$5,400

d.$6,000

26.Fiber-Optics Company had an office supplies inventory of $800 at the end of its first year of operation. Office supplies costing $3,000 had been purchased during the year. What is the amount of office supplies expense for the year?

a.$  800

b.$2,200

c.$3,000

d.$3,800

27.The bookkeeper at the Happy Holly Ranch forgot to record the expiration of prepaid insurance during 2007. The result of this error is that

a.2007 net income is understated, the balance in owners' equity is understated, and assets are understated

b.2007 net income is overstated, the balance in owners' equity is overstated, and assets are correctly stated

c.2007 net income is overstated, the balance in owners' equity is overstated, and assets are overstated

d.liabilities are understated

28.The bookkeeper at the We Build It Construction Co. failed to accrue interest expense on a loan at year end. This will result in an

a.understatement of liabilities, and an overstatement of net income and owners' equity

b.overstatement of liabilities and an understatement of net income and owners' equity

c.overstatement of assets, net income, and owners' equity

d.understatement of assets, net income, and owners' equity

29.Which of the following requires the reduction of a prepaid asset?

a.rent is received in advance from a tenant

b.interest has been incurred on a note receivable

c.prepaid insurance has expired during the period

d.employee wages expense need to be accrued

30.On July 1, 2007, Transom Co. borrowed $80,000. The monthly interest is computed at $400. The necessary entry to the accounting system at December 31, 2007, if interest is paid only on the annual anniversary date of the note, is to

a.decrease Cash and increase Interest Expense by $2,400

b.decrease Cash and decrease Interest Expense by $2,400

c.increase Cash and increase Interest Expense by $4,800

d.increase Interest Payable and increase Interest Expense by $2,400

e.no entry is required

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