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Chp-02 - Chapter 2 Investing and Financing Decisions and...

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Chapter 2 Investing and Financing Decisions and the Balance Sheet MULTIPLE CHOICE 1. b 6. d 2. d 7. c 3. c 8. a 4. d 9. d 5. a 10. d 2-1
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E2–2. Req. 1 Received Given (a) Equipment (A) [or Computer equipment] Note payable (L) (b) Equipment (A) [or Delivery truck] Cash (A) (c) No exchange transaction (d) Cash (A) Contributed capital (SE) (e) Building (A) [or Construction in progress] Cash (A) (f) Intangibles(A) [or Copyright] Cash (A) (g) Retained earnings (SE) [Received a reduction in the amount available for payment to stockholders] Cash (A) (h) Investments (A) Cash (A) (i) Land (A) Cash (A) (j) Intangibles (A) [or Patents] Cash (A) and Note payable (L) (k) No exchange transaction (l) Cash (A) Short-term note payable (L) (m) Note payable (L) [Received a reduction in its promise to pay] Cash (A) Req. 2 The truck in (b) would be recorded as an asset of $21,000. The land in (i) would be recorded as an asset of $50,000. These are applications of the cost principle. Req. 3 The agreement in (c) involves no exchange or receipt of cash, goods, or services and thus is not a transaction. Since transaction (k) occurs between the owner and others, there is no effect on the business because of the separate-entity assumption. 2-2   
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E2–5. Req. 1 Assets = Liabilities + Stockholders’ Equity a. Buildings Equipment Cash +182.0 +21.9 – 48.1 Long-term note payable +155. 8 b. Cash +253.6 Contributed capital +253. 6 c. Dividends payable +179.2 Retained earnings –179.2 d. Short-term investments Cash +400. 8 – 400.8 e. No effects f. Cash Short-term Investments +1.4 –1.4 Req. 2 The separate-entity assumption states that transactions of the business are separate from transactions of the owners. Since transaction (e) occurs between the owners and others in the stock market, there is no effect on the business.
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