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

Question 1

The acquisition of equipment in an exchange for a company's stock would increase the current ratio of the company.
the accounts in this transaction is classified as current.

Answer 1

False

Question 2

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 o n TV, you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

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

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

Question 7

All of a company's business activities have a direct economic effect on the company.

Question 8

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

Question 9

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 10

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

Question 11

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

Question 12

A transaction can cause only one account on the balance sheet to change.

Question 13

An internal accounting report called a Trial Balance checks whether recorded debits equal recorded credits.

Question 14

A business is obliged to repay debt and equity financing.

Question 15

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

Question 16

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

Question 17

Retained earnings is the cumulative earnings of a company which have not been distributed to owners.

Question 18

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

Question 19

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.

Question 20

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 21

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

A) Cash.
B) Supplies.
C) Buildings and equipment.
D) Total assets.

Question 22

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

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

Question 23

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 24

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 will use up or convert into cash in less than five years.

Question 25

How many of the following statements regarding debits and credits are true?
A decrease in assets will result in a credit to an asset account.
Across all accounts, the total value of all debits must equal the total value of all credits.
The total value of all debits to a particular account must equal the total value of all credits to that account.

A) None
B) One
C) Two
D) Three

Question 26

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 27

Account names in the chart of accounts are:

A) general purpose and do not indicate the nature of the account.
B) not consistent in their use throughout the records.
C) linked to account numbers.
D) the names mandated for use by the FASB.

Question 28

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) Bonds Payable.

Question 29

How many of the following statements regarding posting and classification are true?
Posting journal entries involves copying the dollar amounts from the journal into the ledger.
If a $100 debit is erroneously posted to an account as a $100 credit, the accounts will be out of balance by
$100.
If a $5,000 liability is misclassified as stockholders' equity then the accounting equation will still balance.

A) None
B) One
C) Two

Question 30

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) Supplies.
D) Accounts Receivable.

Question 31

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 32

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 33

In 1999, the Denim Company bought land that cost $15,000. In 2010, 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
2010, 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 34

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) Total Assets; Total Liabilities; Other Assets.

Question 35

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 36

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 37

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 negative of liabilities.

Question 38

Any item on a balance sheet labeled payable is a liability of that company.
Current Assets are listed on the balance sheet in order of how fast they are used up or can be turned into cash.
The basic accounting equation must always balance.

A) None
B) One
C) Two
D) Three

Question 39

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.

A) None
B) One
C) Two
D) Three

Question 40

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

A) None
B) One
C) Two
D) Three

Question 41

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

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

Question 42

A company issues $20 million in new stock. The company later uses this money to acquire a building. How many accounts will be affected by these transactions and which particular account names are most likely to be used to record the effects of these transactions?

A) 3 accounts affected: Contributed Capital, Cash, and Building.
B) 4 accounts affected: Contributed Capital, Cash, Liabilities, and Building.
C) 3 accounts affected: Cash, Property, Plant and Equipment, and Contributed Capital.
D) 3 accounts affected: Contributed Capital, Investments, and Cash.

Question 43

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 44

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

A) $100,000 credit to Cash and a $100,000 debit to Notes Payable.
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 45

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 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 and Stockholders' Equity both fall $2 million.
C) Assets, Liabilities, and Stockholders' Equity are unchanged.
D) Stockholders' Equity rises $2 million and Liabilities fall $2 million.

Question 47

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. Debit is the left side of an account and credit is the right side of an account.

Question 48

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 49

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, liabilities, and accounts payable.
C) 3 accounts involved: cash, assets, and accounts payable.
D) 3 accounts involved: contributed capital, investments, and accounts payable.

Question 50

Purrfect Pets, Inc., uses $10,000 in cash to pay $10,000 on Accounts Payable. 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 credit to Cash and a $10,000 debit to Accounts Payable.
D) $10,000 debit to Cash and a $10,000 credit to Accounts Payable.

Question 51

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

Question 52

The common characteristic possessed by all assets is

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

Question 53

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 54

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? Three debits posted to Accounts Payable this month:$4,700, $11,300, and $14,800. Three credits posted to Accounts Payable this month:$3,600, $9,500, and $12,700.

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

Question 55

The best interpretation of the word "credit" is the

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

Question 56

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

A) .Assets:  Property and equipment,  Cash; Liabilities: no change; Stockholders' Equity: no change.
B) Assets:  Property and equipment; Liabilities:  Notes payable; Stockholders' Equity; no change.
C) Assets:  Property and equipment; Liabilities: no change; Stockholders' Equity:  Retained earnings.
D) Assets:  Property and equipment; Liabilities: no change; Stockholders' Equity:  Contributed capital.

Question 57

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 58

Your company orders and broadcasts a 30 second ad during the Super Bowl for $1.2 million. It is lega lly 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 59

Current liabilities are expected to be

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

Question 60

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

A) One.
B) Two.
C) Three.
D) No minimum.

Question 61

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?

A) The cost principle.
B) The asset principle.
C) The separate entity concept.
D) The monetary concept.

Question 62

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

A) Putting a deposit down on a new vehicle.
B) Hiring a new employee.
C) Obtaining a bank loan.
D) Receiving a deposit from a customer.

Question 63

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

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

Question 64

Your company's president donates a large amount of her own money to charity and receives significant publicity that includes the company's name. How would the benefits of this publicity appear on the balance sheet?

A) It would appear as a current asset.
B) It would appear as a liability.
C) It would appear as a long-term asset.
D) It would not appear on the balance sheet.

Question 65

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) $180,800.
B) $368,500.
C) $145,700.
D) $298,800.

Question 66

A credit would make which of the following accounts decrease?

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

Question 67

Which of the following statements is true?

A) Assets must always equal liabilities plus stockholders' equity.
B) The total value of credits in all accounts must always equal the total value of debits in all accounts.
C) The net changes in assets must always equal the sum of the net changes in liabilities and stockholders' equity.
D) All of the above.

Question 68

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 69

Which of the following is 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 70

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 71

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 72

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 73

The MegaBuck movie studio's name has become famous for adventure movies. Another studio once offered to buy the name for $20 million, but MegaBuck turned down the offer. The MegaBuck balance sheet will show:

A) The company's name under Other Assets, valued at $20 million.
B) The company's name under Other Assets, valued conservatively at $10 million.
C) The company's name under Accounts Receivable, valued at $20 million.
D) The company's name will not be shown as an asset on the balance sheet. Only measurable exchanges are recorded.

Question 74

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) $2,300.
B) $71,200.
C) $66,700.
D) $(2,300).

Question 75

Which of the following would a company be most likely to overstate if the company was trying to mislead potential external investors or creditors?

A) Accounts Receivable.
B) Notes Payable.
C) Salaries Expense.
D) Accounts Payable.

Question 76

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

A) There were more customers paying off balances than there were customers adding to their balances.
B) There were more customers adding to their balances than paying off their 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 77

Conservatism means:

A) not underestimating asset values.
B) not overestimating liabilities.
C) using the least optimistic measurement when faced with uncertainty about the reported amounts of assets and liabilities.
D) always recording an asset at the amount it originally cost.

Question 78

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 79

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 80

The final balance of the Cash account would be:

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