Question 1

BNC Company earns revenues and as a result collects cash.Which of the following financial statement elements increased?

Accepted Answer

When BNC Company earns revenues and collects cash, two financial statement elements increase: Cash and Stockholders' Equity. Cash increases because of the cash received from customers, while Stockholders' Equity increases because revenues increase net income, which in turn increases retained earnings, a component of Stockholders' Equity. Liabilities do not increase in this situation.

Question 2

Johnson,Inc.purchased land for cash.What effect does this transaction have?

Accepted Answer

Purchasing land for cash decreases the cash account because money is spent, and increases the land account because the company now owns more land.

Question 3

Which of the following transactions changes the mix of assets only?

Accepted Answer

Paying for supplies with cash does not change the total amount of assets, only the mix of assets (more cash and less supplies).

Question 4

Exhibit 2-1
Total Assets Total Liabilities
Beginning of the year $300,000 $130,000
End of the year $800,000 $550,000
-Refer to Exhibit 2-1.Determine the net income (or loss),assuming $50,000 of stock was issued and no dividends were paid?

Accepted Answer

The answer of Exhibit 2-1
Total Assets Total Liabilities
Beginning of the...

Question 5

A to Z Corporation paid a $10,000 cash dividend.On the Statement of Cash Flows,the transaction would be classified as:

Accepted Answer

Cash payments to shareholders for dividend payments are classified as cash outflows from financing activities.

Question 6

If assets have a balance of $80,000 and stockholders' equity has a balance of $60,000,then liabilities must have a balance of:

Accepted Answer

The balance of liabilities can be found using the accounting equation: Assets = Liabilities + Stockholders' Equity. Given that Assets = $80,000 and Stockholders' Equity = $60,000, we solve for Liabilities: $80,000 = Liabilities + $60,000, which means Liabilities = $20,000.

Question 7

Exhibit 2-1
Total Assets Total Liabilities
Beginning of the year $300,000 $130,000
End of the year $800,000 $550,000
-Refer to Exhibit 2-1.Determine the net income (or loss),assuming $50,000 of stock was issued and $40,000 of dividends were paid?

Accepted Answer

Net income = (Total assets - Total liabilities) end - (Total assets - Total liabilities) beginning + Stock issued - Dividends paid= ($800,000 - $550,000) - ($300,000 - $130,000) + $50,000 - $40,000= $250,000 - $170,000 + $50,000 - $40,000= $70,000

Question 8

Johnson,Inc.receives $5,000 cash for fees earned.What is the effect of this transaction?

Accepted Answer

The transaction increases fees earned, which is a revenue account, thereby increasing the net income of the company.

Question 9

ABC Company deposited $20,000 in a bank account in return for issuing shares in the corporation.This transaction would affect which two financial statement elements?

Accepted Answer

The deposit of $20,000 in a bank account would increase the assets (cash) of the company and the issuance of shares would increase the stockholders' equity (common stock) of the company.

Question 10

Lewis Company has $25,000 in retained earnings,$40,000 in assets,and $11,000 in liabilities.How much is in common stock?

Accepted Answer

Total Equity = Total Assets - Total Liabilities
Retained Earnings + Common Stock = Total Equity
Given:
Retained Earnings = $25,000
Total Assets = $40,000
Total Liabilities = $11,000
$40,000 - $11,000 = $29,000 (Total Equity)
$25,000 (Retained Earnings) + Common Stock = $29,000 (Total Equity)
Common Stock = $29,000 - $25,000
Common Stock = $4,000

Question 11

DAF Company paid a utility bill of $300 and paid rent of $700 in December.By how much would these events reduce stockholders' equity?

Accepted Answer

The answer of DAF Company paid a utility bill of...

Question 12

A to Z Corporation purchased a building for $80,000 cash.On the Statement of Cash Flows,the transaction would be classified as:

Accepted Answer

The purchase of a building is classified as a cash flow from investing activities because it involves the acquisition of long-term assets that are not intended for resale.

Question 13

Johnson,Inc.issued $15,000 in capital stock in exchange for cash.What is the effect of this transaction?

Accepted Answer

Issuing capital stock in exchange for cash is a financing activity, and therefore increases the cash flow from financing activities on the statement of cash flows. It does not affect total assets, net income, or retained earnings.

Question 14

Philip Corporation purchased equipment on account.What is the effect of this transaction?

Accepted Answer

When Philip Corporation purchases equipment on account, it means they are acquiring an asset (equipment) but also incurring a liability (accounts payable) to the supplier. This will result in an increase in both total assets (due to the equipment acquisition) and total liabilities (due to the accounts payable). Therefore, D is the correct answer.

Question 15

Declaring and paying cash dividends affects which balance sheet accounts?

Accepted Answer

Declaring and paying cash dividends reduces the amount of cash held by the company, which is reflected in the cash account on the balance sheet. It also reduces retained earnings, which is a component of stockholders' equity, as companies pay out a portion of their profits to shareholders. Therefore, both the cash and stockholders' equity accounts are affected by the declaration and payment of cash dividends. However, capital stock is not affected by the payment of dividends.

Question 16

Stockholders' equity will be reduced by:

Accepted Answer

Payment of dividends reduces the retained earnings portion of stockholders' equity, and therefore reduces the overall amount of stockholders' equity.

Question 17

Exhibit 2-1
Total Assets Total Liabilities
Beginning of the year $300,000 $130,000
End of the year $800,000 $550,000
-Refer to Exhibit 2-1.Determine the net income (or loss),assuming no stock was issued and dividends of $40,000 were paid?

Accepted Answer

The answer of Exhibit 2-1
Total Assets Total Liabilities
Beginning of the...

Question 18

Exhibit 2-1
Total Assets Total Liabilities
Beginning of the year $300,000 $130,000
End of the year $800,000 $550,000
-Refer to Exhibit 2-1.Determine the net income (or loss),assuming no stock was issued and no dividends were paid?

Accepted Answer

Net income (or loss) can be calculated by subtracting the beginning total liabilities from the ending total liabilities (550,000 - 130,000) and then subtracting this result from the ending total assets (800,000 - 420,000). Therefore, the net income (or loss) would be $80,000.

Question 19

Johnson,Inc.paid rent expense of $3,500 for the month of October.How are the accounts affected due to this transaction?

Accepted Answer

Paying rent results in a decrease in cash (an asset) and a decrease in retained earnings (equity) because expenses reduce net income, which in turn reduces retained earnings.

Question 20

If liabilities have a balance of $10,000 and stockholders' equity has a balance of $60,000,then assets must have a balance of:

Accepted Answer

The balance sheet equation is Assets = Liabilities + Stockholders' Equity. Therefore, Assets = Liabilities + Equity = $10,000 + $60,000 = $70,000.

Quiz 2: Basic Accounting Concepts