CHAPTER 2 AND 3 PRACTICE SET
1.
Which of the following reflects the impact of a transaction where $200,000 cash was invested
by stockholders in exchange for stock?
A.
Assets and retained earnings each increased $200,000.
B.
Assets and revenues each increased $200,000.
C.
Stockholders’ equity and revenues each increased $200,000.
D.
Stockholders’ equity and assets each increased $200,000.
Receiving $200,000 cash in exchange for stock increases assets (cash) and stockholders’
equity (issuing stock).
2.
A corporation purchased factory equipment using cash. Which of the following statements
regarding this purchase is correct?
A.
The cost of the factory equipment is an expense at the time of purchase.
B.
The total assets will not change.
C.
The total liabilities will increase.
D.
The current stockholders’ equity will decrease.
The purchase of equipment is not expensed and, therefore, has no effect on the income
statement. Instead, one asset (cash) is exchanged for another asset (equipment), which
means that total assets will not change.
3.
A company’s January 1, 2014 balance sheet reported total assets of $150,000 and total
liabilities of $60,000. During January 2014, the company completed the following transactions:
(A) paid a note payable using $10,000 cash (no interest was paid); (B) collected a $9,000
accounts receivable; (C) paid a $5,000 accounts payable; and (D) purchased a truck for
$5,000 cash and by signing a $20,000 note payable from a bank. The company’s January 31,
2014 balance sheet would report which of the following?
