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Exam 2: Investing and Financing Decisions and the Balance Sheet

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Question 51

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A company with a high current ratio should never have liquidity problems.

A) True
B) False

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Question 52

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Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable?

A) Cash $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 30,000
Notes Payable $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 30,000
B) $\begin{array} { l r } \text { Land } & 30,000 \\\text { \quad Cash } & &30,000\end{array}$
C) Land $\quad$ $\quad$ $\quad$ $\quad$ 30,000
$\quad$ Notes Payable $\quad$ $\quad$ $\quad$ 30,000
D) Notes Payable $\quad 30,000$
$\quad$ Land $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$30.000$

E) A) and D)
F) C) and D)

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Question 53

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Which of the following correctly describes the recording of a dividend declaration by a company's board of directors?

The following journal entries with the amounts omitted were taken from the records of Lena Company: 1. Cash $\quad$$\quad$ Contributed Capital 2. Inventory $\quad$$\quad$ Accounts Payable 3. Accounts payable $\quad$ $\quad$ Cash 4. Buildings $\quad$ $\quad$ Cash $\quad$ $\quad$ Mortgage Payable 5. Retained Earnings $\quad$ $\quad$ Dividends Payable 6. Cash $\quad$$\quad$ Notes Payable Requirement: Write a brief explanation for each of the above transactions.

In what order are current assets listed on a balance sheet?

Which of the following statements is incorrect?

The T-account is useful for summarizing account balances and is found in the general ledger.

Which of the following would be classified as financing cash flows on a cash flow statement? 1.Paying cash dividends. 2) Lending cash to others. 3) Issuing stock for cash. 4) Purchasing long-term assets for cash. 5) Repurchasing stock with cash.

The Pioneer Company has provided the following account balances: Cash $38,000; Short-term investments $4,000; Accounts receivable $6,000; Inventory $48,000; Long-term notes receivable $2,000; Equipment $96,000; Factory Building $180,000; Intangible assets $6,000; Accounts payable $30,000; Accrued liabilities payable $4,000; Short-term notes payable $14,000; Long-term notes payable $92,000; Contributed capital $180,000; Retained earnings $60,000. What are Pioneer's total current liabilities?

The continuity assumption assumes that a business will continue to operate into the foreseeable future.

When a company borrows money from a bank,it leads to a cash inflow from an investing activity.

Cadet Company paid an accounts payable of $1,000.This transaction should be recorded as follows on the payment date.

The Smith Corporation has provided the following information: Cash dividend payments were $25,000. Long-term investments were sold for $79,000 cash. A building costing $198,000 was purchased using $19,800 cash,the balance was financed with a mortgage note payable. Stock was issued to stockholders in exchange for $110,000 cash. A $44,000 loan was made to a local inventory supplier; the loan will be repaid in twelve months. Equipment used in operations was sold for $37,000. Shares of Smith Corporation stock were acquired from stockholders for $92,000 cash. Cash received from bank loans totaled $71,000. Land costing $57,000 was purchased in exchange for a long-term note payable. Requirement: Determine Smith's investing activities and financing activities cash flows to be reported on the cash flow statement.

Classify the following balance sheet accounts by as current assets,noncurrent assets,current liabilities,noncurrent liabilities or stockholders' equity $\begin{array}{lrl}\text { 1. Notes payable due in } 3 \text { months } & \text { Noncurrent assets } & 7 \\\text { 2. Income taxes payable } & \text { Stockholders' equity } &\underline{ 9} \\\text { 3. Prepaid expenses } & \text { Current Liabilities } & \underline{1} \\\text { 4. Accounts receivable } & \text { Noncurrent assets } & \underline{6} \\\text { 5. Supplies inventory } & \text { Current assets } &\underline{3} \\\text { 6. Land } & \text { Current assets } & \underline{5} \\\text { 7. Building } & \text { Stockholders' equity } & \underline{10} \\\text { 8.Notes payable due in 5 years } & \text { Noncurrent liabilities } & \underline{8} \\\text { 9. Retained earnings } & \text { Current liabilities } & \underline{2} \\\text {10.Contributed capital } & \text { Current assets } & \underline{4}\end{array}$

Many valuable assets such as trademarks and copyrights are not reported within a company's balance sheet.

Which of the following assumptions implies that a business can continue to remain in operation into the foreseeable future?

Why is the continuity assumption so important for balance sheet reporting?

Why is the separate-entity assumption so important for balance sheet reporting?

The accounts with identification letters for Ward Company are listed below. $\begin{array} { l l } \text { Letter } & \text { Account Title } \\\text { A } & \text { Cash } \\\text { B } & \text { Accounts receivable } \\\text { C } & \text { Office supplies } \\& \text { inventory } \\\text { D } & \text { Equipment } \\\text { E } & \text { Land } \\\text { F } & \text { Accounts payable } \\\text { G } & \text { Notes payable } \\\text { H } & \text { Contributed capital } \\\text { I } & \text { Retained earnings }\end{array}$ During 2010,the company completed the transactions given below.You are to indicate the appropriate journal entry for each transaction by giving the account letter and amount.Some entries may need three letters.The first transaction is given as an example.

The primary objective of financial reporting is to provide relevant information to external decision makers.