Exam 2: Reporting Investing and Financing Results on the Balance Sheet

How many of the following statements regarding the concepts underlying the balance sheet are true? A company buys land for $5 million dollars in 1983. The land is now worth $15 million. The company should increase the book value of this asset on its balance sheet to reflect its current value. All events affecting the current value of a company are reported on the balance sheet. According to the cost principle, assets are valued at their replacement cost.

Assets are listed on a classified balance sheet in which of the following ways?

What is the amount of total assets?

The requirement that transactions be recorded at their exchange price at the transaction date is called the

Choose the TRUE statement.

Company X issues $40 million in new stock for cash. This does not affect stockholders' equity because as new shares are sold the value of existing shares falls.

What is the amount of stockholders' equity at January 1, 2011?

If a company is trying to maximize its perceived value to external decision makers, the company is most likely to

Journal entries show the effects of transactions on the elements of the accounting equation, as well as the amount of the account balances.

How much financing did the stockholders of Purrfect Pets, Inc., directly contribute to the company?

A company buys equipment for $500,000 and signs a promissory note for the full amount. How does this transaction affect the accounting equation?

Which concept should be applied when reporting a piece of land that was bought for $50,000 five years ago, and which would probably now sell for $80,000?

General Motors (GM) signs a new labor agreement that its workers will receive a 5% wage increase next year. This is considered a transaction that affects GM's financial statements in the current year.

If total liabilities decreased by $25,000 and stockholders' equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during the same time period?

If a company uses $100 million in cash to pay off debt, its stockholders' equity will rise $100 million.

A transaction is an exchange or event that directly affects the assets, liabilities, or stockholders' equity of a company.

When accounts receivable are collected

If total assets increase, then either liabilities or stockholders' equity also must increase.

Which of the following statements is FALSE?

The journal is a chronological record of transactions using a debit/credit framework.