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ACCOUNTING CHAPTER 2 Exam Questions
With Accurate Answers
A company paid $500 for supplies that it purchased last month. The decrease in liabilities would be recorded with a __________ to Accounts Payable. - ANSWER Debit
In May, Pasta Disasta, Inc. pays its suppliers $1,000 for supplies received in April. The effect on the accounting equation is a __________. (Check all that apply.) - ANSWER $1,000 decrease in liabilities
$1,000 decrease in assets
Identify the account title that may be used to record borrowing cash in exchange for a promissory note. - ANSWER Note Payable
The Cash T-Account is increased with an entry on the __________ side of the T-Account. (Enter one word per blank.) - ANSWER Left
List the components of a classified balance sheet in the proper order in accordance with GAAP. List from top to bottom. - ANSWER 1. Current assets
- Non-current assets
- Current liabilities
- Non-current liabilities
- Stockholders' equity
The Common Stock account is increased with an entry on the __________ side of the T-Account. - ANSWER Right
Two sources of financing for a new business are __________. (Check all that apply.) - ANSWER Creditors
Stockholders
When a company buys an asset on account __________. - ANSWER Assets increase
Liabilities increase
Which of the following is an appropriate application of the cost principle regarding land that was purchased 20 years ago and has increased in value? - ANSWER The land is reported on the balance sheet at the original price paid for it.
Liabilities have a normal __________ balance - ANSWER Credit
True or False: An exchange of a promise to deliver an asset in the future for a promise to pay in the future is a transaction. - ANSWER False
MMM Pizza bought $1,500 of supplies on account (i.e., on credit). What is the effect of recording this transaction on the company's total liabilities? - ANSWER Total liabilities will increase
In May, Pasta Disasta, Inc. paid its suppliers $500 that it owed for the pizza pans purchased and received in April. Which accounts are affected? (Check all that apply.) - ANSWER Cash is decreased
Accounts Payable is decreased
A company paid $200 cash for supplies that were purchased last month. However, the company recorded a debit to Accounts Payable of $200 and a
Acme Enterprises borrowed $20,000 from Last Bank on a 5-year note payable. Acme's journal entry to record this transaction will include a __________ of $20,000. (Select all that apply.) - ANSWER Debit to cash
Credit to Notes Payable
List these liability accounts in the order in which they would appear on a company's balance sheet. - ANSWER 1. Note Payable (due in 5 months)
- Note Payable (due in 5 years)
- Mortgage payable (due in 25 years)
A transaction may be recorded with an increase in a liability and a(n) __________. - ANSWER Increase in an asset
A company paid $2,000 cash to an employee for this month's salary. The entry to record this transaction would include a __________ to Cash. - ANSWER Credit
Which of these line items appear on a balance sheet? (Check all that apply.) - ANSWER Assets
Liabilities
Stockholders' Equity
Accounts _______ is a liability account and represents amounts owed to suppliers. - ANSWER Payable
Acme Enterprises issued $20,000 of stock in exchange for cash. the journal entry to record this transaction will include a ________ of $20,000. - ANSWER Debit to Cash
The Equipment Account is increased with an entry on the ________ side of the
Equipment T-Account. (Enter one word per blank.) - ANSWER Left
Which of the following statements is true? - ANSWER Accounts Payable is a liability
Current assets divided by current liabilities is the ________ ratio. - ANSWER Current
Acme Enterprises issued $20,000 of stock in exchange for cash. The posting of the journal entry will result in a $20,000 ________ to the Common Stock account. - ANSWER Credit
A transaction may be recorded with an increase in an asset and a decrease in a(n) ________. - ANSWER Another asset
Show the order in which these asset accounts would appear on a company's balance sheet. - ANSWER 1. Cash
- Supplies
- Equipment
Which of the following are possible effects on the accounting equation when recording a transaction that affects two accounts? (Select all that apply.) - ANSWER -One asset account increases and one stockholders' equity account increases
-One asset account increases and one asset account decreases.
A Company purchased $100,000 building in exchange for a 20-year note payable. The company recorded a $100,000 increase in the building account but did not record the note payable. As a result of this error __________. (Check all that apply.) - ANSWER Total assets are correct
The ____________ principle requires that assets be recorded at the amount exchanged for them at the time of purchase. (Enter only one word per blank.) - ANSWER Cost
A classified balance sheet __________. - ANSWER Shows subtotals for current assets and current liabilities
On May 1, Lord of the Fries, Inc. hires an employee to begin work next month. On May 1, Lord of the Fries will __________. - ANSWER Not record anything
The journal entry to record the purchase of supplies on on account includes a credit to __________. - ANSWER Accounts Payable
A chart of accounts is a __________. - ANSWER List of account titles with corresponding reference numbers used by companies so that transaction items are consistently named
Which of the following are non-current assets that are found on the balance sheet? (Check all that apply.) - ANSWER Buildings
Equipment
Land
Machinery
The formal document that lists all of the daily journal entries, but does not provide account balances, is the __________. (Enter one word only.) - ANSWER Journal
Squid Roe, Inc. purchased equipment that cost $20,000 by promising to pay $15,000 next month and paying the remainder in cash. The journal entry to record this transaction includes a __________. (Select all that apply.) - ANSWER
Credit to accounts payable of $15,
Credit to Cash of $5,
Debit to Equipment of $20,
Debits must always equal __________ in each journal entry. (Only add one word per blank.) - ANSWER Credits
Entries are first recorded in the general __________ and then summarized in the ledger. (Enter one word per blank.) - ANSWER Journal
Current liabilities __________. - ANSWER Will be paid or fulfilled within 12 months
Which of the following are characteristics of debt financing, but not of equity financing. (Select all that apply.) - ANSWER Interest
Definite repayment date
Given that there is no change in Stockholders' equity, which of the following will keep the accounting equation in balance? - ANSWER Increase Equipment by $20,000, decrease Cash by $5,000, and increase Notes Payable by $15,000.
An Accounting system is referred to as a double-entry system because __________. - ANSWER Both what is received and what is given in exchange are recorded
If a company is to be able to pay its debts in the next year, then its current assets should be __________ its current liabilities. - ANSWER Greater than
Melon-Cauli Grocers, Inc. received $50,000 worth of computers on account
-Notes payable are amounts borrowed from a bank; Accounts payable are not
All Accounting systems __________. (Select all that apply.) - ANSWER -Follow the accounting cycle
-Combine beginning balances with the activity during the accounting cycle to yield the ending balances for each amount
-Record and summarize financial effects of transactions
Equity financing is financing obtained from __________. - ANSWER Stockholders
Which of these are classified as non-current liabilities on the balance sheet? (Select all that apply.) - ANSWER Note payable due in 10 years
Note payable due in 3 years
Ace Electronics purchased a $35,000 delivery truck in exchange for a 4-year promissory note. The journal entry to record this transaction would include a __________ of $35,000. - ANSWER Debit to Equipment
Credit to note payable
T-Accounts represent a simplified version of the __________. - ANSWER Ledger
Which account is affected by recording the buying of goods on credit? - ANSWER Accounts Payable
Melon-Cauli Grocers, Inc. had a $10,000 balance in Accounts Payable at the beginning of the month. During the month, it made $60,000 of purchases on account due within 1 month and paid $40,000 of the amounts owed. The Accounts Payable balance at the end of the month has a __________ balance. - ANSWER $30,000 credit
Squid Roe, Inc, purchased equipment that cost $20,000 by issuing a 6%, $15,000 promissory note and paying the remainder in cash. The effects on the accounting equation are __________. - ANSWER Equipment, an asset, is increased by $20,
Note payable, a liability is increased by $15,
When a company receives an invoice for goods purchased and received from a supplier, it records __________. - ANSWER An increase in accounts payable
A company purchased $2,200 of equipment in exchange for a cash payment of $1,200 and a $1,000 promise to pay. The company recorded a $1,200 increase in the equipment and a $1,200 decrease in the cash account. No entry was made to the accounts payable account. As a result __________. (Check all that apply.) - ANSWER Total assets are too low
The accounting equation is in balance
A trial balance is prepared __________. - ANSWER To check that debits equal credits
A current ratio that equals 2.0 suggests that a __________. (Check all that apply.) - ANSWER Company has the ability to pay its current liabilities
Company's current assets are larger than its current liabilities
Which of the following are considered business documents? (Check all that apply.) - ANSWER Stock certificates
Bills
Invoices
True or False: A company has developed an exceptional customer base. The
