61
117) Which of the following would be classified as investing cash flows on a statement of cash
flows?
1. Acquiring a building by signing a long-term mortgage payable.
2. Lending cash to others.
3. Issuing stock for cash.
4. Purchasing long-term assets for cash.
5. Selling stock investments for cash.
A) 1, 4, 5.
B) 1, 2, 4.
C) 1, 3, 5.
D) 2, 4, 5.
118) Which of the following statements is false?
A) Investing cash flows include the cash flows associated with lending money to others.
B) Financing cash flows include the cash flows associated with issuing stock and paying
dividends.
C) Financing cash flows include the cash flows associated with borrowing and repaying debt
excluding short-term bank loans.
D) Investing cash flows include the cash flows associated with buying and selling noncurrent
assets.
62
119) Why is the continuity assumption so important for balance sheet reporting?
120) Why is the separate entity assumption so important for balance sheet reporting?
121) Why is the historical cost principle so important for balance sheet reporting?
63
122) Complete the following schedule for Red Eye Company.
Transaction
Assets
Liabilities
Stockholders’
Equity
Beginning balances
$200,000
$80,000
$120,000
Borrowed $20,000 cash by signing a
note payable with a bank.
Collected accounts receivable for cash,
$7,000.
Paid accounts payable, $8,000 cash.
Purchased office supplies on credit,
$2,000.
Sold common stock, at par value, to new
investors in exchange for $20,000 cash.
Paid income taxes payable of $12,000.
Ending balances
Transaction
Stockholders’
Equity
Beginning balances
$120,000
signing a note payable with a
bank.
+20,000
Collected accounts receivable
for cash, $7,000.
Paid accounts payable, $8,000
cash.
credit, $2,000.
investors, at par value, in
exchange for $20,000 cash.
Paid income taxes payable of
$12,000.
Ending balances
$140,000
64
123) Complete the following schedule for Blue Eye Company.
Assets
Liabilities
Stockholders’
Equity
$300,000
$180,000
$120,000
Transaction
Beginning balances
Borrowed $18,000 cash by signing
a note payable with a bank.
Purchased office equipment for
$6,000.
Declared a dividend of $30,000 that
will be paid in cash next month.
$8,000.
Sold 1,000 shares of $5 par value
common stock to new investors in
exchange for $20,000 cash.
Ending balances
65
124) For each of the following accounts, indicate whether the account is an asset (A), liability
(L), or stockholders’ equity (SE) and whether the account has a normal debit (Dr) or normal
credit (Cr) balance.
1. Retained Earnings
2. Supplies
3. Additional paid-in capital
4. Accounts payable
5. Accounts receivable
6. Property and equipment
7. Wages payable
8. Prepaid expenses
125) For each of the accounts listed below, indicate whether the typical or normal balance is a
debit or credit.
A. Supplies
B. Notes payable
C. Retained earnings
D. Equipment
E. Prepaid insurance expense
F. Accounts receivable
G. Land
H. Additional paid-in capital
I. Accounts payable
J. Unearned revenue
67
126) The ABC Corporation was formed on January 1, 2019. The three initial owners each
invested $100,000 cash and each received 10,000 shares of $1 par value common stock. Below
are selected transactions that were completed during January, 2019.
1. Issue shares of common stock to the owners.
2. Borrowed $80,000 on a one-year note payable.
3. Purchased land by signing a $70,000 note payable.
4. Paid $10,000 of accounts payable.
5. Purchased two service vehicles for cash at a cost of $24,000 each.
6. Purchased $2,000 of supplies on credit.
Prepare the journal entry on ABC’s books for each transaction. Include a brief explanation for
each entry.
68
127) The accounts with identification letters for Ward Company are listed below.
Letter
Account Title
A
Cash
B
Accounts receivable
C
Office supplies inventory
D
Equipment
E
Land
F
Accounts payable
G
Notes payable
H
Common stock
I
Additional paid-in capital
J
Retained earnings
During 2019, 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 provided as an example.
Transaction Debit Credit
Letter
Amount
Letter
Amount
1.
Borrowed $50,000 and
signed a note.
A
$50,000
G
$50,000
2.
Purchased equipment for
$50,000. Paid $10,000 cash,
signed $40,000 note payable.
3.
Collected $15,000 of
accounts receivable.
4.
Paid $12,000 of accounts
payable.
5.
Issued 10,000 shares of $10
par value common stock in
exchange for $160,000 cash.
6.
Purchased $5,000 office
supplies on credit.
7.
Paid for the office supplies in
(6).
Answer:
128) Describe the general journal and the general ledger.
70
129) On January 1, 2019, Dr. Beth Hill started a new professional corporation, Beth Hill, P. C.,
to practice medicine with an initial investment of $100,000 in exchange for 20,000 shares of $2
par value common stock. On June 30, 2019, the accounting records showed the following
amounts:
Accounts Payable
$2,000
Accounts Receivable
$6,200
Cash
$48,100
Common stock
$?
Additional Paid-in Capital
$?
Office Equipment
$60,000
Office Supplies
$3,500
Retained Earnings
$5,800
Notes Payable
$10,000
1. Calculate the amounts for common stock and additional paid-in capital.
2. Prepare a balance sheet as of June 30, 2019.
71
Answer: