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Exam 2: Investing and Financing Decisions and the Accounting System

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Question 1

True/False

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The general ledger is a chronological listing of each transaction and its effects on the accounting equation.

A) True
B) False

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Question 2

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

A) True
B) False

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Question 3

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Describe the general journal and the general ledger.

Which of the following statements is false?

A company's January 1,2019 balance sheet reported total assets of $150,000 and total liabilities of $60,000.During January 2019,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 31,2019 balance sheet would report which of the following?

An asset account normally has a debit balance and is increased by debiting the account.

Tiger Company's total stockholders' equity at the beginning of the year was $175,000.During the year Tiger reported the following: Net income of $79,000. Dividend declarations totaling $17,000. Issued stock to stockholders in exchange for $42,000 cash. Borrowed $20,000 from a stockholder. What is Tiger's total stockholders' equity at the end of the year?

Under the monetary unit assumption,accounting information should be measured and reported in terms of the national monetary unit,with an adjustment for changes in purchasing power.

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

The trial balance is similar to the balance sheet in that it is a listing of assets,liabilities,and stockholders' equity and is provided to external decision makers.

Which of the following statements is false?

When a company borrows money from a bank,the statement of cash flows will report a cash increase from an investing activity.

A journal entry is a written expression of the effects of a transaction on accounts and has equal debits and credits.

The Smith Corporation has provided the following information: Cash dividend payments were $25,000. Long-term investments were sold for $79,000 cash. A building costing $198,000 was purchased using $19,800 cash,and the balance was financed with a mortgage note payable. Stock was issued to stockholders in exchange for $110,000 cash. A $44,000 loan was made to a local inventory supplier;the loan will be repaid in twelve months. Equipment used in operations was sold for $37,000. Repaid a long-term note payable for $92,000 cash. Cash received from short-term bank loans totaled $71,000. Land costing $57,000 was purchased in exchange for a long-term note payable. Determine Smith's cash flows to be reported on the statement of cash flows for 1.investing activities,and 2.financing activities

Describe both the investing activities and financing activities section of the statement of cash flows.Provide some examples of each activity.

The normal balance for an asset account is a debit and the normal balance for a liability account is a credit.

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 correctly describes the recording of a dividend declaration by a company's board of directors?

Classify the following balance sheet accounts as current assets,noncurrent assets,current liabilities,noncurrent liabilities,or stockholders' equity. 1.Building 2.Retained earnings 3.Notes payable due in 3 months 4.Land 5.Prepaid expenses 6.Supplies inventory 7.Common stock 8.Notes payable due in 5 years 9.Income taxes payable 10.Accounts receivable

The primary objective of financial reporting is to provide useful information to external decision makers.