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Fundamental Financial Accounting Concepts Thomas Edmonds 9th Edition-Test Bank
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Chapter 01 - An Introduction to Accounting 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 ente...

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  • September 16, 2023
  • 1109
  • 2022/2023
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,Chapter 01 - An Introduction to Accounting




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.




1. 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.




1-1

,Chapter 01 - An Introduction to Accounting



2. Nguyen Co. borrowed $50,000 cash from Metropolitan Bank.




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.



3. 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.




1-2

, Chapter 01 - An Introduction to Accounting



4. Pierce Co. paid $40,000 cash to purchase land.




Answer: (N) (N) (N) (N) (N) (N) (D)


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: Purchasing land for cash is an asset exchange transaction that increases one asset (land) and decreases another asset (cash). It
does not affect the income statement, and is reported as an investing activity in the statement of cash flows.



5. Perez Co. paid $220,000 cash in salaries to its employees.




Answer: (D) (N) (D) (N) (I) (D) (D)


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: Paying expenses such as salaries is an asset use transaction that decreases the business’s assets (cash) and decreases its equity
(retained earnings). Note that the expense decreases net income, and will decrease retained earnings at the end of the accounting period. It is
reported as a cash flow for operating activities in the statement of cash flows.




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