BA 211 Ch 2 smartbook

What are the three components of retained earnings?

Revenues, expenses, and dividends

Pilot Company pays for two years of rent in advance. Recording this transaction would include a debit to

prepaid rent

On January 1, Linden has total assets of $100,000, total liabilities of $30,000, and total stockholders' equity of $70,000. Linden purchases $20,000 of supplies on account, and $2,000 of prepaid rent for cash. After these transactions, total assets equal

$120,000. Reason: $100,000 + $20,000 supplies + $2,000 prepaid rent - $2,000 cash = $120,000 total assets.

Which of the following are components of calculating net income?

Revenues Expenses

When supplies are purchased on account, which of the following occurs?

A liability increases.

The accounting equation is:

Assets = Liabilities + Stockholders' Equity

The last step for analyzing the effect of transactions is:

Confirm that assets are equal to liabilities plus stockholders' equity

Pluto Inc. borrows $3,000 from Second National Bank by signing a promissory note. Recording this transaction will include which of the following?

Debit cash Credit note payable

Gilman Company pays a dividend of $4,000 to stockholders. Which of the following is used to record this transaction?

Debit dividends; credit cash.

True or false: A balance sheet is a list of all accounts and their balances showing that debits equals credits.

False

Which of the following includes the list of transactions affecting each individual account and the account's balance?

Ledger

Analyze the following t-accounts and postings. What is the transaction that would require the posting of item (10)?

Payment of dividends to investors

Marcy receives $10,000 cash in advance from customers for services to be performed in the following year. This transaction would cause

assets to increase and liabilities to increase.

The two components of stockholders' equity are

common stock and retained earnings.

Dividends paid to stockholders will cause retained earnings to

decrease

A chronological record of all economic events affecting a firm are recorded in a(n)

journal

Crimson Company's journal shows a debit to the dividend account and a credit to cash. Crimson Company must have:

paid a dividend to its stockholders

Prepaid rent is

rent paid in advance.

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a(n)

trail balance

A transaction will always affect at least ______ accounts.

two

Long issued 5,000 shares of stock for $10,000. Long used $2,000 of the proceeds to purchase supplies, and borrowed $8,000 cash from the bank. Long's total assets are

$18,000. Reason: The issuance of stock will cause assets to increase by $10,000. The purchase of supplies for cash will have no affect on total assets (cash decreases and supplies increases). Borrowing from bank will increase cash (an asset) by $8,000. Therefore, total assets equals $18,000.

Clem Corporation issues 1,000 shares of common stock for $25,000. Clem purchased equipment for $10,000 by borrowing from the bank. Clem's total assets are

$35,000. Reason: Cash $25,000 + Equipment $10,000 = $35,000 total assets.

If a transaction decreases cash by $100, the balance sheet will balance if which of the following occurs? (Select all that apply)

Another asset is increased A liability is decreased

Jeremy issues 5,000 shares of common stock for $10 per share. Which of the following accounts are affected? (Select all that apply.)

Cash Common stock

London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?

Cash is increased. Common stock is increased.

Which of the following are stockholder equity accounts?

Common stock Retained earnings

Geo Corporation issues stock to investors for $100,000. Recording this transaction will include which of the following?

Debit to cash Credit common stock

What is the effect of expenses on retained earnings?

Decrease

On February 1, Domino Corporation ordered inventory. The inventory was received on February 15. Domino paid for the inventory on February 27. On which of the following dates will Domino record a transaction? (Select all that apply)

February 15 February 27

When services are provided on account, what is the effect on stockholders' equity?

Increase

LMN Enterprises performs accounting services for a client for $3,000 cash. What is the effect on the accounting equation?

Increase assets and increase retained earnings

Rice borrows $20,000 from the bank. Which of the following is an effect of this transaction?

Increase liabilities

Price Company provides cleaning services to customers for $10,000 cash. What are the effects of this transaction on the accounting equation? (Select all that apply.)

Increase retained earnings Increase assets

What effect does revenue have on retained earnings?

Increases

Neumann Company's journal shows a debit to salaries expense and a credit to cash. What is the transaction that required this journal entry?

Payment of salaries to employees

Analyze the following journal entry. What is the transaction that required this journal entry?

Perform services for customer for cash

Analyze the following t-accounts. What is the transaction that required the posting of item (7)?

Perform services for customers on account

Analyze the following journal entry. What is the transaction that required this journal entry?

Purchase equipment for cash

Analyze the following t-accounts and the posting marked item (3). What is the transaction that required this posting?

Purchase equipment for cash

Analyze the following t-accounts and postings for item (5). What is the transaction that required this posting?

Purchase supplies on account

Jonathan Company's journal shows a debit to supplies and a credit to accounts payable. This means that Jonathan:

Purchased supplies on account

Identify the three components of retained earnings.

Revenues Dividends Expenses

Rory purchases supplies for cash. Which of the following occurs?

Total assets remain the same

True or false: The accounting equation must always remain in balance.

True

When should revenue be recorded?

When the services are performed

Indicate which situations would require Zenda Company to record revenue in the current period. (Select all that apply.)

Zenda performs services for cash. Zenda performs services on account.

Accounts receivable are

assets.

Smith Company's journal shows a debit to cash and a credit to notes payable, both for $15,000. This indicates that Smith Company:

borrowed $15,000 cash and signed a note

Analyze the following t-accounts. The transaction that required the posting for item (2) is

borrowing cash from the bank.

Slim purchases equipment with cash. The accounts affected are

cash and equipment.

A journal provides a

chronological record of all transactions affecting a firm.

The two roles of financial accounting are to:

communicate information to external parties for decision making purposes. measure business activities of the company.

In a double-entry accounting system, the - represents the left side of the account. (Enter one word per blank)

debit

Roslin Corp. provides services to customers on account for $5,000. Recording this transaction will include a

debit to accounts receivable. credit to revenues.

Sinclair purchased equipment for $100,000 cash. Recording this transaction would include a

debit to equipment $100,000.

Crane purchases equipment by signing a note payable with the equipment dealer for $10,000. The accounts affected for Crane are

equipment and notes payable.

The types of accounts which affect retained earnings are

expenses. dividends. revenues.

On January 1, Lorna pays $36,000 of rent in advance. The effects of this transaction are to

increase prepaid rent. decrease cash.

A debit is on the ______ side of the account.

left

Stockholders' equity is increased by revenues because revenues increase

net income.

Gondel Company's journal shows a debit to prepaid rent and a credit to cash. This means that Gondel Company

paid rent in advance.

DiAngelo Company's journal shows a debit to cash and a credit to service revenue. This journal entry indicates that DiAngelo:

performed a service for a customer for cash

The purpose of a general ledger is to

provide in a single location the list of transactions affecting each account and the account's balance.

Ursula Company's bookkeeper records revenue relating to a customer transaction. This indicates that the company

provided goods or services to a customer.

Indigo Company's journal reveals that equipment was debited and notes payable was credited, both for $10,000. Indigo Company must have

purchased equipment and signed a note for the purchase price

Consistent with the - recognition principle, companies record revenue at the time goods are provided to customers. (Enter only one word.)

revenue

The two basic components for calculating net income are - and - . (Enter one word per blank.)

revenues expenses

Claire purchases equipment for $10,000 by paying $3,000 in cash and borrowing $7,000 from the bank. The number of accounts affected by this transaction is

three Reason: Three accounts are affected: equipment, notes payable, and cash.

Place the three steps for analyzing the effect of transactions in the correct order.

1. Determine one account in the accounting equation that will increase or decrease 2. Determine a second account in the accounting equation that will increase or decrease 3. Confirm that assets are equal to liabilities plus stockholder's equity

When a company performs services for a customer, and the customer agrees to pay for the services at a later date, the transaction is recorded in which account?

Accounts receivable

Analysis of Mueller Company's accounts show that as a result of a single transaction, both cash and notes payable increased by $10,000. Which of the following transactions would have caused this increase?

Borrowing cash and signing a promissory note

Analyze the following journal entry. Which of the following transactions required this journal entry?

Borrowing cash from the bank

Rawlings Corp. borrows $3,000 on a note payable from Third National Bank. Which of the following is used to record this transaction?

Debit cash $3,000; credit note payable $3,000.

Carnival Company issues common stock to investors for $50,000. Which of the following is used to record this transaction?

Debit cash; credit common stock.

What are the effects of providing services on account to customers?

Increase assets Increase retained earnings

What is the effect of net income on retained earnings?

Increases retained earnings

The accounting equation is: Assets = - + Stockholders' Equity.

Liabilities

On May 1, Ace Electronics ordered office equipment. The equipment was delivered to Ace on May 15, and Ace agreed to pay for it by the end of the month. Ace paid for the equipment on May 31. When will Ace make the first entry in its accounting system for this purchase?

May 15

Analyze the following t-accounts. What is the transaction that required the posting of item (4)?

Pay rent in advance

Analyze the following t-accounts and postings. What is the transaction that required the posting of item (9)?

Payment of salaries to employees

When cash is received in advance for services to be performed at a later date, an asset is increased and

a liability is increased.

Lassiter Industries purchased equipment for $140,000. Lassiter expects to use the equipment over the next 10 years. Recording this transaction would include a

debit to equipment $140,000.

Ming Corporation pays its employees $4,000 in salaries for the current period. Recording the payment of salaries would include a

debit to salary expense.

Yeung Corp. purchases supplies on account. Recording this transaction will include a

debit to supplies.

What is the effect of dividends on retained earnings?

decrease

Expenses will cause retained earnings to

decrease.

Beloit Company receives $40,000 from customers for services to be performed in the following year. Recording this transaction will include a credit to

deferred revenue.

Budget Company pays a dividend to its shareholders for $5,000. Recording this transaction will include a debit to

dividends

Revenues cause retained earnings to

increase

Zelda purchases $10,000 of supplies on account. The effects of this transaction are to

increase assets. increase liabilities.

Cray purchases equipment for cash. Total assets will

remain the same.

An increase in revenues increases net income, which results in an increase to:

retained earnings

Sampson Corporation issues common stock for $25,000 cash and uses some of the proceeds to purchase equipment for $10,000 cash. Sampson also purchases $4,000 of supplies on account. After recording these transactions total assets are

$29,000. Reason: Issuing common stock increases assets by $25,000 (cash) and increases equity (common stock). Purchasing equipment for cash decreases one asset and increases another asset, so there is no change in assets. Purchasing supplies on account increases assets and increases accounts payable. $25,000 + $0 + $4,000 = $29,000 total assets.

Shriver Corp. borrows $25,000 from a bank and signs a two-year promissory note. What accounts will be affected by this transaction and what is the effect?

Cash increases Notes payable increases

Inwood Corporation receives $36,000 in advance from customers for services to be performed over the next three years. Which of the following is used to record this transaction?

Debit cash; credit deferred revenue.

Fuller Company provides services to customers for $25,000 cash. Which of the following is used to record this transaction?

Debit cash; credit revenue.

Oasis Company provides services to customers for $10,000 cash. Which of the following is used to record this transaction?

Debit cash; credit revenue.

Farmer, Inc. purchases a tractor for $80,000 cash. Recording this transaction will require which of the following?

Debit equipment Credit cash

Porter Company pays for three years of rent in advance. Which of the following is used to record this transaction?

Debit prepaid rent; credit cash.

Perkins Company pays employees $5,000 for work performed in the current period. Which of the following is used to record this transaction?

Debit salary expense; credit cash.

Torrence purchases supplies for cash. Which of the following is used to record this transaction?

Debit supplies; credit cash.

True or false: The two functions of financial accounting are to measure business activities and prepare tax returns.

False

Lexington Company borrows $10,000 from a bank by signing a promissory note. What are the effects of this transaction on the accounting equation?

Increase assets Increase liabilities

Analyze the following journal entry. What is the transaction that required this entry?

Issue stock to investors

On January 1, Kim pays for two years of rent in advance. The effect of this transaction

has no effect on total assets. Reason: Cash will decrease and prepaid rent will increase; therefore, the total effect is no change in total assets.