Financial Accounting Smartbook Chapter 2

If a company has issued 10,000 shares of common stock and its Common Stock account has a balance of $100,000, then par value must equal ______.

$10

A separate ______ is maintained in order to accumulate the dollar effect of transactions on each financial statement item.

account

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

accounts payable

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

assets current assets noncurrent liabilities current liabilities noncurrent stockholder's equity

The primary _______ of financial reporting is to provide financial information about companies that is useful to capital providers for decision making.

objective

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

debit

When entering a transaction into a general journal, the account(s) ______ (debited/credited) would be listed first and then the account(s) ______ (debited/credited) would be listed next

debited AND credited

The trial balance is an internal report used to determine whether total debits ______ total credits.

equals

To be useful for decisions making, information should possess the primary qualities of relevance and ______ representation.

faithful

True or false: In accounting, credit entries are always good.

false

When a company gives common stock to an investor, the effect is to ______.

increase stockholders' equity

Which of the following would NOT be reported on the balance sheet?

internally generated research and development

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

investing decisions AND lending decisions

Assets appear on the ______ side of the accounting equation and are increased by amounts that appear on the ______ side of asset T-accounts.

left and left

What is the the effect on the accounting equation when the company declares a dividend to be paid later?

liabilities decrease AND retained earnings decrease

Intangible assets are internally generated (rather than purchased) over time through research, development and advertising are ______.

not reported on the balance sheet

Off-balancing sheet financing refers to ______.

obligations not reported as liabilities on the balance sheet

Rental agreements are sometimes written so that the company can avoid reporting liabilities. This is considered ________.

off-balance-sheet financing

Transferring entries from the journal to the ledger is called _______.

posting

Which of the following is correct regarding posting a transaction?

posting means to transfer journal to a ledger

Which of the following characteristics are needed in order for information to be useful?

relevance and faithful representation

Credit means ______.

right

Liabilities appear on the ______ side of the accounting equation and are increased with amounts that appear on the ______ side of liability T-accounts

right AND right

Company X receives $10,000 from issuing 10,000 shares of $1 par value common stock to its owners. The effect on the accounting equation is ______. (Check all that apply.)

stockholders' equity increases AND assets increase

A company sells each share of its $1 par value common stock for $8 each. Additional Paid-in Capital per share equals ______.

$7

On a trial balance, which of the following would indicate that an error has been made?

Buildings has a credit balance. Common Stock has a debit balance. Dividends Payable has a debit balance.

Identify on which side of the Accounts Payable T-account the following would appear.

Ending Accounts Payable balance on the credit side. Payments of supplies previously purchased on account on the debit side. Purchases of supplies on account would be on the credit side.

Internal Events; External Events

Using supplies on hand; Purchasing supplies from a vendor

Although a company may have a high current ratio, it still may have liquidity issues if it has ______.

a lot of current assets in slow-moving inventory

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

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

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

The totals on a trial balance reveal whether the total ______ equal the total ______ .

debits AND credits

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

$1000 decrease in assets and liabilities

Every transaction has at least ______ effect(s) on the basic accounting equation.

2

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

Accounts Payable is decreased AND cash is decreased

On a trial balance, which of the following would indicate that an error has been made?

The total debits are greater than the total credits Accounts Receivable has a credit balance. The total debits are less than the total credits

Why would a baker want a copy of a company's financial statements?

To decide if a company is doing well enough to repay the amounts it has borrowed

Which of the following statements about transactions are true?

a transaction has a measurable effect on assets, liabilities or stockholders' equity AND an exchange of a promise to pay in the future for supplies received today is a transaction AND not all external exchanges and internal events are considered transactions

Which statement is false?

a trial balance is the same as a balance sheet.

Per value of common stock is the _______.

amount established by the board of directors AND minimum amount to be contributed per share

Additional Paid-in Capital is the ______.

amount paid in excess of the par value

Which of the following is used to record the summary of effects on one particular item ?

an account

What type of account appears on the left side of the accounting equation and is increased with amounts on the left side of T-accounts?

asset

If a company debits Cash and credits Notes Payable, it ______.

borrowed money

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

On a trial balance, which of the following would indicate that an error has been made?

common stock has a debit balance AND buildings has a credit balance AND dividends payable has a debit balance

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 ______.

credit to Accounts payable of $1200 and debit to Supplies of $1200

Which component is the first subtotal listed on a classified balance sheet?

current assets

Identify on which side of the Accounts Payable T-account the following amounts appear? Select all that are correct.

the ending balance would be on the right side AND the beginning balance would be on the right side AND increases would be on the right side AND decreases would be on the left side

Additional Paid-in Capital is ______.

the excess received above par value AND sometimes called "Paid-in Capital" AND sometimes called "Contributed Capital in Excess of Par"

On December 15, Pasta Disasta's board of directors declares a $1,000 cash dividend to shareholders to paid next month. Show the effect of this event on Pasta Disasta's accounting equation on December 15.

total stockholders' equity will decrease

True or false: A company may have a high current ratio and still have liquidity problems and not be able to pay its bills when they come due.

true

True or false: Debit means left side of an account.

true

The primary objective of external reporting is to provide _______.

useful economic information about a business to help external parties make sound financial decisions