ACIS 2115 Chapter 2 Smartbook
When a company buys an asset on account ______.
assets increase and liabilities increase
A company typically receives ________, an asset, when it issues stock to its owners.
cash
What does a business typically receive when it issues stock to owners?
cash
The issuance of common stock is recorded with a debit to ______ and a credit to ______
cash common stock
A company made a $1,000 payment on its $100,000, 20-year mortgage. The decrease in liabilities would be recorded with a Blank______ to Notes Payable.
debit
A company received $2,000 of equipment and promised to pay for it next month. The increase in equipment would be recorded with a ______ to the Equipment account.
debit
All transactions ______.
have at least two effects on the accounting equation affect assets, liabilities, and/or stockholders' equity
What is the effect on total assets when a company purchases a cash register for a cash payment of $1,200?
no effect- one asset is exchanged with the other
Buildings and equipment owned and used by a company are ______.
non-current assets
Identify the account title that may be used to record borrowing cash in exchange for a promissory note.
note payable
On the balance sheet, Equipment is reported at its ______.
original cost
Accounts _______ is a liability account and represents amounts owed to suppliers.
payable
Accounts Payable is increased with an entry on the _____ side of the T-account.
right
The Common Stock account 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 current ratio measures a company's:
short-term liquidity. ability to pay in the upcoming year.
A classified balance sheet ______.
shows subtotals for current assets and current liabilities
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 assets $1,000 decrease in liabilities
A company's beginning Equipment account is $100,000. It purchased $10,000 of new equipment and sold $4,000 of its equipment during the period. The company's ending Equipment balance equals a _____ balance.
$106,000 debit
Melon-Cauli Grocers, Inc. had a $10,000 balance in its Accounts Payable account at the beginning of the month. During the month, it made $60,000 of purchases on account due within 1 month and paid $40,000 of the amounts owed. The Accounts Payable balance at the end of the month has a ______ balance.
$30,000 credit
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 Blank______ balance.
$4,000 credit
A company's beginning Cash is $10,000. It had a $100,000 of cash receipts and $70,000 of cash payments during the period. The company's ending Cash balance equals a _____ balance.
$40,000 debitCash, and asset, equals a $40,000 debit balance (=$10,000 debit + 100,000 debit - 70,000 credit)
All accounting systems ______.
-follow the accounting cycle -combine beginning balances with the activity during the accounting cycle to yield the ending balances for each account -record and summarize financial effects of transactions
Which of the following are possible effects on the accounting equation when recording a transaction that increases an asset by $100?
A liability account increases by $100 A decrease in another asset by $100 A stockholders' equity account increases by $100
Which of these line items appear on a balance sheet?
Assets Liabilities Stockholder's Equity
accounting equation
Assets = Liabilities + Owner's Equity
Show the effect of recording the borrowing of $10,000 from a bank on the accounting equation. _____ by $10,000.
Assets increase Liabilities increase
Which of the following are non-current assets that are found on the balance sheet?
Buildings Land Equipment Machinery
Which of the following is a current asset?
Cash
Which of the following have normal debit balances?
Cash Supplies Equipment
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?
Cash is decreased. Accounts Payable is decreased.
$1,000 is posted to the left side of the Logo and Trademarks T-account. Which of the following might have been the entry that was recorded in the journal?
Debit Logo and Trademarks and credit Cash
A transaction that involves an exchange of assets, liabilities and/or stockholders' equity between the company and someone else is called a(n)
External Exchange
T or F: If one asset increased, it must be the case that either liabilities or stockholders' equity increased by the same amount. True false question.
False Asset may be exchanged for another thus having no affect on liabilities or stockholders equity.
Which of the following have normal credit balances?
Notes Payable Common Stock Accounts Payable
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
The Mortgage Payable account is increased with an entry on the _____ side of the T-account.
Right
Company X issued $10,000 of common stock to its owners for cash. It recorded the transaction by increasing assets and increasing liabilities.
Stockholders' equity will be too low. Liabilities will be too high.
Which of the following is an appropriate application of the cost principle regarding land that was purchased 20 years ago and has increased in value?
The land is reported on the balance sheet at the original price paid for it.
What is the effect on total liabilities when a company buys a building in exchange for a 20-year note payable?
Total liabilities will increase.
Which of the following accounting cycle steps describes the process of recording journal entries?
Transactions are recorded chronologically showing the accounts debited along with the corresponding accounts credited.
Financial information needed to manage a company is provided by a(n) ______ system.
accounting
When should the total dollar value of debits equal the total dollar value of credits in a transaction?
always
When a company purchases an asset in exchange for a promise to pay later, the company records ______.
an increase in a liability account
The formula for calculating the current ratio is ______.
current assets divided by current liabilities
A company issued 1,000 shares of stock for $100,000. The increase in the Common Stock account would be recorded with a ______.
credit
A company paid $2,000 cash to an employee for this month's salary. The entry to record this transaction would include a ______ to Cash.
credit
The beginning balance in Ace's Accounts Payable was $3,000. Ace then bought $200 of supplies paying cash. It also paid $500 of the amount that it owed for supplies purchased on account last month. The ending balance in Ace's Accounts Payable is a ______.
credit of $2500. because $3000-$500=$2500 the supplies is purchase with cash so it does not affect accounts payable
The beginning balance in Lucre's Notes Payable account was $50,000. During the month, Lucre borrowed $60,000 cash from Last National Bank and then paid First National Bank the $40,000 it had borrowed 5 months prior. The balance in Lucre's Notes Payable account is now a ______.
credit of $70,000
Acme Enterprises borrowed $20,000 from Last Bank on a 5-year note payable. Acme's journal entry to record this transaction will include a Blank______ of $20,000.
credit to Notes Payable debit to Cash
Which groups have claims to a business's assets?
creditors and stockholders
_________ liabilities are obligations that will be paid or met within 12 months of the balance sheet date, whereas __________ liabilities are not due within 12 months of the balance sheet date.
current concurrent
Noodlecake pays $300 cash to create the company's logo. The journal entry to record this transaction would include a ______ for $300.
debit to Logo/Trademarks credit to Cash
The effect on the accounting equation of paying suppliers for amounts owed includes a(n) ______.
decrease in liabilities
A debit to Cash and a credit to Common Stock is recorded when a company:
incorporates and its owners contribute cash.
A company paid $5,000 cash to purchase equipment. The company recorded a debit to Equipment of $5,000 and a credit to Cash of $500. This company's accounting records are ______.
incorrect because debits do not equal credits
Company X receives $10,000 from issuing common stock to its owners. The effect on the accounting equation is a(n) _____.
increase in stockholders' equity increase in assets
Events that do not involve exchanges between the company and someone else but affect assets, liabilities and/or stockholders' equity are called
internal events
The Cash T-account is increased with an entry on the _______ side of the T-account.
left
The Equipment account is increased with an entry on the ______ side of the Equipment T-account
left
What is the effect on total assets when a company purchases land for a cash payment of $10,000?
no effect
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
Morris Lest, Inc. purchased machinery for $10,000 cash. The effect of this transaction is to cause ______.
total assets to remain the same
What is the effect on total assets when a company buys a building in exchange for a 20-year note payable?
total assets will increase
The creditors' claim to a company's resources is represented by ______.
total liabilities
MMM Pizza bought $1,500 of equipment on account (i.e., on credit). What is the effect of recording this transaction on the company's total liabilities?
total liabilities will increase
T or F Accounts Payable is a liability.
true