Chapter 2 Review

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

Which of these are classified as noncurrent liabilities on the balance sheet?

-Note payable due in 3 years -Note payable due in 10 years

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

List the steps from top to bottom in the order they occur int he accounting system.

-Transactions are recorded in the journal -Transactions are posted to the ledger -Account balance are computed

When a company buys an asset on account _____.

-liabilities increase -assets increase

Two sources of financing for a new business are _____.

-stockholders -creditors

Liabilities have a normal _____ balance.

credit

List the components of a classified balance sheet in the proper order in accordance with GAAP. List from top to bottom.

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

The beginning balance in Acme's Cash account was $100,000. During the month, Acme issued $25,000 of common stock for cash. The balance in Acme's Cash account is now a _____.

debit of $125,000

A company made a $1,000 payment on its $100,000, 20-year mortage. The decrease in liabilities would be recorded with a _____ to Notes Payable.

debit | use debits for increase in Assets, decrease in Liabilities, and decrease in Stockholders'

Which type of activities are not captured by the accounting system because they are not considered transactions?

exchange of promises

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

financing

Typical steps needed before a business can start selling goods/services to customers include _____.

financing and investing activities

The duality of effects refers to the fact that each transaction _____.

has at least two effects on the basic accounting equation

The Land account is increased with an entry on the _____ side of the Land T-account

left

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

liability; notes payable

Buildings and equipment owned and used by a company are ____.

non-current assets

On the balance sheet, Land is reported at its

original cost | this is because it is long-term

Accounts Payable is increased with an entry on the _____ side of the T-account.

right

The Retained Earnings account is increased with an entry on the _____ side of the account.

right

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

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

In May, Pasta Disasta, Inc. pays its suppliers $1,000 for supplies received in April. The effect on the accounting equation is a _____.

-$1,000 decrease in liabilities -$1,000 decrease in assets

Which of these line items appear on a balance sheet?

-Assets -Stockholders' Equity -Liabilities

How do financing activities differ from investing activities?

-Financing activities may involve an exchange of cash for debt; investing activities do not -Financing activities may not involve an exchange of cash for a company's own stock; investing activities do not

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 | the eqipment was purchased on account so Equipment (A) and Accounts Payable (L) both increase.

T/F: A profitable company will record more debits than credits.

False | Debits must always equal credits.

Which account is debited when a logo is purchased for cash?

Logo and Trademarks

T/F: A transaction can cause one asset to increase and different asset to decrease and still have the accounting equation balance.

True | Transactions do not have to straddle the equal sign of A=L+SE. One asset may be exchanged for another and still balance. Total assets remain the same as do total liabilities plus stockholders' equity.

Account titles are _____.

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

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

transactions