Question 1

The standard formatting for a journal entry lists the dollar amounts for:

Accepted Answer

A) credits underneath and to the right of the dollar amounts for debits. 
B) debits and credits aligned equally to the right. 
C) debits underneath and to the right of the dollar amounts for credits. 
D) debits and credits aligned equally to the left.

Question 2

Which events are recorded in the accounting system?

Accepted Answer

A) External exchanges only 
B) Internal events only 
C) Both external exchanges and internal events 
D) Transactions are not recorded in the accounting system

Question 3

Which of the following is a report for internal use only?

Accepted Answer

A) Balance sheet 
B) Statement of financial position 
C) Trial balance 
D) Classified balance sheet

Question 4

Owners of a company:

Accepted Answer

A) hold promissory notes as evidence of their ownership claim. 
B) are entitled to repayment of their investment. 
C) have a claim that is secondary to creditor's claims. 
D) have a claim equal to the amount of liabilities a company owes.

Question 5

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?

Accepted Answer

A) The company's current ratio will not change since current assets decreased by the same amount that current liabilities decreased. 
B) The company will look more favorable to creditors. 
C) The company has a greater ability to pay current liabilities. 
D) The company's current ratio will decrease.

Question 6

The following account balances were listed on the trial balance of Edgar Company at the end of the period: $\begin{array}{lr}
\text { Account } & \text { Balance } \
\text { Accounts Payable } & 30,600 \
\text { Cash } & 48,900 \
\text { Common Stock } & 30,000 \
\text { Equipment } & 13,500 \
\text { Land } & 45,000 \
\text { Notes Payable } & 60,000
\end{array}$ The company's trial balance is not in balance and the company's accountant has determined that the error is in the cash account.What is the correct balance in the cash account?

Accepted Answer

A) $57,900 
B) $31,500 
C) $2,100 
D) $62,100

Question 7

In addition to requiring that the accounting equation remain in balance,the double-entry system also requires that:

Accepted Answer

A) the number of asset accounts must equal the number of liability and stockholder's equity accounts. 
B) for any transaction,only two accounts are affected. 
C) for any transaction,both sides of the accounting equation are affected. 
D) the total dollar amount of debits must equal the total dollar amount of credits.

Question 8

Transactions are entered into a(n)________ each day they occur.

Accepted Answer

A) journal 
B) ledger 
C) trial balance 
D) classified balance sheet

Question 9

Match the term with its definition.(There are more definitions than terms. )
-Posting

Accepted Answer

A) A summary of account names and numbers. 
B) A simplified version of an account in the General Ledger. 
C) Compares balance sheet items from two different time periods. 
D) When a dollar value is assigned to an item recorded in the accounting system. 
E) A journal entry that lowers the balance of the account.
F)An amount that is posted on the left side of a T-account or ledger.
G)The concept that a company must keep separate accounts by time period.
H)An amount that is posted on the right side of a T-account or ledger.
I)Assets are initially recorded at the amount paid to acquire them.
J)When journal entries are recorded in the appropriate T-account or ledger.
K)When a company's balance sheet has been verified by an outside auditor.
L)The principle that a company should use the least optimistic measure,when uncertainty exists.
M)The concept that any transaction must have at least two effects on the accounting equation.
N)The mechanism used to record each transaction in the General Journal.

Question 10

Danny Company purchased supplies using cash.What is the effect on Danny's balance sheet?

Accepted Answer

A) No effect on total assets;decrease total liabilities;increase total stockholders' equity 
B) Increase total assets;increase total liabilities;increase total stockholders' equity 
C) Decrease total assets;no effect on total liabilities;increase total stockholders' equity 
D) No effect on total assets;no effect on total liabilities;no effect on total stockholders' equity

Question 11

A company issues $20 million in new stock.The company later uses this money to acquire a building.What is the effect of these two transactions on the company's accounts?

Accepted Answer

A) Buildings increases and Common Stock increases. 
B) Buildings increases and Common Stock decreases. 
C) Cash increases,Buildings increases,and Common Stock increases. 
D) Cash decreases,Buildings increases,and Common Stock decreases.

Question 12

What is the minimum number of accounts that must be involved in any transaction?

Accepted Answer

A) One 
B) Two 
C) Three 
D) There is no minimum.

Question 13

The current ratio:

Accepted Answer

A) is a measure of a firm's ability to pay its current liabilities. 
B) equals current liabilities divided by current assets. 
C) equals total assets divided by total liabilities. 
D) is a measure of profitability.

Question 14

Which of the following would not be classified as a current asset?

Accepted Answer

A) Cash 
B) Accounts Payable 
C) Supplies 
D) Inventory

Question 15

In part,a transaction affects the accounting equation by decreasing a liability.There is no effect on assets.Which of the following statements is correct with regards to this transaction?

Accepted Answer

A) If other liabilities are unchanged,stockholders' equity must be decreasing. 
B) If other liabilities are unchanged,stockholders' equity must be increasing. 
C) If stockholders' equity is unchanged,another liability must be decreasing. 
D) If stockholders' equity is unchanged,other liabilities must be unchanged.

Question 16

Which of the following statements about the balance sheet is correct?

Accepted Answer

A) A classified balance sheet is one that contains privileged information. 
B) Current liabilities are debts and other obligations that will be paid or fulfilled within 12 months of the balance sheet date. 
C) All companies use the chart of account names defined by the Financial Accounting Standards Board (FAS
B) . 
D) A balance sheet is prepared for a period of time.

Question 17

Typical steps needed before a business can start selling goods and/or services to customers include:

Accepted Answer

A) financing and investing activities. 
B) only financing activities. 
C) only investing activities. 
D) only operating activities.

Question 18

Which of the following would be classified as a noncurrent liability on the balance sheet at December 31,Year 1?

Accepted Answer

A) An accounts payable due on January 30,Year 2 
B) A notes payable due November 30,Year 2 
C) A note receivable that matures on April 30,Year 3 
D) A notes payable due January 15,Year 3

Question 19

Eagle Company used $50,000,000 of its cash to pay off debt,as a result,Eagle's stockholders' equity will decrease $50,000,000.

Accepted Answer

A) True 
 B)False

Question 20

How will a company's current ratio be affected when the company receives $20,000 from owners and issues common stock to them?

Accepted Answer

A) The current ratio will increase because current assets increase. 
B) The current ratio will increase because current liabilities decrease. 
C) There will be no change in the company's current ratio. 
D) The current ratio will decrease because current liabilities increase.

Exam 2: The Balance Sheet