Deck 2: The Balance Sheet

Question 1

Retained earnings is the cumulative earnings of a company which have not been distributed to owners,and is the same as the amount of cash in the bank.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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.

Answer 3

False

Question 4

Transactions are analyzed from the point of view of the company,not the company's owners.

Question 5

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 6

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

Question 7

The list of names and reference numbers that the company will use when accounting for transactions is called the Chart of Accounts.

Question 8

The ledger consists of all of the accounts used by a business.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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 14

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

Question 15

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

Question 16

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

Question 17

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 18

A company signed an agreement to rent store space from another company.This is an example of a recordable transaction.

Question 19

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

Question 20

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 21

How many of the following statements regarding posting and classification are true?

A)Posting journal entries involves copying the dollar amounts from the ledger into the journal.
B)If a $100 debit is erroneously posted to an account as a $100 credit,the accounts will be out of balance by $100.
C)If a $5,000 liability is misclassified as stockholders' equity then the accounting equation will still balance.
D)If a purchase of supplies on account for $100 is recorded with a debit to supplies of $10 and a credit to accounts payable for $10,the accounting equation will not balance.

Question 22

Which of the following describes the classification and normal balance of the retained earnings account?

A)Asset,debit
B)Stockholders' equity,credit
C)Liability,credit
D)Stockholders' equity,debit

Question 23

Which line items on the balance sheet would be classified as long term?

A)Cash;Supplies;Accounts Payable.
B)Property,Plant and Equipment;Notes Payable;Other Assets.
C)Supplies;Property,Plant and Equipment;Notes Payable.
D)Accounts Receivable;Property,Plant and Equipment;Other Assets

Question 24

Which of the following statements regarding debits and credits is always true?

A)Debits decrease accounts while credits increase them.
B)The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger.
C)The total value of all debits to a particular account must equal the total value of all credits to that account.
D)A debit balance of $500 in the cash account means that cash receipts exceeded cash payments by $500.

Question 25

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 26

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

A)$117,900
B)$662,100
C)$780,000
D)$1,398,100

Question 27

A current asset is one that:

A)the company has owned for over one year.
B)the company has owned for over five years.
C)the company will use up or convert into cash in less than one year.
D)the company has updated to reflect its current value.

Question 28

Which of the following is not an example of an asset?

A)Notes receivable
B)Supplies
C)Prepaid expenses
D)Retained Earnings

Question 29

Which one of the following would be listed as a long-term asset?

A)Cash
B)Supplies
C)Buildings and equipment
D)Prepaid insurance

Question 30

The local branch of the Universal Bank System (UBS)receives money from depositors and lends it to borrowers.Which of the following would be true about UBS's financial statements?

A)UBS reports deposits as assets and loans as liabilities.
B)UBS reports both deposits and loans as assets.
C)UBS reports deposits as liabilities and loans as assets.
D)UBS reports both deposits and loans as liabilities.

Question 31

A long-term liability is one that the company:

A)has owed for over one year.
B)has owed for over five years.
C)will not pay off for over one year.
D)will not pay off for over five years.

Question 32

Which of the following statements regarding the balance sheet is true?

A)Any item on a balance sheet labeled payable is a liability of that company.
B)Current Assets are listed on the balance sheet in alphabetical order.
C)Assets + Liabilities = Equity
D)It lists all the accounts and their debit and credit balances.

Question 33

Which of the following would be listed as a current liability?

A)Cash in the bank
B)Notes payable due in two years
C)Supplies
D)Accounts payable

Question 34

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)Contributed Capital
B)Accounts Payable
C)Notes Payable
D)Retained Earnings

Question 35

At the start of the first year of operations,retained earnings on the balance sheet would be:

A)equal to zero.
B)equal to contributed capital.
C)equal to stockholders' equity.
D)equal to the net income.

Question 36

How will a company's current ratio be affected by the purchase of equipment for cash?

A)The current ratio will increase because current assets increase.
B)The current ratio will decrease because current liabilities increase.
C)The current ratio will decrease because current assets decrease.
D)The current ratio will remain unchanged.

Question 37

Which of the following statements regarding the concepts underlying the balance sheet are true?

A)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.
B)All events affecting the current value of a company are reported on the balance sheet.
C)According to the cost principle,assets are valued at their replacement cost.
D)Under Generally Accepted Accounting Principles,assets are generally written down if the market value declines,but are not written up if the market value increases.

Question 38

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank and used all of the money to redesign its new store.Sweet Smell's balance sheet would show this as:

A)$60,000 under Furnishings and Equipment and $60,000 under Notes Payable.
B)$60,000 under Supplies and $60,000 under Notes Payable.
C)$60,000 under Furnishings and Equipment and $60,000 under Accounts Payable.
D)$60,000 under Other Assets and $60,000 under Other Liabilities.

Question 39

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 40

Which of the following statements regarding the balance sheet is true?

A)A "classified" balance sheet is one that contains privileged information.
B)All liabilities require that the company sacrifice resources at some time in the future.
C)All companies use an identical list of account names defined by the Financial Accounting Standards Board (FASB).
D)A balance sheet is prepared for a period of time.

Question 41

Which of the following sequences indicates the correct order of steps in the accounting cycle?

A)T-accounts,journal entries,trial balance,financial statements.
B)T-accounts,journal entries,financial statements,trial balance.
C)Journal entries,T-accounts,trial balance,financial statements.
D)Journal entries,T-accounts,financial statements,trial balance.

Question 42

Your company orders and broadcasts a 30 second ad during the Super Bowl for $1.2 million.It is legally obligated to pay for the ad but has not yet done so.

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

Question 43

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 44

In part,a transaction affects the accounting equation as follows: Which of the following must be true for 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 45

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 46

A company borrows $2 million from its bank.It then uses this money to buy equipment.How does this transaction affect the accounting equation?

A)Assets and Liabilities both rise $2 million.
B)Assets increase by $2 million and Liabilities decrease by $2 million.
C)Assets decrease by $2 million and Liabilities increase by $2 million.
D)Assets remain unchanged and Liabilities increase by $2 million.

Question 47

If Accounts Payable had a balance of $18,200 at the beginning of the month,and the six amounts shown below were posted to this account,what should be the ending balance?

A)$13,200
B)$5,000
C)$23,200
D)$49,000

Question 48

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;Long-term Investments;and Accounts Payable.
B)Cash;Long-term Investments;Contributed Capital;and Notes Payable.
C)Cash;Equipment;Contributed Capital;and Notes Payable.
D)Equipment;Notes Payable;and Retained Earnings.

Question 49

The common characteristic possessed by all assets is

A)long life.
B)great financial value.
C)physical substance.
D)future economic benefit.

Question 50

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

A)Building increases,and Contributed Capital increases.
B)Building increases,and Contributed Capital decreases.
C)Cash increases,Building increases,and Contributed Capital increases.
D)Cash decreases,Building increases,and Contributed Capital decreases.

Question 51

Your company pays back $2 million on a loan it had received 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,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,stockholders' equity decreases by $2 million.

Question 52

A company purchases $23,000 of supplies in the current month and promises to pay for them next month.How would the company record a liability for the supplies?

A)This liability is not a recognized liability until the payment is due.
B)$23,000 would be journalized as a credit to Accounts Payable.
C)$23,000 would be journalized as a debit to Accounts Payable.
D)$23,000 would be journalized as a debit to Prepaid Expenses.

Question 53

A hurricane destroyed a company's building that originally cost $1 million.Which of the following could not be true?

A)Assets remain the same,and liabilities and stockholders' equity both decrease by $1 million.
B)Assets decrease by $1 million,liabilities decrease by $1 million,and stockholders' equity is unchanged.
C)Assets,liabilities,and stockholders' equity all remain the same.
D)Assets decrease by $500,000,and liabilities decrease by $500,000.

Question 54

Current liabilities are expected to be

A)converted to cash within one year.
B)settled within one year.
C)used in the business within one year.
D)acquired within one year.

Question 55

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 56

A company issues $20 million in new stock.It later uses the cash received to pay off promissory notes.How many different accounts and which account names are affected by these two transactions?

A)3 accounts involved: contributed capital,cash,and notes payable.
B)4 accounts involved: contributed capital,cash,investments,and notes payable.
C)3 accounts involved: cash,contributed capital,and accounts payable.
D)3 accounts involved: contributed capital,investments,and accounts payable.

Question 57

In 1999,the Denim Company bought land that cost $15,000.In 2013,a similar piece of land was bought for $28,000 and the company's existing land was estimated to be worth $18,000.On the balance sheet at the end of 2013,the land that was purchased in 1999 would be reported at:

A)$15,000.
B)$28,000.
C)$18,000.
D)the average of the three prices.

Question 58

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 59

If a company receives $20,000 cash on accounts receivable and uses the cash to pay $20,000 on accounts payable then:

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 while liabilities would decrease by $20,000.
D)liabilities would decrease by $20,000 while stockholders' equity would decrease by $20,000.

Question 60

Park & Company was recently formed with a $5,000 investment in the company by stockholders.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 61

In the T-account above:

A)(a)and (b)are credits.
B)(c)through (g)are debits.
C)if the sum of (a)and (b)is less than the sum of (c)through (g),the total cash will increase.
D)(a)and (b)are increases.

Question 62

Accounts Payable

A)has a normal credit balance.
B)is increased by a debit.
C)is an asset.
D)is increased when a company receives cash from customers.

Question 63

The standard formatting for a journal entry lists the dollar amounts for:

A)credits underneath and to the right of the dollar amounts for debits.
B)debits and credits aligned equally to the right.
C)debits underneath and to the right of the dollar amounts for credits.
D)debits and credits aligned equally to the left.

Question 64

According to the principle of conservatism,when faced with uncertainty about the value of an item,a company should use the measure that avoids:

A)overstating assets and liabilities.
B)overstating assets and understating liabilities.
C)understating assets and overstating liabilities.
D)understating assets and liabilities.

Question 65

Which of the following is normally true?

A)Assets have debit balances and liabilities have credit balances.
B)Assets and liabilities have credit balances.
C)Assets have credit balances and liabilities have debit balances.
D)Assets and liabilities have debit balances.

Question 66

Your company buys a $2 million warehouse paying $300,000 in cash and issuing $1.7 million in promissory notes.This will be posted as:

A)$2 million credited and $300,000 debited to assets;$1.7 million debited to liabilities.
B)$2 million debited to assets and $2 million credited to liabilities.
C)$2 million debited and $300,000 credited to assets;$1.7 million credited to liabilities.
D)$2 million credited to assets and $2 million debited to liabilities.

Question 67

Cash had a beginning balance of $68,900.During the month,Cash was credited for $16,000 and debited for $18,300.At the end of the month,the balance is:

A)$71,200 credit.
B)$71,200 debit.
C)$66,600 debit.
D)$66,600 credit.

Question 68

The standard formatting for a journal entry:

A)lists credits first and then debits,both aligned to the left.
B)lists credits first and then debits,indented underneath.
C)lists debits first and then credits,both aligned to the right.
D)lists debits first and then credits,indented underneath.

Question 69

Accounts receivable

A)has a normal credit balance.
B)is increased by a debit.
C)is a liability.
D)is increased when a company receives cash from its customers.

Question 70

Which of the following is an accurate description of the economic events involving Accounts Receivable as documented in the T-account above?

A)Customers added more to their account balances than they paid off.
B)Customers paid off more than they added to their account balances.
C)The company paid off its debt more than it incurred new debt.
D)The company incurred more debt than it paid off.

Question 71

Purrfect Pets,Inc. ,makes a $10,000 payment on account.This would result in a:

A)$10,000 credit to Cash and a $10,000 credit to Accounts Payable.
B)$10,000 debit to Cash and a $10,000 debit to Accounts Payable.
C)$10,000 debit to Accounts Payable and a $10,000 credit to Cash.
D)$10,000 debit to Cash and a $10,000 credit to Accounts Payable.

Question 72

A credit would make which of the following accounts decrease?

A)Contributed Capital
B)Inventories
C)Notes Payable
D)Retained Earnings

Question 73

The amount of Total Current Assets that would be reported on the company's balance sheet at the end of the year would be:

A)$362,600.
B)$368,500.
C)$139,500.
D)$327,000.

Question 74

The normal balance of any account is the

A)left side.
B)right side.
C)side which increases that account.
D)side which decreases that account.

Question 75

Which of the following scenarios could explain the journal entry below?

A)The company buys $10,000 of equipment for $4,000 in cash and $6,000 on credit.
B)The company receives $4,000 in cash and $6,000 in notes payable for selling 10,000 of equipment.
C)The company buys $10,000 of equipment,for $4,000 cash and a promise to cancel $6,000 of debt owed to it.
D)The company sells $10,000 of equipment,for $4,000 in cash and pays off $6,000 it owes on the equipment.

Question 76

In a T-account,debits appear in what manner?

A)They are on the left under assets but on the right under liabilities and stockholders' equity.
B)They are always listed on the right.
C)They are always listed on the left.
D)They are on the right under assets but on the left under liabilities and stockholders' equity.

Question 77

Which of the following statements is true?

A)Liabilities - Assets = Stockholders' Equity.
B)The total value of credits in all accounts must always equal the total value of debits in all accounts.
C)It's normal to have more decreases in an account than increases.
D)A decrease in contributed capital would be recorded with a credit.

Question 78

The best interpretation of the word "credit" is the

A)left side of an account.
B)increase side of an account.
C)right side of an account.
D)decrease side of an account.

Question 79

A company uses $100,000 in cash to pay off $100,000 in notes payable.This would result in a:

A)$100,000 debit to Notes Payable and a $100,000 credit to Cash.
B)$100,000 credit to Cash and a $100,000 credit to Notes Payable.
C)$100,000 debit to Cash and a $100,000 credit to Notes Payable.
D)$100,000 debit to Cash and a $100,000 debit to Notes Payable.

Question 80

The final balance of the Cash account would be:

A)$219,300.
B)$113,300.
C)$28,500.
D)$134,500.