Exam 2: Investing and Financing Decisions and the Accounting System

Why is the historical cost principle so important for balance sheet reporting?

Which of the following transactions would result in a decrease in the current ratio?

Which of the following account balances would not be included in the calculation of the current ratio?

Which of the following transactions would create an increase in cash from a financing activity?

Why is the continuity assumption so important for balance sheet reporting?

The following journal entries with the amounts omitted were taken from the records of Lena Company: Requirement: Write a brief explanation for each of the above transactions.

The accounts with identification letters for Ward Company are listed below. During 2016, the company completed the transactions given below. You are to indicate the appropriate journal entry for each transaction by giving the account letter and amount. Some entries may need three letters. The first transaction is provided as an example.

Current assets include accounts receivable and prepaid expenses.

Which of the following statements is false?

The continuity assumption states that a business will continue to operate into the foreseeable future.

The Superior Company has provided the following account balances: Cash $152,000; Short-term investments $18,000; Accounts receivable $36,000; Inventory $116,000; Long-term notes receivable $44,000; Equipment $174,000; Factory Building $270,000; Intangible assets $33,000; Accounts payable $130,000; Accrued liabilities payable $19,000; Short-term notes payable $84,000; Long-term notes payable $169,000. Requirement: What is Superior's stockholders' equity?

A company purchases a delivery van by paying $5,000 cash and by signing a $25,000 note payable. Which of the following correctly describes the recording of the delivery van purchase?

Which of the following would cause a decrease in cash from investing activities?

A company's January 1, 2016 balance sheet reported total assets of $150,000 and total liabilities of $60,000. During January 2016, the company completed the following transactions: (A) paid a note payable using $10,000 cash (no interest was paid); (B) collected a $9,000 accounts receivable; (C) paid a $5,000 accounts payable; and (D) purchased a truck for $5,000 cash and by signing a $20,000 note payable from a bank. The company's January 31, 2016 balance sheet would report which of the following?

Cadet Company paid an accounts payable of $1,000. This transaction should be recorded on the payment date as follows:

Which of the following assumptions implies that the assets and liabilities of the business are accounted for separately from the assets and liabilities of the owners?

Which of the following statements does not properly describe the current ratio?

An objective of preparing the trial balance is to test the equality of debits and credits.

Which of the following statements is incorrect?

For each of the accounts listed below, indicate whether the typical or normal balance is a debit or credit. A. Supplies B. Notes payable C. Retained earnings D. Equipment E. Prepaid insurance expense F. Accounts receivable G. Land H. Additional paid-in capital I. Accounts payable J. Unearned revenue