Question 1

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 2

Typical cash flows from investing activities include:

Accepted Answer

A)  payments to purchase property and equipment. 
B)  repayment of loans. 
C)  proceeds from issuing notes payable. 
D)  receipts from cash sales.

Question 3

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 4

The classified balance sheet for a company reported current assets of $1,623,850, total liabilities of $799,540, Common Stock of $1,000,000, and Retained Earnings of $130,260.The current ratio was 2.5.
-Use the information above to answer the following question.Which of the following statements is not correct?

Accepted Answer

A)  Total Assets are $1,929,800. 
B)  Total Stockholders' equity is $1,130,260. 
C)  Noncurrent liabilities are $130,260. 
D)  The amount of current assets is 2.5 times the amount of current liabilities.

Question 5

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?

Accepted Answer

A)  Common Stock 
B)  Accounts Payable 
C)  Notes Payable (long-term) 
D)  Retained Earnings

Question 6

Which of the following statements is correct?

Accepted Answer

A)  A current ratio of 1.60 means the company's current assets are probably not sufficient to pay its current liabilities. 
B)  The separate entity assumption requires that the financial activities of the owners of a company be reported on the company's balance sheet. 
C)  The cost principle states that recording activities at cost will result in the balance sheet representing the true value of the company. 
D)  A transaction is recorded if it has a measurable financial effect on the assets, liabilities or stockholders' equity of a business.

Question 7

Stockholders' equity in a corporation consists of:

Accepted Answer

A)  Amounts invested and reinvested by a company's owners. 
B)  Resources presently owned by a business that generate future economic benefits. 
C)  Amounts invested in assets that will be used for one or more years. 
D)  Amounts presently owed by a business.

Question 8

Purrfect Pets,Inc.makes a $10,000 payment on account.This would result in a:

Accepted Answer

A)  $10,000 credit to Cash and a $10,000 credit to Accounts Payable. 
B)  $10,000 debit to Cash and a $10,000 debit to Accounts Payable. 
C)  $10,000 debit to Accounts Payable and a $10,000 credit to Cash. 
D)  $10,000 debit to Cash and a $10,000 credit to Accounts Payable.

Question 9

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 increased. 
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 10

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

Accepted Answer

A)  cash 
B)  cost 
C)  assets 
D)  separate entity

Question 11

If a company pays back money borrowed from a bank,which of the following would be included in the journal entry to record this transaction?

Accepted Answer

A)  Credit Notes Payable and debit Common Stock 
B)  Debit Cash and credit Notes Payable 
C)  Debit Cash and credit Common Stock 
D)  Credit Cash and debit Notes Payable

Question 12

A noncurrent liability is one that the company:

Accepted Answer

A)  has owed for over one year. 
B)  has owed for over five years. 
C)  will not pay within 12 months. 
D)  will not pay within five years.

Question 13

What is the effect on the balance sheet if a company purchases equipment using cash?

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 14

CheapBooks Incorporated (CBI)had the following business activities:
1.Stockholders invest $25,000 cash in the corporation.
2.CBI purchased $400 of office supplies on credit.
3.CBI purchased office equipment for $7,000,paying $2,500 in cash and signing a 30-day note payable for the remainder.
4.CBI paid $200 cash on account for office supplies purchased in transaction 2.
5.CBI purchased two acres of land for $10,000,signing a 2-year note payable.
6.CBI sold one acre of land at one-half of the total cost of the two acres,receiving the full amount or $5,000 in cash.
7.CBI made a payment of $5,000 on its 2-year note.

Accepted Answer

The answer of CheapBooks Incorporated (CBI)had the following business activities:
1.Stockholders...

Question 15

Partial list of account balances at the end of the year:
 
-Use the information above to answer the following question.Which of the following is an accurate description of the economic events involving Accounts Receivable as documented in the T-account above?

Accepted Answer

A)  Sales to customers on account exceeded the payments received from customers on account. 
B)  Payments received from customers on account exceeded the sales made to customers on account. 
C)  The company paid off its debt more than it incurred new debt. 
D)  The company incurred more debt than it paid off.

Question 16

On January 5,Arlington Inc.purchases $23,000 of supplies; payment is not required until February 4.What action should be taken by Arlington Inc.on January 5?

Accepted Answer

A)  No journal entry is required; this transaction should not be recorded until the payment is made. 
B)  A journal entry that includes a credit to Accounts Payable should be prepared. 
C)  A journal entry that includes a debit to Accounts Payable should be prepared. 
D)  A journal entry that includes a debit to Prepaid Expenses should be prepared.

Question 17

The Accounts Receivable account:

Accepted Answer

A)  has a normal credit balance. 
B)  is increased by a debit. 
C)  is a liability. 
D)  is increased when a company receives cash from its customers.

Question 18

Assume a company only entered into financing and investing activities and has prepared its journal entries and posted them to T-accounts.How would the related account balances be listed on its trial balance?

Accepted Answer

A)  Credits first, followed by debits 
B)  Debits first, followed by credits 
C)  Alphabetically 
D)  In descending order by dollar amount

Question 19

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

Accepted Answer

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

Question 20

Which of the following statements regarding debits and credits is always correct?

Accepted Answer

A)  Debits decrease accounts while credits increase them. 
B)  The total value of all debits recorded in the ledger must equal the total value of all credits recorded in the ledger. 
C)  The total value of all debits to a particular account must equal the total value of all credits to that account. 
D)  The normal balance for an account is the side on which it decreases.

Exam 2: Reporting Investing and Financing Results on the Balance Sheet