The following expenditures relating to plant assets were made by Watkens Company during the first 2 months of 2014.

The following expenditures relating to plant assets were made by Watkens Company during the first 2 months of 2014.

(a) Indicate the account title to which each expenditure should be debited.

1.		Paid $7,000 of accrued taxes at the time the plant site was acquired.		License Expense Equipment Land Improvements Prepaid Insurance Land
2.		Paid $200 insurance to cover a possible accident loss on new factory machinery while the machinery was in transit.		Land Prepaid Insurance Land Improvements License Expense Equipment
3.		Paid $850 sales taxes on a new delivery truck.		Equipment Land Prepaid Insurance License Expense Land Improvements
4.		Paid $21,000 for parking lots and driveways on the new plant site.		Equipment Land Improvements License Expense Land Prepaid Insurance
5.		Paid $250 to have the company name and slogan painted on the new delivery truck.		Prepaid Insurance License Expense Land Equipment Land Improvements
6.		Paid $8,000 for installation of new factory machinery.		License Expense Equipment Prepaid Insurance Land Improvements Land
7.		Paid $900 for a 1-year accident insurance policy on the new delivery truck.		Land Equipment Land Improvements License Expense Prepaid Insurance
8.		Paid $75 motor vehicle license fee on the new truck.		Prepaid Insurance License Expense Land Land Improvements Equipment

Which of the following would probably be the most significant type of a claim held by a company?

Which of the following would probably be the most significant type of a claim held by a company?

notes receivable

accounts receivable

interest receivable

non-trade receivables

When using the direct write-off method year-end adjustments for bad debt expense must be made.

True

False

The cost of an intangible asset with an indefinite life should

be amortized over the life of the creator plus 70 years.

be amortized over 20 years.

not be amortized.

None of these answer choices are correct.

Intangible assets

should be reported as a separate classification on the balance sheet.

should be reported under the heading Property, Plant, and Equipment.

are not reported on the balance sheet because they lack physical substance.

should be reported as Current Assets on the balance sheet.

Investing activities deal with the cash acquisition and sale of long-term assets.What type of activity is the purchase of equipment for cash?

Investing activities deal with the cash acquisition and sale of long-term assets.

What type of activity is the purchase of equipment for cash?

A non-cash investing activity that goes into a separate schedule of the notes of the statement of cash flows

Investing activity

Financing activity

	Operating activity
In the introductory phase, the cash used in operations will exceed the cash generated, the company will be spending cash to purchase productive fixed assets, and will need to issue stock or debt to make these purchases.

In which stage of the corporate life cycle will cash flows from the operations and from investing activities be negative, and the cash flows from financing be positive?

Decline phase

Maturity phase

Introductory phase

Growth phase

The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the

The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the

balance sheet.

auditor’s opinion.

financial statements.

income statement. The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is in the auditor’s opinion. Resources owned by a business are referred to as assets. liabilities. stockholders’ equity. revenues.

Assets are the resources owned by the business.

A vacant lot acquired for $180,000 is sold for $440,000 in cash. What is the effect of the sale on the total amount of the seller’s

a. A vacant lot acquired for $180,000 is sold for $440,000 in cash. What is the effect of the sale on the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity?

b. Assume that the seller owes $69,000 on a loan for the land. After receiving the $440,000 cash in (a), the seller pays the $69,000 owed. What is the effect of the payment on the total amount of the seller’s (1) assets, (2) liabilities, and (3) owner’s equity?

c. Is it true that a transaction always affects at least two elements (Assets, Liabilities, or Owner’s Equity) of the accounting equation? Explain.

Answer:
a.
(1) Total assets increased $260,000 ($440,000 – $180,000).
(2) No change in liabilities.
(3) Owner’s equity increased $260,000.

b.
(1) Total assets decreased $69,000.
(2) Total liabilities decreased $69,000.
(3) No change in owner’s equity.

c.  No, it is false that a transaction always affects at least two elements (Assets, Liabilities, or Owner’s Equity) of the accounting equation. Some transactions affect only one element of the accounting equation. For example, purchasing supplies for cash only affects assets.