Deck 1: An Introduction to Accounting

Question 1

Liabilities represent the future obligations of a business entity.

Answer 1

True

Question 2

Stockholders' equity is a source of a business's assets, but liabilities are not.

Answer 2

False

Question 3

In a market, a company that manufactures cars would be referred to as a business.

Answer 3

True

Question 4

Borrowing money from the bank is an example of an asset source transaction.

Question 5

An asset source transaction increases a business's assets and the claims to assets.

Question 6

The stockholders of a business have a priority claim to its assets in the event of liquidation.

Question 7

The Financial Accounting Standards Board is a privately funded organization with authority for establishing accounting standards for businesses in the US.

Question 8

Retained earnings reduces a company's commitment to use its assets for the benefit of its stockholders.

Question 9

An asset use transaction does not affect the total amount of claims to a company's assets.

Question 10

The value created by a business may be called assets.

Question 11

Which of the following is false regarding managerial accounting information?

A) It is often used by investors.
B) It is more detailed than financial accounting information.
C) It can include nonfinancial information.
D) It focuses on divisional rather than overall profitability.

Question 12

Which resource providers lend financial resources to a business with the expectation of repayment with interest?

A) Consumers
B) Creditors
C) Investors
D) Owners

Question 13

Which type of accounting information is intended to satisfy the needs of external users of accounting information?

A) Cost accounting
B) Managerial accounting
C) Tax accounting
D) Financial accounting

Question 14

The four financial statements prepared by a business bear no relationship to each other.

Question 15

The Heritage Company is a manufacturer of office furniture. Which term best describes Heritage's role in society?

A) Business
B) Regulatory agency
C) Consumer
D) Resource owner

Question 16

Detailed information about accounts is maintained in the various elements of the financial statements.

Question 17

The types of resources needed by a business are financial, physical, and labor resources.

Question 18

Financial accounting standards are known collectively as GAAP. What does that acronym stand for?

A) Generally Accepted Accounting Principles
B) Generally Applied Accounting Procedures
C) Governmentally Approved Accounting Practices
D) Generally Authorized Auditing Principles

Question 19

Financial accounting information is usually less detailed than managerial accounting information.

Question 20

The historical cost concept requires that most assets be recorded at the amount paid for them, regardless of increases in market value.

Question 21

If Ballard Company reported assets of $500 and liabilities of $200, Ballard's stockholders' equity equals:

A) $300.
B) $500.
C) $700.
D) Cannot be determined.

Question 22

Stosch Company's balance sheet reported assets of $142,000, liabilities of $35,000 and common stock of $32,000 as of December 31, Year 1. If Retained Earnings on the balance sheet as of December 31, Year 2, amount to $98,000 and Stosch paid a $34,000 dividend during Year 2, then the amount of net income for Year 2 was which of the following?

A) $23,000
B) $57,000
C) $75,000
D) $34,000

Question 23

The balance sheet of the Algonquin Company reported assets of $50,000, liabilities of $22,000 and common stock of $15,000. Based on this information only, what is the amount of retained earnings?

A) $7,000.
B) $57,000.
C) $13,000.
D) $87,000.

Question 24

Stosch Company's balance sheet reported assets of $40,000, liabilities of $15,000 and common stock of $12,000 as of December 31, Year 1. If Retained Earnings on the balance sheet as of December 31, Year 2, amount to $18,000 and Stosch paid a $14,000 dividend during Year 2, then the amount of net income for Year 2 was which of the following?

A) $17,000
B) $19,000
C) $13,000
D) $21,000

Question 25

If total assets decrease, then which of the following statements is true?

A) Liabilities must increase and retained earnings must decrease.
B) Common stock must decrease and retained earnings must increase.
C) Liabilities, common stock, or retained earnings must decrease.
D) Liabilities, common stock, or retained earnings must increase.

Question 26

Ellen Gatsby and her siblings, Ben and Sarah, started Gatsby Company when they each invested $100,000 in the company. After the investments there will be

A) One reporting entity
B) Two reporting entities
C) Three reporting entities
D) Four reporting entities

Question 27

Which of the following statements about liabilities is true?

A) They represent obligations to repay debts.
B) They may increase when assets increase.
C) They are found on the claims side of the accounting equation.
D) All of the answers are characteristics of liabilities.

Question 28

Which of the following is an accurate definition of the term "asset?"

A) An obligation to creditors
B) A resource that will be used to produce revenue
C) A transfer of wealth from the business to its stockholders
D) A sacrifice incurred from operating the business

Question 29

Which of the following is not an element of the financial statements?

A) Net income
B) Revenue
C) Assets
D) Cash

Question 30

Which of the following is (are) source(s) of assets to a business?

A) Creditors
B) Investors
C) Operations
D) All the answers represent sources of assets.

Question 31

International accounting standards are formulated by the IASB. What does that acronym stand for?

A) Internationally Accepted Standards Board
B) International Accounting Standards Board
C) International Accountability Standards Bureau
D) International Accounting and Sustainability Board

Question 32

Which term describes assets generated through operations that have been reinvested into the business?

A) Liability
B) Dividend
C) Common stock
D) Retained earnings

Question 33

Which of the following items is an example of revenue?

A) Cash received from a bank loan
B) Cash received from investors from the sale of common stock
C) Cash received from customers at the time services were provided
D) Cash received from the sale of land for its original selling price

Question 34

Which of the following is an accurate depiction of the accounting equation?

A) Assets = Liabilities + Common Stock + Retained Earnings
B) Assets = Liabilities + Common Stock − Expenses
C) Assets = Liabilities + Retained Earnings − Dividends
D) Assets = Liabilities + Common Stock + Dividends

Question 35

Which term describes a distribution of the business's assets back to the owners of the business?

A) Liability
B) Dividend
C) Retained earnings
D) Common stock

Question 36

Hazeltine Company issued common stock for $200,000 cash. As a result of this event, which of the following statements is true?

A) Assets increased.
B) Stockholders' equity increased.
C) Claims increased.
D) Assets, claims, and stockholders' equity all increased.

Question 37

Finn Company reported assets of $1,000 and stockholders' equity of $600. What amount will Finn report for liabilities?

A) $400
B) $600
C) $1,600
D) Cannot be determined

Question 38

Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden Wheels. Jack transferred $650,000 of the cash he borrowed to Wooden Wheels on the first day of the year. Which of the following appropriately reflects the cash transactions between these reporting entities? $\begin{array}{cccc} \text { option } & \text {Jack Henry } &\quad\text { wooden wheels } & \text { walt bank }\\\end{array}$

A.
$\begin{array}{ccc} &\quad\quad\quad\$ 150,000 \text { increase } &\$ 650,000&\quad\quad\$800,000\\&& \text { increase } &\quad\quad \text { decrease }\\\end{array}$

B.
$\begin{array}{ccc} &\quad\quad\quad\text { \$ 800, 000 increase } & \text { \$ } 650,000 & \$150,000 \\&& \text { increase } & \text { decrease } \\\end{array}$

C.
$\begin{array}{ccc} &\quad\quad\quad\text { \$ } 800,000 \text { decrease } & \$ 800,000 & \$ 650,000 \\&& \text { increase } & \text { decreas } \\\end{array}$

D.
$\begin{array}{ccc} &\quad\quad\quad\text { \$ 650,000 increase } & \$ 150,000 & \$ 800,000\\&& \text { increase } & \text { decreas } \end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 39

If a company's total assets increased while liabilities and common stock were unchanged, then which of the following statements is true?

A) Revenues were greater than expenses.
B) Retained earnings were less than net income during the period.
C) No dividends were paid during the period.
D) The company must have purchased assets with cash.

Question 40

Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden Wheels. Jack transferred $650,000 of the cash that he borrowed to the store on the first day of the year. How many reporting entities exist in this scenario?

A) One reporting entity
B) Two reporting entities
C) Three reporting entities
D) Four reporting entities

Question 41

Which of the following could describe the effects of an asset exchange transaction on the accounting equation? $\begin{array}{ccccc} \text { Assets} &=& \text { Liabilities} & + \text { stockholcers }{ }^{\prime} \text { equity } \\\end{array}$
A.
$\begin{array}{llcc}&+/-&&&& \text {n/a }&&&&&& \text {n/a } \\\end{array}$

B.
$\begin{array}{llcc}&+&&&&& \text {n/a } &&&&&&&+ \\\end{array}$

C.
$\begin{array}{llcc} &-& &&&& \text { n/a } &&&&&&&-\\\end{array}$

D.
$\begin{array}{llcc}&+&&&&&&+&&&&&&& \text {n/a } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 42

At the end of Year 2, retained earnings for the Baker Company was $2,650. Revenue earned by the company in Year 2 was $2,900, expenses paid during the period were $1,550, and dividends paid during the period were $950. Based on this information alone, what was the amount of retained earnings at the beginning of Year 2?

A) $3,050
B) $2,250
C) $5,800
D) $1,300

Question 43

Which of the following does not describe the effects of an asset use transaction on the accounting equation?

A) Option A
B) Option B
C) Option C
D) Option D

Question 44

Wing Company provided services for $30,000 cash. Which of the following shows the impact of this transaction on Wing's accounting equation? $\begin{array}{ccccc} \text { Assets} &=& \text { Liabilities} & + \text { stockholcers }{ }^{\prime} \text { equity } \\\end{array}$
A.
$\begin{array}{llcc}&+/-&&&& \text {n/a }&&&&&& \text {n/a } \\\end{array}$

B.
$\begin{array}{llcc}&+&&&&& \text {n/a } &&&&&&&+ \\\end{array}$

C.
$\begin{array}{llcc} &-& &&&& \text { n/a } &&&&&&&-\\\end{array}$

D.
$\begin{array}{llcc}&+&&&&&&+&&&&&&& \text {n/a } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 45

As of December 31, Year 2, Bristol Company had $100,000 of assets, $40,000 of liabilities and $25,000 of retained earnings. What percentage of Bristol's assets were obtained from investors?

A) 60%
B) 25%
C) 40%
D) 35%

Question 46

Wing Company paid $20,000 cash in salaries to its employees. Which of the following shows the impact of this transaction on Wing's accounting equation? $\begin{array}{ccccc} \text { Assets} &=& \text { Liabilities} & + \text { stockholcers }{ }^{\prime} \text { equity } \\\end{array}$
A.
$\begin{array}{llcc}&+/-&&&& \text {n/a }&&&&&& \text {n/a } \\\end{array}$

B.
$\begin{array}{llcc}&+&&&&& \text {n/a } &&&&&&&+ \\\end{array}$

C.
$\begin{array}{llcc} &-& &&&& \text { n/a } &&&&&&&-\\\end{array}$

D.
$\begin{array}{llcc}&+&&&&&&+&&&&&&& \text {n/a } \\\end{array}$

A) Option B
B) Option A
C) Option C
D) Option D

Question 47

During the year, Millstone Company earned $6,500 of cash revenue, paid cash dividends of $1,000 to stockholders and paid $4,000 for cash expenses. Liabilities were unchanged. Which of the following accurately describes the effect of these events on the elements of the company's financial statements?

A) Assets increased by $6,500.
B) Assets increased by $1,500.
C) Stockholders' equity increased by $2,500.
D) Assets increased by $5,500.

Question 48

Which of the following cash transactions results in an increase to one asset account and a decrease to another asset account?

A) Borrowing cash from a bank
B) Issuing common stock for cash
C) Purchasing land for cash
D) Providing services for cash

Question 49

At the end of Year 2, retained earnings for the Baker Company was $3,500. Revenue earned by the company in Year 2 was $1,500, expenses paid during the period were $800, and dividends paid during the period were $500. Based on this information alone, what was the amount of retained earnings at the beginning of Year 2?

A) $3,300
B) $3,700
C) $2,800
D) $3,800

Question 50

Wing Company paid $5,000 cash to purchase land. Which of the following shows the impact of this transaction on Wing's accounting equation? $\begin{array}{ccccc} \text { Assets} &=& \text { Liabilities} & + \text { stockholcers }{ }^{\prime} \text { equity } \\\end{array}$
A.
$\begin{array}{llcc}&+/-&&&& \text {n/a }&&&&&& \text {n/a } \\\end{array}$

B.
$\begin{array}{llcc}&+&&&&& \text {n/a } &&&&&&&+ \\\end{array}$

C.
$\begin{array}{llcc} &-& &&&& \text { n/a } &&&&&&&-\\\end{array}$

D.
$\begin{array}{llcc}&+&&&&&&+&&&&&&& \text {n/a } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 51

At the time of liquidation, Fairchild Company reported assets of $200,000, liabilities of $120,000, common stock of $90,000 and retained earnings of ($10,000). What amount of Fairchild's assets are the shareholders entitled to receive?

A) $200,000
B) $80,000
C) $90,000
D) $100,000

Question 52

Which of the following is not an asset use transaction?

A) Paying cash dividends
B) Paying cash expenses
C) Paying off the principal of a loan
D) Paying cash to purchase land

Question 53

Which of the following items appears in the investing activities section of the statement of cash flows?

A) Cash inflow from interest revenue.
B) Cash inflow from the issuance of common stock.
C) Cash outflow for the payment of dividends.
D) Cash outflow for the purchase of land.

Question 54

Wing Company borrowed $70,000 cash from Metropolitan Bank. Which of the following shows the impact of this transaction on Wing's accounting equation? $\begin{array}{ccccc} \text { Assets} &=& \text { Liabilities} & + \text { stockholcers }{ }^{\prime} \text { equity } \\\end{array}$
A.
$\begin{array}{llcc}&+/-&&&& \text {n/a }&&&&&& \text {n/a } \\\end{array}$

B.
$\begin{array}{llcc}&+&&&&& \text {n/a } &&&&&&&+ \\\end{array}$

C.
$\begin{array}{llcc} &-& &&&& \text { n/a } &&&&&&&-\\\end{array}$

D.
$\begin{array}{llcc}&+&&&&&&+&&&&&&& \text {n/a } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 55

On January 1, Year 2, Chavez Company had beginning balances as follows: $\begin{array}{ll}\text { Assets } & =\$ 12,500 \\\text { Liabilities } & =\$ 4,500 \\\text { Common Stock } & =\$ 3,000\end{array}$
During Year 2, Chavez paid dividends to its stockholders of $2,000. Given that ending retained earnings was $6,000, what was Chavez's net income for the Year 2?

A) $3,000
B) $5,000
C) $7,000
D) $2,000

Question 56

Li Company paid cash to purchase land. As a result of this accounting event, which of the following statements is true?

A) Total assets decreased.
B) Total assets were unaffected.
C) Total stockholders' equity decreased.
D) Both assets and total stockholders' equity decreased.

Question 57

Turner Company reported assets of $20,000 (including cash of $9,000), liabilities of $8,000, common stock of $7,000, and retained earnings of $5,000. Based on this information, what can be concluded?

A) 25% of Turner's assets are the result of prior earnings.
B) $5,000 is the maximum dividend that can be paid to shareholders.
C) 40% of Turner's assets are the result of borrowing from creditors.
D) 25% of Turner's assets are from prior earnings, $5,000 is the maximum possible dividend, and 40% of assets are the result of borrowed resources.

Question 58

Wyatt Company was formed on January 1, Year 1, when it acquired $50,000 cash from issuing common stock. Which of the following shows the impact of this transaction on Wyatt's accounting equation? $\begin{array}{ccccc} \text { Assets} &=& \text { Liabilities} & + \text { stockholcers }{ }^{\prime} \text { equity } \\\end{array}$
A.
$\begin{array}{llcc}&+/-&&&& \text {n/a }&&&&&& \text {n/a } \\\end{array}$

B.
$\begin{array}{llcc}&+&&&&& \text {n/a } &&&&&&&+ \\\end{array}$

C.
$\begin{array}{llcc} &-& &&&& \text { n/a } &&&&&&&-\\\end{array}$

D.
$\begin{array}{llcc}&+&&&&&&+&&&&&&& \text {n/a } \\\end{array}$

A) Option A
B) Option B
C) Option C
D) Option D

Question 59

The transaction, "provided services for cash," affects which two accounts?

A) Revenue and Expense
B) Cash and Revenue
C) Cash and Expense
D) Cash and Dividends

Question 60

Borrowing cash from the bank is an example of which type of transaction?

A) Asset source
B) Claims exchange
C) Asset use
D) Asset exchange

Question 61

The amount of retained earnings is shown on the

A) income statement.
B) balance sheet.
C) statement of cash flows.
D) statement of changes in stockholders' equity.
E) balance sheet and statement of changes in stockholders' equity.

Question 62

The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500. The amount of liabilities reported on the end-of-period balance sheet was:

A) $27,500.
B) $31,500.
C) $35,000.
D) $42,500.

Question 63

In which section of a statement of cash flows would the payment of cash dividends be reported?

A) Investing activities
B) Operating activities
C) Financing activities
D) Dividends are not reported on the statement of cash flows.

Question 64

Dividends are reported on which financial statement?

A) Balance Sheet
B) Income Statement
C) Statement of Changes in Stockholders' Equity
D) Both the income statement and statement of changes in stockholders' equity

Question 65

Which of the following shows the effects of providing services for cash on the balance sheet and income statement?

A) Option A
B) Option B
C) Option C
D) Option D

Question 66

Which of the following transactions would be reported on the statement of changes in stockholders' equity?

A) Borrowed $5,000 cash from the bank
B) Paid a $100 cash dividend to the stockholders
C) Purchased land for $2,000 cash
D) Paid $1,500 cash to pay off a portion of its note payable

Question 67

Which financial statement matches asset increases from operating a business with asset decreases from operating the business?

A) Balance sheet
B) Statement of changes in stockholders' equity
C) Income statement
D) Statement of cash flows

Question 68

Jackson Company had a net increase in cash from operating activities of $10,000 and a net decrease in cash from financing activities of $2,000. If the beginning and ending cash balances for the company were $4,000 and $11,000, respectively, what is the net cash change from investing activities?

A) An outflow or decrease of $1,000.
B) An inflow or increase of $2,000.
C) An inflow or increase of $1,000.
D) Zero

Question 69

The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $30,000; Liabilities = ?; Common Stock = $6,000; Revenue = $13,000; Dividends = $1,250; Beginning Retained Earnings = $4,250; Ending Retained Earnings = $8,000. The amount of liabilities reported on the end-of-period balance sheet was:

A) $22,000.
B) $24,000.
C) $16,000.
D) $19,750.

Question 70

Kelly Company experienced the following events during its first accounting period.
(1) Issued common stock for $10,000 cash.
(2) Earned $8,000 of cash revenue.
(3) Paid $1,000 cash to purchase land.
(4) Paid cash dividends amounting to $500.
(5) Paid $4,400 of cash expenses.
Based on this information, what is the amount of net income?

A) $2,100
B) $2,600
C) $3,600
D) $5,600

Question 71

Which of the following shows the effects of paying a cash dividend on the balance sheet and income statement?

A) Option A
B) Option B
C) Option C
D) Option D

Question 72

Salaries expense appears in the:

A) Liabilities section of the balance sheet
B) Financing activities section of the statement of cash flows
C) Asset section of the balance sheet
D) Expense section of the income statement

Question 73

The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500.Based on this information, the amount of expenses on Calloway's income statement was:

A) $18,500.
B) $13,000.
C) $16,500.
D) $10,000.

Question 74

Which of the following accounts are permanent?

A) Retained earnings
B) All income statement accounts
C) Dividends
D) All balance sheet accounts including dividends.

Question 75

Which of the following financial statements provides information about a company as of a specific point in time?

A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of changes in stockholders' equity

Question 76

Chow Company earned $3,700 of cash revenue, paid $2,100 for cash expenses, and paid a $750 cash dividend to its stockholders. Which of the following statements is true?

A) The net cash inflow from operating activities was $850.
B) The net cash outflow for investing activities was $750.
C) The net cash inflow from operating activities was $1,600.
D) The net cash outflow for investing activities was $850.

Question 77

The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $33,000; Liabilities = ?; Common Stock = $6,300; Revenue = $13,600; Dividends = $1,400; Beginning Retained Earnings = $4,400; Ending Retained Earnings = $8,300.Based on this information, the amount of expenses on Calloway's income statement was

A) $8,300.
B) $500.
C) $10,700.
D) $3,900.

Question 78

Jackson Company had a net increase in cash from operating activities of $11,400 and a net decrease in cash from financing activities of $4,000. If the beginning and ending cash balances for the company were $5,000 and $10,600, respectively, what is the net cash change from investing activities?

A) An outflow or decrease of $1,800.
B) An inflow or increase of $4,000.
C) An inflow or increase of $1,800.
D) Zero.

Question 79

The statement of changes in stockholders' equity shows changes in which of the following accounts?

A) Retained Earnings and Assets
B) Assets and Liabilities
C) Common Stock and Retained Earnings
D) Liabilities and Common Stock

Question 80

At the beginning of Year 2, Jones Company had a balance in common stock of $300,000 and a balance of retained earnings of $15,000. During Year 2, the following transactions occurred: · Issued common stock for $90,000
· Earned net income of $50,000
· Paid dividends of $8,000
· Issued a note payable for $20,000
Based on the information provided, what is the total stockholders' equity on December 31, Year 2?

A) $147,000
B) $357,000
C) $427,000
D) $447,000