A: Their order of permanence; the order in which they become due.
B: The order in which they become due; their order of permanence.
C: Order of profitability; order of liquidity.
D: Order of liquidity; order of profitability.
Q: The valuation of assets in the balance sheet is based primarily upon:
A: What it would cost to replace the assets.
B: Cost, because cost is usually factual and verifiable.
C: Current fair market value as established by independent appraisers.
D: Cost, because in the event of liquidation, the assets would be sold at an amount equal to their original cost.
Q: A payment of a business debt not including interest:
A: Decreases total assets.
B: Increases total liabilities.
C: Increases the owners' equity in the business.
D: Decreases the owners' equity in the business.
A: Cost principle.
B: Business entity concept.
C: Objectivity principle.
D: Going-concern assumption.
Q: Which of the following best defines an asset?
A: Something with physical form that is valued at cost in the accounting records.
B: An economic resource owned by a business and expected to benefit future operations.
C: An economic resource representing cash or the right to receive cash in the near future.
D: Something owned by a business that has a ready market value.
Q: A balance sheet is designed to show:
A: How much a business is worth.
B: The profitability of the business during the current year.
C: The assets, liabilities, and owners' equity of a business as of a particular date.
D: The cost of replacing the assets and of paying off the liabilities at December 31.
Q: Which of the following describes the proper form of a balance sheet?
A: The heading sets forth the period of time covered.
B: Cash is always the first asset listed, followed by permanent assets (such as land and buildings), and finally by assets such as receivables and supplies.
C: Liabilities are listed before owners' equity.
D: A subtotal for total assets plus total liabilities is shown.
A: The cost principle - in general, assets are valued at cost, rather than at estimated market values.
B: The objectivity principle - accountants prefer to use objective, rather than subjective, information as the basis for accounting information.
C: The safety principle - assets are valued at no more than the value for which they are insured.
D: The going-concern assumption - one reason for valuing assets such as buildings and equipment at cost rather than at their current market values is the assumption that the business will use these assets rather than sell them.
Q: Which of the following transactions would cause an increase in both assets and owners' equity?
A: Investment of cash in the business by the owner.
B: Sale of land for a price less than its cost.
C: Borrowing money from a bank.
D: Sale of land for cash at a price equal to its cost.
Q: The accounting principle that assumes that a company will operate in the foreseeable future is:
A: Going concern.
B: Objectivity.
C: Liquidity.
D: Disclosure.
A: borrower.
B: liability.
C: creditor.
D: debtor.
A: $472,500.
B: $67,500.
C: $270,000.
D: Cannot be determined from the information given.
A: The concept of the business entity.
B: The cost principle.
C: The going-concern assumption.
D: The objectivity principle.
Q: Decreases in owners' equity are caused by:
A: Purchases of assets and payment of liabilities.
B: Purchases of assets and incurrence of liabilities.
C: Payment of liabilities and unprofitable operations.
D: Distributions of assets to the owners and unprofitable operations.
A: Only when organized as a sole proprietorship.
B: Only when organized as a partnership.
C: Only when organized as a corporation.
D: A business is always considered as an accounting entity separate from the activities of the owner(s).
A: Cost principle.
B: Principle of the business entity.
C: Objectivity principle.
D: Going-concern assumption.
A: An increase of equal amount in an owners' equity account.
B: An increase in a liability account.
C: An increase of equal amount in another asset account.
D: An increase in the combined total of liabilities and owners' equity.
Q: Which of the following will not cause a change in the owners' equity of a business?
A: Purchase of land with cash.
B: Withdrawal of cash by the owner.
C: Sale of land at a profit.
D: Losses from unprofitable operations.
A: Bonds payable, due in 20 years.
B: Accounts payable.
C: Note payable, due in 3 years.
D: Income taxes payable.
Q: Which of the following transactions would cause a change in owners' equity?
A: Repayment of the principal on a bank loan.
B: Purchase of a delivery truck on credit.
C: Sale of land on credit for a price above cost.
D: Borrowing money from a bank.
A: Sale of services to a customer.
B: Sale of land for a price less than its cost.
C: Borrowing money from a bank.
D: Sale of land for cash at a price equal to its cost.
A: Assets.
B: Liabilities.
C: Owners' equity.
D: Cash.
A: $465,000.
B: $225,000.
C: $120,000.
D: Cannot be determined from the information given.
Q: Which of the following is the primary objective of an income statement?
A: Providing managers with detailed information about where the enterprise stands at a specific date.
B: Providing users outside the business organization with information about the company's financial position and operating results.
C: Reporting to the Internal Revenue Service the company's taxable income.
D: Indicating to investors in a particular company the current market values of their investments.
A: The accounting equation.
B: The stable-dollar assumption.
C: The business entity concept.
D: The cost principle.
Q: The amount of owners' equity in a business is not affected by:
A: The percentage of total assets held in cash.
B: The investments made in the business by the owner.
C: The profitability of the business.
D: The amount of dividends paid to stockholders.
A: Land.
B: Cash.
C: Accounts receivable.
D: Equipment.
Q: Which of the following is correct when a corporation uses cash to pay for an expense?
A: Total assets will decrease.
B: Retained earnings will increase.
C: Owners' equity will increase.
D: Liabilities will increase.
A: $86,000.
B: $94,000.
C: $46,000.
D: $686,000.
A: $686,000.
B: $926,000.
C: $726,000.
D: $106,000.
A: Provides owners, investors, and other interested parties with all the financial information they need to evaluate the financial strength, profitability, and future prospects of a given business entity.
B: Shows the current market value of the owners' equity in the business at the balance sheet date.
C: Assists creditors in evaluating the debt-paying ability of a business by showing the assets and liabilities of the business combined with those of its owner (or owners).
D: Shows the assets, liabilities, and owners' equity of a business entity, valued in conformity with generally accepted accounting principles.
A: $533,000.
B: $345,000.
C: $198,000.
D: $356,000.
A: $118,750.
B: $47,500.
C: $137,500.
D: $140,000.
A: $42,500.
B: $140,000.
C: $45,000.
D: $182,500.
A: The amount invested in the business by stockholders when shares of stock were initially issued by a corporation.
B: The owners' equity for a business organized as a corporation.
C: The owners' equity accumulated through profitable operations that have not been paid out as dividends.
D: The price paid by the current owners to acquire shares of stock in the corporation, regardless of whether they bought the shares directly from the corporation or from another stockholder.
A: $260,000.
B: $300,000.
C: $620,000.
D: $168,000.
A: The owner(s) must have invested $800,000 to start the business.
B: The business must be operating profitably.
C: Liabilities are $80,000.
D: Liabilities are $1,520,000.
Q: Owners' equity in a business increases as a result of which of the following?
A: Payments of cash to the owners.
B: Losses from unprofitable operation of the business.
C: Earnings from profitable operation of the business.
D: Borrowing from a commercial bank.
A: Assets will be equal to liabilities plus owners' equity.
B: Assets will be less than liabilities plus owners' equity.
C: Assets will be greater than liabilities plus owners' equity.
D: Owners' equity will be greater than its assets.
A: $98,000.
B: $377,000.
C: $475,000.
D: $188,000.
A: $606,000.
B: $806,000.
C: $662,000.
D: $646,000.
A: $27,500.
B: $152,500.
C: $120,000.
D: $165,000.
A: $60,000.
B: $160,000.
C: $30,000.
D: $20,000.
A: $377,000.
B: $179,000.
C: $150,000.
D: $90,000.
A: $811,000.
B: $180,000.
C: $221,000.
D: $335,000.
A: $160,000.
B: $366,000.
C: $606,000.
D: $400,000.
Q: Retained earnings appears on:
A: The income statement.
B: The balance sheet.
C: The statement of cash flows.
D: All three of the financial statements.
A: $42,000.
B: $58,000.
C: $43,500.
D: $345,000.
Q: If a company purchases equipment for $65,000 by issuing a note payable:
A: Total assets will increase by $65,000.
B: Total assets will decrease by $65,000.
C: Total assets will remain the same.
D: The company's total owners' equity will decrease.
Q: Which of the following is correct if a company purchases equipment for $70,000 cash?
A: Total assets will increase by $70,000.
B: Total assets will decrease by $70,000.
C: Total assets will remain the same.
D: The company's total owners' equity will decrease.
A: Decreased by $102,000.
B: Decreased by $622,000.
C: Increased by $102,000.
D: Increased by $622,000.
Q: Owners' equity in a business decreases as a result of which of the following?
A: Investments of cash by the owners.
B: Profits from operating the business.
C: Losses from unprofitable operation of the business.
D: Repaying a loan to a commercial bank.
A: Accounts receivable.
B: Cash.
C: Capital stock.
D: Retained earnings.
Q: To appear in a balance sheet of a business entity, an asset need not:
A: Be an economic resource.
B: Have a ready market value.
C: Be expected to benefit future operations.
D: Be owned by the business.
A: $60,000.
B: $16,200.
C: $23,200.
D: $20,000.
A: $20,000.
B: $7,500.
C: $0.
D: $33,500.
Q: Which of the following activities is not a category into which cash flows are classified?
A: Marketing activities.
B: Operating activities.
C: Financing activities.
D: Investing activities.
A: $26,000.
B: $32,400.
C: $40,000.
D: $46,400.
Q: Which of the following best describes liquidity?
A: The ability to increase the value of retained earnings.
B: The ability to pay the debts of the company as they become due.
C: Being able to buy everything the company requires for cash.
D: Purchasing everything the company requires on credit.
A: Total assets are increased.
B: Total liabilities are decreased.
C: Total assets are decreased.
D: The owners' equity is increased.
A: $18,500.
B: $22,500.
C: $78,000.
D: $100,500.
A: $410,000.
B: $310,000.
C: $546,000.
D: $174,000.
A: Assets at the end of the year total $380,000.
B: Assets at the end of the year total $60,000.
C: Assets increased during the year by $380,000.
D: Assets decreased during the year by $60,000.
Q: The way in which financial statements relate is known as:
A: Solvency.
B: Objectivity.
C: Articulation.
D: Entity.
A: Purchase for office equipment for $60,000 cash.
B: Purchase of office equipment for $120,000, paying $60,000 cash and issuing a note payable for the balance.
C: Repayment of a $60,000 bank loan.
D: Investment of $60,000 cash in the business by the owner.
Q: A revenue transaction will result in all of the following except:
A: An increase in assets.
B: An increase in owners' equity.
C: A positive cash flow in either the past, present, or future.
D: An increase in liabilities.
Q: The change in owners' equity due to only revenue and expense transactions is explained by the:
A: Statement of cash flows.
B: Statement of financial position.
C: Income statement.
D: Tax return.
A: $26,000.
B: $32,400.
C: $40,000.
D: $46,400.
A: $180,000.
B: $2,000,000.
C: $1,400,000.
D: $2,600,000.
A: $33,500.
B: $7,500.
C: $20,000.
D: $26,000.
A: The positive cash flows of a company.
B: The net worth of a company.
C: The owners' equity that has accumulated as a result of profitable operations.
D: Equal to the total assets of a company.
A: Assets at the end of the year total $125,000.
B: Assets at the end of the year total $25,000.
C: Assets increased during the year by $25,000.
D: Assets decreased during the year by $125,000.
A: $335,000.
B: $285,000.
C: $665,000.
D: $615,000.
A: $202,500.
B: $90,000.
C: $360,000.
D: $630,000.
A: $198,000.
B: $174,000.
C: $284,000.
D: $438,000.
A: $167,500.
B: $150,500.
C: $193,500.
D: $158,000.
Q: A strong statement of financial position shows:
A: Large amounts of liquid assets relative to the liabilities due in the near future.
B: Large amounts of debt relative to stockholders' equity.
C: That cash is being generated by operations.
D: That profits are being generated by operations.
Q: The concept of adequate disclosure means that:
A: The accounting department of a business must inform management of the accounting principles used in preparing the financial statements.
B: The company must inform users of any significant facts necessary for proper interpretation of the financial statements, including events occurring after the financial statement date.
C: The independent auditors must disclose in the financial statements any and all errors detected in the company's accounting records.
D: The financial statements should include a comprehensive list of each transaction that occurred during the year.
Q: Which business organization is recognized as a separate legal entity under the law?
A: Corporation.
B: Sole proprietorship.
C: Partnership.
D: All business organizations are separate legal entities.
Q: Profitability may be defined as:
A: The ability to pay the debts of the company as they become due.
B: The ability to increase retained earnings.
C: Distributing dividends out of retained earnings.
D: Having excess cash.
A: $26,000.
B: $32,400.
C: $40,000.
D: $46,400.
Q: A strong statement of cash flows indicates that significant cash is being generated by:
A: Operating activities.
B: Financing activities.
C: Investing activities.
D: Effective tax planning.
Q: An expense is best defined as:
A: Any payment of cash for the benefit of the company.
B: Past, present, or future payments of cash required to generate revenues.
C: Past payments of cash required to generate revenues.
D: Future payments of cash required to generate revenues.
Q: Which one of the following is not considered as one of the three primary financial statements?
A: Balance sheet.
B: Income statement.
C: Statement of cash flows.
D: Statement of budgeting activities.
Q: The principle of adequate disclosure means that a company should disclose:
A: Only the important monetary information.
B: All confidential information regarding the company.
C: Any financial facts that a reasonably informed person would consider necessary for the proper interpretation of the financial statements.
D: Only subsequent events.
Q: If cash flows from operating activities is a positive amount, then:
A: The amount will be shown on the statement of cash flows in parentheses.
B: The company must have had a net profit for the year.
C: The company must have paid off more debts than it earned during the year.
D: The company may still have a decrease in the total amount of cash for the period.
A: Monthly and Quarterly.
B: Quarterly and Annually.
C: Monthly and Annually.
D: CEOs and CFOs are not required to certify to the company's financial statement; only CPA's do.
A: ($26,000).
B: $32,400.
C: ($40,000).
D: $46,400.
A: $480,000.
B: $484,000.
C: $502,500.
D: $580,500.
A: $18,500.
B: $22,500.
C: $78,000.
D: $100,500.
Q: Which of the following statements regarding liquidity and profitability is not true?
A: If a business is unable to pay its debts as they come due, it is operating unprofitably.
B: A business may be liquid, yet operate unprofitably for several years.
C: A business may operate profitably, yet be unable to meet its obligations.
D: In order to survive in the long-run, a business must both remain liquid and operate profitably.