Homework Chapter 2

Question 1

For the transaction, indicate whether the transaction increased (+), decreased (-), or had no effect (NE) on assets, liabilities, or stockholders’ equity.
Sold goods to customers on credit.

Answer 1

Assets: increase
Liabilities: no effect
Stockholders’ equity: increase

Question 2

For the transaction, indicate whether the transaction increased (+), decreased (-), or had no effect (NE) on assets, liabilities, or stockholders’ equity.
Purchased supplies on account.

Answer 2

Assets: increase
Liabilities: increase
Stockholders’ equity: no effect

Question 3

Journalizing Transactions
Kauai Adventures rents and sells surfboards, snorkeling, and scuba equipment. During March, Kauai engaged in the following transactions:
2 Received $51,500 cash from customers for rental.
3 Purchased on credit ten new surfboards (which Kauai classifies as inventory) for $180 each.
6 Paid wages to employees in the amount of $9,200.
9 Paid office rent for the month in the amount of $1,000.
12 Purchased a new Ford truck for $40,800; paid $1,000 down in cash and secured a loan from Princeville Bank for the $39,800 balance.
13 Collected a $1,050 account receivable.
16 Paid an account payable in the amount of $950.
23 Borrowed $10,000 on a 6-month, 8% note payable.
27 Paid the monthly telephone bill of $185.
30 Paid a monthly advertising bill of $1,550.

Answer 3

2nd cash debit $51500, sales revenue credit $51500
3rd inventory debit $1800, accounts payable credit $1800
6th wages expense debit $9200, cash credit $9200
9th rent expense debit $1000, cash credit $1000
12th trucks debit $40800, cash debit $1000, notes payable $39800
13th cash debit $1050, accounts receivable credit $1050
16th accounts payable debit $950, cash credit $950
23rd cash debit $10000, notes payable credit $10000
27th utilities expense debit $185, cash credit $185
30th advertising expense debit $1550, cash credit $1550

Question 4

Identify the accounting assumption that best describes this practice.
Property, plant, and equipment is recorded at cost (minus any accumulated depreciation) instead of liquidation value.

Answer 4

Going concern assumption

Question 5

Complete each of the statements with the appropriate qualitative characteristic.

Question 6

Complete each of the statements with the appropriate qualitative characteristic.
BLANK is the characteristic that allows external users to identify similarities and differences between two or more items.

Answer 6

Comparability

Question 7

Identify the accounting assumption that best describes this practice.
Pewterschmidt Company values its inventory reported in the financial statements in terms of dollars instead of units.

Answer 7

Monetary unit assumption

Question 8

Complete each of the statements with the appropriate qualitative characteristic.
BLANK is achieved when a company uses the same depreciation method from period to period.

Answer 8

Consistency

Question 9

Complete each of the statements with the appropriate qualitative characteristic.
BLANK requires accounting information to be comprehensible to users who have a reasonable knowledge of business and economic activities and who are willing to study the information carefully.

Answer 9

Understandability

Question 10

For the transaction, indicate whether the transaction increased (+), decreased (-), or had no effect (NE) on assets, liabilities, or stockholders’ equity.
Used supplies in operations of the business.

Answer 10

Assets: decrease
Liabilities: no effect
Stockholders’ equity: decrease

Question 11

Complete each of the statements with the appropriate qualitative characteristic.
When multiple, independent parties can agree on the measurement of an activity, the information is said to be BLANK.

Answer 11

Verifiable

Question 12

Identify the accounting assumption that best describes this practice.
Mueller Inc. prepares quarterly and annual financial statements.

Answer 12

Time period assumption

Question 13

Complete each of the statements with the appropriate qualitative characteristic.
When accounting information is complete, neutral, and free from error, it is said to BLANK the real-world economic event that it is intending to portray.

Answer 13

be a faithful representation of

Question 14

Fill in the blank with the appropriate qualitative characteristic.
The two fundamental qualitative characteristics that information should possess are BLANK and BLANK.

Answer 14

relevance
faithful representation

Question 15

The effects of paying salaries for the current period are to:

Answer 15

decrease assets and decrease stockholders’ equity

Question 16

For the transaction, indicate whether the transaction increased (+), decreased (-), or had no effect (NE) on assets, liabilities, or stockholders’ equity.
Collected amounts due from customers.

Answer 16

Assets: increase and decrease
Liabilities: no effect
Stockholders’ equity: no effect

Question 17

A trial balance:

Answer 17

lists all accounts and their balances

Question 18

Taylor Company recently purchased a piece of equipment for $2,000, which will be paid within 30 days after delivery. At what point would the event be recorded in Taylor’s accounting system?

Answer 18

When Taylor receives the asset from the seller.

Question 19

Debits will:
a. increase assets, liabilities, revenues, expenses, and dividends declared.
b. increase assets, expenses, and dividends declared.
c. decrease assets, liabilities, revenues, expenses, and dividends declared.
d. decrease liabilities, revenues, and dividends declared.

Answer 19

B
All accounts have normal balances, and increases and decreases to an account are based on the normal balances of the account.

Question 20

Identify the accounting assumption that best describes this practice.
Jim Trotter owns C&S Heating Company. In preparing the financial statements, Trotter makes sure that the purchase of a new truck for personal use is not included in C&S’s financial statements.

Answer 20

Economic entity assumption