use, or exchange transactions.
Difficulty: 3 Hard Learning Objective: 01-10 Record
business events using a
horizontal financial statements
model.
Which of the following represents effects of an asset use transaction on a company's financial statements?
Balance Sheet Income Statement
Assets = Liabilities + Stockholders' Equity Revenue − Expense = Net Income
A. − n/a − n/a + −
B. +/− n/a n/a n/a n/a n/a
C. + n/a + + n/a +
D. + + n/a n/a n/a n/a
Option A
Option B
Option C
Option D
An asset use transaction decreases assets and decreases either liabilities (in the case of repaying debt) or stockholders' equity (in the case of paying dividends
or expenses). It may or may not increase expenses and decrease net income. If the asset that decreased is cash, it will be reported as an outflow for financing
or operating activities on the statement of cash flows.
References
Multiple Choice Learning Objective: 01-06 Classify
business events as asset source,
use, or exchange transactions.
Difficulty: 3 Hard Learning Objective: 01-10 Record
business events using a
horizontal financial statements
model.
123.
Award: 1.00 point
124.
Award: 1.00 point
Reynolds Company experienced an accounting event that affected its financial statements as indicated below:
Balance Sheet Income Statement
Statement of Cash Flows Assets = Liabilities +
Stockholders'
Equity Revenue − Expense = Net Income
+ n/a + + n/a + +OA
Which of the following accounting events could have caused these effects on Reynolds' statements?
Paid a cash dividend
Earned cash revenue
Borrowed money from a bank
The information provided does not represent a completed event.
Earning cash revenue must have been the event that affected the financial statements as indicated because it increased revenue and net income on the
income statement and was reported as a cash inflow for operating activities on the statement of cash flows.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-10 Record business events using a horizontal
financial statements model.
Chico Company experienced an accounting event that affected its financial statements as indicated below:
Balance Sheet Income Statement
Statement of Cash Assets = Liabilities +
Stockholders'
Equity Revenue − Expense = Net Income
+ n/a + n/a n/a n/a FA
Which of the following accounting events could have caused these effects on Chico's statements?
Issued common stock
Earned cash revenue
Borrowed money from a bank
Paid a cash dividend
Issuing common stock would increase assets (cash) and increase stockholders' equity (common stock). It would not affect net income, but would be reported
as a cash inflow from financing activities on the statement of cash flows.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-10 Record business events using a horizontal
financial statements model.
125.
Award: 1.00 point
126.
Award: 1.00 point
Delta Company experienced an accounting event that affected its financial statements as indicated below:
Balance Sheet Income Statement
Statement of Cash Flows Assets = Liabilities +
Stockholders'
Equity Revenue − Expense = Net Income
− n/a − n/a + − −OA
Which of the following accounting events could have caused these effects on Delta's statements?
Paid a cash dividend
Incurred a cash expense
Borrowed money from a bank
Earned cash revenue
Incurring a cash expense would decrease assets (cash) and decrease stockholders' equity (retained earnings). It would increase expenses and decrease net
income, and would be reported as a cash outflow for operating activities on the statement of cash flows.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-10 Record business events using a horizontal
financial statements model.
Northern Corporation invested $800 cash in South Company stock.
Which of the following describes the effects of this transaction on Northern Corporation's books?
Balance Sheet Income Statement