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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) The benefits of providing financial reporting information should outweigh the costs.
B) An item is considered relevant if it has the ability to influence a decision.
C) Information is considered to be faithfully represented when it is complete, neutral, and free from error.
D) Accounting information should be reported in the national monetary unit with adjustment for inflation.

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

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Question 62

Multiple Choice

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Which of the following journal entries is correct when a business entity uses cash to pay an account payable? A. Accounts Payable $\quad$ Cash B. Accounts Receivable $\quad$ Cash C. Cash $\quad$ Accounts Payable D. Cash $\quad$ Notes Payable

A) Option A
B) Option B
C) Option C
D) Option D

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

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Question 63

True/False

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The recording of a journal entry precedes the posting to the general ledger.

Which of the following is not considered to be a recordable transaction?

The stockholders' equity section of a balance sheet includes capital contributed by owners and also retained earnings.

Which of the following journal entries is correct when common stock is sold for cash at a price greater than par value? A.Cash $\quad$ Retained earnings B. Cash $\quad$ Additional paid-in capital $\quad$ Common Stock C. Cash $\quad$ Common Stock D. Cash $\quad$ Common stock $\quad$ Additional paid-in capital

Which of the following journal entries is correct when a business entity purchases a building by paying cash and by signing a note payable for the balance? A. Building $\quad$ Cash $\quad$ Notes Payable B. Building $\quad$ Cash C. Cash $\quad$ Notes Payable $\quad$ Building D. Building $\quad$ Cash $\quad$ Notes Payable

Why is the separate-entity assumption so important for balance sheet reporting?

The Lake Company has provided the following account balances: Cash $76,000; Short-term investments $8,000; Accounts receivable $96,000; Supplies $12,000; Long-term notes receivable $4,000; Equipment $192,000; Factory Building $360,000; Intangible assets $12,000; Accounts payable $90,000; Accrued liabilities payable $12,000; Short-term notes payable $42,000; Long-term notes payable $184,000. Requirement: What is Lake's current ratio?

Which of the following transactions would not be considered an external exchange?

The dual effects concept implies that every transaction has at least two effects on the accounting equation.

Which of the following would result when a company lends cash to a franchisee in exchange for a ten-month note receivable?

Which of the following reflects the impact of a transaction where $200,000 cash was invested by stockholders in exchange for stock?

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

The dual effects concept states that:

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

Complete the following schedule for Red Eye Company. $\begin{array} { | l | l | l | l | } \hline \text { Transaction } & \text { Assets } & \text { Liabilities } & \begin{array} { l } \text { Stockholders' } \\\text { Equity }\end{array} \\\hline \text { Beginning balances } & \$ 200,000 & \$ 80,000 & \$ 120,000 \\\hline \begin{array} { l } \text { Borrowed } \$ 20,000 \text { cash by signing } \\\text { a note payable with a bank. }\end{array} & & & \\\hline \begin{array} { l } \text { Collected accounts receivable for } \\\text { cash, } \$ 7,000 .\end{array} & & & \\\hline \begin{array} { l } \text { Paid accounts payable, } \$ 8,000 \\\text { cash. }\end{array} & & & \\\hline \begin{array} { l } \text { Purchased office supplies on } \\\text { credit, } \$ 2,000 .\end{array} & & & \\\hline \begin{array} { l } \text { Sold common stock, at par value, } \\\text { to new investors in exchange for } \\\text { \$20,000 cash. }\end{array} & & & \\\hline \begin{array} { l } \text { Paid income taxes payable of } \\\text { \$12,000. }\end{array} & & & \\\hline \text { Ending balances } & & & \\\hline\end{array}$

ABC Company's total stockholders' equity at the beginning of the year was $200,000. During the year ABC reported the following: Net loss of $30,000. Stock issued in exchange for land totaling $80,000. Collections of accounts receivable $40,000. Dividends declared and paid totaling $2000. What is ABC's total stockholders' equity at the end of the year?

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

Borrowing cash from a bank would result in which of the following?