Deck 2: 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
Explanation:Journal entries are entered into the journal using a debit/credit format.By themselves,journal entries show the effect of transactions,but they do not provide account balances.The entries are "posted" to the ledger accounts,which then show the balance of each of the accounts.

Question 2

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

Answer 2

True
Explanation:Accounts on the left side of the accounting equation (that is,assets)increase on the left side and accounts on the right side of the equation (that is,liabilities and stockholders' equity)increase on the right side.

Question 3

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

Answer 3

True
Explanation:Whether a debit or credit increases or decreases an account depends upon the type of account.Debits increase assets,expenses,and dividends,but decrease liabilities,revenues,and equity.Credits increase liabilities,revenue,and equity,but decrease assets,expenses and dividends.

Question 4

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

Question 5

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

Question 6

Puffin,Inc.issues $1,000,000 in new stock for cash.Puffin's stockholders' equity does not change because as new shares are sold,the value of its existing shares falls.

Question 7

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

Question 8

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

Question 9

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 10

Eagle Company used $50,000,000 of its cash to pay off debt,as a result,Eagle's stockholders' equity will decrease $50,000,000.

Question 11

A trial balance shows a subtotal for current assets and current liabilities.

Question 12

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 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

The record-analyze-summarize process is applied only to daily transactions,month-end adjustments need not be analyzed and summarized.

Question 19

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 20

Goodrich,Inc.signed an agreement to rent a warehouse from Ellie Co.This is an example of a transaction that should not be recorded.

Question 21

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

Question 22

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 23

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 24

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 25

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 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 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 15^th of the month.
D)The business orders supplies and promises to pay for them at the end of the month.

Question 28

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 29

Your company places an order for inventory with suppliers 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 30

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 31

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 32

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 33

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

A)Issuing stock to owners in exchange for cash
B)Ordering supplies to be delivered next month
C)Selling inventory to customers in exchange for cash to be received next month
D)Paying the bank for a portion of a note payable

Question 34

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

Question 35

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 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

Equity financing is financing obtained from:

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

Question 38

Which of the following is an asset?

A)Common Stock
B)Retained Earnings
C)Notes Receivable
D)Notes Payable

Question 39

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 40

The cost principle is used:

A)to refer to the two sources of financing available to businesses.
B)to measure the amount used to record assets on the date of the transaction.
C)by small businesses,but not by large businesses.
D)to measure internal events,but not external exchanges.

Question 41

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 42

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 43

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 44

A(n)________ is a collection of records that summarizes the effects of multiple transactions whereas a(n)________ is a record of each day's transactions.

A)ledger;journal
B)journal;ledger
C)trial balance;journal
D)trial balance;ledger

Question 45

Amounts invested and reinvested by a company's owners is called:

A)stockholders' equity in a corporation.
B)assets,or the resources presently owned by a business that generate future economic benefits.
C)a trial balance,proving that all amounts are accounted for.
D)liabilities,or the amounts presently owed by a business.

Question 46

Transactions are entered into a(n)________ each day they occur.

A)journal
B)ledger
C)trial balance
D)classified balance sheet

Question 47

A ________ is a list of account titles with corresponding reference numbers used by companies so that transaction items are consistently named.

A)chart of accounts
B)trial balance
C)classified balance sheet
D)ledger

Question 48

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 49

Doug's Doodle Shop,specializing in dog supplies,signs a contract with a pet groomer.Next month,the groomer will begin leasing a portion of Doug's store and provide grooming services.The signing of the contract:

A)has no effect on the accounting equation.
B)increases assets.
C)increases liabilities.
D)decreases stockholders' equity.

Question 50

Candy Cane opened an ice cream store on June 1 and hired an accounting intern to help her establish the business.The intern has identified the following transactions.Which of these transactions is not an accounting transaction?

A)Purchased $3,400 of milk and cream from a local dairy
B)Signed a contract to deliver $1,200 of ice cream for a July 4th party
C)Paid June rent of $2,300
D)Borrowed money from the bank by signing a promissory note for $5,000

Question 51

Which of the following transactions for Bill's Fish 'n Chips restaurant would be treated as an accounting transaction?

A)Bill distributed coupons to local hotels for 10% off and requested that the coupons be distributed to hotel guests.
B)Bill spoke to a local high school about the rewards and challenges of being an entrepreneur.
C)Bill signed an agreement with a local fisherman to purchase 20 pounds of halibut each month.
D)Bill purchased a fryer and a dishwasher,which will be paid for next month.

Question 52

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

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

Question 53

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 54

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 55

Which of the following is not true regarding the double-entry system?

A)Transactions must be recorded twice to ensure accuracy.
B)Debits must equal credits.
C)Assets must equal liabilities plus stockholders' equity.
D)Both what is received and what is given in exchange must be recorded.

Question 56

Candy Cane's ice cream shop,which opened in June,is a local hit.In July,Candy Cane hired a new employee at a rate of $1,200 per month to start work at the beginning of August.In July,Candy Cane should record:

A)nothing,because an exchange of promises is not a transaction.
B)a $1,200 increase to Prepaid Wages and a $1,200 decrease to Cash.
C)a $1,200 increase to Wage Expense and a $1,200 decrease to Cash.
D)a $1,200 increase in Wages Payable and a $1,200 increase in Wages Expense.

Question 57

Spin Co.has $52,000 in its Cash account,$20,000 in its Inventory account,and $12,000 in its Notes Payable (short-term)account.If Spin's only other account is Common Stock,what is the balance of that account?

A)$20,000.
B)$84,000.
C)$60,000.
D)$44,000.

Question 58

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

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

Question 59

________ 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 60

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

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

Question 61

Amounts owed to suppliers for goods purchased on credit are called:

A)Common Stock.
B)Retained Earnings.
C)Accounts Payable.
D)Inventory.

Question 62

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 63

On January 1,Kirk Corporation had total assets of $425,000.During the month,the following activities occurred: Kirk Corporation acquired equipment costing $3,000,promising to pay cash for it in 60 days.
Kirk Corporation purchased $1,750 of supplies for cash.
Kirk Corporation sold land,which it had acquired 2 years ago.The land had cost $7,500 and it was sold for $7,500 cash.
Kirk Corporation signed an agreement to rent additional storage space next month at a charge of $500 per month.
What is the amount of total assets of Kirk Corporation at the end of the month?

A)$429,750
B)$428,000
C)$418,750
D)$420,000

Question 64

The Noble Corp.installs $75,000 of equipment,paying $25,000 cash and promising to pay the remaining $50,000 in 6 months.What is the impact to this transaction on the accounting equation?

A)Total assets are increased by $50,000.
B)Current assets are increased by $50,000.
C)Total assets are increased by $75,000.
D)Current assets are increased by $75,000.

Question 65

Sue Shells,Inc.issues $400,000 in new stock.It later uses the cash received to purchase land.What accounts are affected by these two transactions?

A)Common Stock,Cash,and Land.
B)Common Stock,Cash,and Investments.
C)Cash,Common Stock,and Investments,and Land.
D)Common Stock,and Land.

Question 66

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 67

During the current year,Sue Shells,Inc.'s total liabilities decreased by $50,000 and stockholders' equity increased by $10,000.By what amount and in what direction did Sue's total assets change during the same time period?

A)$40,000 increase
B)$40,000 decrease
C)$60,000 increase
D)$60,000 decrease

Question 68

If land is 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 69

Sue Shells,Inc.pays back $200,000 on a loan it had obtained earlier from a bank.

A)Assets decrease by $200,000;liabilities and stockholders' equity are both unchanged.
B)Assets decrease by $200,000,liabilities decrease by $200,000,and stockholders' equity is unchanged.
C)Assets decrease by $200,000 and liabilities increase by $200,000.
D)Assets decrease by $200,000,liabilities are unchanged,and stockholders' equity decreases by $200,000.

Question 70

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 71

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 72

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 73

Puffin,Inc.purchased land costing $54,000 by paying cash of $13,500 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 74

Kirby,Inc.borrows $16 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 $16 million.
B)Assets increase by $8 million and liabilities decrease by $8 million.
C)Assets increase by $16 million,liabilities increase by $8 million,and stockholders' equity increases by $8 million.
D)Assets remain unchanged and liabilities increase by $16 million.

Question 75

Charlie Co.owes $800,000 to Tilly,Inc.from whom Charlie buys its inventory.Which account would Charlie use to report the amount owed?

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

Question 76

Park & Company was recently formed with a $25,000 investment in the company by stockholders in exchange for common stock.The company then borrowed $10,000 from a local bank,purchased $5,000 of supplies on account,and also purchased $25,000 of equipment by paying $10,000 in cash and signing a promissory note for the balance.Based on these transactions,the company's total assets are:

A)$35,000.
B)$45,000.
C)$50,000.
D)$55,000.

Question 77

Bolt Enterprises receives $100,000 cash from its customers on account.Bolt uses the cash to pay off $100,000 on a bank loan,the net result is that:

A)assets would increase by $100,000 while liabilities would decrease by $100,000.
B)liabilities would decrease by $100,000 while stockholders' equity would increase by $100,000.
C)assets would decrease by $100,000 and liabilities would decrease by $100,000.
D)liabilities would decrease by $100,000 and stockholders' equity would decrease by $100,000.

Question 78

Danny Company purchased supplies using cash.What is the effect on Danny's balance sheet?

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

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 80

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

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