ACCT Chapter #2 SMARTBOOK

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

When a company buys an asset on account ______.

assets increase liabilities increase

All accounting systems ______.

follow the accounting cycle combine beginning balances with the activity during the accounting cycle to yield the ending balances for each account. record and summarize financial effects of transactions

All transactions ______.

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

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

right (credit)

A classified balance sheet ______.

shows subtotals for current assets and current liabilities

Which of the following statements is TRUE?

Accounts Payable is a Liability

Which of the following are on the debit side of the Accounts Payable T-account?

Payments of purchases made on account

The current ratio equals

current Assets (Divided) Current Liabilities

Current assets divided by current liabilities is the

current ratio

If a company records $1,000 of debits, it must have recorded ______.

$1,000 of credits

A company's beginning Equipment account is $100,000. It purchased $10,000 of new equipment and sold $4,000 of its equipment during the period. The company's ending Equipment balance equals a _____ balance.

$106,000 debit (Equipment, an asset, equals a $106,0000 debit balance (=$100,000 debit + 10,000 debit - 4,000 credit).

The beginning balance in Ace's Accounts Payable was $3,000. Ace then bought $200 of supplies paying cash. It also paid $500 of the amount that it owed for supplies purchased on account last month. The ending balance in Ace's Accounts Payable is a ______.

$2,500 Credit $3,000 - 500 = $2,500; the supplies purchased with cash does not affect Accounts Payable.)

The beginning balance in Acme's Accounts Payable was $4,000. Acme then bought $100 of supplies on account and paid $700 of the amount that it owed for supplies purchased on account last month. The ending balance in Acme's Accounts Payable was a credit of ______.

$3,400 ($4,000+ 100 - 700 = $3,400. Purchases of supplies "on account" increases and payments decrease Accounts Payable.)

A company's beginning Accounts Payable is $1,000. It had a $10,000 of purchases on account and paid $7,000 of the amounts owed. The Accounts Payable ending balance equals a _____ balance.

$4,000 Credit Accounts Payable, a liability, equals a $4,0000 credit balance (=$1,000 credit + 10,000 credit - 7,000 debit).

A company's beginning Cash is $10,000. It had a $100,000 of cash receipts and $70,000 of cash payments during the period. The company's ending Cash balance equals a _____ balance.

$40,000 Cash, an asset, equals a $40,0000 debit balance (=$10,000 debit + 100,000 debit - 70,000 credit).

A company's beginning Cash is $10,000. It had a $100,000 of cash receipts and $70,000 of cash payments during the period. The company's ending Cash balance equals a _____ balance.

$40,000 Debit Cash, an asset, equals a $40,0000 debit balance (=$10,000 debit + 100,000 debit - 70,000 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 ______.

$70,000 To get the ending Notes Payable balance, you must start with the beginning credit balance of $50,000, add the new borrowings of $60,000, and subtract the payment of $40,000. The ending balance equals $70,000 (=$50,000 + 60,000 - 40,000).

A company's beginning Notes Payable is $100,000. It borrowed $50,000 by issuing a promissory note to the bank and repaid $60,000 of the amounts owed. The Notes Payable ending balance equals a _____ balance.

$90,000 credit (Notes Payable, a liability, equals a $90,000 credit balance (=$100,000 credit + 50,000 credit - 60,000 debit).

Which accounts are affected by borrowing from a bank?

- Notes Payable. - Cash.

Which of the following are possible effects on the accounting equation when recording a transaction that affects two accounts?

- One asset account increases and one asset account decreases - One asset account increases and one stockholders' equity account increases

Which of the following have normal credit balances?

Accounts Payable Common Stock Notes Payable

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 account increases by $100

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

A stockholders' equity account decreases by $100 An asset increases by $100

Financial information needed to manage a company is provided by a(n) ______ system.

Accounting

A classified balance sheet shows subtotals for current _______

Assets and Liabilities

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

Assets increase Liabilities increase

Which of the following are on the credit side of the Accounts Payable T-account?

Beginning balance Purchases on account Ending balance

Which transactions are recorded in the accounting system?

Both external exchanges and internal events

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 of the following is a current asset?

Cash

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

Cash (or money)

The issuance of common stock is recorded with a debit to ______ and a credit to ______

Cash; Common Stock

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

Credit

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

Credit

Common Stock has a normal ___________ balance.

Credit

Liabilities have a normal _______ balance

Credit

A company purchased land in exchange for a $25,000, 10-year note payable. The increase in the Notes Payable account would be recorded with a ______.

Credit (Notes Payable, a liability, is increased with a credit ,the right side of the T-account).

A company paid $500 cash for a new printer. The entry to record this transaction would include a ______ to Cash.

Credit (Debits increase, not decrease cash, in this case you are paying, giving away money for new supplies.)

Common Stock has a normal

Credit Balance

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 (credits decrease cash)

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 (you are paying off what you owe, so it goes to debit account)

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

Debit (Credits increase, not decrease, Accounts Payable.)

______ to a corporation's stockholders' equity accounts cause its total stockholders' equity to ______.

Debits; decrease

Assets of $100,000 Liabilities of $60,000 Stockholders' Equity of $40,000

Economic resources owned Creditors' claims to the economic resources Owners' claims to the economic resources

Which of these is classified as a noncurrent asset on the balance sheet?

Equipent

Accounts _______ is a liability account and represents amounts owed to suppliers.

Payable

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

External exchange

True or false: When a company issues common stock, it gives cash to its owners in exchange for stock.

FALSE

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

FALSE Reason: 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.

True or false: A profitable company will record more credits than debits.

False (Debits must always equal credits.)

A debit to Cash and a credit to Common Stock is recorded when a company ______.

Incorporates and its owners contribute cash

A company paid $5,000 cash to purchase equipment. The company recorded a debit to Equipment of $5,000 and a credit to Cash of only $500. This company's accounting records are ______.

Incorrect because debits do not equal credits

Company X receives $10,000 from issuing common stock to its owners. The effect on the accounting equation is a(n) _____.

Increase in Stockholder's equity. Increase in Assets

Which of the following are non-current assets that are found on the balance sheet?

Land Buildings Equipment Machinery

The Equipment account is increased with an entry on the ______ side of the Equipment T-account.

Left (debit) (Equipment = Asset)

Identify which of the following statements are true.

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

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.

What is the effect on total assets when a company purchases a cash register for a cash payment of $1,200?

No effect

Identify the account title that may be used to record borrowing cash in exchange for a promissory note.

Notes Payable

On the balance sheet, Equipment is reported at its ______.

Original cost

On the balance sheet, Land is reported at its ______.

Original cost ( People mistakenly believe that the balance sheet reports current values for assets. The cost principle requires assets be reported at their original cost unless current values are lower. Note: there are some exceptions to this rule.)

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?

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

rue or false: A transaction can cause one asset to increase and different asset to decrease and still have the accounting equation balance.

TRUE

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

Total Asset will increase.

Noodlecake purchases and receives $10,000 in computers, printers and desks in exchange for its promise to pay next month. What is the effect of this purchase on account on the accounting equation?

Total Assets increase Total Liabilities increase Total Stockholders' equity remains the same

Morris Lest, Inc. purchased machinery for $10,000 cash. The effect of this transaction is to cause ______.

Total Assets to remain the same

Which of the following is an example of proper accounting when it comes to reporting values on a company's balance sheet?

X Company reported its inventory at its current market value, which is lower than its original cost. X Company reported its damaged equipment at an amount lower than it originally cost.

The posting of the journal entry to record the purchase of land for $30,000 cash will include which of the following?

a credit to the Cash T-account a debit to the Land T-account

The journal entry to record the purchase of land for $30,000 cash includes ______.

a debit to Land and a credit to Cash

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 (The opposite entry is correct, a debit to Logo/Trademarks and a credit to Cash. A debit increases, not decreases, Cash and a credit decreases, not increases, Logo/Trademarks.)

A transaction may be recorded with an increase in an asset and a decrease in a(n) ______.

another asset

The beginning balance in Ace's Accounts Payable was $3,000. Ace then bought $200 of supplies paying cash. It also paid $500 of the amount that it owed for supplies purchased on account last month. The ending balance in Ace's Accounts Payable is a ______.

credit of $2,500 ($3,000 - 500 = $2,500; the supplies purchased with cash does not affect Accounts Payable.)

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 Notes Payable debit to Cash

The beginning balance in Lucre's Cash account was $1,200. During the month, Lucre borrowed $5,000 cash from Last National Bank and paid a supplier $500. The balance in Lucre's Cash account is now a ______.

debit of $5,700 (To get the ending cash balance, you must start with the beginning balance of $1,200, add the receipt of $5,000, and subtract the payment of $500; $1,200 + 5,000 - 500 = $5,700.) - Cash has a normal DEBIT BALANCE

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, ______.

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

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, ______.

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

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 to the Cash account. As a result, ______.

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

A company purchased a new cash register in exchange for a cash payment of $1,200. As a result of recording the purchase, ______.

total assets remain the same one asset is exchanged for another

Z Company bought land 20 years ago for $30,000. Over the last 20 years, the value of the land has doubled. The increase in the land's value ______.

will not be reported in Z Company's financial statements (The increase in the value of the land will only be recorded in the accounting records when the land is sold, not before then.)