Acct Ch 2

Willette Company reported the following information at December 31, Year 1: Accounts Payable $ 4,500 Accounts Receivable 9,350 Cash 23,490 Common Stock 90,000 Equipment 49,500 Inventory 31,200 Notes Payable due December 31, Year 3 2,500 Retained Earnings, December 31, Year 1 14,090 Salaries and Wages Payable 2,450 What is the amount of current assets on the classified balance sheet?

$64,040 Explanation Current assets = Cash + Accounts receivable + Inventory Current assets = $23,490 + $9,350 + $31,200 = $64,040

Assume that a journal entry with a debit to Equipment for $8,000 and a credit to Cash for $8,000 is recorded in the journal. What should be done next?

A debit of $8,000 should be posted to the Equipment account in the ledger. A credit of $8,000 should be posted to the Cash account in the ledger. Explanation After a journal entry has been recorded, each of the dollar amounts in that entry should be copied ("posted") to each ledger account affected by the transaction, so that the individual account balances can be computed.

Which of the following are the types of business activities that affect the balances in asset, liability, and stockholders' equity accounts?

Financing activities Investing activities Operating activities

Which of the following is an example of an investing activity of a business?

Purchasing office equipment explanation: Purchasing a long-term asset, such as office equipment, is considered an investing activity of a business.

Put the steps involved with accounting for business activities in order.

Step 1 Analyze transaction Step 2 Record journal entry Step 3 Post to ledger

Indicate whether each account type is decreased by debits or credits.

Stockholders' equity: Decreased with debits Assets: Decreased with credits Liabilities: Decreased with debits

Buffy Inc., borrowed $50,000 from a bank, depositing those funds in its bank account and signing a formal agreement to repay the loan in two years. Which of the following statements is true with regards to this transaction?

Assets and liabilities increased. Explanation Cash, an asset account, increased by $50,000, and Notes Payable, a liability account, increased by $50,000. Assets and liabilities increased, while stockholders' equity was not affected. Duality of effects means that every transaction has at least two effects on the basic accounting equation.

Buffy Inc., issued shares of common stock to investors in exchange for cash contributions. Which of the following statements is true with regards to this transaction?

Assets and stockholders' equity increased. Explanation Cash, an asset account, increased by $40,000, and Common Stock, a stockholders' equity account, increased by $40,000. Assets and stockholders' equity increased, while liabilities were not affected. Duality of effects means that every transaction has at least two effects on the basic accounting equation.

Which of the following statements are true with regards to asset accounts?

Assets are decreased with credits. Assets are increased with debits. Assets are on the left-side of the accounting equation.

The Notes Payable T-account had a beginning balance of $7,000, debits during the period totaling $5,000, and credits during the period totaling $15,000. What is the ending balance of the Notes Payable account?

$17,000 **** Explanation The total credits to the Notes Payable account of $22,000 (or $7,000 + $15,000) exceed the total debits of $5,000. The ending balance is the difference between the two or $17,000. Because the debits exceed the credits, this account has an ending credit balance. Alternatively: Ending balance of a liability or stockholders' equity account = Beginning credit balance + Credits - Debits Ending balance of Notes Payable = $7,000 + $15,000 - $5,000 = $17,000

The Cash T-account had a beginning balance of $1,000, debits during the period totaling $10,000, and credits during the period totaling $6,000. What is the ending balance of the Cash account?

$5,000 **** Explanation The total debits to the Cash account of $11,000 (or $1,000 + $10,000) exceed the total credits to the Cash account of $6,000. The ending balance is the difference between the two or $5,000. Because the debits exceed the credits, this account has an ending debit balance. Alternatively: Ending balance of an asset account = Beginning debit balance + Debits - Credits Ending balance of Cash = $1,000 + $10,000 - $6,000 = $5,000

During the year, assets increased by $20,000 and stockholders' equity increased by $15,000. What was the increase in liabilities?

$5,000 Explanation Change in Assets = Change in Liabilities + Change in Stockholders' Equity Increase of $20,000 = Change in Liabilities + Increase of $15,000 Change in Liabilities = $20,000 − $15,000 = $5,000

Chaco Company's trial was in balance at the end of the period and showed the following accounts: Accounts Payable 25,200 Cash 40,200 Common Stock 21,200 Equipment 10,200 Land 42,000 Notes Payable 46,000 What is the balance of the credit column on Chaco's trial balance?

$92,400 Explanation Total credit account balances = Accounts Payable of $25,200 + Common Stock of $21,200 + Notes Payable of $46,000 = $92,400

Put the steps involved with accounting for business activities in order.

1. First:Picture the documented activity 2. Second:Name what's exchanged 3. Third:Analyze the financial effects Explanation After each activity is (1) documented, accountants (2) assign names to the items exchanged, and then (3) analyze their financial effects on the accounting equation.

The balance sheet of Ambiance Corporation reported current assets of $186,708, total assets of $300,000, current liabilities of $36,139, and total liabilities of $125,000. What is the company's current ratio?

5.17 Explanation Current ratio = Current Assets ÷ Current Liabilities Current ratio = $186,708 ÷ $36,139 = 5.17

Buffy Inc purchases and receives equipment totaling $8,000 in exchange for $8,000 cash. Which of the following statements is true with regards to this transaction?

Assets, liabilities, and stockholders' equity were not affected. Explanation Cash, an asset account, increased by $8,000, and Equipment, another asset, increased by $8,000. One asset was exchanged for another asset and, as a result, the company's assets remain unchanged. In addition, liabilities and stockholders' equity were not affected.

Indicate whether each account is increased with debits or credits.

Cash: Increased with debits Accounts Payable: Increased with credits Software: Increased with debits ****** Cash:An account will increase on the same side as it appears in the accounting equation. Cash is an asset account. Asset accounts are on the left-side of the accounting equation and are increased with debits (which are also on the left-side). Accounts Payable:An account will increase on the same side as it appears in the accounting equation. Accounts payable is a liability account. Liability accounts are on the right-side of the accounting equation and are increased with credits (which are also on the right-side). Software:An account will increase on the same side as it appears in the accounting equation. Software is an asset account. Asset accounts are on the left-side of the accounting equation and are increased with debits (which are also on the left-side).

Which financial statement would a potential creditor ask to review if it wants to determine whether a company might have the ability to pay?

Classified balance sheet

Obtaining a loan would be an example of a(n):

Financing activity.

Indicate whether each account type is increased by debits or credits.

Liabilities: Increased by credits Assets: Increased by debits Stockholders' equity: Increased by credits

Which of the following statements are true with regards to journal entries?

The accounts that are debited in the transaction are followed by the accounts that are credited in the transaction. The left column for dollar amounts is used for debits. Explanation: Accounts being credited are slightly indented below the accounts being debited. The left column is for the debits and the right column is for the credits. Journal entries sometimes include more than one debit and/or more than one credit.

On April 10, Cary's Carpet Cleaning, Inc. borrows $15,000 from a bank, depositing those funds in its bank account and signing a formal agreement to repay the loan in one year. Prepare the appropriate journal entry for this transaction.

Transaction General Journal Debit Credit April 10 Cash 15,000 Notes Payable 15,000 ****** Explanation The company received a total of $15,000 cash, which increases the Cash account. Since Cash is an asset account, it is increased with a debit. The company gave a note, payable to the bank for $15,000, which increases the Notes Payable account. Since Notes Payable is a liability account, it is increased with a credit.

Cary's Carpet Cleaning, Inc. purchased $10,000 of carpet cleaning equipment, paying $2,000 cash and giving an informal promise to pay $8,000 at the end of the month. On April 30, Cary's Carpeting Cleaning pays $8,000 to the equipment supplier. Prepare the appropriate journal entry ****for the payment on April 30.***** (only for the payment done on the specified date)

Transaction General Journal Debit Credit April 30 Accounts Payable 8,000 Cash 8,000 ********* Explanation The company has received a release from its $8,000 to pay on account, which decreases the Accounts Payable account. Since Accounts Payable a liability account, it is decreased with a debit. The company gave $8,000 of cash, which decreases the Cash account. Since Cash is an asset account, it is decreased with a credit.

Which of the following are reported on the balance sheet?

assets liabilities stockholders' equity

Transactions are recorded with____ Transactions are analyzed and their financial effects are entered in a ____ each day they occur. A_______ is a collection of records that summarizes, for each account, the effects of transactions entered in the journal.

journal entries journals ledger