ACC Quiz 2
Which of the following statements about the debit/credit framework is correct?
When payment is made on a liability such as accounts payable, the liability account is decreased with a debit.
What does the current ratio measure?
Whether current assets are sufficient to pay current liabilities
Which of the following statements about normal account balances is correct?
Assets have debit balances and liabilities have credit balances.
Assets are listed on a classified balance sheet:
beginning with current assets and starting with Cash.
Current liabilities are expected to be:
fulfilled within one year.
The Accounts Payable account:
has a normal credit balance.
In a classified balance sheet, current assets are usually listed:
in the order of liquidity.
Equity financing is financing obtained from:
stockholders.
If land is purchased using cash:
total assets will remain the same.
The creditors' claims to a company's resources are represented by:
total liabilities.
A current asset is one that the company:
will use up or convert into cash in less than 12 months.
Which of the following is a financing activity?
The business receives $1,000 cash and in exchange gives a promissory note.
Sue Shells, Incorporated pays back $200,000 on a loan it had obtained earlier from a bank. What is the effect of this transaction?
Assets decrease by $200,000, liabilities decrease by $200,000, and stockholders' equity is unchanged.
Pick-A-Pet, Incorporated, makes a $10,000 payment on account. This would result in a:
$10,000 debit to Accounts Payable and a $10,000 credit to Cash.
Constable Company reported the following information at December 31, Year 1: What's the credit?
$114,780 : Liabilities and stockholders' equity are the credit balance accounts.Liabilities = Accounts Payable + Wages Payable + Notes Payable= $4,540 + $3,170 + $2,540 = $10,250Stockholders' equity = Common Stock + Retained Earnings= $90,400 + 14,130 = $104,530Liabilities + Stockholders' equity = $10,250 + $104,530 = $114,780
Which of the following would not be classified as a current asset?
Accounts Payable
During the current year, Sue Shells, Incorporated's total liabilities decreased by $50,000 and stockholders' equity increased by $10,000. By what amount and in what direction did Sue's total assets change during the same time period?
$40,000 decrease
Constable Company reported the following information at December 31, Year 1: What's the liability
$7,710 : Current liabilities = Accounts payable + Wages payable= $4,540 + $3,170 = $7,710
Which of the following statements is correct?
A transaction is recorded if it has a measurable financial effect on the assets, liabilities or stockholders' equity of a business.
Which of the following would be listed as a current liability?
Accounts Payable
Kirby, Incorporated borrows $16 million from its bank. It then uses this money to buy equipment. How do these two transactions affect the company's accounting equation?
Assets and liabilities both increase by $16 million.
Sue Shells, Incorporated issues $400,000 in new stock. It later uses the cash received to purchase land. What accounts are affected by these two transactions?
Common Stock, Cash, and Land.
Baldwin Company purchased equipment for $420,000 and planned to use it when the company expanded one of its product lines. However, six months later, the company changed its plans and sold the equipment to Stick, Inc. for $420,000. Stick signed a note for $420,000 that is due in 60 days. The journal entry prepared by Baldwin Company to record the sale of the equipment would include which of the following?
Credit to Equipment
Which one of the following is not a current asset?
Equipment
Which of the following statements about the current ratio is not correct?
Having more current assets than current liabilities will yield a current ratio less than 1.0.
A business can obtain financing by issuing stock or borrowing from third parties, such as banks. What is the balance sheet effect of issuing stock to obtain cash?
Increase assets; No effect on liabilities; Increase stockholders' equity
A debit would make which of the following accounts increase?
Inventory
Which of the following statements about the debit/credit framework is correct?
The total value of credits in all accounts must always equal the total value of debits in all accounts.
How do credits appear in a T-account?
They are always listed on the right side of the account.
In a classified balance sheet, assets and liabilities are classified according to whether they are current or noncurrent. Which of the following statements is not correct about current assets?
They will be acquired within one year.
Bolt Enterprises receives $100,000 cash from its customers on account. Bolt uses the cash to pay off $100,000 on a bank loan, the net result is that:
assets would decrease by $100,000 and liabilities would decrease by $100,000.
A company borrows money from a bank. The journal entry to record the transaction would include a:
debit to Cash and a credit to Notes Payable.
Puffin, Incorporated purchased land costing $54,000 by paying cash of $13,500 and signing a 90-day note for the balance. The entry to record this transaction would:
increase total assets.
The current ratio:
is a measure of a firm's ability to pay its current liabilities.
The Accounts Receivable account:
is increased by a debit.
The characteristic shared by all liabilities is that they:
obligate the company to do something in the future.
Within the debit/credit framework, the best interpretation of the word "credit" is:
right side of an account.
The normal balance of any account is the:
side which increases that account.