A201 Chapter 2: Investing and Financing Decisions and the Accounting System

Which of the following are found on a chart of accounts?

Account numbers and titles

An ____ event involves an exchange between the company and a separate economic entity

external

When information is complete, neutral, and free from error, it possess the qualitative characteristic of

faithful representation

What is a trial balance?

Is the same as a balance sheet

The payment of amounts previously borrowed (ignoring interest) causes a

decrease in assets and liabilities

Profits earned by a company that are paid to stockholders are called____

dividends

An event that affects the financial position of a company but does not include an exchange with a separate economic entity is a ____ event

internal

The primary objective of financial reporting to external users is to...

is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

A T-account represents a...

ledger account and is a tool used to understand the effects of one or more transactions

The separate-entity assumption assumes that the balance sheet of a corporation reports ____

only the results of the business's activities

Transferring entries from a journal to the ledger is called ___

posting

The primary purpose of financial accounting is to

provide financial information about companies that is useful to capital providers for decision making

The two primary characteristics of financial information are ____

relevance and faithful representation

Profits reinvested in the business are called

retained earnings

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

A ledger is used to____

show increases and decreases in individual accounts, as well as an ending balance

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

stock certificates

Assets are initially recorded at ____

historical cost

Identify on which side of the Cash T-account would the following amounts be show?

1) Decreases would be on the right side 2) the ending balance would be on the left side 3)The beginning balance would be on the right side 4)Increases would be on the left side

Accounts Payable T-account the following amounts appear?

1) Increases would be on the right side 2)Decreases would be on the left side 3)The ending balance would be on the right side 4)The beginning balance would be on the right side

Which of the following events are transactions that should be entered in the accounting system?

1) Paying $48 for 4 cases of copy paper that were delivered last month 2) Receiving 3 cases of copy paper that cost $12 per case 3)Paying the office secretary's monthly salary of $2000

The entry to record the issuance of $1 par value of common stock to investors for $10 per share in cash results in an increase in____

1) Stockholders' Equity 2) Cash 3) Common Stock 4) Additional Paid-in 5) Common Stock 6) Assets

Financial information is enhanced when it is____

1) verifiable 2) comparable 3) timely 4) understandable

The chart of accounts is a____

a list of all account titles and their unique numbers

General journal entry order

1) Accounts debited 2) Accounts credited 3)Enter explanation

Which of the following is an external transaction?

Purchasing supplies from a vendor

On December 15, Pasta Disasta's board of directors declares a $1000 cash dividend to shareholders to paid next month. Show the effect of this event on Pasta Disasta's accounting equation on December 15.

Total stockholder's equity will decreased (specifically retained earnings) Distribution of earnings to OWNERS

Which of the following are financing activities?

1) Borrowing from creditors 2)Paying Dividends 3)Selling stock to investors

For accounting information to be relevant, what qualities must it possess?

1) Capable of influencing decisions 2) Being able to be used to confirm past events of the business

Z Best, Inc. issued 1,000,000 shares of $1 par value common stock for $20,000,000 in cash. The effect on the accounting equation effect is ____

1) Common stock is increased by $1,000,000 2) APIC is increased by $19,000,000 3) stockholder's equity is increased by $20,000,000 4) Cash is increased by $20,000,000

A company typically receives ____, an asset, when it issues stock to its owners.

cash

Z Best, Inc. issued $1,000,000 of stock for cash. Z Best recorded the transaction by increasing cash and decreasing common stock and additional paid-in capital

1) contributed capital is understated 2) stockholders' equity is understated 3)the accounting equation is out of balance

Faithful representation exists when the information is___

1) faithful 2) complete 3) free from error

Which account is affected by recording the buying of goods on credit?

Accounts payable

Which of the following are external transactions?

Borrowing money from the bank, paying salaries to employees, purchasing inventory from suppliers

What does a business typically receive when it issues stock to owners?

Cash

In May, Pasta Diasta, Inc. paid its suppliers $500 that is owed for the pizza pans purchased and received in April. Which accounts are affected?

Cash is decreased; accounts payable is decreased

A company made a $1,000 payment on its $100,000, 20 year mortgage. The decrease in liabilities would be recorded with a ___ to Notes payable

Debit

J. Jackson invested $1,000 in his business, Jackson Co. Show how to use T-accounts to record this transaction in Jackson Company's books by selecting the correct answers below.

Debit Cash; credit Common Stock

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

Debit to cash, credit to notes payable

In May, Pizza Aroma bought $1,200 of supplies and promised to pay the supplier next month. As soon as it receives the supplies in May, Pizza Aroma should record a ...

Debit to supplies of $1,200 and credit to accounts payable of $1,200

On December 15, Pasta Disasta's board of directors declares a $1000 dividend to shareholders to be paid next month. Show the effect of this event on Pasta Disasta's accounting equation on December 15.

Decrease in Retained Earnings of $1000; Increase in Dividends Payable of $1000

Squid Roe, Inc. purchased equipment that cost $20,000 by issuing a $15000 promissory note and paying the remainder in cash. Identify the effects of this transaction.

Equipment is increased by $20,000, Notes payable is increased by $15,000, Cash is decreased by $5,000

Which of the principles below are true regarding transaction analysis?

Every transaction affects at least two accounts; The accounting equations must remain in balance after each transaction.

Which of these events would NOT be recorded as transactions in an accounting system?

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

Which of the following is true? 1) Land purchased 20 years ago is not reported on the balance sheet because it was paid for too many years ago 2) Land purchased 20 years ago is reported on the balance sheet at its higher current value 3)Land purchased 20 years ago is reported on the balance sheet at the original price it paid for it.

Land purchased 20 years ago is reported on the balance sheet at the original price it paid for it.

What are the basic decisions made by external users of accounting information?

Lending & Investing decisions

The ability to confirm past events and to predict future activities are components of which primary qualitative characteristics?

Relevant information

What is the effect on total liabilities when a company buys a building in exchange for q 20-year old note payable?

Total liabilities will increase

True or false: The accounting equation remains in balance for every accounting transaction because of the dual effects concept whereby something of equal value is received and given in exchange

True

Which is an internal transaction? Paying rent for the month Borrowing from the bank Using Supplies on hand Buying equipment

Using supplies on hand

Which of the following are internal events?

Using supplies purchased and paid for last month, earning revenues after cash is received in advance from customers

A separate account is maintained in order to

accumulate the dollar effect of transaction on each financial statement item

The purpose of an account is to____

accumulate the dollar effect of transactions for each financial statement item

Lox, Stock and Bagel, Inc. issued $100,000 of 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

Pasta Disasta, Inc. issued 1,000 shares of the company's $1 par value stock to its owners for $2000. The effect of this transaction on the accounting equation is to....

increase by $1000

Mauricio, the owner of Pizza Aroma, spent $2,500 of his own money to take his family to Disney World. Because of the separate-entity assumption, Pizza Aroma's financial statements will report ____

nothing about this trip