Lo 1-4

Question 1

there are ___ types of business events

Answer 1

four (4)

Question 2

(+) assets = (+) claims

Answer 2

asset source transaction

Question 3

(+) (-) assets = claims

Answer 3

asset exchange transaction

Question 4

asset (-) = claims (-)

Answer 4

asset use transaction

Question 5

asset = claims (+) (-)

Answer 5

claim exchange transaction

Question 6

issuing common stock is an example of

Answer 6

an asset source transaction

Question 7

borrowing cash from a creditor is an example of

Answer 7

asset source transaction

Question 8

paying cash to purchase land is an example of

Answer 8

asset exchange transaction

Question 9

receiving cash for performing services is an

Answer 9

asset source transaction

Question 10

in an asset source transaction, the benefit of providing goods and services is

Answer 10

receiving revenue

Question 11

paying cash for operating expenses such as salaries, rent, and interest is an example of

Answer 11

asset use transaction

Question 12

paying cash to pay dividends to owners is an example of

Answer 12

asset use transaction

Question 13

the land that was purchased at XX is now appraised at a market value above XX is an example of

Answer 13

asset use transaction but does not affect the balancing equation.

Historical cost

Question 14

historical cost for assets

Answer 14

requires that assets be accounted for in what you paid for not what theyre worth now.

Question 15

financial statements

Answer 15

formal reports reflecting the accounting equation

Question 16

historical cost is what you

Answer 16

paid for

Question 17

market value is what you

Answer 17

estimate for

Question 18

expenses are known as

Answer 18

sacrifices

Question 19

net income is the difference between

Answer 19

revenues and expenses

Question 20

if net income is positive

Answer 20

then is earnings or profit and can be given back to owners as dividends

Question 21

accounting equation must always be

Answer 21

in balance

Question 22

negative net income is

Answer 22

net loss

Question 23

Sims Company received cash from the issue of common stock. This event is

A. an asset source transaction.

B. an asset use transaction.

C. an asset exchange transaction.

D. None of the answers describes this event.

Answer 23

A. An asset source transaction

Collecting cash from the issue of common stock causes assets (cash) and stockholders’ equity (common stock) to increase. Since the total amount of assets increases, this is an asset source transaction.

Question 24

Sims Company received cash from the issue of a note payable to a bank. This event is

A. an asset source transaction.

B. an asset use transaction.

C. an asset exchange transaction.

D. None of the answers describes this event.

Answer 24

A. an asset source transaction

Collecting cash from the issue of a note payable causes assets (cash) and liabilities (notes payable) to increase. Since the total amount of assets increases, this is an asset source transaction.

Question 25

Sims Company earned cash revenue by providing services to its customers. This event is

A. an asset source transaction.

B. an asset use transaction.

C. an asset exchange transaction.

D. None of the answers describes this event.

Answer 25

A. And asset source transaction

Earning cash revenue causes assets (cash) and stockholders’ equity (retained earnings) to increase. Since the total amount of assets increases, this is an asset source transaction.

Question 26

Which of the following is an asset source event?

A. Received cash from the issue of stock

B. Borrowed cash from creditors

C. Earned cash revenue

D. All of the answers represent asset source transactions.

Answer 26

D. All of the above

Businesses can acquire assets from three sources including owners, creditors, and customers.

Question 27

Simpson Company paid cash to purchase land. This event is

A. an asset source transaction.

B. an asset use transaction.

C. an asset exchange transaction.

D. None of the answers describes this event.

Answer 27

C. An asset exchange transaction

Paying cash to purchase land causes an increase in one asset account (land) and a decrease in another asset account (cash). The total amount of assets is not affected. Therefore, the cash purchase of land is an asset exchange transaction.

Question 28

Barnett Company paid a cash dividend. This event is

A. an asset source transaction.

B. an asset use transaction.

C. an asset exchange transaction.

D. None of the answers describes this event.

Answer 28

B. an asset use transaction

Paying a cash dividend causes assets (cash) to decrease and stockholders’ equity (retained earnings) to decrease. Since total assets decrease, this is an asset use transaction.

Question 29

Kay Company recorded a transaction that had the following effects on its financial statements.

Balance Sheet

Assets (-+) = Liab. (N/A) + Equity (N/A)

Which of the following types of transactions could have caused these effects?

A. An asset source transaction.

B. An asset use transaction.

C. An asset exchange transaction.

D. None of the answers describes a transaction that could have caused these effects.

Answer 29

C. An asset exchange transaction.

The information in the accounting equation indicates that one asset account increased while another asset account decreased. Since total liabilities and stockholders’ equity did not change, total assets did not change. Therefore, these effects were caused by an asset exchange event. An example would be paying cash to purchase land.

Question 30

Which of the following models accurately depicts the effects of an asset use transaction on the accounting equation?

Balance Sheet
Assets = Liab. + Equity
A.+ = +  NA
B. − = NA  −
C.+ = NA  +
D. NA  = +  −

A. Option A

B. Option B

C. Option C

D. Option D

Answer 30

B. Option B

Asset use transactions decrease the total amount of assets and the total amount of claims. Since this answer is the only one that shows a decrease in total assets, it represents the asset use transaction. Also, note that this answer shows an increase in expenses, and a decrease in net income. An example of an asset use transaction that could cause these effects is a cash payment for expenses.