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Fundamental Financial Accounting Concepts, 10e (Edmonds) Chapter 1 An Introduction to Accounting 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. (Note that "...

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,Fundamental Financial Accounting Concepts, 10e (Edmonds)
Chapter 1 An Introduction to Accounting

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.
(Note that "No Effect" means that the event does not effect that element of the financial
statements or that the event causes an increase in that element is offset by a decrease in that same
element.)

Increase = I Decrease = D No Effect = NA

1) Walker Co. issued common stock for $150,000 cash.

Stmt of Cash
Assets Liabilities Equity Revenues Expenses Net Income Flows


Answer: (I) (NA) (I) (NA) (NA) (NA) (I)
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.
Difficulty: 2 Medium
Topic: The Horizontal Financial Statements Model
Learning Objective: 01-10 Record business events using a horizontal financial statements
model.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement

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

Stmt of Cash
Assets Liabilities Equity Revenues Expenses Net Income Flows


Answer: (I) (I) (NA) (NA) (NA) (NA) (I)
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.
Difficulty: 2 Medium
Topic: The Horizontal Financial Statements Model
Learning Objective: 01-10 Record business events using a horizontal financial statements
model.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
1
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.

,3) Bell Co. provided consulting services for $20,000 cash.

Stmt of Cash
Assets Liabilities Equity Revenues Expenses Net Income Flows


Answer: (I) (NA) (I) (I) (NA) (I) (I)
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.
Difficulty: 2 Medium
Topic: The Horizontal Financial Statements Model
Learning Objective: 01-10 Record business events using a horizontal financial statements
model.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement

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

Stmt of Cash
Assets Liabilities Equity Revenues Expenses Net Income Flows


Answer: (NA) (NA) (NA) (NA) (NA) (NA) (D)
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.
Difficulty: 2 Medium
Topic: The Horizontal Financial Statements Model
Learning Objective: 01-10 Record business events using a horizontal financial statements
model.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement




2
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.

, 5) Perez Co. paid $220,000 cash for salaries expense.

Stmt of Cash
Assets Liabilities Equity Revenues Expenses Net Income Flows


Answer: (D) (NA) (D) (NA) (I) (D) (D)
Paying expenses 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.
Difficulty: 2 Medium
Topic: The Horizontal Financial Statements Model
Learning Objective: 01-10 Record business events using a horizontal financial statements
model.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement

6) Epstein Co. paid $20,000 in cash dividends to its owners.

Stmt of Cash
Assets Liabilities Equity Revenues Expenses Net Income Flows


Answer: (D) (NA) (D) (NA) (NA) (NA) (D)
Paying a cash dividend is an asset use transaction that decreases a business's assets (cash) and its
equity (retained earnings).The dividends account will decrease the retained earnings at the end of
the accounting period. It does not affect net income, and is reported as a cash flow for financing
activities in the statement of cash flows.
Difficulty: 2 Medium
Topic: The Horizontal Financial Statements Model
Learning Objective: 01-10 Record business events using a horizontal financial statements
model.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement




3
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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