Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

ANALYSIS OF MULTIPLE-CHOICE TYPE QUESTIONS

• 1. Question

  (L.O. 1) A general ledger account which summarizes the collection of related accounts appearing in a subsidiary ledger is called a:

  1. contra account.
  2. control account.
  3. summary account.
  4. subsidiary ledger account.

  Explanation: The subsidiary ledger reduces the number of accounts that otherwise would appear in the general ledger. The details about an item (such as accounts receivable or accounts payable or equipment, for example) are removed from the general ledger and are replaced by a single account (control account) which summarizes the detail. The details are then grouped and called a subsidiary ledger. A control account is often called the controlling account. (Solution = b.)

• 2. Question

  (L.O. 2) Each of the following likely appears as a column heading in the cash receipts journal except:

  1. Accounts Receivable Cr.
  2. Sales Dr.
  3. Sales Discounts Dr.
  4. Other Accounts Cr.

  Approach and Explanation: Think about the purpose of the cash receipts journal—to record all transactions involving a receipt of cash. A receipt of cash is recorded by a debit to Cash; therefore, the rest of the entry involves a credit to a noncash account. The credit is (1) to Sales for a cash sale of merchandise, or (2) to Accounts Receivable for a collection on a customer's account, or (3) to some other account (such as Equipment for a sale of equipment or Interest Revenue for interest earned on money loaned to others).

  If a merchandiser offers a cash discount ...