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Exam 2: Investing and Financing Decisions and the Accounting System

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Question 61

Multiple Choice

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Which of the following statements is false?

A) Investing cash flows include the cash flows associated with lending money to others.
B) Financing cash flows include the cash flows associated with issuing stock and paying dividends.
C) Financing cash flows include the cash flows associated with borrowing and repaying debt excluding short-term bank loans.
D) Investing cash flows include the cash flows associated with buying and selling noncurrent assets.

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

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Question 62

Multiple Choice

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Which of the following statements is incorrect?

A) Stockholders' equity accounts normally have credit balances.
B) Liability accounts are decreased by credits.
C) Stockholders' equity accounts are increased by credits.
D) Asset accounts are increased by debits.

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

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Question 63

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

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 transactions would create an increase in cash from a financing activity?

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

Current assets include accounts receivable and prepaid expenses.

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 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 transactions would result in a decrease in the current ratio?

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

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

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

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.

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

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

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

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

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?