Several transactions are listed below, with an expanded accounting equation stated to
the right side of each. Use the following identification codes to indicate the effects of
each transaction on the accounting equation: I = Increase; D = Decrease; NE = No
Effect. Write your answers in the space provided under the accounting equation, being
sure to include an identification code for each element of the accounting equation.
When calculating the return on common equity ratio, dividends to preferred
stockholders are deducted from net income because
a. the ratio is an indicator of the return on common stockholders equity rather than the
return on total equity.
b. dividends are not expenses on the current period income statement.
c. conservatism indicates that stockholders prefer a smaller numerator.
d. dividends are only available for distribution to common stockholders after the
preferred stockholders have received their dividends.
Interest is earned on notes receivable, but not yet received
For each transaction select the type of adjustment that would be required. (Choices
may be used more than once.)
a. Deferred (prepaid) expense
b. Deferred (unearned) revenue
c. Accrued expense
d. Accrued revenue
Rent Revenue
From the list of accounts, determine whether the account is a temporary or permanent
account. (Choices may be used more than once.)
When using the direct method to determine operating cash flows, how is the issuance of
stock for cash shown on the Statement of Cash Flows?
a. operating activity
b. investing activity
c. financing activity
d. noncash investing and financing activity
e. not reported on the statement of cash flows
Agreement whereby the legal owner of the asset retains substantially all of the risks and
obligations of ownership Match these terms with their definitions.
a. Callable bonds f. Mortgage bonds
b. Capital lease g. Notes payable
c. Convertible bonds h. Operating lease
d. Debenture bonds i. Secured bonds
e. Junk bonds
Refer to Dance Town Academy. How will the customer’s bounced checks be handled on
a bank reconciliation?
Dance Town Academy The items listed below were identified while preparing a bank
reconciliation for the company’s checking account as of March 31, 2013.
a. add to the balance from the company records
b. subtract from the balance from the company records
c. add to the bank statement balance
d. subtract from the bank statement balance
Which of the following statements is true regarding a corporation’s purchase of treasury
stock?
a. The cost of treasury stock is a reduction in stockholders’ equity.
b. Dividends must still be paid on treasury stock because it is still issued.
c. Treasury stock is reported as an asset because it is considered an investment in the
corporation’s own stock.
d. Treasury stock is no longer considered issued once it is back in the hands of the
issuer.
Which of the following statements regarding leases is false?
a. Lease agreements are a popular form of financing the purchase of assets because
leases do not require a large initial outlay of cash.
b. Accounting recognizes two types of leases–operating and capital leases.
c. If a lessor classifies a lease as a capital lease, then the lessor records a lease liability
on its balance sheet.
d. If a lease is classified as an operating lease, the lessee records an asset on its balance
sheet.
Refer to Hesson Properties. What journal entry is required to record the cash collected
in advance?
Hesson Properties, Inc.
The following transactions occurred during June:
a. Cash 500 Service Revenue 500
b. Accounts Receivable 500 Service Revenue 500
c. Cash 500 Unearned Revenue 500
d. Unearned Revenue 500 Accounts Receivable 500
A(n) ____________________ arises when a business purchases goods or services on
credit.
“You Decide”Essay You are Chief Financial Officer for Five Star Resorts, Inc. You are
reviewing the following transactions:
When stockholders receive a distribution of additional shares of stock, and there is a
corresponding capitalization of retained earnings, a stock ____________________ has
occurred.
When a company issues no-par stock with no stated value, there is no need for an
account titled “paid-in capital in excess of par.”
A performance measures that assesses the growth in equity from operating activities.
____________________ is the magnitude of an omission or misstatement in accounting
information that will influence the decision of someone relying on the information.
Depreciation is a noncash expense that is subtracted from net income in determining
cash provided from operating activities under the indirect method.
Issued stock that is repurchased by the corporation but not retired is
____________________.