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

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

A debit may increase or decrease an account,depending on the type of account.

Answer 3

True

Question 4

You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company's jeans.Later,your company's sales increase by $500,000 as a result.When the actress appeared on TV,you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company.

Question 5

The general ledger is an internal report that lists all the accounts and their balances and is used to check that total debits equals total credits.

Question 6

The analyze-record-summarize process is applied to daily transactions,to month-end adjustments,and as part of the year-end closing process.

Question 7

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

Question 8

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.

Question 9

A business is obliged to repay both debt and equity financing.

Question 10

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

Question 11

A company signed an agreement to rent store space from another company.This is an example of a transaction that should be recorded.

Question 12

A classified balance sheet shows a subtotal for current assets and current liabilities.

Question 13

The normal balance of an account is on the same side that increases the account.

Question 14

Accounts increase on the same side as they appear in the accounting equation: A = L + SE.

Question 15

The trial balance is a financial statement that reports the assets,liabilities,and equity of a business at a point in time.

Question 16

If the total dollar value of credits to an account exceeds the total dollar value of debits to that account,the ending balance of the account will be a debit balance.

Question 17

Every transaction increases at least one account and decreases at least one account.

Question 18

The list of account names and reference numbers that the company will use when accounting for transactions is called the chart of accounts.

Question 19

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

Question 20

When a company prepares a classified balance sheet,stockholders' equity accounts must be shown in subcategories of current and noncurrent.

Question 21

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank to be paid back in five years and used all of the money to purchase land for a new store.Sweet Smell's balance sheet would show this as:

A) $60,000 under Land and $60,000 under Notes Payable (long-term).
B) $60,000 under Depreciation Expense and $60,000 under Notes Payable (long-term).
C) $60,000 under Land and $60,000 under Notes Receivable (long-term).
D) $60,000 under Other Assets and $60,000 under Other Liabilities.

Question 22

A difference between debt financing and equity financing is that:

A) debt financing must be repaid, while repayment of equity financing is not required.
B) equity financing must be repaid, while repayment of debt financing is not required.
C) only debt financing can be used to purchase assets.
D) only equity financing can be used to purchase assets.

Question 23

The current ratio can be used to evaluate a company's ability to pay liabilities in the short term,and in general,a lower ratio means better ability to pay.

Question 24

Your company places an order with suppliers for inventory for delivery in two weeks.

A) This is an internal event and it does not affect the balance sheet.
B) This is an activity that does not affect the balance sheet.
C) This is an internal event that affects the balance sheet.
D) This is an external exchange and it affects the balance sheet.

Question 25

Which of the following is a financing activity?

A) The business receives land and gives a check for $1,000.
B) The business receives $1,000 cash and in exchange gives a promissory note.
C) The business promises to hire an employee on the 15ᵗʰ of the month.
D) The business orders supplies and promises to pay for them at the end of the month.

Question 26

Debt financing is financing obtained from:

A) stockholders.
B) creditors.
C) selling goods or services on credit.
D) both creditors and stockholders.

Question 27

Which of the following is not an asset?

A) Cash
B) Notes Receivable
C) Common Stock
D) Land

Question 28

Which of the following would not be recorded as an accounting transaction?

A) Putting a deposit down on a new vehicle
B) Hiring a new employee
C) Receiving cash upon signing a note
D) Receiving a deposit from a customer

Question 29

Equity financing is financing obtained from:

A) creditors.
B) stockholders.
C) selling goods or services on credit.
D) both creditors and stockholders.

Question 30

Transactions include which two types of events?

A) Direct events, indirect events
B) Monetary events, production events
C) External exchanges, internal events
D) Past events, future events

Question 31

The characteristic shared by all liabilities is that they:

A) provide a future economic benefit.
B) result in an inflow of resources to the company.
C) always end in the word "payable."
D) obligate the company to do something in the future.

Question 32

If a company borrows money from a bank and signs an agreement to repay the loan several years from now,in which account would the company report the amount borrowed?

A) Common Stock
B) Accounts Payable
C) Notes Payable (long-term)
D) Retained Earnings

Question 33

Owners of a company:

A) hold promissory notes as evidence of their ownership claim.
B) are entitled to repayment of their investment.
C) have a claim that is secondary to creditor's claims.
D) have a claim equal to the amount of liabilities a company owes.

Question 34

Who has first claim to a business's assets should the company go out of business?

A) Creditors
B) Stockholders
C) Customers
D) Management

Question 35

Which of the following is an accounting transaction?

A) A manager hires an employee
B) A manager orders supplies
C) A manager signs a promissory note and receives cash
D) A manager agrees to deliver their product in three weeks

Question 36

Typical steps needed before a business can start selling goods and/or services to customers include:

A) financing and investing activities.
B) only financing activities.
C) only investing activities.
D) only operating activities.

Question 37

The Flynn Company started business by obtaining financing through debt financing and equity financing.Which of the following statements is not correct?

A) Equity financing refers to the money obtained through owners' contributions and reinvestments of profit.
B) Debt financing refers to the money obtained through loans.
C) The business is obligated to repay debt financing.
D) The business is obligated to repay equity financing.

Question 38

The acquisition of equipment in an exchange for a company's stock would increase the current ratio of the company.

Question 39

The principle that is used to measure the amount assets are to be recorded at when exchanged is called the ______ principle.

A) cash
B) cost
C) assets
D) separate entity

Question 40

The creditors' claims to a company's resources are represented by:

A) common stock.
B) total stockholder's equity.
C) total liabilities.
D) retained earnings.

Question 41

Which account is affected by recording the buying of goods on credit?

A) Cash
B) Retained Earnings
C) Common Stock
D) Accounts Payable

Question 42

Stockholders' equity in a corporation consists of:

A) Amounts invested and reinvested by a company's owners.
B) Resources presently owned by a business that generate future economic benefits.
C) Amounts invested in assets that will be used for one or more years.
D) Amounts presently owed by a business.

Question 43

Which of the following is not an accounting transaction?

A) Issued shares of stock to investors in exchange for cash contributions of $4,000.
B) Ordered inventory from suppliers for $3,000.
C) Sold equipment to another company for $3,000 and accepted a note from the company promising payment in 6 months.
D) Borrowed money from the bank by signing a promissory note for $2,000.

Question 44

A journal does all of the following except:

A) summarizes all of the transactions that affect one account.
B) records all purchases and sales of assets of a company.
C) records each day's transactions.
D) records all the revenues and expenses of a company.

Question 45

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

A) conservatism exception.
B) separate entity assumption.
C) cost principle.
D) monetary unit assumption.

Question 46

A chart of accounts is a:

A) list of account titles with corresponding reference numbers used by companies so that transaction items are consistently named.
B) list of daily transactions showing the accounts debited and credited for each transaction.
C) summary of each account's activity and its ending balance.
D) list of each account and its balance at a point in time.

Question 47

Every transaction involves a(n):

A) receiving and giving something of value.
B) increase in assets.
C) increase in stockholder's equity.
D) exchange of promises.

Question 48

When a business issues stock,what does it give to its owners?

A) Note Payable
B) Common Stock
C) Retained Earnings
D) Cash

Question 49

Typical cash flows from investing activities include:

A) payments to purchase property and equipment.
B) repayment of loans.
C) proceeds from issuing notes payable.
D) receipts from cash sales.

Question 50

In April,Pizza Aroma hired a new employee at a rate of $1,000 per month to start work at the beginning of May.In April,Pizza Aroma should record:

A) nothing, because an exchange of promises is not a transaction.
B) a $1,000 increase to Prepaid wages and a $1,000 decrease to Cash.
C) a $1,000 increase to Wage expense and a $1,000 decrease to Cash.
D) a $1,000 increase in Wages Payable and a $1,000 increase in Wages Expense.

Question 51

Sofa So Good,Inc.signs a contract with a programmer for the development of software that will be developed,delivered and paid for in the next year.The signing of the contract:

A) has no effect on the account equation.
B) increases assets.
C) increases liabilities.
D) decreases stockholder's equity.

Question 52

What does a business typically receive when it issues stock to owners?

A) Promissory note
B) Stock certificate
C) Equipment
D) Cash

Question 53

_________________ are of special importance because they are the only activities that enter the financial accounting system.

A) External exchanges
B) Internal events
C) Documents
D) Transactions

Question 54

Identify the account title that may be used to record borrowing cash in exchange for a promissory note.

A) Note Payable
B) Stock Certificate
C) Retained Earnings
D) Common Stock

Question 55

A company has $26,000 in its Land account,$10,000 in its Inventory account,and $6,000 in its Notes Payable (short-term)account.If its only other account is Common Stock,what is the balance of that account?

A) $10,000.
B) $42,000.
C) $30,000.
D) $22,000.

Question 56

Which of the following would be treated as an accounting transaction for a gardening supply store?

A) The company signed an agreement to rent store space at $200 month.
B) The vice president of the company spoke at a luncheon that contributed to enhancing the company's reputation as a responsible company.
C) The company ordered supplies for $500.
D) The company loaned $500 to an employee.

Question 57

An accounting system is referred to as a double-entry system because:

A) both what is received and what is given in exchange are recorded.
B) transactions are recorded in both the journal and ledger.
C) all entries are checked twice to ensure accuracy.
D) transactions are recorded twice by separate individuals to ensure accuracy.

Question 58

Account titles in the chart of accounts are:

A) general purpose and do not indicate the nature of the account.
B) consistent with those used by other companies.
C) linked to account numbers.
D) the names mandated for use by the FASB.

Question 59

Every transaction:

A) increases one account and decreases another account.
B) has at least two effects on the basic accounting equation.
C) affects only balance sheet accounts or only income statement accounts.
D) is analyzed from the standpoint of the business owners.

Question 60

Which events are recorded in the accounting system?

A) External exchanges only
B) Internal events only
C) Both external exchanges and internal events
D) Transactions are not recorded in the accounting system

Question 61

Park & Company was recently formed with a $5,000 investment in the company by stockholders in exchange for common stock.The company then borrowed $2,000 from a local bank,purchased $1,000 of supplies on account,and also purchased $5,000 of equipment by paying $2,000 in cash and signing a promissory note for the balance.Based on these transactions,the company's total assets are:

A) $7,000.
B) $9,000.
C) $10,000.
D) $11,000.

Question 62

A business can obtain financing by issuing stock or borrowing from third parties,such as banks.What are the balance sheet effects of issuing stock to obtain cash?

A) No effect on assets; Decrease liabilities; Increase stockholders' equity
B) Increase assets; Increase liabilities; Increase stockholders' equity
C) Increase assets; No effect on liabilities; Increase stockholders' equity
D) Increase assets; Increase liabilities; No effect on stockholders' equity

Question 63

If a company receives $20,000 cash from its customers on account and uses the cash to pay $20,000 to its suppliers on accounts,the net result is that:

A) assets would increase by $20,000 while liabilities would decrease by $20,000.
B) liabilities would decrease by $20,000 while stockholders' equity would increase by $20,000.
C) assets would decrease by $20,000 and liabilities would decrease by $20,000.
D) liabilities would decrease by $20,000 and stockholders' equity would decrease by $20,000.

Question 64

What will be the effect on the balance sheet of issuing shares of common stock in exchange for cash?

A) An increase in Retained Earnings
B) A decrease in Common Stock
C) A decrease in Retained Earnings
D) An increase in Common Stock

Question 65

The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat.Which account would Buddy Burger use to report the amount owed?

A) Cash
B) Accounts Payable
C) Notes Payable
D) Accounts Receivable

Question 66

What is the effect on the balance sheet if a company purchases $100 of supplies using cash?

A) Total assets will remain the same.
B) Total assets will decrease.
C) Liabilities will decrease.
D) Total assets will increase.

Question 67

A company issues $20 million in new stock.The company later uses this money to acquire a building.What is the effect of these two transactions on the company's accounts?

A) Buildings increases and Common Stock increases.
B) Buildings increases and Common Stock decreases.
C) Cash increases, Buildings increases, and Common Stock increases.
D) Cash decreases, Buildings increases, and Common Stock decreases.

Question 68

A company purchased land costing $27,000 by paying cash of $6,750 and signing a 90-day note for the balance.The entry to record this transaction would:

A) increase total assets.
B) decrease total liabilities.
C) decrease Common Stock.
D) increase total assets and decrease total liabilities.

Question 69

In part,a transaction affects the accounting equation by decreasing an asset.There is no effect on liabilities.Which of the following statements is correct with regards to this transaction?

A) If other assets are unchanged, stockholders' equity must be increasing.
B) If other assets are unchanged, stockholders' equity must be decreasing.
C) If stockholders' equity is unchanged, another asset must be decreasing.
D) If stockholders' equity is unchanged, other assets must be unchanged.

Question 70

On January 1,Kirk Corporation had total assets of $850,000.During the month,the following activities occurred:
-Kirk Corporation acquired equipment costing $6,000,promising to pay cash for it in 60 days.
-Kirk Corporation purchased $3,500 of supplies for cash.
-Kirk Corporation sold land which it had acquired 2 years ago.The land had cost $15,000 and it was sold for $15,000 cash.
-Kirk Corporation signed an agreement to rent additional storage space next month at a charge of $1,000 per month.
What is the amount of total assets of Kirk Corporation at the end of the month?

A) $859,500.
B) $856,000.
C) $837,500.
D) $840,000.

Question 71

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?

A) $20,000 increase
B) $20,000 decrease
C) $30,000 increase
D) $30,000 decrease

Question 72

If supplies are purchased for cash:

A) total assets will increase.
B) total assets will decrease.
C) total assets will remain the same.
D) stockholders' equity will increase.

Question 73

A company issues $20 million in new stock.It later uses the cash received to pay off promissory notes.What accounts are affected by these two transactions?

A) Common Stock, Cash, and Notes Payable.
B) Common Stock, Cash, Investments, and Notes Payable.
C) Cash, Common Stock, and Accounts Payable.
D) Common Stock, Investments, and Notes Payable.

Question 74

A company borrows $2 million from its bank.It then uses this money to buy equipment.How do these two transactions affect the company's accounting equation?

A) Assets and liabilities both increase by $2 million.
B) Assets increase by $2 million and liabilities decrease by $2 million.
C) Assets increase by $4 million, liabilities increase by $2 million, and stockholders' equity increases by $2 million.
D) Assets remain unchanged and liabilities increase by $2 million.

Question 75

What is the minimum number of accounts that must be involved in any transaction?

A) One
B) Two
C) Three
D) There is no minimum.

Question 76

A company receives $100,000 cash from investors in exchange for stock.Several weeks later,the company buys a $250,000 machine using all of the cash from the stock issue and signing a promissory note for the remainder.The accounts involved in these two transactions are:

A) Cash; Equipment; Noncurrent Investments; and Accounts Payable.
B) Cash; Noncurrent Investments; Common Stock; and Notes Payable.
C) Cash; Equipment; Common Stock; and Notes Payable.
D) Equipment; Notes Payable; and Retained Earnings.

Question 77

Your company pays back $2 million on a loan it had obtained earlier from a bank.

A) Assets decrease by $2 million; liabilities and stockholders' equity are both unchanged.
B) Assets decrease by $2 million, liabilities decrease by $2 million, and stockholders' equity is unchanged.
C) Assets decrease by $2 million and liabilities increase by $2 million.
D) Assets decrease by $2 million, liabilities are unchanged, and stockholders' equity decreases by $2 million.

Question 78

What is the effect on the balance sheet if a company purchases equipment using cash?

A) No effect on total assets; Decrease total liabilities; Increase total stockholders' equity
B) Increase total assets; Increase total liabilities; Increase total stockholders' equity
C) Decrease total assets; No effect on total liabilities; Increase total stockholders' equity
D) No effect on total assets; No effect on total liabilities; No effect on total stockholders' equity

Question 79

The Noble Corp.installs $15,000 of equipment,paying $5,000 cash and promising to pay the remaining $10,000 in 6 months.What is the impact to this transaction on the accounting equation?

A) Total assets are increased by $10,000.
B) Current assets are increased by $10,000.
C) Total assets are increased by $15,000.
D) Current assets are increased by $15,000.

Question 80

Which of the following applies to Accounts Payable?

A) They can be outstanding for more than one year.
B) They charge interest.
C) It is an amount a business is obligated to repay.
D) They are documented using formal documents.