Question 1

Which of the following would be listed as a long-term asset?

Accepted Answer

Buildings and equipment are long-term assets because they have a useful life of over one year and are not intended to be sold in the normal course of business. Cash and supplies are typically short-term assets, and "total assets" is not a specific asset category.

Question 2

Which of the following is not an example of an asset?

Accepted Answer

Retained earnings is not an example of an asset. It is a portion of a company's equity that represents the cumulative profits that have not been distributed to shareholders as dividends. Assets, on the other hand, are resources owned or controlled by a company that have economic value and are expected to provide future benefit. Choices A, B, and C are all examples of assets.

Question 3

The local branch of the Universal Bank System (UBS) receives money from depositors and lends it to borrowers. Which of the following would be true about UBS's financial statements?

Accepted Answer

Deposits are liabilities because they represent money that depositors have entrusted to UBS, which the bank must repay upon demand or on a predetermined schedule. Loans are assets because they represent a stream of cash flows that UBS expects to receive from borrowers over time. Therefore, UBS would report deposits as liabilities and loans as assets on its financial statements.

Question 4

A current asset is one that:

Accepted Answer

A current asset is an asset that is expected to be converted into cash within one year or used up within one operating cycle, whichever is longer. Current assets are expected to be regularly turned over or converted into cash and are used to fund a company's day-to-day operations. Option A and B are incorrect because they refer to fixed assets, which are not considered current assets. Option D is incorrect because five years is significantly longer than the typical timeframe for a current asset.

Question 5

How many of the following statements regarding debits and credits are true?
A decrease in assets will result in a credit to an asset account.
Across all accounts, the total value of all debits must equal the total value of all credits.
The total value of all debits to a particular account must equal the total value of all credits to that account.

Accepted Answer

The first statement is false - a decrease in assets will result in a debit to an asset account.
The second statement is true - this is the fundamental principle of double-entry accounting.
The third statement is true - every transaction must be balanced with equal debits and credits to maintain the accounting equation.

Question 6

Which of the following describes the classification and normal balance of the retained earnings account?

Accepted Answer

Retained earnings is a part of stockholders' equity and has a credit normal balance, which means that it increases with credits and decreases with debits. Therefore, option B is the correct answer. The other options (A, C, and D) are incorrect because retained earnings is not an asset or a liability and it has a credit (not debit) normal balance.

Question 7

Account names in the chart of accounts are:

Accepted Answer

Account names in the chart of accounts are linked to account numbers to ensure consistency and accuracy in the records. A and D are incorrect because account names do indicate the nature of the account and are not mandated by the FASB. B is incorrect because consistency in the use of account names is important in maintaining accurate records.

Question 8

If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?

Accepted Answer

The company would report the amount borrowed in the Notes Payable account, as this account specifically tracks loans that are structured with a written promise to repay the principal plus interest at a future date. Contributed Capital represents funds raised by investors in exchange for equity in the company, Accounts Payable represents amounts owed for goods or services received but not yet paid for, and Bonds Payable represent longer-term debt instruments that are backed by a promise to repay the principal plus interest over multiple years. None of these accounts would properly reflect a loan structured as described in the question.

Question 9

How many of the following statements regarding posting and classification are true?
Posting journal entries involves copying the dollar amounts from the journal into the ledger.
If a $100 debit is erroneously posted to an account as a $100 credit, the accounts will be out of balance by
$100.
If a $5,000 liability is misclassified as stockholders' equity then the accounting equation will still balance.

Accepted Answer

- The first statement is false. Posting journal entries involves transferring the information from the journal to the ledger, which includes not only the dollar amounts but also the corresponding account titles.
- The second statement is true. If a debit is mistakenly posted as a credit or vice versa, it will create a discrepancy of double the amount in the trial balance (which lists all the account balances).
- The third statement is false. Misclassifying a liability as equity will result in an imbalance of $5,000 in the accounting equation (since assets and liabilities must equal equity), and hence the equation will not balance.

Question 10

The Buddy Burger Corporation owes $1.5 million to the Texas Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?

Accepted Answer

Buddy Burger owes money to Texas Wholesale Meat Company, so this is a liability. The appropriate account for reporting obligations or debts owed to others is Accounts Payable. Therefore, the Buddy Burger Corporation would use Accounts Payable to report the amount owed.

Question 11

Which of the following would be listed as a current liability?

Accepted Answer

Accounts payable are amounts owed to suppliers or creditors for goods and services received but not yet paid for, making them a current liability. The other options listed are not current liabilities; cash in the bank is an asset, notes payable due in two years is a long-term liability, and supplies are inventory.

Question 12

How much financing did the stockholders of Purrfect Pets, Inc., directly contribute to the company?

Accepted Answer

The answer of How much financing did the stockholders of...

Question 13

In 1999, the Denim Company bought land that cost $15,000. In 2010, a similar piece of land was bought for $28,000 and the company's existing land was estimated to be worth $18,000. On the balance sheet at the end of
2010, the land that was purchased in 1999 would be reported at:

Accepted Answer

Land is reported on the balance sheet at its historical cost, which is the original purchase price of $15,000 in this case.

Question 14

Which line items on the balance sheet would be classified as long term?

Accepted Answer

Property, Plant and Equipment and Notes Payable are typically classified as long-term assets and liabilities, respectively, on the balance sheet. Other Assets may also include long-term investments or intangible assets. Cash, Supplies, Accounts Payable, and Total Assets/Liabilities are usually considered current or short-term items on the balance sheet.

Question 15

A long-term liability is one that the company:

Accepted Answer

A long-term liability is a debt or obligation that a company will not pay off within the next year. This includes loans, bonds, and leases with a term longer than one year.

Question 16

If a company receives $20,000 cash on accounts receivable and uses the cash to pay $20,000 on accounts payable then:

Accepted Answer

The answer of If a company receives $20,000 cash on...

Question 17

At the start of the first year of operations, retained earnings on the balance sheet would be:

Accepted Answer

Retained earnings represent the cumulative profits of a company that have not been distributed as dividends. Since it is the first year of operation, there would be no profits earned yet, hence retained earnings would be equal to zero.

Question 18

Any item on a balance sheet labeled payable is a liability of that company.
Current Assets are listed on the balance sheet in order of how fast they are used up or can be turned into cash.
The basic accounting equation must always balance.

Accepted Answer

The answer of  Any item on a balance sheet...

Question 19

How many of the following statements regarding the concepts underlying the balance sheet are true?
A company buys land for $5 million dollars in 1983. The land is now worth $15 million. The company should increase the book value of this asset on its balance sheet to reflect its current value.
All events affecting the current value of a company are reported on the balance sheet.
According to the cost principle, assets are valued at their replacement cost.

Accepted Answer

The first statement is false because the balance sheet reflects historical cost, not current market value. The second statement is false because not all events affecting a company's value are reported on the balance sheet; only those that meet certain criteria. The third statement is false because the cost principle states that assets are recorded at their original cost, not replacement cost.

Question 20

A "classified" balance sheet is one that contains privileged information.
All liabilities require that the company sacrifice resources at some time in the future.
All companies use an identical list of account names defined by the Financial Accounting Standards Board
(FASB).

Accepted Answer

The answer of  A "classified" balance sheet is one...

Quiz 2: Reporting Investing and Financing Results on the Balance Sheet