Deck 2: The Balance Sheet

Question 1

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

Answer 1

True

Question 2

A summary of account names and account numbers is kept by a company in the table of contents of its annual report.

Answer 2

False

Question 3

The total value of all debits to a particular account must equal the total value of all credits to that account.

Answer 3

False

Question 4

Within a journal entry,credits are written first and debits are written beneath them indented to the right.

Question 5

A "classified" balance sheet is one that contains privileged information.

Question 6

Facebook issues new stock worth $40 million for cash.This would not affect the shareholders' equity on the balance sheet because as new shares are sold the value of existing shares will decline by the same amount.

Question 7

A credit to an asset account will cause a decrease in assets on the financial statements.

Question 8

A vitamin manufacturer combines ingredients when making its vitamin pills.This is an observable internal event.

Question 9

If a company uses $100 million in cash to pay off debt,its shareholders' equity will increase by $100 million.

Question 10

All liabilities require that the company to pay or settle the amount owed at some time in the future.

Question 11

General Motors (GM)signs a new labour agreement agreeing to give its workers a 5% wage increase next year.This transaction will affect GM's financial statements in the current year.

Question 12

The current ratio is used to assess a company's ability to pay its current liabilities.

Question 13

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

Question 14

Assets are typically listed on the balance sheet in order of how soon they are used or quickly they can be turned into cash.

Question 15

Any item on a balance sheet labelled payable is a liability of that company.

Question 16

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

Question 17

The basic accounting equation must always balance for each transaction.

Question 18

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

Question 19

A chart of accounts is a list of account titles used to record financial transactions.

Question 20

Across all accounts,the total value of all debits must equal the total value of all credits.

Question 21

Posting journal entries involves copying the dollar amounts from the journal into the ledger.

Question 22

According to the cost principle,assets are valued at their replacement cost.

Question 23

Under IFRS,a public company has a choice as to how the company's statement of financial position is prepared.

Question 24

Signing a rental agreement results in an activity that has a direct and measurable financial effect on the company.

Question 25

A public company following IFRS is entitled to set aside the cost principle.

Question 26

A creditor's claim on a company's assets will always take precedence over the owners of the company.

Question 27

Under the rules governing ASPE and IFRS,companies must list assets in order of liquidity.

Question 28

If a $100 debit is erroneously posted to an account as a $100 credit,the accounts will be out of balance by $100.

Question 29

To maintain consistency,the accounting profession requires companies to use the same chart of accounts,whether operating under IFRS or ASPE.

Question 30

You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company's jeans.As a result of that your company's sales increase by $500,000.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 31

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.

Question 32

Double-entry accounting always captures what the company receives,while at the same time capturing what it gives.

Question 33

It is possible for a firm to have a negative balance in the retained earnings account.

Question 34

Debits equaling credits in a Trial Balance provides a check to ensure transactions have been recorded correctly.

Question 35

The current ratio will remain unaffected for a company that has simply declared a cash dividend (as opposed to paying it out).

Question 36

All events affecting the current value of a company are reported on the statement of financial position.

Question 37

The accounting equation will still balance if a $5,000 liability is misclassified as shareholders' equity.

Question 38

The duality of effects in transaction analysis implies that every transaction has two effects on the basic accounting equation.

Question 39

Under the rules governing ASPE and IFRS,companies must list liabilities in order of maturity.

Question 40

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

Question 41

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

A)Notes receivable.
B)Supplies.
C)Prepaid Insurance.
D)Deferred revenues.

Question 42

In part,a transaction affects the accounting equation as follows: Which of the following must be true for this transaction to keep the accounting equation in balance?

A)If other assets remain the same,shareholders' equity must increase.
B)If other assets remain the same,shareholders' equity must remain the same.
C)If shareholders' equity remains the same,another asset must decrease.
D)If shareholders' equity remains the same,all other assets must remain the same.

Question 43

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

A)This is an internal unobservable event so it does not affect the balance sheet.
B)This is an external unobservable event so it does not affect the balance sheet.
C)This is an internal observable event that affects the balance sheet.
D)This is an external observable event that affects the balance sheet.

Question 44

In 2012,the Denim Company bought land that cost $15,000.In 2018,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 2018,the land that was purchased in 2012 would be reported at:

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

Question 45

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

A)equal to zero.
B)equal to contributed capital.
C)equal to shareholders' equity.
D)equal to the negative of liabilities.

Question 46

What is the minimum number of ways that a transaction could effect the basic accounting equation?

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

Question 47

Transactions include which two types of events?

A)Direct events and indirect events.
B)Monetary events and production events.
C)External exchanges and internal events.
D)Current events and future events.

Question 48

An exchange containing a promise is never considered an accounting transaction.

Question 49

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

A)Deferred Revenue
B)Accounts Payable
C)Supplies
D)Accounts Receivable

Question 50

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

A)Cash in the bank.
B)Notes payable due in two years.
C)Bank loan due in 10 years.
D)Accounts payable.

Question 51

A current asset is one that:

A)the company has owned for over one year.
B)the company will use up or convert into cash in five years or more.
C)the company will use up or convert into cash in one year or less.
D)the company will use up or convert into cash in more than one year.

Question 52

If a company is paid $20,000 on accounts receivable and uses the money 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 shareholders' equity would increase by $20,000.
C)Both assets and liabilities would decrease by $20,000.
D)Both assets and shareholders' equity would decrease by $20,000.

Question 53

A company disposes of $1 million of its assets.Which of the following could not be true about its effects on the basic accounting equation?

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

Question 54

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

A)$60,000 under Property,Plant & Equipment and $60,000 under Notes Payable.
B)$60,000 under Supplies and $60,000 under Accounts Payable.
C)$60,000 under Prepaid Expenses and $60,000 under Accrued Liabilities.
D)$60,000 under Other Assets and $60,000 under Other Liabilities.

Question 55

The local branch of the Universal Bank System (UBS)receives money from some of its customers as deposits and lends it to other customers as loans.Which of the following would be true about UBS's financial statements?

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

Question 56

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 at least over one year.
D)will not pay off for at least over five years.

Question 57

Which of the following would be listed as a noncurrent asset?

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

Question 58

Which of the following is not true.Account names in the chart of accounts have to be:

A)sufficiently descriptive to enable users to quickly understand items.
B)consistent throughout the financial statements and records.
C)linked to account numbers.
D)general purpose and do not have to indicate the nature of the account.

Question 59

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 60

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

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

Question 61

Park & Company was recently formed with a $5,000 investment in the company by shareholders.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. 5,000 cash from stockholders + 2,000 borrowed from bank + 1,000 purchase of supplies on account + 3,000 = 5000 - 2000 (Equipment purchased minus cash paid)= 11,000.

Question 62

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 63

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 64

If total liabilities decreased by $25,000 and shareholders' 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 65

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 66

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 posted as a credit to Accounts Payable.
C)$23,000 would be posted as a debit to Accounts Payable.
D)$23,000 would be posted as a debit to Note Payable.

Question 67

A company receives $10 million cash from investors in exchange for new common stock.Several weeks later,the company buys a $25 million machinery 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)Shareholders' Equity; Cash; Long-term Investments; and Notes Payable.
C)Contributed Capital; Cash; Equipment; and Notes Payable.
D)Retained Earnings; Equipment; and Notes Payable.

Question 68

The best interpretation of the word credit is that it's 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 69

Pet Planet Ltd.,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 70

Your company pays back $2 million on a loan it had received earlier from a bank.How does this transaction affect the accounting equation?

A)Assets are unchanged,liabilities and shareholders' equity both increase by $2 million.
B)Assets decrease by $2 million,liabilities decrease by $2 million,shareholders' 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 71

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 72

In a T-account debits appear in what manner?

A)They are on the left under assets but on the right under liabilities and shareholders' 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 shareholders' equity.

Question 73

A company issues $50 million in new stock.The company later uses this money to buy construction machinery.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 Equipment.
B)4 accounts affected: Contributed Capital,Cash,Supplies and Accounts Payable.
C)3 accounts affected: Cash,Accounts Receivable,and Equipment.
D)3 accounts affected: Contributed Capital,Investments,and Notes Payable.

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). 68,900 - 16,000 + 18,300 = 71,200.

Question 75

Which of the following is the common characteristic possessed by all assets?

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

Question 76

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

A)3 accounts are affected: contributed capital,cash,and notes payable.
B)4 accounts are affected: contributed capital,cash,liabilities,and accounts payable.
C)3 accounts are affected: cash,assets,and accounts payable.
D)3 accounts are affected: contributed capital,investments,and accounts payable.

Question 77

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: $\uarr$ Property and equipment, $\downarrow$ Cash; Liabilities: no change; Shareholders' Equity: no change.
B)Assets: $\uarr$ Property and equipment; Liabilities: $\uarr$ Notes payable; Shareholders' Equity; no change.
C)Assets: $\uarr$ Property and equipment; Liabilities: no change; Shareholders' Equity: $\downarrow$ Retained earnings.
D)Assets: $\uarr$ Property and equipment; Liabilities: no change; Shareholders' Equity: $\downarrow$ Contributed capital.

Question 78

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 79

A credit would decrease the balance in which of the following account?

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

Question 80

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