Question 1

Park & Company was recently formed with a $5,000 investment in the company by stockholders in exchange for common stock.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:

Accepted Answer

The answer of Park & Company was recently formed with...

Question 2

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?

Accepted Answer

Issuing stock does not increase liabilities, as it represents ownership in the company rather than a debt obligation. This transaction will increase the assets and stockholders' equity accounts on the balance sheet.

Question 3

If a company receives $20,000 cash from its customers on account and uses the cash to pay $20,000 to its suppliers on accounts,the net result is that:

Accepted Answer

The cash received increases assets (cash) by $20,000, but when the cash is used to pay suppliers, assets (cash) decrease by $20,000. Liabilities decrease by $20,000 when the payment is made to suppliers.

Question 4

What will be the effect on the balance sheet of issuing shares of common stock in exchange for cash?

Accepted Answer

Issuing shares of common stock in exchange for cash will increase the company's Common Stock account on the balance sheet. It will not impact the Retained Earnings account. Therefore, the correct choice is D - An increase in Common Stock.

Question 5

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?

Accepted Answer

Accounts Payable is the correct account to report the amount that Buddy Burger owes to Texas Wholesale Meat Company. This account represents the amount of money that the company owes to its suppliers or creditors and is therefore the appropriate choice in this scenario. The other options do not apply as they are not relevant to the situation described.

Question 6

What is the effect on the balance sheet if a company purchases $100 of supplies using cash?

Accepted Answer

The purchase of supplies using cash will decrease the cash account by $100 but will increase the supplies account by $100, resulting in no change to the total assets. Liabilities are not affected by this transaction.

Question 7

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?

Accepted Answer

The answer of A company issues $20 million in new...

Question 8

A company purchased land costing $27,000 by paying cash of $6,750 and signing a 90-day note for the balance.The entry to record this transaction would:

Accepted Answer

The purchase of land increases total assets by the value of the land. The cash payment decreases assets, but the note payable increases liabilities, resulting in a net increase in total assets.

Question 9

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

Accepted Answer

Since the transaction decreased an asset and there is no effect on liabilities, the accounting equation can only balance by decreasing stockholders' equity. Therefore, if other assets are unchanged, stockholders' equity must be decreasing.

Question 10

On January 1,Kirk Corporation had total assets of $850,000.During the month,the following activities occurred:
-Kirk Corporation acquired equipment costing $6,000,promising to pay cash for it in 60 days.
-Kirk Corporation purchased $3,500 of supplies for cash.
-Kirk Corporation sold land which it had acquired 2 years ago.The land had cost $15,000 and it was sold for $15,000 cash.
-Kirk Corporation signed an agreement to rent additional storage space next month at a charge of $1,000 per month.
What is the amount of total assets of Kirk Corporation at the end of the month?

Accepted Answer

The answer of On January 1,Kirk Corporation had total assets...

Question 11

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?

Accepted Answer

The accounting equation is Assets = Liabilities + Stockholders' Equity. If total liabilities decreased by $25,000, that means a decrease of $25,000 in the denominator of the equation. If stockholders' equity increased by $5,000, that means an increase of $5,000 in the numerator. To keep the equation in balance, the only option is for total assets to decrease by $20,000, which is the same as the decrease in liabilities. Therefore, the correct answer is B, $20,000 decrease.

Question 12

If supplies are purchased for cash:

Accepted Answer

When supplies are purchased for cash, one asset (cash) decreases while another asset (supplies) increases by the same amount, leaving total assets unchanged.

Question 13

A company issues $20 million in new stock.It later uses the cash received to pay off promissory notes.What accounts are affected by these two transactions?

Accepted Answer

The issuance of $20 million in new stock will increase the Common Stock account and the Cash account. The payment of promissory notes will decrease the Notes Payable account, and since it was paid in cash, it will also decrease the Cash account. Therefore, the affected accounts are Common Stock, Cash, and Notes Payable.

Question 14

A company borrows $2 million from its bank.It then uses this money to buy equipment.How do these two transactions affect the company's accounting equation?

Accepted Answer

The company borrows $2 million, increasing liabilities, and uses the money to buy equipment, increasing assets by the same amount.

Question 15

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

Accepted Answer

In any transaction, there must be at least two accounts involved - one account that is debited and another account that is credited. Therefore, the minimum number of accounts involved is two.

Question 16

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:

Accepted Answer

The first transaction involves the issuance of common stock in exchange for cash, which would involve the Cash and Common Stock accounts. The second transaction involves the purchase of equipment using the cash received from the stock issue and a promissory note for the remainder, which would involve the Equipment and Notes Payable accounts. Therefore, the correct answer is C, which includes Cash, Equipment, Common Stock, and Notes Payable.

Question 17

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

Accepted Answer

Repaying a loan reduces both assets (cash) and liabilities (the debt being repaid), but does not impact stockholders' equity. Therefore, option B is correct as it correctly identifies the decrease in assets and liabilities while keeping the stockholders' equity unchanged.

Question 18

What is the effect on the balance sheet if a company purchases equipment using cash?

Accepted Answer

Purchasing equipment with cash decreases cash (an asset) and increases equipment (an asset) by the same amount, resulting in no net effect on total assets, liabilities, or stockholders' equity.

Question 19

The Noble Corp.installs $15,000 of equipment,paying $5,000 cash and promising to pay the remaining $10,000 in 6 months.What is the impact to this transaction on the accounting equation?

Accepted Answer

The answer of The Noble Corp.installs $15,000 of equipment,paying $5,000...

Question 20

Which of the following applies to Accounts Payable?

Accepted Answer

Accounts Payable are amounts owed by a business to its suppliers for goods or services received. This is an obligation that needs to be repaid in a timely manner, typically within 30 to 60 days. A and B are not accurate as Accounts Payable are not meant to be outstanding for more than the agreed upon payment terms, and generally do not charge interest unless there is a late payment. D is partially accurate as Accounts Payable are documented, but not necessarily always with formal documents. So the best choice is C.

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