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Current Assets Chapter 2

The Kelly Company purchased a building for $75,000 in cash. What is the effect on current assets?

  1. Increase in current assets
  2. Decrease in current assets
  3. No effect on current assets
  4. Unable to determine

Effect on the Current Ratio Chapter 2

A company had $250,000 of current assets and $90,000 of current liabilities before borrowing $60,000 from the bank with a 3-month note payable. What effect did the borrowing transaction have on the amount of the company’s current ratio?

  1. No effect
  2. Increase
  3. Decrease
  4. Cannot be determined

Retained Earnings Chapter 2

Which of the following would increase retained earnings?

  1. an increase to an expense account.
  2. an increase to a revenue account.
  3. a cash dividend being declared and paid to stockholders.
  4. issuance of additional shares of common stock.

An increase in a Revenue account increases Net Income, which in turn would increase Retained Earnings.

T/F: T-Account Logic Chapter 2

A T-account shows total debits of $26,000 and total credits of $20,000; therefore, it has a $6,000 debit balance.

True / False?

True

Solving for Missing Amounts Chapter 2

A company had the following account balances at the end of its first year of operations. Find the missing amounts.


Cash 1,300 Accounts receivable ?
Inventory 400 Property and equipment 1200
Accounts payable 500 Salaries payable 800
Common Stock 1475 Retained earnings 525
Revenue 2500 Expenses ?
Net Income 570 Dividends ?
  1. Determine Accounts Receivable
  2. Determine Expenses
  3. Determine Dividends
  1. Accounts Receivable - 400
  2. Expenses - 1,930
  3. Dividends - 45

The Effect of Journal Entries Chapter 2

For each of the following transactions listed below, select the two effects it will have:

Transaction Effect 1 Effect 2
1 Provided services and received cash
Correct Incorrect
2 Provided services on account
Correct Incorrect
3 Received payment from customers on account
Correct Incorrect
4 Received payment in advance from customers
Correct Incorrect
5 Paid wages earned this week
Correct Incorrect
6 Paid 6 month’s rent in advance
Correct Incorrect
7 Borrowed cash from the bank and signed a note
Correct Incorrect
8 Loaned cash to employee who signed a note
Correct Incorrect
9 Purchased equipment with cash
Correct Incorrect
10 Purchases supplies on account
Correct Incorrect
11 Received cash and issued stock
Correct Incorrect
12 Paid for supplies bought earlier on account
Correct Incorrect
13 Paid dividends to stockholders
Correct Incorrect
Transaction Effect 1 Effect 2
14 Provided services and received cash Increase an Asset Increase Revenue
15 Provided services on account Increase an Asset Increase Revenue
16 Received payment from customers on account Increase an Asset Decrease an Asset
17 Received payment in advance from customers Increase an Asset Increase a Liability
18 Paid wages earned this week Increase an Expense Decrease an Asset
19 Paid 6 month’s rent in advance Increase an Asset Decrease an Asset
20 Borrowed cash from the bank and signed a note Increase an Asset Increase a Liability
21 Loaned cash to employee who signed a note Increase an Asset Decrease an Asset
22 Purchased equipment with cash Increase an Asset Decrease an Asset
23 Purchases supplies on account Increase an Asset Increase a Liability
24 Received cash and issued stock Increase an Asset Increase Stockholders' Equity
25 Paid for supplies bought earlier on account Decrease an Asset Decrease a Liability
26 Paid dividends to stockholders Decrease an Asset Decrease Stockholders' Equity

Account Classifications Chapter 2

Accounts payable $12,000 Accounts Receivable 20,900
Furniture 5,000 Accumulated Depreciation 6,500
Building 82,000 Cash 21,500
Common Stock ? Sales Revenue 90,700
Cost of Goods Sold 51,500 Depreciation Expense 1,450
Dividends 6,600 Note Payable (due 3/1 Year 4) 20,000
Marketable Securities 1,400 Prepaid Expenses 18,000
Salaries Payable 2,800 Land 38,000
Note Payable (due 5/30 Year 2) 12,400 Service Revenue 22,550
Retained Earnings (1/1 Year 1 ) 39,700 Salary Expense 18,000
Accrued Expenses Payable 1,500 Unearned Revenue 30,500
Utilities Expense 5,400
  1. Determine Total assets on December 31, Year 1
  2. Determine Current Liabilities on December 31, Year 1
  3. Determine Net Income for the year ended December 31, Year 1
  4. Determine the total amount of Common Stock on December 31, Year 1
  1. Total Assets - 180,300
  2. Current Liabilities - 59,200
  3. Net Income - 36,900
  4. Common Stock - 31,100