1 Interest payable, income tax payable and salary payable are all examples of:

1 Copyright © 2018 Pearson Education, Inc.Financial Accounting, 6Ce (Harrison) Chapter 2 Recording Business Transactions 2.1 Describe common types of accounts

1) Interest payable, income tax payable and salary payable are all examples of:

• accrued liabilities
• prepaid expenses
• expenses of future periods
• retained earnings

Answer: A

Diff: 1 Type: MC

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CPA COMPETENCIES: Chapter 2

1.3.1 Prepares financial statements

2) A record of all the changes in a particular asset during a period of time is found in a(n):

• transaction
• trial balance
• prior period's balance sheet
• account

Answer: D

Diff: 1 Type: MC

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CPA COMPETENCIES: Chapter 2

1.3.1 Prepares financial statements

3) An accounts receivable represents the promise of the business to pay a debt.

Answer: FALSE

Diff: 2 Type: TF

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CPA COMPETENCIES: Chapter 2

1.3.1 Prepares financial statements

4) Prepaid rent is an expense because the payment provides a future benefit of the company.

Answer: FALSE

Diff: 2 Type: TF

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CPA COMPETENCIES: Chapter 2

1.3.1 Prepares financial statements

5) Assets include cash, land, and accounts payable.

Answer: FALSE

Diff: 2 Type: TF

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CPA COMPETENCIES: Chapter 2

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Financial Accounting Canadian 6th Edition Harrison Test Bank Visit TestBankDeal.com to get complete for all chapters

2 Copyright © 2018 Pearson Education, Inc.6) Explain the following terms in your own words and give an example of each for Humpty's Equipment Inc.

• asset
• liability
• shareholders' equity
• dividend
• revenue
• expense

Answer:

• Assets are resources stemming from past transactions expected to provide economic benefits in the

future by contributing to earning revenues. Humpty uses a significant amount of machinery and equipment to manufacture its products.

• A liability is an obligation to provide goods or services in the future due to a past transaction. Some

examples are accounts payables and loans. Humpty borrows money (loan) from several sources including PEI business development Inc.

• Shareholders' equity is direct or indirect investment in an entity by its owners. Examples are common

shares and preferred shares. Humpty issues common shares and they trade on the Toronto Stock Exchange under the symbol SNX.

• Dividends are amounts paid to the owners from the earnings of the firm. Examples are common share

dividends and preferred dividends. As of January 2014, Humpty did not declare dividends.

• Revenues are economic benefits earned by providing goods or services to customers. Examples are

sales and fees earned.

• Expenses are costs incurred to earn revenue. Examples include cost of goods sold and wages.

Diff: 1 Type: ES

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CPA COMPETENCIES: Chapter 2

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3 Copyright © 2018 Pearson Education, Inc.7) Define and provide an example of each of the following.AccountDefinitionExample Asset Revenue Liability

Answer:

Account DefinitionExample (Only one example is

needed.) Answers include:

Asset Economic resources that provide a future benefit for a business.Cash, Accounts Receivable, Inventory, Prepaid Expenses, Investments, Buildings Revenue The increase in stockholders' equity from delivery of goods or services to customers Sales Revenue, Legal Service Revenue, Rental Revenue, Interest Revenue Liability Debts owed by the business. Accounts Payable, Notes Payable, Accrued Liabilities Diff: 2 Type: ES

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8) List the types of accounts that appear on the income statement. List the types of accounts that appear on the balance sheet.Answer: The income statement contains accounts classified as revenues and expenses. The balance sheet contains accounts classified as assets, liabilities, and owners' equity.Diff: 2 Type: ES

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CPA COMPETENCIES: Chapter 2

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4 Copyright © 2018 Pearson Education, Inc.

2.2 Illustrate the impact of business transactions on the accounting equation

1) All of the following accounts would be considered assets except for:

• Cash
• Common Shares
• Prepaid Expenses
• Notes Receivable

Answer: B

Diff: 2 Type: MC

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2) The payment of an amount owed to a creditor would:

• increase assets
• increase liabilities
• decrease net income
• decrease liabilities

Answer: D

Diff: 2 Type: MC

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1.3.1 Prepares financial statements

3) When a company performs a service and immediately collects the cash from the customer, which of the following would occur?

• Net income would increase.
• Expenses would decrease.
• Assets would decrease.
• Shareholders' equity would decrease.

Answer: A

Diff: 2 Type: MC

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CPA COMPETENCIES: Chapter 2

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4) Purchasing supplies and paying cash for them would:

• increase total assets
• decrease total assets
• have no effect on total assets
• increase total liabilities and shareholders' equity

Answer: C

Diff: 2 Type: MC

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