4 Goodrich, Inc. signed an agreement to rent a warehouse from Ellie Co. This is an example of a

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Fundamentals of Financial Accounting, 6e (Phillips) Chapter 2 The Balance Sheet

1) A transaction is an exchange or event that directly affects the assets, liabilities, or stockholders' equity of a company.

2) General Motors (GM) signs a new labor agreement that its workers will receive a 5% wage increase next year. This transaction affects GM's financial statements in the current year.

3) If total assets decrease, then either total liabilities or total stockholders' equity must also decrease.

4) Goodrich, Inc. signed an agreement to rent a warehouse from Ellie Co. This is an example of a transaction that should not be recorded.

5) A business is obliged to repay both debt and equity financing.

6) You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company's jeans. Later, your company's sales increase by $500,000 as a result.When the actress appeared on TV, you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company.

7) Eagle Company used $50,000,000 of its cash to pay off debt, as a result, Eagle's stockholders' equity will decrease $50,000,000.

8) Puffin, Inc. issues $1,000,000 in new stock for cash. Puffin's stockholders' equity does not change because as new shares are sold, the value of its existing shares falls.

9) The record-analyze-summarize process is applied only to daily transactions, month-end adjustments need not be analyzed and summarized.

10) The list of account names and reference numbers that the company will use when accounting for transactions is called the chart of accounts.

11) A debit may increase or decrease an account, depending on the type of account.

12) The normal balance of an account is on the same side that decreases the account.

13) If the total dollar value of debits to an account exceeds the total dollar value of credits to that account, the ending balance of the account will be a debit balance.

14) Every transaction increases at least one account and decreases at least one account.

15) Accounts increase on the same side as they appear in the accounting equation: A = L + SE.

16) Journal entries show the effects of transactions on the elements of the accounting equation, as well as the account balances.Fundamentals of Financial Accounting 6th Edition Phillips Test Bank Visit TestBankDeal.com to get complete for all chapters

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17) The general ledger is an internal report that lists all the accounts and their balances and is used to check that total debits equals total credits.

18) A trial balance shows a subtotal for current assets and current liabilities.

19) When a company prepares a classified balance sheet, liability accounts must be shown in subcategories of current and noncurrent.

20) The trial balance is a financial statement that reports the assets, liabilities, and equity of a business at a point in time.

21) The acquisition of inventory in an exchange for a company's stock would increase the current ratio of the company.

22) The current ratio can be used to evaluate a company's ability to pay liabilities in the short term, and in general, a higher ratio means better ability to pay.

23) Owners of a company:

• hold promissory notes as evidence of their ownership claim.
• are entitled to repayment of their investment.
• have a claim that is secondary to creditor's claims.
• have a claim equal to the amount of liabilities a company owes.

24) If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?

• Common Stock
• Accounts Payable
• Notes Payable (long-term)
• Retained Earnings

25) The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank to be paid back in five years and used all of the money to purchase land for a new store. Sweet Smell's

balance sheet would show this as:

• $60,000 under Land and $60,000 under Notes Payable (long-term).
• $60,000 under Depreciation Expense and $60,000 under Notes Payable (long-term).
• $60,000 under Land and $60,000 under Notes Receivable (long-term).
• $60,000 under Other Assets and $60,000 under Other Liabilities.

26) Typical steps needed before a business can start selling goods and/or services to customers

include:

• financing and investing activities.
• only financing activities.
• only investing activities.
• only operating activities.

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27) Who has first claim to a business's assets should the company go out of business?

• Creditors
• Stockholders
• Customers
• Management

28) The creditors' claims to a company's resources are represented by:

• common stock.
• total stockholder's equity.
• total liabilities.
• retained earnings.

29) A difference between debt financing and equity financing is that:

• debt financing must be repaid, while repayment of equity financing is not required.
• equity financing must be repaid, while repayment of debt financing is not required.
• only debt financing can be used to purchase assets.
• only equity financing can be used to purchase assets.

30) Debt financing is financing obtained from:

• stockholders.
• creditors.
• selling goods or services on credit.
• both creditors and stockholders.

31) Equity financing is financing obtained from:

• creditors.
• stockholders.
• selling goods or services on credit.
• both creditors and stockholders.

32) The cost principle is used:

• to refer to the two sources of financing available to businesses.
• to measure the amount used to record assets on the date of the transaction.
• by small businesses, but not by large businesses.
• to measure internal events, but not external exchanges.

33) Transactions include which two types of events?

• Direct events, indirect events
• Monetary events, production events
• External exchanges, internal events
• Past events, future events

34) Which of the following is an accounting transaction?

• A manager hires an employee.
• A manager orders supplies.
• A manager signs a promissory note and receives cash.
• A manager agrees to deliver their product in three weeks.

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35) Your company places an order for inventory with suppliers for delivery in two weeks.

• This is an internal event and it does not affect the balance sheet.
• This is an activity that does not affect the balance sheet.
• This is an internal event that affects the balance sheet.
• This is an external exchange and it affects the balance sheet.

36) The characteristic shared by all liabilities is that they:

• provide a future economic benefit.
• result in an inflow of resources to the company.
• always end in the word "payable."
• obligate the company to do something in the future.

37) Which of the following is a financing activity?

• The business receives land and gives a check for $1,000.
• The business receives $1,000 cash and in exchange gives a promissory note.
• The business promises to hire an employee on the 15

th of the month.

• The business orders supplies and promises to pay for them at the end of the month.

38) Which of the following would not be recorded as an accounting transaction?

• Issuing stock to owners in exchange for cash
• Ordering supplies to be delivered next month
• Selling inventory to customers in exchange for cash to be received next month
• Paying the bank for a portion of a note payable

39) The Flynn Company started business by obtaining financing through debt financing and equity financing. Which of the following statements is not correct?

• Equity financing refers to the money obtained through owners' contributions and

reinvestments of profit.

• Debt financing refers to the money obtained through loans.
• The business is obligated to repay debt financing.
• The business is obligated to repay equity financing.

40) Which of the following is an asset?

• Common Stock
• Retained Earnings
• Notes Receivable
• Notes Payable

41) Which of the following transactions for Bill's Fish 'n Chips restaurant would be treated as an accounting transaction?

• Bill distributed coupons to local hotels for 10% off and requested that the coupons be

distributed to hotel guests.

• Bill spoke to a local high school about the rewards and challenges of being an entrepreneur.
• Bill signed an agreement with a local fisherman to purchase 20 pounds of halibut each month.
• Bill purchased a fryer and a dishwasher, which will be paid for next month.