Chapter two

Assume a company completed various financing and investing activities, has prepared its journal entries and posted them to T-accounts. How would the related account balances be listed on its trial balance? A. Credits first, followed by debits B. Debits first, followed by credits C. Alphabetically D. In descending order by dollar amount

B

Carol Company has total debits in its Cash T-account of $155,000 and total credits of $120,000. The balance in the Cash T-account is a: debit of $155,000. debit of $35,000. credit of $120,000. credit of $35,000.

B

On September 5, Heidi Company, purchases $87,000 of supplies; payment is not required until October 4. What action should be taken by Heidi on September 5? A. No journal entry is required; this transaction should not be recorded until the payment is made. B. A journal entry that includes a credit to Accounts Payable should be prepared. C. A journal entry that includes a debit to Accounts Payable should be prepared. D. A journal entry that includes a debit to Prepaid Expenses should be prepared.

B

What does the current ratio measure? The relative proportion of current versus noncurrent assets Whether current assets are sufficient to pay current liabilities The speed which current assets can be converted to cash Whether cash is sufficient to pay current liabilities

B

Which of the following is a financing activity? A. The business receives land and gives a check for $1,000. B. The business receives $1,000 cash and in exchange gives a promissory note. C. The business promises to hire an employee on the 15th of the month. D. The business orders supplies and promises to pay for them at the end of the month.

B

Account titles in the chart of accounts are: A. general purpose and do not indicate the nature of the account. B. consistent with those used by other companies. C. linked to account numbers. D. the names mandated for use by the FASB.

C

Which of the following statements about the debit/credit framework is correct? A. All asset accounts have a normal debit balance with the exception of cash, which has a normal credit balance. B. The Common Stock account is increased by debits. C. When payment is made on a liability such as accounts payable, the liability account is decreased with a debit. D. The total amount of asset accounts must equal the total amount of liability accounts minus the total amount of stockholders' equity accounts.

C

Which of the following is an asset? Common Stock Retained Earnings Notes Receivable Notes Payable

Notes Receivable

Puffin, Incorporated purchased land costing $54,000 by paying cash of $13,500 and signing a 90-day note for the balance. The entry to record this transaction would: A. increase total assets. decrease total liabilities. decrease Common Stock. increase total assets and decrease total liabilities.

A

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank to be paid back in five years and used all of the money to purchase land for a new store. Sweet Smell's balance sheet would show this as: A. $60,000 under Land and $60,000 under Notes Payable (long-term). $60,000 under Depreciation Expense and $60,000 under Notes Payable (long-term). $60,000 under Land and $60,000 under Notes Receivable (long-term). $60,000 under Other Assets and $60,000 under Other Liabilities.

A

What is the effect on the balance sheet if a company purchases $100 of supplies using cash? A. Total assets will remain the same. Total assets will decrease. Liabilities will decrease. Total assets will increase.

A

Which of the following statements regarding debits and credits is always correct? A. Debits decrease accounts while credits increase them. B. The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger. C. The total value of all debits to a particular account must equal the total value of all credits to that account. D. The normal balance for an account is the side on which it decreases.

B The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger. Debits may increase or decrease an account, depending on the type of account. If an account has equal amounts of debits and credits, the account would then have a zero balance. The normal balance for an account is the side on which it increases.

How will a company's current ratio be affected by the purchase of equipment for cash? The current ratio will increase because current assets increase. The current ratio will decrease because current liabilities increase. The current ratio will decrease because current assets decrease. The current ratio will remain unchanged.

C The transaction will increase Equipment, a noncurrent asset, and decrease Cash, a current asset. The current ratio is computed by dividing current assets by current liabilities. Since the numerator will decrease, the current ratio will decrease.

Which of the following statements about transaction analysis is correct? A. Transactions are analyzed from the standpoint of the owners. B. All business activities are considered to be accounting transactions. C. The transaction amount is determined for each exchange based on the cost of the items given and received. D. A business needs journal entries only to show how transactions affect the balance sheet.

C Each exchange is analyzed to determine a dollar amount that represents the value of items given and received. Transactions are analyzed from the standpoint of the business (rather than its owners). Business activities that do not include the exchange of assets or services at the time of the activity are not considered transactions. Journal entries indicate the effects of each day's transactions in a debits-equal-credits format on all of the accounts affected (not just the balance sheet accounts).

Assets are listed on a classified balance sheet: in alphabetical order. from the largest dollar amount to the lowest dollar amount. beginning with noncurrent assets and ending with current assets. beginning with current assets and starting with Cash.

D

Each account is assigned a number; this listing of all accounts is called a: trial balance. journal. ledger. D. chart of accounts.

D

If a company pays back money borrowed from a bank, which of the following would be included in the journal entry to record this transaction? A. Credit Notes Payable and debit Common Stock B. Debit Cash and credit Notes Payable C. Debit Cash and credit Common Stock D. Credit Cash and debit Notes Payable

D

In a classified balance sheet, current assets are usually listed: in alphabetical order. in the order of when the assets were acquired. from the largest to smallest dollar amount. in the order of liquidity.

D

What will be the effect on the balance sheet of issuing shares of common stock in exchange for cash? An increase in Retained Earnings A decrease in Common Stock A decrease in Retained Earnings D. An increase in Common Stock

D