chapter 2: the balance sheet

melon-cauli grocers, inc. received $50,000 worth of computers on account promising to pay next month. the journal entry to record this transaction would include _____ of $50,000

a debit to equipment a credit to accounts payable

the journal entry to record the payment of $30,000 cash for the creation of the company's logo includes _____

a debit to logo/trademarks and a credit to cash

which of the following are possible effects on the accounting equation when recording a transaction that increases an asset by $100?

a liability account increases by $100 a decrease in another asset by $100 a stockholders' equity account increases by $100

the journal entry to record the purchase of supplies on account includes a credit to _____

accounts payable

in may, pasta disaster, inc. paid its suppliers $500 that it owed for the pizza pans purchased and received in April. which accounts are affected?

accounts payable is decreased cash is decreased

how do financing activities differ from investing activities?

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

typical steps needed before a business can start selling goods and/or services to customers include.....

financing and investing activities

all transactions .....

have at least 2 effects on the accounting equation affect assets, liabilities, and/or stockholders' equity

a company purchased a new cash register in exchange for a cash payment of $1,200. the company recorded only an increase of $1,200 in the equipment account. no entry was made in the cash account. as a result, _____

total assets are too high the accounting equation is not in balance

a company purchased $2,200 of equipment in exchange for a cash payment of $1,200 and a $1,000 promise to pay. the company recorded a $1,200 increase in the equipment and a $1,200 decrease in the cash account. no entry was made to the accounts payable account. as a result, _____

total assets are too low the account equation is in balance

morris lest, inc. purchased machinery for $10,000 cash. the effect of this transaction is to cause_____

total assets to remain the same

what is the effect on total assets when a company buys a building in exchange for a 20-year note payable?

total assets will increase

business activities that affect the basic accounting equation and are recorded in the accounting system are called _____

transactions

list the steps from top to bottom in the order they occur in the accounting system

transactions are recorded in the journal transactions are posted to the ledger account balances are computed

current liabilities _____

will be paid or fulfilled within 12 months

when should the total dollar value of debits equal the total dollar value of credits in a transaction?

always

which of the following are possible effects on the accounting equation when recording a transaction that increases a liability by $100?

an asset increases by $100 a stockholders' equity account decreases by $100

a classified balance sheet shows subtotals for current _____ and current _____

assets; liabilities

the prior period's ending balance become the next period's _____ balance

beginning

which of the following are on the credit side of the accounts payable t-account?

beginning balance ending balance purchases on account

a company typically receives _____ , an asset, when it issues stock to its owners

cash

burrows inc borrowed $100,000 from last bank by signing a formal agreement to repay the bank in 10 years. burrows' journal entry to record this transaction will include a debit to _____

cash

which accounts are affected by borrowing from a bank?

cash notes payable

show the order in which these asset accounts would appear on a company's balance sheet

cash supplies equipment

the issuance of common stock is recorded with a debit to _____ and a credit to _____

cash; common stock

two sources of equity financing which increase stockholders' equity are.....

common stock retained earnings

z best, inc. issued $1,000,000 of common stock for cash. by accident, z. best recorded the transaction by increasing cash and decreasing stockholders' equity. as a result of this entry, _____

common stock is understated the account equation is out of balance stockholders' equity is understated

the _____ principle requires that assets and liabilities be recorded at the amounts that were measurable at the time transactions occurred

cost

the ______ principle requires that assets be recorded at the amount exchanged for them at the time of purchase

cost

a company paid $2,000 cash to an employee for this month's salary. the entry to record this transaction would include a _____ to cash.

credit

the beginning balance in lucre's notes payable account was $50,000. during the month, lucre borrowed $60,000 cash from last national bank and then paid first national bank the $40,000 it had borrowed 5 months prior. the balance in lucre's notes payable account is now a _____

credit of $70,000

list the components of a classified balance sheet in the proper order in accordance with GAAP

current assets non-current assets current liabilities non-current liabilities stockholders' equity

the current ration equals ______ divided by _____

current assets, current liabilities

a company received $5,000 cash when it issued stock certificates to shareholders. the increase in cash would be recorded with a _____ to the cash account

debit

assets have a normal _____ balance

debit

the beginning balance in lucre's cash account was $1,200. during the month, lucre borrowed $5,000 cash from a national bank and paid a supplier $500. the balance in lucre's cash account is now a _____.

debit of $5,700

when a company pays for amounts purchased on account, the entry includes _____

debits accounts payable credit cash

a transaction that involves an exchange of assets, liabilities, and/or stockholders' equity between the company and someone else is called a(n) _____ exchange

external

the line item, common stock, on the balance sheet results from a(n) _____ activity

financing

a debit to cash and a credit to common stock is recorded when a company _____

incorporates and its owners contribute cash

company X receives $10,000 from issuing common stock to its owners. the effect on the accounting equation is

increase in stockholders' equity increase in assets

which of the following are characteristics of debt financing, but not of equity financing?

interest definite repayment date

which are characteristics of debt financing but not of equity financing?

interest definite repayment due

events that do not involve exchanges between the company and someone else but affects assets, liabilities, and/or stockholders' equity are called _____ events

internal

Equipment on a balance sheet is the result of an _____ activity?

investing

the line item, land, on the balance sheet results from a(n) _____

investing

which of these would be captured and reported by an accounting system?

investing activities financing activities purchase of equipment on account

the formal document that lists all of the daily journal entries, but does not provide account balances, is the general _____.

journal

transactions are first recorded in the _____

journal

the effect of journal entries on each account is summarized in the _____

ledger

which of these line items appear on a balance sheet?

liabilities stockholders' equity assets

show the effect of recording the borrowing of $10,000 from a bank on the accounting equation. _____ by $10,000

liabilities increase assets increase

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?

liabilities will be too high stockholders' equity will be too low

when a company borrows from a bank by signing a formal agreement, an asset titled cash is increased and a _____ titled _____ is increased.

liabilities; notes payable

what is the effect on total assets when a company purchases land for a cash payment of $10,000?

no effect

on may 1, lord of the fries, inc. hires an employee to begin work next month. on may 1, lord of the fries will _____.

not record anything

which of the following have normal credit balances?

notes payable accounts payable common stock

list the liability accounts in the same order in which they would appear on a company's balance sheet from top to bottom

notes payable (due in 5 months) notes payable (due in 5 years) mortgage payable (due in 25 years)

which of the following are characteristics of notes payable and not accounts payable?

notes payable are amounts burrowed from a lender; accounts payable are not notes payable are documented with formal documents called notes only notes payable have interest changes

on the balance sheet, equipment is reported at its _____

original cost

accounts _____ is a liability account and represents amounts owed to suppliers

payable

when a company pays its supplier for amounts owed, its cash and accounts _____ accounts are decreased

payable

which of the following are on the debit side of the accounts payable t-account?

payments of purchases made on account

what are investing activities ?

purchasing equipment purchasing a company logo purchasing land

list the steps in the accounting cycle in chronological order

record a journal entry summarize in the ledger (t-accounts) prepare an unadjusted trial balance adjust the accounts prepare financial statements close the books

accounts payable is increased with an entry on the _____ side of the t-account

right

the common stock account is increased with an entry on the _____ side of the t-account

right

the mortgage payable account is increased with an entry on the _____ side of the t-account

right

if a company issues $100,000 common stock, the common stock t-account will have $100,000 posted on the _____ side

right, credit

when a business issues common stock, what does it give to its owners?

stock certificates

lox, stock and bagel, inc. issued $100,000 of common stock. it recorded the transaction by increasing cash and decreasing common stock. as a result of this entry, _____

the accounting equation will be out of balance

account titles are _____

the names given to the items exchanged in the transactions based on a company's chart of accounts

account titles are _____

the names given to the items exchanged in transactions based on a company's chart of accounts