- A company had a beginning balance of $0 in its Interest Payable account. On November 1, the company signed a 6-month, 8% note payable for $30,000. The company's year-end is December 31. The accountant made and posted the correct year-end adjusting entry for accrued interest. What is the balance in the Interest Payable account on December 31?
Answer: $400
The company needs to accrue interest for two months (November and December). The formula for interest is Principal x Rate x Time. Interest for two months = $30,000 x 8% x (2/12). Annual interest is $30,000 0.08 = $2,400. Monthly interest is $2,400 / 12 = $200. For two months, the accrued interest is 2 $200 = $400. The adjusting entry is a debit to Interest Expense and a credit to Interest Payable for $400. Since the beginning balance was $0, the ending balance in Interest Payable is $400.
- The Accounts Payable ledger account had a normal balance of $22,000 on November 1. During the month, the only transaction affecting the account was a payment of $8,000 to a supplier. However, the ending balance on November 30 was found to be $31,000. What is the value of inventory purchases on account that occurred in November but were not described?
Answer: $17,000
This requires working backward. Let 'X' be the unknown purchases on account. The formula for the ending Accounts Payable balance is: Beginning Balance + Purchases - Payments = Ending Balance. So, $22,000 + X - $8,000 = $31,000. Simplifying gives $14,000 + X = $31,000. Solving for X yields $17,000.
- If the Accounts Receivable account had a beginning balance of $15,300, what is the ending balance in the Accounts Receivable ledger account after posting all March transactions?
Answer: $21,700
The correct answer is A. Starting with $15,300, we add the two sales entries (+$12,000 and +$6,200) and subtract the two collection entries (-$8,500 and -$4,200). The bad debt expense affects Allowance for Doubtful Accounts, not Accounts Receivable directly. Calculation: $15,300 + $12,000 + $6,200 - $8,500 - $4,200 = $21,700. Choice B incorrectly subtracts the bad debt expense. Choice C incorrectly omits the collections. Choice D incorrectly includes the sales discount as a reduction to Accounts Receivable.
- If the Supplies account had a beginning debit balance of $3,200, what is the ending balance after posting all transactions?
Answer: $3,800 debit
When you encounter questions about account balances, you need to track how each transaction affects the specific account by identifying debits and credits. The Supplies account is an asset, so it increases with debits and decreases with credits.
Starting with the beginning balance of $3,200 debit, let's trace each transaction's impact on Supplies:
June 3: Supplies $2,400; Accounts Payable $2,400
This debits Supplies for $2,400 (purchasing supplies on credit)
New balance: $3,200 + $2,400 = $5,600 debit
June 10: Accounts Payable $1,500; Cash $1,470; Purchase Discount $30
This only affects Accounts Payable and Cash - no impact on Supplies
Balance remains: $5,600 debit
June 18: Supplies Expense $1,800; Supplies $1,800
This credits Supplies for $1,800 (using supplies, converting asset to expense)
New balance: $5,600 - $1,800 = $3,800 debit
June 25: Accounts Payable $900; Cash $900
Again, only affects Accounts Payable and Cash - no Supplies impact
Final balance: $3,800 debit
Answer D ($3,800 debit) is correct.
Answer A ($2,000 debit) incorrectly subtracts too much, possibly confusing which transactions affect Supplies. Answer B ($7,400 debit) adds all supply-related amounts without considering the June 18 expense entry. Answer C ($5,600 debit) ignores the June 18 supplies expense transaction entirely.
Study tip: Always identify which account the question asks about, then systematically go through each journal entry to see if that specific account is debited, credited, or unaffected. Don't let unrelated transactions distract you.
- On January 1, a company's Retained Earnings account had a credit balance of $250,000. For the year, the company reported net income of $75,000 and declared and paid cash dividends of $20,000. The bookkeeper correctly posted the closing entry for revenues and expenses but forgot to post the closing entry for dividends. What is the balance in the Retained Earnings account on December 31 before the error is corrected?
Answer: $325,000
Retained Earnings starts at $250,000. Net income increases Retained Earnings, so the closing entry for revenues and expenses results in a $75,000 credit to Retained Earnings. The balance after this posting is $250,000 + $75,000 = $325,000. Dividends decrease Retained Earnings, but the closing entry for dividends (a debit to Retained Earnings) was forgotten. Therefore, the balance remains at $325,000.
- On October 1, a firm received $9,000 cash from a client for services to be performed evenly over the next three months. The firm initially recorded this by debiting Cash and crediting Unearned Service Revenue. No adjusting entries were made until December 31. After the correct adjusting entry is posted on December 31, what will be the final balances in the Unearned Service Revenue and Service Revenue accounts?
Answer: Unearned Service Revenue $0; Service Revenue $9,000
The service is performed evenly over October, November, and December. The monthly revenue is $9,000 / 3 = $3,000. By December 31, all three months of service have been provided, so the entire $9,000 has been earned. The adjusting entry on Dec 31 would be a debit to Unearned Service Revenue for $9,000 and a credit to Service Revenue for $9,000. The initial $9,000 credit balance in Unearned Service Revenue is reduced to zero by the $9,000 debit. The Service Revenue account will have a $9,000 credit balance.
- A company using a perpetual inventory system had a beginning balance in its Inventory account of $50,000. It then engaged in the following transactions: (1) Purchased inventory on account for $20,000. (2) Returned $3,000 of defective inventory to the supplier. (3) Sold inventory that cost $25,000 for $40,000 on account. After these transactions are posted, what is the balance in the Inventory T-account?
Answer: $42,000
The Inventory account is affected by all three transactions. Start with the beginning debit balance of $50,000. (1) The purchase increases inventory, so debit Inventory for $20,000. Balance is now $70,000. (2) The return decreases inventory, so credit Inventory for $3,000. Balance is now $67,000. (3) The sale decreases inventory by its cost, so credit Inventory for $25,000. The final balance is $67,000 - $25,000 = $42,000. The sales price of $40,000 affects Sales Revenue and Accounts Receivable, not Inventory.
- A company made a sale of $1,000 on account to Customer X. The transaction was correctly journalized. When posting, the debit to Accounts Receivable was correctly posted to the general ledger control account, but the debit was incorrectly posted to Customer Y's account in the subsidiary ledger. Which of the following statements is true?
Answer: The balance of the Accounts Receivable control account will be correct, and the sum of the subsidiary ledger balances will also be correct.
The error occurred within the accounts receivable subsidiary ledger. The general ledger control account for Accounts Receivable was debited correctly for $1,000. The sum of all customer account balances in the subsidiary ledger is also correct in total, as a $1,000 debit was posted, just to the wrong customer. Therefore, the control account balance will equal the sum of the subsidiary ledger balances. The trial balance will be in balance because the general ledger postings were correct. The error will only be discovered when Customer Y complains about an incorrect charge or Customer X is flagged for non-payment.
- On December 31, a company made an adjusting entry to accrue $700 of salaries earned by employees but not yet paid. On January 1 of the following year, a reversing entry was made. On January 5, the company paid the full payroll of $5,000, which included the $700 accrued from the previous year. After the entry for the January 5th payroll is posted, what is the balance in the Salaries and Wages Expense account for the new year?
Answer: $4,300 debit
1. The Dec 31 adjusting entry (Dr. Salaries Expense $700, Cr. Salaries Payable $700) is for the prior year. 2. The Jan 1 reversing entry is Dr. Salaries Payable $700, Cr. Salaries and Wages Expense $700. This creates a $700 credit balance in the Salaries and Wages Expense account at the start of the new year. 3. The Jan 5 payroll entry is Dr. Salaries and Wages Expense $5,000, Cr. Cash $5,000. 4. After posting the Jan 5 entry, the Salaries and Wages Expense account has a $700 credit and a $5,000 debit. The net balance is a $4,300 debit ($5,000 - $700), which represents the actual expense for the new period.
- After posting these adjusting entries, if Service Revenue had no previous balance, Interest Payable had a $200 credit balance, and Accumulated Depreciation had a $15,600 credit balance, what are the correct ending balances for these three accounts?
Answer: Service Revenue $2,500 credit; Interest Payable $650 credit; Accumulated Depreciation $18,400 credit
When working with adjusting entries, you need to carefully track how each entry affects account balances by understanding normal balance rules and the cumulative effect of multiple transactions.
Let's trace through each account systematically. Service Revenue starts with a $0 balance. Entry C credits Service Revenue for $1,600 (recognizing previously unearned revenue), and Entry D credits Service Revenue for $900 (recording earned but unbilled revenue). Total Service Revenue: $0 + $1,600 + $900 = $2,500 credit.
Interest Payable begins with a $200 credit balance. Entry A credits Interest Payable for $450 (recording accrued interest expense). Total Interest Payable: $200 + $450 = $650 credit.
Accumulated Depreciation starts with a $15,600 credit balance. Entry B credits Accumulated Depreciation for $2,800 (recording current period depreciation). Total Accumulated Depreciation: $15,600 + $2,800 = $18,400 credit.
Answer A incorrectly calculates Interest Payable as $250 credit, likely subtracting the $450 adjustment instead of adding it. Answer B shows Service Revenue as a debit balance, which violates the normal credit balance for revenue accounts. Answer D miscalculates Service Revenue as only $900 (missing Entry C's effect) and Accumulated Depreciation as $12,800 (incorrectly subtracting instead of adding the depreciation).
Study tip: When solving adjusting entry problems, always work methodically through each affected account, adding debits to debit balances and credits to credit balances. Double-check that your final balances follow normal balance rules (revenues = credit, expenses = debit, etc.).
- After posting these entries, if Salaries Payable had a beginning credit balance of $3,500, what is the effect on the Salaries Payable account balance?
Answer: Ending balance of $3,500 credit
When you encounter journal entries affecting liability accounts like Salaries Payable, you need to track how each debit and credit impacts the account balance throughout the period.
Let's trace the Salaries Payable account through each entry. Starting with a $3,500 credit balance, Entry 1 credits Salaries Payable for $2,100, increasing the liability to $5,600 ($3,500 + $2,100). This represents additional salaries owed to employees. Entry 2 then debits Salaries Payable for $2,100, reducing the liability back to $3,500 ($5,600 - $2,100). This represents paying off the salaries that were just accrued. Entry 3 doesn't affect Salaries Payable at all—it only involves Insurance Expense and Prepaid Insurance.
The correct answer is B because the account returns to its original $3,500 credit balance. The company essentially accrued additional salary liability and then immediately paid it off.
A ($5,600 credit) incorrectly includes only Entry 1's effect while ignoring Entry 2's payment. C ($1,400 credit) appears to subtract the $2,100 from the beginning balance rather than properly accounting for both the increase and decrease. D ($7,700 credit) incorrectly adds both journal entry amounts to the beginning balance, treating debits and credits the same way.
Study tip: For liability account questions, always remember that credits increase liabilities and debits decrease them. Track each transaction sequentially, and don't let multiple entries involving the same account confuse you—work through them step by step.
- A bookkeeper posts a compound journal entry with debits to Rent Expense ($3,000), Utilities Expense ($800), and Office Supplies ($1,200), and a credit to Cash ($5,000). After posting, the Cash account shows a credit balance of $12,500. What was the Cash account balance before this entry was posted?
Answer: $7,500 credit
The correct answer is B. The $5,000 credit to Cash increased the credit balance from the previous balance to $12,500. Therefore, the previous balance was $12,500 - $5,000 = $7,500 credit. Choice A incorrectly adds the credit entry to the ending balance. Choice C has the correct calculation but shows a debit balance, which would be impossible given that crediting Cash results in a credit balance. Choice D incorrectly shows a debit balance with the wrong amount.
- The Cash ledger account for a company had a debit balance of $15,200 at the beginning of the month. During the month, total cash credits posted to the ledger amounted to $34,500. If the ending balance of the Cash account was $8,100, what were the total cash debits posted to the account during the month?
Answer: $27,400
The relationship in the Cash T-account is: Beginning Balance + Debits - Credits = Ending Balance. Plugging in the known values: $15,200 + Debits - $34,500 = $8,100. First, combine the known values: Debits - $19,300 = $8,100. Then, solve for Debits: Debits = $8,100 + $19,300 = $27,400.
- A company has a beginning balance in its Allowance for Doubtful Accounts of $5,000 (credit). During the period, the company wrote off a specific customer's account receivable of $2,000 as uncollectible. At the end of the period, the company estimated bad debt expense to be $8,000 and made the appropriate adjusting entry. After all entries are posted, what is the ending balance in the Allowance for Doubtful Accounts?
Answer: $11,000
The Allowance for Doubtful Accounts is a contra-asset account with a normal credit balance. Start with the $5,000 beginning credit balance. The write-off of a specific account is recorded with a debit to the Allowance account and a credit to Accounts Receivable. So, the balance becomes $5,000 (credit) - $2,000 (debit) = $3,000 (credit). The adjusting entry for bad debt expense is a debit to Bad Debt Expense and a credit to the Allowance account for $8,000. The final balance is $3,000 (credit) + $8,000 (credit) = $11,000 (credit).
- A company paid $1,800 for a three-month insurance policy on February 1. The bookkeeper debited Insurance Expense and credited Cash for $1,800. On February 28, the controller discovered the error and prepared a correcting entry. After the correcting entry is posted, what is the balance in the Prepaid Insurance account?
Answer: $1,200
The initial incorrect entry was Dr. Insurance Expense $1,800, Cr. Cash $1,800. The correct entry on Feb 1 should have been Dr. Prepaid Insurance $1,800, Cr. Cash $1,800. The correcting entry must reclassify the amount. It would be Dr. Prepaid Insurance $1,800, Cr. Insurance Expense $1,800. However, by the end of February, one month of insurance ($1,800 / 3 = $600) has expired. The correcting entry should establish the correct balance. The most efficient correcting entry would be Dr. Prepaid Insurance $1,200, Cr. Insurance Expense $1,200, to leave $600 in the expense account and establish the correct asset balance. The question asks for the balance after correction. The Prepaid Insurance account should reflect the unexpired portion, which is two months' worth: 2 * $600 = $1,200.
- A firm's Unearned Revenue account had a beginning credit balance of $12,000. During the period, the firm collected an additional $15,000 from customers for work to be performed later. By the end of the period, the ledger showed that a total of $19,000 of revenue had been earned from both past and current prepayments. If the accountant posted all entries correctly, what is the ending balance in the Unearned Revenue account?
Answer: $8,000
The Unearned Revenue account has a normal credit balance. Start with the beginning balance of $12,000. The collection of an additional $15,000 is posted as a credit, increasing the balance to $12,000 + $15,000 = $27,000. When revenue is earned, an adjusting entry is made to debit Unearned Revenue and credit Service Revenue. Since $19,000 was earned, the Unearned Revenue account is debited for $19,000. The ending balance is $27,000 (credit) - $19,000 (debit) = $8,000 (credit).
- A company's Equipment account had a beginning balance of $150,000. The Accumulated Depreciation-Equipment account had a beginning credit balance of $45,000. On July 1, the company purchased new equipment for $30,000 cash. On December 31, the company recorded depreciation expense of $18,000 for the year. After all journal entries are posted, what is the book value of the equipment?
Answer: $117,000
First, calculate the ending balance of the Equipment account: $150,000 (beginning) + $30,000 (purchase) = $180,000. Second, calculate the ending balance of the Accumulated Depreciation account: $45,000 (beginning) + $18,000 (depreciation) = $63,000. The book value is the equipment's cost minus its accumulated depreciation: $180,000 - $63,000 = $117,000.
- A company's trial balance shows total debits of $125,000 and total credits of $123,500. A review of the ledger reveals that a credit sale of $750 was correctly journalized but was posted as a debit to Accounts Receivable for $750 and a debit to Sales Revenue for $750. How will the trial balance totals appear after correcting this single posting error?
Answer: Debits and credits will both equal $124,250.
The error was posting a $750 credit to Sales Revenue as a $750 debit. This overstates the trial balance's debit total by $750 and understates the credit total by $750. The difference between debits and credits is $750 + $750 = $1,500, which matches the given imbalance ($125,000 - $123,500). To correct this, we need to decrease total debits by $750 and increase total credits by $750. Corrected Debits = $125,000 - $750 = $124,250. Corrected Credits = $123,500 + $750 = $124,250. Both totals will balance at $124,250.
- The sales journal for a company shows total credit sales of $95,000 for the month. The Accounts Receivable control account in the general ledger had a beginning debit balance of $18,000. Cash collections from customers on account during the month totaled $72,000. All journal entries were posted correctly. What is the ending balance of the Accounts Receivable control account?
Answer: $41,000
The ending balance is calculated as: Beginning Balance + Credit Sales - Cash Collections. The post from the sales journal is a debit to Accounts Receivable for the total of $95,000. The post from the cash receipts journal for collections is a credit to Accounts Receivable for $72,000. Calculation: $18,000 (beg. debit) + $95,000 (debit) - $72,000 (credit) = $41,000.
- A company purchased inventory for $5,000 with terms 2/10, n/30. The company uses a perpetual inventory system and records purchase discounts using the gross method. The company paid the supplier in full on the 8th day. The payment transaction was correctly journalized and posted. What was the net effect of posting the payment journal entry on the ledger accounts?
Answer: A debit to Accounts Payable for $5,000 and credits to Cash for $4,900 and Inventory for $100.
Under the gross method, Accounts Payable is initially credited for the full $5,000. Paying within the 10-day discount period entitles the company to a 2% discount ($5,000 * 0.02 = $100). The cash paid is $5,000 - $100 = $4,900. The journal entry to record the payment removes the full liability, so Accounts Payable is debited for $5,000. Cash is credited for the amount paid, $4,900. In a perpetual system, the purchase discount reduces the cost of the inventory, so Inventory is credited for $100.
