Test Bank For Fundamental Financial Accounting Concepts Thomas Edmonds 9th Edition
Chapter 01 An Introduction to Accounting Answer Key
Short Answer Questions
Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts.
- Walker Co. issued common stock for $150,000 cash.
Answer: (I) (N) (I) (N) (N) (N) (I)
Learning Objective: 01-02
Level of Learning: 2 Medium
Topic Area: Recording Business Events Under the Accounting Equation
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Feedback: Issuing common stock is an asset source transaction that increases the business’s assets (cash) and its stockholders’ equity (common stock). It does not affect the income statement, but is reported as a cash flow from financing activities in the statement of cash flows.
- Nguyen Co. borrowed $50,000 cash from MetropolitanBank.
Answer: (I) (I) (N) (N) (N) (N) (I)
Learning Objective:01-08
Topic Area: Recording Business Events Under the Accounting Equation
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Difficulty: 2 Medium
Feedback: Borrowing cash is an asset source transaction that increases a business’s assets (cash) and its liabilities (notes payable). It does not affect the income statement but is reported as a cash flow from financing activities in the statement of cash flows.
- Bell Co. provided consulting services for $20,000 cash.
Answer: (I) (N) (I) (I) (N) (I) (I)
Learning Objective:01-08
Topic Area: Recording Business Events Under the Accounting Equation
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Difficulty: 2 Medium
Feedback: This is an asset source transaction that increases the business’s assets (cash). When a business provides services, it earns revenue. Revenue increases net income, which will increase equity (retained earnings) at the end of the accounting period. This event is reported as a cash flow from operating activities in the statement of cash flows.
