A. 15,000 NA 15,000 NA NA NA 15,000 OA

1 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.Introductory Financial Accounting for Business, 1e (Edmonds) Chapter 2 Accounting for Accruals

1) Frank Company earned $15,000 of cash revenue. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

Assets = Liab. + Equity Rev. − Exp. = Net Inc.Stmt of Cash Flows

A. 15,000 = NA + 15,000 NA − NA = NA 15,000 OA

B. 15,000 = NA + 15,000 15,000 − NA = 15,000 NA

C. 15,000 = NA + 15,000 15,000 − NA = 15,000 15,000 OA

D. 15,000 = 15,000 + NA 15,000 − NA = 15,000 15,000 OA

• Option A
• Option B
• Option C
• Option D

Answer: C

Explanation: Earning cash revenue increases assets (cash) and stockholders' equity (retained earnings) on the balance sheet. It increases both revenue and net income on the income statement and is reported as a cash inflow for operating activities on the statement of cash flows.

Difficulty: 2 Medium

Topic: The Horizontal Financial Statements Model

Learning Objective: 02-01 Use a horizontal financial statements model to show how accounting events affect financial statements.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking; FN Measurement

Introductory Financial Accounting for Business 1st Edition Edmonds Test Bank Visit TestBankDeal.com to get complete for all chapters

2 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.2) Jackson Company paid $500 cash for salary expenses. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

Assets = Liab. + Equity Rev. − Exp. = Net Inc.Stmt of Cash Flows

A. NA = 500 + (500) NA − 500 = (500) NA

B. (500) = NA + (500) NA − 500 = (500) (500) OA

C. (500) = NA + (500) NA − NA = NA (500) OA

D. (500) = NA + (500) NA − 500 = (500) (500) IA

• Option A
• Option B
• Option C
• Option D

Answer: B

Explanation: Paying cash for expenses decreases assets (cash) and decreases stockholders' equity (retained earnings) on the balance sheet. It increases expenses which decreases net income on the income statement, and is reported as a cash outflow for operating activities on the statement of cash flows.

Difficulty: 2 Medium

Topic: The Horizontal Financial Statements Model

Learning Objective: 02-01 Use a horizontal financial statements model to show how accounting events affect financial statements.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking; FN Measurement

3 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.3) Perez Company paid a $300 cash dividend. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

Assets = Liab. + Equity Rev. − Exp. = Net Inc.Stmt of Cash Flows

A. NA = 300 + (300) NA − 300 = (300) NA

B. (300) = NA + (300) NA − 300 = (300) (300) FA

C. (300) = NA + (300) NA − NA = NA (300) FA

D. (300) = NA + (300) NA − NA = NA (300) OA

• Option A
• Option B
• Option C
• Option D

Answer: C

Explanation: Paying cash dividends decreases assets (cash) and decreases stockholders' equity (retained earnings) on the balance sheet. It does not affect the income statement, but is reported as a cash outflow for financing activities on the statement of cash flows.

Difficulty: 2 Medium

Topic: The Horizontal Financial Statements Model

Learning Objective: 02-01 Use a horizontal financial statements model to show how accounting events affect financial statements.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking; FN Measurement

4 Copyright © 2019 McGraw-Hill Education. All rights reserved.No reproduction or distribution without the prior written consent of McGraw-Hill Education.4) Garrison Company acquired $23,000 by issuing common stock. Which of the following accurately reflects how this event affects the company's horizontal financial statements model?

Assets = Liab. + Equity Rev. − Exp. = Net Inc.Stmt of Cash Flows

A. 23,000 = NA + 23,000 NA − NA = NA 23,000 FA

B. 23,000 = NA + 23,000 23,000 − NA = 23,000 23,000 FA

C. 23,000 = 23,000 + NA 23,000 − NA = NA 23,000 FA

D. 23,000 = 23,000 + NA 23,000 − NA = 23,000 23,000 OA

• Option C
• Option A
• Option D
• Option B

Answer: B

Explanation: Issuing common stock increases assets (cash) and stockholders' equity (common stock). It does not affect the income statement, but is reported as a cash inflow for financing activities on the statement of cash flows.

Difficulty: 2 Medium

Topic: The Horizontal Financial Statements Model

Learning Objective: 02-01 Use a horizontal financial statements model to show how accounting events affect financial statements.

Bloom's: Analyze

AACSB: Analytical Thinking

AICPA: BB Critical Thinking; FN Measurement