Question 1

If the correct accounts have been identified and the appropriate direction of the effect on each account has been determined,then the equation should remain in balance most of the time.

Accepted Answer

The answer of If the correct accounts have been identified...

Question 2

When a business pays a previously recorded bill,the liabilities of the business decrease.

Accepted Answer

When a business pays a bill, the amount owed in liabilities decreases.

Question 3

Debits always increase and credits always decrease the accounts.

Accepted Answer

This statement is incorrect. The effect of a debit or credit on an account depends on the account's classification. For example, for asset accounts, debits increase the balance and credits decrease it. For liability and equity accounts, credits increase the balance and debits decrease it.

Question 4

The payment of a liability in cash will decrease shareholders'' equity.

Accepted Answer

The payment of a liability in cash will decrease assets (cash) and decrease liabilities, resulting in no change in shareholders' equity.

Question 5

The amount shown on the statement of financial position as shareholders' equity represents the current market value of the owners' residual claim against the company.

Accepted Answer

The amount shown on the statement of financial position as shareholders' equity represents the book value of the owners' residual claim against the company, not the current market value. The market value can vary based on various factors such as market conditions, supply and demand, and investor sentiment.

Question 6

When a business owner invests cash in the business,the investment causes a liability to increase.

Accepted Answer

When a business owner invests cash in the business, it is recorded as an increase in the owner's equity, not a liability.

Question 7

Normally,asset accounts will have credit balances and liability accounts will have debit balances.

Accepted Answer

Normally, asset accounts will have debit balances and liability accounts will have credit balances.

Question 8

Recording the borrowing of cash with a note payable increases shareholders' equity.

Accepted Answer

Recording the borrowing of cash with a note payable does not increase shareholders' equity. Shareholders' equity is affected by the company's net income, dividends, and stock issuances or repurchases.

Question 9

If you trade your computer plus cash for a new car,the cost of the new car is equal to the cash paid plus the market value of the computer.

Accepted Answer

This is because the trade involves exchanging two items of value - a computer and cash - for a new car. The cost of the new car would therefore be the sum of the value of these two items. The value of the computer would be considered as part of the payment for the new car.

Question 10

The purchase of a delivery truck for cash increases assets and shareholders' equity.

Accepted Answer

The purchase of a delivery truck for cash increases one asset (the delivery truck) while decreasing another (cash), leaving shareholders' equity unchanged.

Question 11

Prepayments (e.g.,insurance premiums and rent paid in advance of use of a building)reflect available benefits (e.g.,monthly insurance protection,office space)that the company will use within one year.

Accepted Answer

Prepayments are recorded as assets because they represent benefits that will be used or consumed within one year. Examples of prepayments include insurance premiums and rent that have been paid in advance.

Question 12

Transactions have a dual economic effect on the fundamental accounting model.

Accepted Answer

Transactions have a dual economic effect on the fundamental accounting model, as they impact both the balance sheet and income statement.

Question 13

Some legal contracts,such as the signing of a contract to hire a new employee,are not reflected in the financial statements.

Accepted Answer

Legal contracts related to hiring employees do not have a direct impact on the financial statements.

Question 14

In a journal entry,the debits must equal the credits and at least two accounts are affected by the transaction.

Accepted Answer

This is the fundamental rule of double-entry accounting. Every transaction affects at least two accounts, with one being credited and one being debited. The total debits must always equal the total credits, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced.

Question 15

The adoption of International Financial Reporting Standards by many countries has made it easier to read foreign companies' financial statements.

Accepted Answer

The adoption of International Financial Reporting Standards (IFRS) has standardized financial reporting across many countries, making it easier to compare and analyze the financial statements of foreign companies. This has improved transparency and reduced information barriers for investors and stakeholders in global markets.

Question 16

The basic system of recording transactions has withstood the test of time,and has been in use for more than 500 years.

Accepted Answer

The basic system of recording transactions, known as double-entry bookkeeping, was developed in the 15th century and has been in use ever since.

Question 17

"Debit" is the designation for the left side of an account,and "credit" is the designation for the right side of an account.

Accepted Answer

This is the basic rule of double-entry accounting, where each transaction has equal debits and credits. The left side (debit) represents an increase in assets, expenses or losses, while the right side (credit) represents an increase in liabilities, equity, revenue or gains.

Question 18

A T-account is an accounting method of expressing the effects of a single transaction in a debits-equal-credits format.

Accepted Answer

The answer of A T-account is an accounting method of...

Question 19

The objective of transaction analysis is to determine the economic effects of each transaction in terms of the accounting model.

Accepted Answer

Transaction analysis is the process of examining the financial transactions made by a company to determine their impact on the financial statements. The objective of transaction analysis is indeed to determine the economic effects of each transaction in terms of the accounting model.

Question 20

A T-account shows total debits of $25,000 and total credits of $22,000; therefore,it has a $3,000 credit balance.

Accepted Answer

Total debits must always equal total credits in a T-account, so if there are total debits of $25,000 and total credits of $22,000, there must be an error. The T-account is not balanced and therefore cannot have a credit balance of $3,000.

Quiz 2: Investing and Financing Decisions and the Accounting System