Q: Which of the following best describes the accounting equation used in preparing a balance sheet?

$\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$

Question 1

Which of the following best describes the accounting equation used in preparing a balance sheet?

Accepted Answer

$	ext{Assets} = 	ext{Liabilities} + 	ext{Stockholders' Equity}$

Question 2

A company purchases equipment worth $8,000 by paying $2,000 in cash and signing a note payable for the remaining $6,000. What is the effect on the accounting equation?

Accepted Answer

Increase assets by $8,000, decrease cash by $2,000, increase liabilities by $6,000

Question 3

Which of the following is NOT considered a transaction for accounting purposes?

Accepted Answer

Signing a contract to purchase software, with no cash or goods exchanged yet

Question 4

If a company receives $12,000 in cash from owners and issues common stock, what is the journal entry?

Accepted Answer

Debit Cash $12,000; Credit Common Stock $12,000

Question 5

A company pays $500 cash to create a logo. Which accounts are affected and how?

Accepted Answer

Debit Logo/Trademark $500; Credit Cash $500

Question 6

Which of the following best explains the duality of effects in transaction analysis?

Accepted Answer

Every transaction affects at least two accounts in the accounting equation

Question 7

A company receives supplies costing $900 on account. What is the correct journal entry?

Accepted Answer

Debit Supplies $900; Credit Accounts Payable $900

Question 8

If a company borrows $25,000 from the bank, what is the effect on the balance sheet?

Accepted Answer

Increase assets (cash) by $25,000; increase liabilities (notes payable) by $25,000

Question 9

Which of the following is an example of an internal event in accounting?

Accepted Answer

Using some assets to create an inventory product

Question 10

A company purchases land for $12,000, paying $1,000 in cash and signing a long-term note for the remainder. What is the journal entry?

Accepted Answer

Debit Land $12,000; Credit Cash $1,000; Credit Notes Payable $11,000

Question 11

Which statement about the initial recording of assets is correct?

Accepted Answer

Assets are initially recorded at cost, not at estimated market value

Question 12

A company receives $9,000 of software, pays $4,000 cash, and promises to pay $5,000 next month. What is the effect on the accounting equation?

Accepted Answer

Increase assets (software) by $9,000; decrease assets (cash) by $4,000; increase liabilities (accounts payable) by $5,000

Question 13

Which of the following is true regarding the preparation of a trial balance?

Accepted Answer

A trial balance is prepared to check that total debits equal total credits

Question 14

If a company pays $5,000 cash to settle part of its accounts payable, what is the effect on the accounting equation?

Accepted Answer

Decrease assets (cash) by $5,000; decrease liabilities (accounts payable) by $5,000

Question 15

Which of the following is a feature of external exchanges in accounting?

Accepted Answer

They involve exchanges of assets, liabilities, or equity between the company and another party

Question 16

A company receives $10,000 cash from owners and issues stock. What is the effect on stockholders' equity?

Accepted Answer

Increase stockholders' equity by $10,000

Question 17

Which of the following is NOT included as an asset on the balance sheet?

Accepted Answer

Creativity and vision

Question 18

A company purchases $3,000 of equipment, pays $1,000 in cash, and charges the rest on account. What is the journal entry?

Accepted Answer

Debit Equipment $3,000; Credit Cash $1,000; Credit Accounts Payable $2,000

Question 19

Which of the following best describes equity financing?

Accepted Answer

Raising funds by issuing stock to owners

Chapter 2: The Balance Sheet – Foundations and Transaction Analysis

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