Chapter 2 MC

Which of the following would not be recorded as an accounting transaction?

hiring a new employee

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

notes payable

Purrfect Pets, Inc., 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.

A company uses $100,000 in cash to pay off $100,000 in notes payable. This would result in a:

$100,000 debit to Notes Payable and a $100,000 credit to Cash.

Transactions include which two types of events?

External exchanges, internal events

Which of the following statement about the current ratio is NOT correct?

Having more current assets than current liabilities will yield a current ratio less than 1.0

Oats, Inc., has $14,000 in Cash, $37,000 in Accounts Receivable, $2,500 in Supplies, $52,000 in Accounts Payable and $12,400 in Wages Payable. If Oats uses Cash to pay off $8,000 of the Wages Payable, which of the following statements is correct?

The company's current ratio will decrease

If a company receives $20,000 cash from its customers on account and uses the cash to pay $20,000 to its suppliers on accounts, the net result is that:

assets would decrease by $20,000 and liabilities would decrease by $20,000

What does a business typically receive when it issues stock to owners?

cash

Which of the following is not an asset?

common stock

The principle that is used to measure the amount assets are to be recorded at when exchanged is called the _________________ principle.

cost

A company purchased equipment for use in the business at a cost of $18,000, one-third was paid in cash, and the company signed a note for the balance. The journal entry to record this transaction will include a:

credit to notes payable for $12,000

At the start of the first year of operations, Retained Earnings would be:

equal to zero.

Which of the following is NOT a current asset?

equipment

Every transaction:

has at least two effects on the basic accounting equation.

Sofa So Good, Inc. signs a contract with a programmer for the development of software that will be developed, delivered and paid for in the next year. The signing of the contract:

has no effect on the accounting equation

The current ratio:

is a measure of a firm's ability to pay its current liabilities.

Transactions are first entered into the:

journal

If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?

Notes Payable (long-term)

A noncurrent liability is one that the company:

will not pay within 12 months

Park & Company was recently formed with a $5,000 investment in the company by stockholders in exchange for common stock. The company then borrowed $2,000 from a local bank, purchased $1,000 of supplies on account, and also purchased $5,000 of equipment by paying $2,000 in cash and signing a promissory note for the balance. Based on these transactions, the company's total assets are:

$11,000

A company has $26,000 in its Land account, $10,000 in its Inventory account, and $6,000 in its Notes Payable (short-term) account. If its only other account is Common Stock, what is the balance of that account?

$30,000

The following are account balances on a balance sheet: Accounts Payable $17,240; Accounts Receivable $2,444; Cash $14,755; Income Tax Payable $5,450; Inventory $22,320; Notes Payable (due in 3 years) $2,340; Equipment $12,560; Common Stock $257,900; Supplies $3,580; Wages Payable $9,552. What is the current ratio?

1.37

The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?

Accounts Payable

A chart of accounts is a:

list of account titles with corresponding reference numbers used by companies so that transaction items are consistently named.

In April, Pizza Aroma hired a new employee at a rate of $1,000 per month to start work at the beginning of May. In April, Pizza Aroma should record:

nothing, because an exchange of promises is not a transaction.

A general journal does all of the following except:

summarizes all of the transactions that affect one account.

The creditors' claims to a company's resources are represented by:

total liabilities

A company receives $100,000 cash from investors in exchange for stock. Several weeks later, the company buys a $250,000 machine using all of the cash from the stock issue and signing a promissory note for the remainder. The accounts involved in these two transactions are:

Cash; Equipment; Common Stock; and Notes Payable.