Chapter 2
The Cash Basics of Accounting

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1. If a $20,000 purchase of equipment for cash is incorrectly recorded as an increase to equipment and as an increase to cash, at the end of the period, assets will __________.
a. Exceed liabilities and stockholders' equity by $10,000
b. Equal liabilities and stockholders' equity
c. Exceed liabilities and stockholders' equity by $20,000
d. Exceed liabilities and stockholders' equity by $40,000

2. Under the cash basis of accounting, a utility bill received in October and paid in November would be recorded in __________.
a. October
b. Recorded when received
c. November
d. Not recorded at all

3. XYZ Company deposited $15,000 in a bank account in return for issuing shares in the corporation. This transaction would affect which two financial statement elements?
a. Assets and stockholders' equity
b. Assets and liabilities
c. Liabilities and stockholders' equity
d. None of the above

4. The payment of $10,000 for expenses was recorded by Spears Co. as an increase in cash of $10,000, and a decrease in retained earnings of $10,000. What is the effect of this error on the accounting equation?
a. Total assets will exceed total liabilities and stockholders' equity by $20,000
b. Total assets will exceed total liabilities and stockholders' equity by $10,000
c. Total assets will be less than total liabilities and stockholders' equity by $20,000
d. The error will not affect the accounting equation.

5. Which of the following transactions changes the mix of assets only?
a. Paid for supplies with cash
b. Borrowed money from Second National Bank
c. Received money for fees earned
d. Received a utility bill

6. For EFG Co., the transaction "Purchase of store equipment with cash" would __________.
a. Increase the assets
b. Decrease the assets
c. Have no effect on the assets

7. The income statement for August indicates net income of $50,000. The corporation also paid $10,000 in dividends during the same period. If there was no beginning balance in stockholders' equity, what is the ending balance in stockholders' equity?
a. $40,000
b. $50,000
c. $10,000
d. $60,000

8. Which of the following would result in no net change of assets?
a. Stock issued for cash
b. Expenses paid with cash
c. Cash collected for fees earned
d. Equipment purchased for cash

9. Young Company has $16,000 in Retained Earnings, $27,000 in Assets, and $5,000 in Liabilities. How much is in Common Stock?
a. $36,000
b. $15,000
c. $5,000
d. $6,000

10. A to Z Corporation engaged in the following transaction "Issued a $30,000 note payable to borrow cash from the bank." On the Statement of Cash Flows, the transaction would be classified as __________.
a. Cash Flows from Operating Activities.
b. Cash Flows from Investing Activities.
c. Cash Flows from Financing Activities.



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