Chapter 1

Question 1

Effects of Purchasing Land

Answer 1

Doesn’t make the company better to worse.

Question 2

Assets

Answer 2

Things that have value.
Cash, land, supplies

Question 3

Liabilities (notes payable)

Answer 3

A legal obligation to pay someone outside the company.

Question 4

Equity

Answer 4

“Stockholders’ equity” or “owners’ equity”
CS + RE
Owners own all equity

Question 5

IMPORTANT

Answer 5

A = L + E

Question 6

Dividends

Answer 6

Reduces RE but are not a part of the net income calculation

Question 7

Income Statement

Answer 7

Revenue + Expenses, but not “retained earnings”
Does not include notes payable
Covers exactly 1 year, “For the year…”

Question 8

2 “things” that lower RE

Answer 8

Expenses & dividends

Question 9

CS increases…

Answer 9

Cash increases (Equity)

Question 10

Balance Sheet

Answer 10

Does not reset, is cummulative (“As of…”)
CS, RE, Land, Cash, Notes payable, Total assets, Total liabilities, Total equity

Question 11

Solve for RE

Answer 11

A = L + CS + RE

Question 12

JRT Company has $2 million of notes payable on the December 31, 2022 balance sheet. Do we know for sure that the company borrowed money from the bank in the year 2022?

Answer 12

No, the balance sheet is cumulative.
The money in notes payable could have come from any of the previous years.

Question 13

West Arizona Electric is a utility company. During 2016, the company provided electricity to many houses and businesses. Would this affect the 12/31/2016 balance sheet in any way?

Answer 13

Yes, every event affects the forthcoming balance sheet,
BUT not every event affects the income statement.

Question 14

Can cash be lower on Dec. 31 2018 than on Jan. 1 2018?

Answer 14

Yes

Question 15

If revenue is 50,000,000 in 2015 and 62,000,000 in 2016, do we know that 2016 net income was higher (or lower) than 2015 net income?

Answer 15

No, there is no information regarding expenses.

Question 16

Cash is 400,000 on January 1. During the year, the company earned 300,000 of net income and paid $50,000 of dividends. Is CASH definitely $650,000 on December 31?

Answer 16

No,
company may have purchased land,
could possibly be an estimate, not enough info

Question 17

Suppose that, for one event, L increases by $400 and A is unchanged (let’s say 0). What would happen to equity?

Answer 17

A = L + E
0 = 400 + E
- 400 = E, therefore equity decrease

Question 18

If you know cash, total equity, notes payable, and supplies, you can solve for…

Answer 18

Land

Question 19

When the supplies increase, equity increases…

Answer 19

False, cash decrease so equity also decreases

Question 20

If you look at the 12/31/2021 balance sheet, you can determine the AMOUNT of supplies purchased during year 2021.

Answer 20

False, doesn’t show what you purchase, but how much money was used to make the purchase.

Question 21

Owners take $150,000 cash out of business, Equity (of the business) will definitely be 150,000 lower as a result.

Answer 21

Yes, (-) cash and (-) retained earnings = decrease in equity

Question 22

Our company purchased land for $30,000 cash and borrowed $60,000 cash from a bank. If total assets were $400,000 before these events, what is the total amount of assets now?

Answer 22

$400,000 + $60,000 = $460,000
**The land entry does not change total assets