LO 1-5 Flashcards
Juarez Company acquired $1,200 from the issue of common stock. Which of the following shows how this event will affect the company’s accounting equation? The letters “NA” indicate that the component of the equation is not affected.
Assets = Liabilities + Common Stock + Retained Earnings A. $1,200 = $400 + $400 + $400 B. $1,200 = $1,200 + NA + NA C. $1,200 = NA + $1,200 + NA D. $1,200 = NA + $600 + $600
A. Option A
B. Option B
C. Option C
D. Option D
C. Option C
Acquiring cash through the issue of common stock is an asset source event. The event would cause assets and common stock to increase and the Common Stock account to increase.
Morrison Company experienced a business event that had the following effect on its accounting equation.
Assets = Liabilities + Common Stock + Retained Earnings
(25,000)=(25,000) +NA+ NA
Which of the events would have caused this effect
A. Paid off debt.
B. Issued common stock for cash.
C. Incurred cash expense.
D. Paid a cash dividend.
A. Paid off Debt
The decrease in assets indicates that assets have been used. The decrease in liabilities indicates that the assets were used to pay off debt.
Daemon Company paid cash to purchase land. Which of the following shows how this event will affect the company’s accounting equation? The letters “NA” indicate that the component of the equation is not affected.
Assets = Liabilities + Common Stock + Retained Earnings A. + = + + NA + NA B. − + = NA + NA + NA C. + = NA + + + NA D. − = NA + − + NA
A. Option A
B. Option B
C. Option C
D. Option D
B. Option B
Paying cash to purchase land is an asset exchange event
Fen Company paid a $300 cash dividend. Which of the following shows how this event will affect the company’s accounting equation? The letters “NA” indicate that the component of the equation is not affected.
Assets = Liabilities + Common Stock + Retained Earnings A. ($300) = NA + NA + ($300) B. ($300) =($300) + NA + NA C. $300 = NA + NA + $300 D. ($300) = NA + ($300) + NA
A. Option A
B. Option B
C. Option C
D. Option D
A. Option A
A dividend is a distribution of assets obtained through earnings. In other words, it is a transfer of assets from the business to its owners. It is an asset use event. The event causes assets and retained earnings to decrease.
Which of the following is a true statement?
A. Cash revenue is an economic benefit that will cause assets and retained earnings to increase.
B. A cash expense is an economic sacrifice that will cause assets and retained earnings to decrease.
C. A cash dividend is a transfer of assets from a business to its owners that will cause the assets and retained earnings of the business to decrease.
D. All of the answers represent true statements.
D. All of the answers represent true statements.
Ocean Breeze Co. paid $500 cash for expenses related to advertising for the period. Which of the following shows how this event will affect the company’s accounting equation? The letters “NA” indicate that the component of the equation is not affected.
Assets = Liabilities + Common Stock + Retained Earnings A. $500 = NA + NA + $500 B. ($500) = NA + NA + ($500) C. NA = $500 + ($500)+ NA D. ($500) = NA + ($500)+ NA
A. Option A
B. Option B
C. Option C
D. Option D
Option B
In this event, cash was paid for expenses incurred by the business. The event would cause assets and retained earnings to decrease.
Wig Wam Inc. experienced a business event that had the following effect on its accounting equation.
Assets = Liabilities + Common Stock + Retained Earnings
50,000 50,000 NA NA
Which of the events would have caused this effect
A. paid off debt.
B. issued common stock for cash.
C. incurred cash expense.
D. loan from a creditor
D. loan from a creditor
the increase in assets and liabilities indicates that the company borrowed 50,000 from creditors
Smokey Enterprises began operations by receiving $100,000 cash from its sole owner Jessica Jones. During its first year of operations, the business earned $20,000 in cash from operations and paid $15,000 in cash expenses. What is Smokey Enterprises’ net income for its first year of operations?
A. $5,000
B. $105,000
C. $20,000
D. $15,000
A. $5,000
Net income is calculated by subtracting the expenses of a business from the revenues earned during the period. Net income in this scenario is calculated by subtracting the $15,000 in cash expenses from the $20,000 in cash revenues to arrive at net income of $5,000. The $100,000 cash contribution from Jessica Jones will have no impact on net income for the period.
Certain transactions entered into the accounting equation will cause the equation not to balance. This statement is
True
False
False
All accounting transactions entered into the accounting equations must result in the equation being in balance. In other words, assets must always be equal to liabilities plus stockholder’s equity for all accounting transactions.
The land that Martin Co. paid $75,000 to purchase in the prior year had an appraised market value of $100,000 at the end of the current reporting period. Which of the following shows how the change in market value will affect the company’s accounting equation? The letters “NA” indicate that the component of the equation is not affected.
Assets = Liabilities + Common Stock + Retained Earnings A. $75,000 = NA + NA + $75,000 B. $25,000 = NA + NA + $25,000 C. NA = NA + NA + NA D. $100,000 = NA + NA + $100,000
A. Option A
B. Option B
C. Option C
D. Option D
Option C
Although the appraised value of the land is higher than the original cost, the company will not increase the amount recorded in the accounting records above the land’s historical cost. In general, accountants do not recognize changes in the market value. The historical cost concept requires that most assets be reported at the amount paid for them (their historical cost) regardless of increases in market value.
