Question 1

Journal entries show the effects of transactions on the elements of the accounting equation,as well as the account balances.

Accepted Answer

Journal entries are entered into the journal using a debit/credit format.By themselves,journal entries show the effect of transactions,but they do not provide account balances.The entries are "posted" to the ledger accounts,which then show the balance of each of the accounts.

Question 2

Accounts increase on the same side as they appear in the accounting equation: A = L + SE.

Accepted Answer

Accounts on the left side of the accounting equation (that is,assets)increase on the left side and accounts on the right side of the equation (that is,liabilities and stockholders' equity)increase on the right side.

Question 3

A debit may increase or decrease an account,depending on the type of account.

Accepted Answer

Whether a debit or credit increases or decreases an account depends upon the type of account.Debits increase assets,expenses,and dividends,but decrease liabilities,revenues,and equity.Credits increase liabilities,revenue,and equity,but decrease assets,expenses and dividends.

Question 4

A business is obliged to repay both debt and equity financing.

Accepted Answer

There is no requirement to pay back equity contributions to stockholders.There is a legal requirement to pay back debt financing to creditors.

Question 5

The normal balance of an account is on the same side that decreases the account.

Accepted Answer

The balance in an account is determined by the excess of increases over decreases.It is normal to have more increases in an account than decreases;therefore,the normal balance of an account is on the same side that increases the account.

Question 6

Puffin,Inc.issues $1,000,000 in new stock for cash.Puffin's stockholders' equity does not change because as new shares are sold,the value of its existing shares falls.

Accepted Answer

When new stock is issued for cash,the company has more cash and common stock.Assets and stockholders' equity both increase.

Question 7

A transaction is an exchange or event that directly affects the assets,liabilities,or stockholders' equity of a company.

Accepted Answer

A transaction is an event or activity that has a direct and measurable financial effect on the assets,liabilities,or stockholders' equity of a business.

Question 8

If the total dollar value of debits to an account exceeds the total dollar value of credits to that account,the ending balance of the account will be a debit balance.

Accepted Answer

If debits exceed credits,the account will have a debit balance.

Question 9

General Motors (GM)signs a new labor agreement that its workers will receive a 5% wage increase next year.This transaction affects GM's financial statements in the current year.

Accepted Answer

A promise to pay has been exchanged for a promise to work next year.This activity is not a transaction because no assets or services were exchanged at the time the new labor agreement is signed.This event does not affect GM's financial statements in the current year.

Question 10

Eagle Company used $50,000,000 of its cash to pay off debt,as a result,Eagle's stockholders' equity will decrease $50,000,000.

Accepted Answer

Assets and liabilities would each decrease by $50,000,000;there is no impact on stockholders' equity.

Question 11

A trial balance shows a subtotal for current assets and current liabilities.

Accepted Answer

A classified balance sheet contains subcategories and subtotals for current assets and current liabilities.

Question 12

The general ledger is an internal report that lists all the accounts and their balances and is used to check that total debits equals total credits.

Accepted Answer

The trial balance is an internal report that lists all the accounts and their balances and is used to check that total debits equals total credits.

Question 13

When a company prepares a classified balance sheet,liability accounts must be shown in subcategories of current and noncurrent.

Accepted Answer

Assets and liabilities are classified as current and noncurrent.Stockholders' equity accounts are not classified as current or noncurrent.

Question 14

The trial balance is a financial statement that reports the assets,liabilities,and equity of a business at a point in time.

Accepted Answer

The trial balance is an internal accounting report that lists the balances in all the ledger accounts at a point in time.It shows whether debit balance accounts equal the credit balance accounts.A balance sheet is a financial statement that reports the assets,liabilities,and equity of a business at a point in time.

Question 15

If total assets decrease,then either total liabilities or total stockholders' equity must also decrease.

Accepted Answer

The accounting equation (Assets = Liabilities + Stockholders' Equity)must balance.If one side of the equation decreases,the other side must decrease.

Question 16

Every transaction increases at least one account and decreases at least one account.

Accepted Answer

A transaction may have any combination of increases and decreases.For example,a purchase of equipment on account increases both equipment and accounts payable.What is true is that every transaction is recorded with at least one debit and at least one credit.

Question 17

The list of account names and reference numbers that the company will use when accounting for transactions is called the chart of accounts.

Accepted Answer

The chart of accounts is a summary of all account names (and corresponding account numbers)used to record financial results in the accounting system.

Question 18

The record-analyze-summarize process is applied only to daily transactions,month-end adjustments need not be analyzed and summarized.

Accepted Answer

The three-step analyze-record-summarize process is applied to daily transactions,as well as adjustments at the end of each month,before preparing a trial balance and the financial statements.

Question 19

You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company's jeans.Later,your company's sales increase by $500,000 as a result.When the actress appeared on TV,you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company.

Accepted Answer

This activity is not a transaction because no assets or services were exchanged at the time the actress appeared on television.No asset would be recorded.In addition,recall that an asset is an economic resource presently controlled by the company;has measurable value and is expected to benefit the company by producing cash inflows or reducing cash outflows in the future.This situation does not meet the definition of an asset.

Question 20

Goodrich,Inc.signed an agreement to rent a warehouse from Ellie Co.This is an example of a transaction that should not be recorded.

Accepted Answer

This activity is not a transaction because no assets or services were exchanged at the time the agreement was signed.

Quiz 2: The Balance Sheet