Question

A debit would make which of the following accounts increase? Common Stock Inventory Notes Payable Retained...

  1. A debit would make which of the following accounts increase?
    1. Common Stock
    2. Inventory
    3. Notes Payable
    4. Retained Earnings
  1. Consider the following journal entry:

Software

18,000

      Cash

7,200

      Note Payable

10,800

Which of the following explanations best describes this journal entry?

A) The company buys $18,000 of software, pays cash of $7,200, and signs a note for $10,800.

B) The company receives $7,200 in cash and $10,800 in notes payable in exchange for selling $18,000 of software.

C) The company buys $18,000 of software, pays $7,200 cash, and promises to cancel a debt owed to the company in the amount of $10,800.

D) The company sells $18,000 of software, receives $7,200 in cash, and pays off $10,800 it owes on the software.

  1. Which one of the following is not a current asset?
    1. Cash
    2. Supplies
    3. Equipment
    4. Prepaid Insurance
  1. The financial statement that reports revenues and expenses is the:
    1. statement of retained earnings.
    2. income statement.
    3. balance sheet.
    4. statement of cash flows.
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Answer #1

Question 1

Correct answer--------(B) Inventory

Inventory has a debit balance and increases when debited.

Common stock, retained earnings and notes payable have credit normal balance hence they decrease with a debit.

Question 2

Correct answer--------A) The company buys $18,000 of software, pays cash of $7,200, and signs a note for $10,800.

The company has purchased software not sold and credit of cash indicate outflow of cash. The full consideration of software is not paid by cash. Partial payment will be done using notes payable at a future date.

Question 3

Correct answer--------(C) Equipment

Equipment is a fixed asset and not a current asset.

All other accounts are current asset accounts.

Question 4

Correct answer--------(B) income statement.

Income statement shows the revenues and expense to calculate net income to be reported on retained earnings statement.

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