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Exam 2: Investing and Financing Decisions and the Accounting System

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Question 21

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The current assets section of a balance sheet includes both inventory and prepaid expenses.

A) True
B) False

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Question 22

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Which of the following direct effects on the accounting equation is not possible as a result of a single business transaction?

A) An increase in an asset and a decrease in another asset.
B) An increase in an asset and an increase in stockholders' equity.
C) A decrease in stockholders' equity and an increase in an asset.
D) An increase in a liability and an increase in an asset.

E) B) and C)
F) A) and C)

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Question 23

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Assets are reported on the balance sheet in the order of liquidity.

What is the primary objective of financial reporting?

The ABC Corporation was formed on January 1, 2014. The three initial owners each invested $100,000 cash and each received 10,000 shares of $1 par value common stock. Below are selected transactions that were completed during January, 2014. 1. Issue shares of common stock to the owners. 2. Borrowed $80,000 on a one-year note payable. 3. Purchased land by signing a $70,000 note payable. 4. Paid $10,000 of accounts payable. 5. Purchased two service vehicles for cash at a cost of $24,000 each. 6. Purchased $2,000 of supplies on credit. Prepare the journal entry on ABC's books for each transaction. Include a brief explanation for each entry.

At the beginning of April, Warren Corporation's assets totaled $240,000 and liabilities totaled $60,000. During April the following summarized transactions occurred: Additional shares of stock were sold for $20,000 cash. A building costing $95,000 was purchased using $10,000 cash and by signing an $85,000 long-term note payable. Short-term investments costing $9,000 were purchased using cash. $10,000 was paid to an employee as a loan; the employee signed a six-month note in exchange for the loan. How much are Warren's total liabilities at the end of April?

Which of the following transactions would result in an increase in the current ratio?

Which of the following statements is incorrect?

Which of the following does not correctly describe business transactions or events?

The Pioneer Company has provided the following account balances: Cash $38,000; Short-term investments $4,000; Accounts receivable $48,000; Supplies $6,000; Long-term notes receivable $2,000; Equipment $96,000; Factory Building $180,000; Intangible assets $6,000; Accounts payable $30,000; Accrued liabilities payable $4,000; Short-term notes payable $14,000; Long-term notes payable $92,000; Common stock $180,000; Retained earnings $60,000. What are Pioneer's total current assets?

Which of the following direct effects on the accounting equation is not possible as a result of a single business transaction which impacts only two accounts?

Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000. The additional paid-in capital account balance increased $2,500 during the year. The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000. Net income was $26,000. How much were Superior's dividend declarations during its recent year of operation?

In what order are current assets listed on a balance sheet?

Unearned revenue is reported on the balance sheet as a liability and represents amounts paid to an entity in exchange for future services and/or goods.

The accounts with identification letters for Ward Company are listed below. $\begin{array} { | l | l | } \hline \text { Letter } & \text { Account Title } \\\hline \text { A } & \text { Cash } \\\hline \text { B } & \text { Accounts receivable } \\\hline \text { C } & \text { Office supplies inventory } \\\hline \text { D } & \text { Equipment } \\\hline \text { E } & \text { Land } \\\hline \text { F } & \text { Accounts payable } \\\hline \text { G } & \text { Notes payable } \\\hline \text { H } & \text { Common stock } \\\hline \text { I } & \text { Additional paid-in capital } \\\hline \text { J } & \text { Retained earnings } \\\hline\end{array}$ During 2014, 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 given as an example.

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

In order for information to be relevant, the information should have both predictive and/or feedback value.

Which of the following best describes liabilities?

Which of the following describes the primary objective of financial accounting?

Which of the following transactions will cause both the left and right side of the accounting equation to decrease?