ACCT 1201 Ch. 2 — Round 3: Transaction Practice

Based on the Chapter 2 11e slides. Study the question side first and answer before flipping. Short answers and mini-scenarios practice one skill at a time. Work out the affected accounts and direction first. Dividend declarations follow the slides by debiting Retained Earnings directly.

A business borrows $5,000 cash. What is the journal entry?

Debit Cash $5,000; credit Notes Payable $5,000.

A business borrows $5,000 cash. What happens to total assets, liabilities, and equity?

Assets rise $5,000; liabilities rise $5,000; equity stays unchanged.

Why does borrowing money not count as revenue?

The company must repay it; it creates debt rather than earnings.

A company issues 100 shares with $1 par value for $10 each. What amount goes into Common Stock?

$100, the total par value.

A company issues 100 shares with $1 par value for $10 each. What amount goes into Additional Paid-in Capital?

$900, the proceeds above par value.

A company issues 100 shares with $1 par value for $10 each. What is the full journal entry?

Debit Cash $1,000; credit Common Stock $100; credit Additional Paid-in Capital $900.

A company buys $2,000 of equipment entirely with cash. What is the entry?

Debit Equipment $2,000; credit Cash $2,000.

A company buys $2,000 of equipment entirely with cash. What happens to total assets?

They stay unchanged: one asset rises and another falls.

A company buys $700 of supplies on account. What is the entry?

Debit Supplies $700; credit Accounts Payable $700.

What does buying on account mean?

Receiving something now and agreeing to pay later.

A company buys land for $10,000, pays $3,000 cash, and signs a note for the rest. What is the entry?

Debit Land $10,000; credit Cash $3,000; credit Notes Payable $7,000.

For land bought with $3,000 cash and a $7,000 note, how much do total assets increase?

$7,000: land rises $10,000 while cash falls $3,000.

A company sells an investment recorded at $900 for exactly $900 cash. What is the entry?

Debit Cash $900; credit Investments $900.

An investment is sold for exactly its recorded amount. Does that transaction create a profit?

No. There is no gain or loss.

A company repays $600 of loan principal. Ignore interest. What is the entry?

Debit Notes Payable $600; credit Cash $600.

Why is repayment of loan principal not an expense?

It settles an existing liability rather than creating a cost of earning revenue.

A company buys back its own shares for $400. What is the entry?

Debit Treasury Stock $400; credit Cash $400.

A company buys shares of another company to hold as an investment. Is that Treasury Stock?

No. It records an investment asset.

The board declares a $300 cash dividend to be paid next month. What is the Chapter 2 entry?

Debit Retained Earnings $300; credit Dividends Payable $300.

When a cash dividend is declared for later payment, what happens to cash immediately?

Nothing. Cash changes when payment occurs.

A company pays a previously declared $300 dividend. What is the entry?

Debit Dividends Payable $300; credit Cash $300.

Does paying an already-declared dividend reduce Retained Earnings a second time?

No. The reduction happened when the dividend was declared.

How does declaring a dividend for later payment affect the accounting equation?

Liabilities increase and equity decreases by the same amount; assets stay unchanged.