7. Company X issues $40 million in new stock for cash. This does not affect stockholders' equity because as new shares are sold the value of existing shares falls. FALSE When new stock is issued for cash, the company has more cash and contributed capital. Assets and stockholders' equity both rise. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Difficulty: Medium Learning Objective: 2 8. The separate entity concept requires that business transactions be examined from the point of view of the company, not the company's owners. TRUE analytic AICPA BB: legal AICPA FN: reporting Difficulty: Medium Learning Objective: 2 9. You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company's jeans. Later, your company's sales increase by $500,000 as a result. When the actress appeared on TV, you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company. FALSE No would be recorded; the future economic benefits (or resources) were not assured on the date of the TV appearance. Further, no transaction occurred with the appearance. Your company's assets, liabilities, and stockholders' equity will not change until the jeans are produced and sold. AACSB: reflective thinking AICPA BB: critical thinking AICPA FN: reporting Difficulty: Hard Learning Objective: 3
7. Company X issues $40 million in new stock for cash. This does not affect stockholders' equity because as new shares are sold the value of existing shares falls. FALSE When new stock is issued for cash, the company has more cash and contributed capital. Assets and stockholders' equity both rise. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Difficulty: Medium Learning Objective: 2 8. The separate entity concept requires that business transactions be examined from the point of view of the company, not the company's owners. TRUE analytic AICPA BB: legal AICPA FN: reporting Difficulty: Medium Learning Objective: 2 9. You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company's jeans. Later, your company's sales increase by $500,000 as a result. When the actress appeared on TV, you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company. FALSE No would be recorded; the future economic benefits (or resources) were not assured on the date of the TV appearance. Further, no transaction occurred with the appearance. Your company's assets, liabilities, and stockholders' equity will not change until the jeans are produced and sold. AACSB: reflective thinking AICPA BB: critical thinking AICPA FN: reporting Difficulty: Hard Learning Objective: 3
Downloadable-Test-Bank-for-Fundamentals-of-Financial-Accounting-2nd-Edition-Phillips-1.docx