Question 1

The duality (or duality of effects)concept states that
A)both the income statement and balance sheet are impacted by every transaction.
B)every transaction has an impact on assets and stockholders' equity.
C)there are two entities involved in every transaction.
D)every transaction has at least two effects on the accounting equation.

Accepted Answer

Every accounting transaction has at least two effects on the accounting equation, this concept is known as dual effects.

Question 2

Which of the following statements is correct?
A)Assets have a credit balance and are increased with debits.
B)Assets have a debit balance and are increased with credits.
C)Liability accounts have debit balances and are increased with debits.
D)Stockholders' equity accounts normally have credit balances and are increased with credits.

Accepted Answer

An accounts balance, or normal balance, is the same as how that account is increased. Stockholders' equity accounts have a normal credit balance and are increased with credits.

Question 3

Borrowing cash from a bank would result in which of the following?
A)A debit to cash and a credit to notes payable.
B)A debit to notes payable and a credit to cash.
C)A debit to both cash and notes payable.
D)A debit to cash and a credit to contributed capital.

Accepted Answer

Cash is received and increased with a debit; the loan from the bank is recognized with a credit to notes payable.

Question 4

Which of the following describes the impact on the balance sheet when a company uses cash to purchase the stock of another company?
A)Total assets increase.
B)Stockholders' equity increases.
C)Stockholders' equity decreases.
D)Total assets remain the same.

Accepted Answer

Cash decreases by the same amount the investment in the other company increases.

Question 5

Which of the following journal entries is correct when a business entity builds an addition to the factory building by paying cash to a contractor?
A) Retained Earnings
 $ \quad $Cash
B) Building
 $ \quad $ $ \quad $Contributed Capital
C) Cash
 $ \quad $Building
D) Building
 $ \quad $Cash

Accepted Answer

The answer of Which of the following journal entries is...

Question 6

Selling stock to investors for cash would result in which of the following?
A)A debit to contributed capital and a credit to cash.
B)A credit to both cash and contributed capital.
C)A debit to cash and a credit to contributed capital.
D)A debit to cash and a credit to retained earnings.

Accepted Answer

This transaction results in an increase in cash with a debit, contributed capital is a stockholders' equity account and increased with a credit.

Question 7

Which of the following journal entries is correct when a business entity purchases a building by paying cash and signing a note payable?
A) Building
 $ \quad $Cash
 $ \quad $Notes Payable
B) Building
 $ \quad $Cash
C) Cash
Notes Payable
 $ \quad $ $ \quad $Building
D) Building
Cash
 $ \quad $Notes Payable

Accepted Answer

The answer of Which of the following journal entries is...

Question 8

When a company buys equipment for $150,000 and pays for one third in cash and the other two thirds is financed by a note payable,which of the following are the effects on the accounting equation?
A)Total assets decrease $50,000.
B)Total liabilities increase $150,000.
C)Total liabilities decrease $50,000.
D)Total assets increase $100,000.

Accepted Answer

Equipment increases $150,000 and cash decreases $50,000 for a net asset increase of $100,000.

Question 9

Which of the following transactions would result in an increase in the current ratio?
A)Collection of cash from an account receivable.
B)Selling shares of stock to stockholders in exchange for cash.
C)Purchasing a building by signing a long-term note payable.
D)Declaration of a cash dividend by the board of directors.

Accepted Answer

The current ratio is current assets divided by current liabilities. Receiving cash increases current assets and increases the current ratio. Issuing stock does not impact current assets or current liabilities; stockholders' equity is increased.

Question 10

Which of the following journal entries is correct when a business entity uses cash to pay an account payable?
A) Accounts Payable
 $ \quad $ $ \quad $Cash
B) Retained Earnings
 $ \quad $ $ \quad $Cash
C) Cash
 $ \quad $Accounts Payable
D) Cash
 $ \quad $Notes Payable

Accepted Answer

The answer of Which of the following journal entries is...

Question 11

Which of the following transactions would result in a decrease in the current ratio?
A)Collection of cash from an account receivable.
B)Selling shares of stock to stockholders in exchange for cash.
C)Purchasing a delivery vehicle by signing a long-term note payable.
D)Declaration of a cash dividend by the board of directors.

Accepted Answer

The current ratio is current assets divided by current liabilities. A cash dividend reduces current assets, and decreases the current ratio.

Question 12

Which of the following journal entries is correct when a business entity issues stock to stockholders in exchange for cash?
A) Cash
 $ \quad $ Retained Earnings
B) Cash
 $ \quad $Contributed Capital
C) Cash
 $ \quad $Accounts Payable
D) Contributed Capital
 $ \quad $ $ \quad $Cash

Accepted Answer

The answer of Which of the following journal entries is...

Question 13

Which of the following correctly describes the recording of a dividend declaration by a company's board of directors?
A)A debit to retained earnings and a credit to cash.
B)A debit to contributed capital and a credit to dividends payable.
C)A debit to cash and a credit to retained earnings.
D)A debit to retained earnings and a credit to dividends payable.

Accepted Answer

Dividends are a reduction to retained earnings. A debit to retained earnings decreases this account, and declaring dividends is recorded with a credit to dividends payable.

Question 14

A corporation has $80,000 in total assets,$36,000 in total liabilities,and a $12,000 credit balance in retained earnings.What is the balance in the contributed capital account?
A)$56,000
B)$44,000
C)$48,000
D)$32,000

Accepted Answer

Stockholders' equity ($44,000) = Assets ($80,000) - Liabilities ($36,000)Stockholders' equity ($44,000) = Contributed capital ($32,000) + Retained earnings ($12,000)

Question 15

Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable?
A) Cash $ \quad $  $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $30,000
Notes Payable $ \quad $  $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $30,000
B) $\begin{array} { l r } 
\text { Land } & 30,000 \
\text { \quad Cash } &  &30,000
\end{array}$
C) Land $ \quad $ $ \quad $ $ \quad $ $ \quad $ 30,000
 $ \quad $Notes Payable  $ \quad $ $ \quad $ $ \quad $30,000
D) Notes Payable $\quad 30,000$
 $ \quad $Land $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $$30.000$

Accepted Answer

The answer of Which of the following journal entries is...

Question 16

Which of the following statements is incorrect?
A)Stockholders' equity accounts normally have credit balances.
B)Liability accounts are decreased by credits.
C)Stockholders' equity accounts are increased by credits.
D)Asset accounts are increased by debits.

Accepted Answer

Liability accounts are increased by credits.

Question 17

Cadet Company paid an accounts payable of $1,000.This transaction should be recorded as follows on the payment date.
A) Accounts payable $ \quad $ 1,000
Cash  $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ 1,000
B) 
Cash  $ \quad $  $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ 1,000
Accounts payable $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ 1,000

C) 
Notes Payable $ \quad $ $ \quad $ 1,000
Cash  $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ 1,000
D) 
Cash  $ \quad $  $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ 1,000
Cost of Goods Sold $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ $ \quad $ 1,000

Accepted Answer

The answer of Cadet Company paid an accounts payable of...

Question 18

Which of the following is not considered to be a recordable transaction?
A)Signing a contract to have an outside cleaning service clean offices nightly.
B)Paying employees their wages.
C)Selling stock to investors.
D)Buying equipment and agreeing to pay a note payable and interest at the end of a year.

Accepted Answer

Signing a contract involving the exchange of two promises to perform does not result in an accounting transaction that is recorded.

Question 19

Which of the following transactions will cause both the left and right side of the accounting equation to decrease?
A)Collecting cash from a customer who owed us money.
B)Paying a supplier for inventory we previously purchased on account.
C)Borrowing money from a bank.
D)Purchasing equipment using cash.

Accepted Answer

Paying a supplier for inventory purchased on account reduces assets and reduces accounts payable.

Question 20

A company purchases a delivery van by paying $5,000 cash and by signing a $25,000 note payable.Which of the following correctly describes the recording of the delivery van purchase?
A)The delivery van account is debited for $25,000.
B)Notes payable is debited for $25,000.
C)The delivery van account is debited for $30,000.
D)Cash is debited for $5,000.

Accepted Answer

The cost of the asset is recorded at cash paid plus all noncash considerations. The delivery van account is debited for $30,000. ($5,000 + $25,000 = $30,000)

Quiz 2: Investing and Financing Decisions and the Balance Sheet

The duality (or duality of effects) concept states that

Which of the following statements is correct?

Borrowing cash from a bank would result in which of the following?

Which of the following describes the impact on the balance sheet when a company uses cash to purchase the stock of another company?

Which of the following journal entries is correct when a business entity builds an addition to the factory building by paying cash to a contractor?

Selling stock to investors for cash would result in which of the following?

Which of the following journal entries is correct when a business entity purchases a building by paying cash and signing a note payable?

When a company buys equipment for $150,000 and pays for one third in cash and the other two thirds is financed by a note payable,which of the following are the effects on the accounting equation?

Which of the following transactions would result in an increase in the current ratio?

Which of the following journal entries is correct when a business entity uses cash to pay an account payable?

Which of the following transactions would result in a decrease in the current ratio?

Which of the following journal entries is correct when a business entity issues stock to stockholders in exchange for cash?

Which of the following correctly describes the recording of a dividend declaration by a company's board of directors?

A corporation has $80,000 in total assets,$36,000 in total liabilities,and a $12,000 credit balance in retained earnings.What is the balance in the contributed capital account?

Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable?

Which of the following statements is incorrect?

Cadet Company paid an accounts payable of $1,000.This transaction should be recorded as follows on the payment date.

Which of the following is not considered to be a recordable transaction?

Which of the following transactions will cause both the left and right side of the accounting equation to decrease?

A company purchases a delivery van by paying $5,000 cash and by signing a $25,000 note payable.Which of the following correctly describes the recording of the delivery van purchase?