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When a company buys equipment for $150,000 and pays for one third in cash and the other two thirds is financed by a note payable,which of the following are the effects on the accounting equation?


A) Total assets decrease $50,000.
B) Total liabilities increase $150,000.
C) Total liabilities decrease $50,000.
D) Total assets increase $100,000.

E) C) and D)
F) All of the above

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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?

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Issuing stock in exchange for cash creates a financing activity cash flow.

A) True
B) False

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Which of the following journal entries is correct when a business entity builds an addition to the factory building by paying cash to a contractor?


A) Retained Earnings
\quad Cash
B) Building
\quad \quad Contributed Capital
C) Cash
\quad Building
D) Building
\quad Cash

E) B) and D)
F) C) and D)

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Which of the following is included within current assets on a balance sheet?


A) Land used in daily operations.
B) A truck used in daily operations.
C) Inventory which takes two years to manufacture.
D) Intangible assets.

E) None of the above
F) B) and C)

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

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The current ratio is current assets divided by current liabilities.

A) True
B) False

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Describe both the investing activities and financing activities section of the cash flow statement.Provide some examples of each activity.

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Which of the following best describes liabilities?


A) Possible debts or obligations of an entity as a result of future transactions which will be paid with assets or services.
B) Possible debts or obligations of an entity as a result of past transactions which will be paid with assets or services.
C) Probable debts or obligations of an entity as a result of future transactions which will be paid with assets or services.
D) Probable debts or obligations of an entity as a result of past transactions which will be paid with assets or services.

E) C) and D)
F) B) and C)

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Selling stock to investors for cash would result in which of the following?


A) A debit to contributed capital and a credit to cash.
B) A credit to both cash and contributed capital.
C) A debit to cash and a credit to contributed capital.
D) A debit to cash and a credit to retained earnings.

E) A) and D)
F) C) and D)

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Which of the following statements is false?


A) An item considered immaterial can be accounted for in the most cost-beneficial manner.
B) An item is considered relevant if it has the ability to influence a decision.
C) Information is considered to be reliable when it is accurate, unbiased, and verifiable.
D) Conservatism suggests that assets and revenues should be overstated when possible.

E) All of the above
F) B) and C)

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Which of the following best describes assets?


A) Resources with possible future economic benefits owed by an entity as a result of past transactions.
B) Resources with probable future economic benefits owned by an entity as a result of past transactions.
C) Resources with probable future economic benefits owned by an entity as a result of future transactions.
D) Resources with possible future economic benefits owed by an entity as a result of future transactions.

E) A) and D)
F) All of the above

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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 lent to an employee; the employee signed a six-month note in exchange for the loan. How much are Warren's total liabilities at the end of April?


A) $145,000
B) $155,000
C) $165,000
D) $135,000

E) B) and D)
F) C) and D)

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The duality (or duality of effects) concept states that


A) both the income statement and balance sheet are impacted by every transaction.
B) every transaction has an impact on assets and stockholders' equity.
C) there are two entities involved in every transaction.
D) every transaction has at least two effects on the accounting equation.

E) All of the above
F) B) and D)

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The T-account is very useful for accumulating the effects of transactions on account balances and for determining individual account balances.

A) True
B) False

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An account payable would be reported within which of the following financial statements?


A) Statement of cash flows
B) Income statement
C) Balance sheet
D) Statement of retained earnings

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

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Purchasing stock of another company for cash doesn't result in an increase in total assets for the purchasing company.

A) True
B) False

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A journal entry is an expression of the effects of a transaction on accounts which has equal debits and credits.

A) True
B) False

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A corporation purchased factory equipment using cash.Which of the following statements regarding this purchase is false?


A) The current year's net income for will be reduced by the cost of the factory equipment.
B) The total assets will not change.
C) The total liabilities will not change.
D) The current stockholders' equity will not change.

E) A) and D)
F) A) and C)

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The ABC Corporation was formed on January 1,2010.The three initial owners invested $100,000 cash and received shares of stock.Below are selected transactions that were completed during January,2010. 1.Sold 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.

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