Accounting 2200 E02 - Chapter 2 The Balance Sheet

A company purchased supplies and promised to pay $200 for them next month. The increase in Accounts Payable would be recorded with a _____. creditare debit credit debitor

Credit

Common Stock has a normal _____ balance.

Credit

A company received $5,000 cash when it issued stock certificates to shareholders. The increase in cash would be recorded as _____ to the Cash account. Debitor Debit Creditare Credit Chapter 2

Debit

A company paid $500 for supplies that it purchased last month. The decrease in liabilities would be recorded with a _____ to the Accounts Payable. Debit Credit

Debit Explanation: Credits increase Account Payables, not decrease them.

A company paid $500 cash for a new printer. The entry to record this transaction would include a _____ to Cash. debit creditare debitor credit

Credit Debits increase, not decrease Cash Credit decreases cash, debits increase cash

Acme Enterprises issued $20,000 of stock in exchange for cash. The journal entry to record this transaction will include a _____ pf $20,000. debit to Notes Payable credit to Common Stock debit to Cash credit to Cash credit to Notes Payable

credit to Common Stock + debit to Cash

Which groups have claims to a business's assets? Creditors Stockholders Customers Management

creditors and stockholders

Company X receives $10,000 from issuing common stock to its owners. The effect on the accounting equation is a(n) _____. decrease in stockholders' equity increased in retained earnings decrease in liabilities increase in liabilities decrease in assets increase in assets

increase in assets AND increase in stockholders' equity (Assets because you RECEIVE $10,000 CASH (Cash is an asset)) Stockholders' equity increases because stock is issued to them.

When a company borrows from a bank by signing a formal agreement, an ASSET titled CASH is increased and a _____ titled _____ _____ is increased. Chapter 2

liability, note, payable (Assets = Liabilities + Stockholders' Equity) Ex. Noodlecake borrows $20,000 from a bank, depositing those funds in its bank account and signing a formal agreement to repay the loan in two years. Assets = Liabilities + Stockholder's Equity Cash (+20,000) = (Notes Payable + 20,000) + (Stockholder's Equity)

A difference between debt financing and equity financing is that ____. only equity financing can be used to purchase assets debt financing must be repaid, while repayment of equity financing is not required equity financing must be repaid, debt financing is not required only debt financing can be used to purchase assets

debt financing must be repaid, while repayment of equity financing is not required

A company issued 1,000 shares of stock for $100,000. The increase in the Common Stock account would be recorded with a _____. Chapter 2

credit

Acme Enterprises borrowed $20,000 from Last Bank on a 5-year note payable. Acme's journal entry to record this transaction will include a _____ of $20,000. credit to Accounts Payable debit to Notes Payable credit to Cash debit to Cash credit to Notes Payable

debit to Cash + credit to Notes Payable The answer is NOT: credit to Cash, because; Cash is increased when Acme borrows from the bank, thus Cash is debited, not credited.

The effect on the accounting equation of paying suppliers for amounts owed included a(n) decrease in liabilities increase in assets decrease in stockholders' equity Chapter 2

decrease in liabilities Ex. Cash (-5000) = Accounts Payable -5000 + Stockholder's Equity

The journal entry to record the purchase of land for $30,000 cash includes _____. both a credit to Cash and a credit to Land both a debit to Cash and a debit to Lan a debit to Land and a credit to Cash a debit to Cash and credit to Land

A debit to Land and Credit to Cash The answer is not "A debit to Cash and a credit to Land, because; A debit increases and does not decrease Cash, and a credit decreases, not increases Land.

True or false: If one asset increased, it must be the case that either liabilities or stockholders' equity increased by the same amount.

False One asset may be exchanged for another and thus have no effect on liabilities or stockholders' equity. The accounting equation remains in balance because an increase in one asset is offset by the decrease in another asset.

The first step in starting a business is to obtain cash from owners and/or creditors. Is this activity an investing activity or a financing activity. Chapter 2

Financing

The line item, Common Stock, on the balance sheet results from a(n) _____ activity. Investing Operating Financing

Financing

Which of the following are on the debit side of the Accounts Payable T-account? Purchases on account Beginning balance Payments of purchases made on account

Payments of purchases made on account The answer is not "Beginning balance," the normal balance of Accounts Payable is a credit. Liabilities have normal credit balances.

Which of the following are investing activities? Purchasing land Purchasing equipment Issuing stock Issuing a note payable Purchasing a company logo

Purchasing land, Purchasing equipment, Purchasing a company logo. Issuing stock and Issuing a note payable are FINANCING activities. Investing activities include the purchase and sales of assets that will be used in the business over time and investments.

Which of these would be captured and reported by an accounting system? Purchasing of equipment on account Financing activities Exchange of promises Investing activities Only transactions that involve cash Chapter 2

Purchasing of equipment on account Financing activities Investing activities

The Common Stock account is increased with an entry on the _____ side of the T-account.

Right Explanation: Accounts increase on the same side as they appear in A = L + SE. Assets increase on the left side of the account. Liabilities increase on the right side of the account. Stockholders' equity accounts increase on the right side of the account. Use debits for increases in assets (and for decreases in liabilities and stockholders' equity accounts). Use credits for increases in liabilities and stockholders' equity accounts (and for decreases in assets).

Two sources of financing for a new business are _____. stockholders the Internal Revenue Service (IRS) Securities and Exchange Commission (SEC) creditors Chapter 2

Stockholders, Creditors

When a company buys an asset on an account _____. Assets decrease Liabilities decrease Assets increase Cash decreases Liabilities increase

Assets increase + liabilities increase

Which type of activities are not captured by the accounting system because they are not considered transactions? Purchases of supplies on account Exchange of promises Combining ingredients to make inventory Purchases of a company logo

Exchange of promises

Assets = ? + Stockholders' Equity Chapter 2

Liabilities

When a company pays its supplier for amounts owed, its Cash and Accounts _____ accounts are decreased. Chapter 2

Payable (Accounts Payable)

In May, Pasta Disasta Inc. pays it's suppliers $1,000 for supplies received in April. The effect on the accounting equation (A=L+SE) is a $1,000 decrease in assets $1,000 increase in stockholders' equity $1,000 decrease in liabilities $1,000 decrease in stockholders' equity Chapter 2

The effect is to decrease Accounts Payable which is a Liability, and Cash, which is an asset. Answer: $1,000 decrease in assets and $1,000 decrease in liabilities.

Business activities that affect the basic accounting equation and are recorded in the accounting system are called _____. Chapter 2

Transactions

A company typically receives _____, an asset, when it issues stock to its owner. Land Cash Equipment

Cash

The creditor's claim to a company's resources is represented by _____. total stockholders' equity total liabilities retrained earnings common stock

total liabilities

Melon Inc. had a $10,000 balance in its Accounts Payable account at the beginning of the month. During this month, it made $60,000 of purchases on account due within 1 month and paid $40,000 of the amounts owed. The Accounts Payable balance at the end of the month has a _____ balance. $30,000 credit $10,000 debit $20,000 credit $30,000 debit $10,000 credit

$30,000 credit The answer is NOT "$20,000 credit," because; The ending balance is a $30,000 credit balance (-$10,000 beginning credit balance + 60,000 credit for purchases on account - 40,000 debit for amounts paid.)

Which of the following are possible effects on the accounting equation when recording a transaction that increases an asset by $100? A decrease in another asset by $100 A liability account increases by $100 A stockholders' equity decreases by $100 A liability account decreases by $100 A stockholders' equity account increases by $100

A decrease in another asset by $100, A liability account increases by $100, A stockholders' equity account increases by $100.

The beginning balance in John's Cash account was $1,200. During the month, John borrowed $5,000 cash from the bank and paid a supplier $500. The balance in John's Cash account is now a _____. Credit of $3,300 Debit of $5,700 Debit of $4,500 Credit of $5,700

Debit of $5,700 Cash has a normal debit balance, not a credit. $1,200 + $5,000 - $500 = $5,700

How do financing activities differ from investing activities? Financing activities involve an exchange of cash for non-current assets; investing activities do not. Financing activities may involve an exchange of cash for a company's own stock; investing activities do not. Financing activities may involve an exchange of cash for debt; investing activities do not. Financing activities involve an exchange of cash for current assets; investing activities do not.

Financing activities may involve an exchange of cash for a company's own stock Financing activities may involve an exchange of cash for debt Not Correct: Financing activities involve an exchange of cash for non-current assets; investing activities do not. (The exchange of cash for non-current assets is an INVESTING activity)

All transactions _____. Have at least two effects on the accounting equation Affect assets, liabilities, and/or stockholders' equity Must affect assets Must affect both assets and liabilities Must affect both assets and stockholders' equity

Have at least two effects on the accounting equation AND Affect assets, liabilities, and/or stockholders' equity

Which of these events would NOT be recorded as transactions in an accounting system? Ordering supplies to be delivered and paid for in the future Receiving cash in exchange for stock Receiving supplies in exchange for a promise to pay in the future Hiring an employee Receiving supplies in exchange for cash Chapter 2

Hiring an employee and Ordering supplies to be delivered and paid for in the future.

Equipment on a balance sheet is the result of an _____ activity? Investing Financing Operating Chapter 2

Investing

The line item, Land, on the balance sheet results from a _____ Operating activity Financing activity Investing activity

Investing

Which statements are true Liabilities are on the right side of the accounting equation and have normal credit balances Credits increase stockholders' equity Credits increase liabilities Assets are on the left side of the accounting equation and have a normal debit balance Credits increase assets

Liabilities are on the right side of the accounting equation and have normal credit balances Credits increase stockholders' equity Credits increase liabilities Assets are on the left side of the accounting equation and have a normal debit balance

Accounts Payable is a Asset Liability Stockholders' Equity Chapter 2

Liability (Liabilities)

What is the effect on TOTAL ASSETS when a company purchases land for a cash payment of $10,000. No effect Increase Decrease Chapter 2

No effect There is NO EFFECT because, LAND, CASH, and EQUIPMENT are ASSETS. Land increases (+A) and Cash decreases (-A) decreases. Since both are assets, there is no effect on the total assets since they offset one another. Think about it as +100-100=0

True or false: A transaction can cause one asset to increase and different asset to decrease and still have the account equation balance

True Transactions do not have to straddle the equal sign of A=L+SE. One asset may be exchanged for another and still balance. Total assets remain the same as do total liabilities plus stockholders' equity.

The journal entry to record the payment of $30,000 cash for the creation of the company's logo includes _____. both a debit to Cash and a debit to Logo/Trademarks a debit to Cash and credit to Logo/Trademarks both a credit to Cash and a credit to Logo/Trademarks a debit to Logo/Trademarks and a credit to Cash

a debit to Logo/Trademarks and a credit to Cash Credit decreases Cash (Because they're paying (losing) $30,000 for the company logo) Debit increases Cash

When a company buys an asset on account _____. Chapter 2

assets increase and liabilities increase

A company purchased supplies and promised to pay $200 for them next month. The increase in Accounts Payable would be recorded with a _____. Credit Debitor Creditare Debit

Credit

Select the financing activities from the list below. Issuing stock Issuing a note payable Purchasing land Purchasing equipment Chapter 2

A key activity for any start-up company is to obtain FINANCING Issuing stock and Issuing a note payable.

What of the following statements is TRUE? Retained Earnings must increase whenever Accounts Payable decreases. Accounts Payable and Retained Earnings are both stockholders' equity accounts. Accounts Payable is a liability. Accounts Payable must increase whenever total assets increase. Chapter 2

Accounts Payable is a liability.

A transaction may be recorded with an increase in an asset and a decrease in a(n) stockholders' equity account another asset liability account Chapter 2

Another asset If one asset is increased, for the accounting equation to remain in balance either ANOTHER ASSET is DECREASED, and or/ a LIABILITY is INCREASED.

A = L + S Chapter 2

Assets = Liabilities + Stockholders' Equity

Company X issued $10,000 of common stock to its owners for cash. It recorded the transaction by INCREASING ASSETS and INCREASING LIABILITIES. Which of the following statements are correct? Assets will be too low. Liabilities will be too low. Liabilities will be too high. Assets will be too high. Stockholders' equity will be too high. Stockholders' equity will be too low.

Liabilities will be too high, Stockholders' equity will be too low.

A company purchased a new cash register in exchange for a cash payment of $1,00. The company recorded only an increase of $1,200 in the Equipment account. No entry was made to the Cash Account, As a result, _____. The accounting equation is balanced The accounting equation is not balanced Total assets are too low Total assets are correct Total assets are too high

The accounting equation is not balanced, total assets are too high. The answer is NOT the accounting equation is balanced and Total assets are correct because: The $1,200 increase in the asset Equipment should have been offset by the $1,200 decrease in cash, therefore the total assets should change by $0. However, the company increased the Equipment and did not increase the Cash account. Therefore, total assets are too high by $1,200. (Technically I was right, but not really)

Morris Inc. purchased machinery for $10,000 cash. The effect on the is what? Total assets remain the same Total assets increase total stockholders' equity decrease total liabilities increase total liabilities decrease

Total assets remain the same Explanation: Because Cash (10,000) and Equipment (machinery) are assets, they are offset from each other

What is the effect on total assets when a company buys a building in exchange for a 20-year note payable? Total liabilities will decrease There is no effect Total assets will increase

Total assets will increase It is NOT "total liabilities will increase" because the company receives Equipment (A (building)) and gives a promise to pay in the future, Notes Payable (L (Liabilities))