chap002 - Chapter 002: Investing and Financing Decisions...

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Chapter 002: Investing and Financing Decisions and the Balance Sheet True / False Questions 1. A balance sheet format reports that assets equal liabilities plus stockholders' equity. TRUE AACSB Tag: Communications Difficulty: Easy L.O.: 1 2. Liability accounts are reported on the income statement as they represent goods or services consumed or used. FALSE AACSB Tag: Communications Difficulty: Easy L.O.: 1 3. A primary objective of accounting is to disclose the fair market value of assets on the balance sheet so investors and creditors know their current value. FALSE AACSB Tag: Communications Difficulty: Medium L.O.: 1 4. Under the separate entity assumption, it is assumed that a business will continue to operate into the foreseeable future. FALSE AACSB Tag: Reflective Thinking Difficulty: Easy L.O.: 1 2-1
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Chapter 002: Investing and Financing Decisions and the Balance Sheet 5. The historical cost principle measures assets and liabilities at the historical cash-equivalent amounts. TRUE AACSB Tag: Communications Difficulty: Medium L.O.: 1 6. Liabilities are listed on the balance sheet in the order of their maturity, meaning how soon they are due to be paid. TRUE AACSB Tag: Communications Difficulty: Easy L.O.: 1 7. An "account" is a standardized format used to accumulate the effects of transactions on each financial statement item. TRUE AACSB Tag: Reflective Thinking Difficulty: Easy L.O.: 2 8. The payment of a liability in cash will decrease stockholders' equity. FALSE AACSB Tag: Reflective Thinking Difficulty: Medium L.O.: 3 9. The purchase of equipment for cash has no effect on total assets. TRUE AACSB Tag: Reflective Thinking Difficulty: Easy L.O.: 3 2-2
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Chapter 002: Investing and Financing Decisions and the Balance Sheet 10. The duality of effects means that every transaction must affect both sides of the accounting equation. FALSE AACSB Tag: Reflective Thinking Difficulty: Hard L.O.: 3 11. When a business borrows money from a bank, both the left and right sides of the accounting equation increase. TRUE AACSB Tag: Reflective Thinking Difficulty: Medium L.O.: 3 12. It is not possible for the left side of the accounting equation to both increase and decrease as a result of the same transaction. FALSE AACSB Tag: Reflective Thinking Difficulty: Medium L.O.: 3 13. A T-account shows total debits of $26,000 and total credits of $20,000; therefore, it has a $6,000 debit balance. TRUE AACSB Tag: Analytic Difficulty: Easy L.O.: 3 2-3
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Chapter 002: Investing and Financing Decisions and the Balance Sheet 14. Debits always increase and credits always decrease an account. FALSE AACSB Tag: Reflective Thinking Difficulty: Easy L.O.: 4 15. The chart of accounts of a company is the complete listing of all accounts and accounts numbers. TRUE
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This note was uploaded on 11/18/2011 for the course ACCOUNTING BAD 1 taught by Professor Ginalord during the Spring '11 term at Santa Rosa.

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chap002 - Chapter 002: Investing and Financing Decisions...

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