Accounting Chapter 1

The creation of a corporation begins when its incorporators obtain a charter from the state. TRUE/FALSE

TRUE

Viva Inc. produces and sells coffee beans. This month it earned $500 by selling coffee beans to Morning Cuppa Inc. The $500 received by Viva is its ________. A) revenue B) equity C) gain D) debt

A) Revenue

The Public Company Accounting Oversight Board (PCAOB) was created by the ________. A) Sarbanes-Oxley Act (SOX) B) International Accounting Standards Board (IASB) C) Institute of Management Accountants (IMA) D) American Institute of Certified Public Accountants (AICPA)

A) Sarbanes-Oxley Act (SOX)

________ represent the right to receive cash in the future from customers for goods sold or for services performed. A) Accounts receivable B) Accounts payable C) Equity D) Expenses

A) Accounts receivable

Bliss Corporation settles a liability by making a payment in cash. How does paying this liability affect the accounting equation of the business? A) assets and liabilities decrease B) liabilities decrease and equity increases C) assets and liabilities increase D) assets increase and equity decreases

A) assets and liabilities decrease

Star Homes Corporation just recorded a transaction in its books of accounts. If this transaction increased the total liabilities by $7,000, then ________. A) assets must increase, or equity must decrease by $7,000 B) either assets or equity must decrease by $7,000 C) both assets and equity must each decrease by $3,500 D) assets must decrease by $7,000

A) assets must increase, or equity must decrease by $7,000

Which of the following financial statements lists the entity's assets, liabilities, and stockholders' equity as of a specific date? A) balance sheet B) statement of retained earnings C) income statement D) statement of cash flows

A) balance sheet

18) Which of the following is an external user of a business's financial information? A) customers B) cost accountant C) company manager D) the board of directors

A) customers

Which of the following statements would be most useful if an analyst wants to know the likelihood of repayment of his debts? A) income statement B) balance sheet C) statement of retained earnings D) statement of cash flows

B) balance sheet

Which of the following will be categorized as an investing activity on the statement of cash flows? A) depreciation expense on production equipment for the year B) cash paid for purchase of new machinery C) cash paid for purchase of raw materials D) cash received from issue of shares

B) cash paid for purchase of new machinery

Assume MetAmbit Corporation had a net income of $2,500 for the year ending December, 2014. Its beginning and ending total assets were $35,500 and $20,500, respectively. Calculate MetAmbit's return on assets (ROA). (Round your percentage answer to two decimal places.) A) 12.57% B) 5.85% C) 8.93% D) 9.50%

C) 8.93%

The equity of Autumn Company is $150,000 and the total liabilities are $90,000. Its total assets would be ________. A) $300,000 B) $180,000 C) $60,000 D) $240,000

D) $240,000

The assets of Moon Company are $150,000 and liabilities are $90,000. The equity will be ________. A) $180,000 B) $300,000 C) $240,000 D) $60,000

D) $60,000

Which of the following formulae is used to calculate average total assets for the return on assets ratio? A) Average total assets = (Beginning total assets + Ending total assets) × 2 B) Average total assets = (Beginning total assets - Ending total assets) × 2 C) Average total assets = (Beginning total assets - Ending total assets) ÷ 2 D) Average total assets = (Beginning total assets + Ending total assets) ÷ 2

D) Average total assets = (Beginning total assets + Ending total assets) ÷ 2

Which of the following is shown on the balance sheet as well as the statement of cash flows? A) Stockholders' equity (ending balance) B) Net income C) Total assets D) Cash (ending balance)

D) Cash (ending balance)

Equity of a corporation is broken out into two components. Which of the following are the two components of the equity of a corporation? A) current assets and fixed assets B) common stock and liabilities C) revenues and expenses D) contributed capital and retained earnings

D) contributed capital and retained earnings

Thirty years ago, Star Grocer Corporation had purchased a building for its grocery store by paying $30,000. Based on inflation estimates, the amount of the building has been adjusted in the accounting records. The building is now reported at $75,000 in Star Grocer's financial statements. Which of the following concepts or principles of accounting is being violated? A) going concern assumption B) revenue realization concept C) economic entity assumption D) cost principle

D) cost principle

As per the economic entity assumption, an organization and its owner should be seen as the same entity. TRUE/FALSE

FALSE

Distribution of dividends represents increases in retained earnings. TRUE/FALSE

FALSE

Equity increases when revenues are earned. TRUE/FALSE

TRUE

In a sole proprietorship, the owner is personally liable for the debts of the business. TRUE/FALSE

TRUE

Sunlight Company has assets and equity that amount to $270,000 and $90,000, respectively. Liabilities will be ________. A) $60,000 B) $360,000 C) $270,000 D) $180,000

D) $180,000

Local, state, and federal governments use accounting information to calculate income tax. TRUE/FALSE

TRUE

Mutual agency of the owners is not present in a corporation as it is in a partnership. TRUE/FALSE

TRUE

International Financial Reporting Standards (IFRS) are the international accounting rules that U.S. companies must follow for their international operations. TRUE/FALSE

TRUE

Financial statements are business documents that are used to communicate information needed to make business decisions. TRUE/FALSE

TRUE

Vista Camera Services started the year with total assets of $80,000 and total liabilities of $40,000. The revenues and the expenses for the year amounted to $120,000 and $70,000, respectively. During the year, the company did not issue any common stock, but it distributed dividends of $60,000. Calculate Vista's net income for the year. A) $50,000 B) $120,000 C) $70,000 D) $80,000

A) $50,000

Hamilton Lawn Services incurred $800 as repair expense and paid for it in cash. This transaction will ________. A) decrease the stockholders' equity B) increase the assets of the business C) increase the liabilities of the business D) decrease the liabilities of the business

A) decrease the stockholders' equity

A creditor is a person who owes money to the business. TRUE/FALSE

FALSE

Financial accounting focuses on information for decision makers outside of the business, such as creditors and taxing authorities. TRUE/FALSE

TRUE

David has decided to open an auto-detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. If he does all of the work himself and takes no legal steps to form a special organization, which type of business organization, in effect, has he chosen? A) A limited-liability company B) A partnership C) A corporation D) A sole proprietorship

D) A sole proprietorship

Lush Lawns Corporation earned $1,000 for lawn mowing services rendered. The customer promised to pay at a later time. Which of the following accounts increased as a result of this transaction? A) Accounts Payable B) Supplies C) Cash D) Accounts Receivable

D) Accounts Receivable

21) GAAP are the rules that govern accounting in the United States. The acronym GAAP in this statement refers to ________. A) Globally Accepted and Accurate Policies B) Global Accommodation Accounting Principles C) Generally Accredited Accounting Policies D) Generally Accepted Accounting Principles

D) Generally Accepted Accounting Principles

The heading of a balance sheet will show the date as a specific date, not a period of time. TRUE/FALSE

TRUE

A business can be organized as a sole proprietorship, partnership, corporation, or limited-liability company (LLC). TRUE/FALSE

TRUE

Accounting is referred to as the language of business because it is the method of communicating business information to stakeholders. TRUE/FALSE

TRUE

Members of a limited-liability company (LLC) are not personally liable for the debts of the business. TRUE/FALSE

TRUE

The Public Company Accounting Oversight Board is a watchdog agency that monitors the work of independent accountants who audit public companies. TRUE/FALSE

TRUE

The Sarbanes-Oxley Act (SOX) requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports. TRUE/FALSE

TRUE

The guidelines for accounting information are called Generally Accepted Accounting Principles (GAAP). TRUE/FALSE

TRUE

The relative proportion of economic resources and obligations would be shown by the balance sheet. TRUE/FALSE

TRUE

________ is the capital earned by profitable operations that is not distributed to stockholders. A) Assets B) Dividend C) Retained earnings D) Common Stock

C) Retained earnings

The balance sheet is a snapshot of the entity. Which of the following items are included on the balance sheet? A) revenues B) expenses C) assets D) dividends

C) assets

The economic resources of a business such as furniture, building, and land are its ________. A) liabilities B) revenues C) assets D) dividends.

C) assets

A creditor is any person who has an ownership interest in a business. TRUE/FALSE

FALSE

A publicly traded company in the United States does not come under SEC regulations as long as it follows the rules of GAAP. TRUE/FALSE

FALSE

Dividends are the expenses of a business. TRUE/FALSE

FALSE

Equity decreases with expenses and revenues. TRUE/FALSE

FALSE

For an accounting equation to balance, a transaction must affect both sides of the equation. TRUE/FALSE

FALSE

IFRS are comparatively more specific and more rule based than U.S. GAAP. TRUE/FALSE

FALSE

IFRS is the main U.S. accounting rule book and is currently created and governed by the FASB. TRUE/FALSE

FALSE

In a corporation, the board of directors is elected by the chairperson of the company. TRUE/FALSE

FALSE

In a limited-liability company (LLC), the members are personally liable for the debts of the business. TRUE/FALSE

FALSE

Managerial accounting focuses on information for external decision makers. TRUE/FALSE

FALSE

Outside investors would ordinarily use managerial accounting information to decide whether or not to invest in a business. TRUE/FALSE

FALSE

The income statement is also called the statement of financial position. TRUE/FALSE

FALSE

The income statement shows whether or not a business can generate enough cash to pay its liabilities. TRUE/FALSE

FALSE

The most that the owner of a sole proprietorship can lose, as a result of business debts or lawsuits, is the amount he/she has invested in the business. TRUE/FALSE

FALSE

The statement of cash flows informs users about how much of the earnings were kept and reinvested in the company. TRUE/FALSE

FALSE

Vista Camera Services started the year with total assets of $100,000 and total liabilities of $50,000. The revenues and the expenses for the year amounted to $200,000 and $60,000, respectively. During the year, the company did not issue any common stock, but it distributed dividends of $75,000. Calculate the amount of increase or decrease in stockholders' equity for the year. A) a $65,000 increase B) a $115,000 increase C) a $50,000 decrease D) a $75,000 increase

A) a $65,000 increase

The field of accounting that focuses on providing information for external decision makers is ________. A) managerial accounting B) financial accounting C) cost accounting D) nonmonetary accounting

B) financial accounting

Accounting is the information system that measures business activities, processes the information into reports, and communicates the results to decision makers. TRUE/FALSE

TRUE

An examination of a company's financial statements and records is called an audit. TRUE/FALSE

TRUE

Any person or business to whom a business owes money is called the business's creditor. TRUE/FALSE

TRUE

Business owners use accounting information to set goals, evaluate progress toward those goals, and make adjustments when needed. TRUE/FALSE

TRUE

By looking at a statement of retained earnings, the effect of dividends on the ending balance in retained earnings can be determined. TRUE/FALSE

TRUE

The left side of the accounting equation measures the amount that the business owes to creditors and to the stockholders. TRUE/FALSE

TRUE

The statement of retained earnings informs users about how much of the earnings were kept and reinvested in the company. TRUE/FALSE

TRUE

The three types of events that affect retained earnings are—dividends, revenues, and expenses. TRUE/FALSE

TRUE

Which of the following is a characteristic of a corporation? A) A corporation is owned by stockholders. B) Lenders of a corporation do not have the right to claim the corporation's assets to satisfy their obligations. C) All shares of a corporation must be held by a single individual. D) Each stockholder has the authority to commit the corporation to a binding contract through his/her actions.

A) A corporation is owned by stockholders.

_______ are professional accountants who serve the general public, not one particular company. A) Certified public accountants B) Certified financial accountants C) Audit accountants D) Controllers

A) Certified public accountants

Which of the following organizations is responsible for the creation and governance of accounting standards in the United States? A) Financial Accounting Standards Board B) Institute of Management Accountants C) American Institute of Certified Public Accountants D) Securities and Exchange Commission

A) Financial Accounting Standards Board

Which of the following is true of retained earnings? A) Retained earnings decrease with payment of dividends. B) Retained earnings increase with purchase of capital assets. C) Retained earnings decrease with collection of revenue. D) Retained earnings increase with payment on account.

A) Retained earnings decrease with payment of dividends.

Which of the following organizations requires publicly owned companies to be audited by independent accountants (CPAs)? A) Securities and Exchange Commission (SEC) B) Public Company Accounting Oversight Board (PCAOB) C) Financial Accounting Standards Board (FASB) D) American Institute of Certified Public Accountants (AICPA)

A) Securities and Exchange Commission (SEC)

Which of the following is a major reason why corporate ownership is popular in the United States? A) Stockholders have limited liability for the debts of the corporation. B) Most corporations are small or medium-sized. C) The life of a corporation is limited by the death of the owner. D) A corporation is usually managed by the owners.

A) Stockholders have limited liability for the debts of the corporation.

Ace Inc. had the following transactions in June: Sold goods for $4,000 on account; received cash on account, $5,000; paid $800 for repair expense; paid $2,000 to a supplier that it owed from the previous month. What is the combined effect on Cash of the June transactions? A) a $2,200 increase B) a $2,200 decrease C) a $5,000 increase D) a $2,800 decrease

A) a $2,200 increase

The taxable income of a sole proprietorship is ________. A) combined with the personal income of the proprietor B) not combined with the proprietor's personal income C) not taxable. D) handled similarly to that of a corporation

A) combined with the personal income of the proprietor

Common stock represents the basic ownership of every corporation. TRUE/FALSE

TRUE

Lorna Smith decided to start her own CPA practice as a professional corporation, Smith CPA PC. Her corporation purchased an office building for $35,000 that her real estate agent said was worth $50,000 in the current market. The corporation records the building as a $50,000 asset because Lorna believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated? A) cost principle B) economic entity assumption C) monetary unit assumption D) going concern assumption

A) cost principle

Which of the following amounts appears on both the statement of retained earnings and the balance sheet? A) ending retained earnings B) total assets C) total revenues D) net income

A) ending retained earnings

Which of the following statements would be most useful if an analyst wants to know the profitability of a company? A) income statement B) balance sheet C) statement of retained earnings D) statement of cash flows

A) income statement

Which of the following is the correct order of preparation of financial statements? A) income statement → statement of retained earnings → balance sheet → statement of cash flows B) statement of retained earnings → balance sheet → income statement → statement of cash flows C) balance sheet → statement of retained earnings → income statement → statement of cash flows D) balance sheet → income statement → statement of retained earnings → statement of cash flows

A) income statement → statement of retained earnings → balance sheet → statement of cash flows

Managerial accounting provides information to ________. A) internal decision makers B) outside investors and lenders C) auditors D) taxing authorities

A) internal decision makers

The field of accounting that focuses on providing information for internal decision makers is ________. A) managerial accounting B) financial accounting C) nonmonetary accounting D) governmental accounting

A) managerial accounting

Financial statements are prepared after an entity's transactions are analyzed and recorded. Which of the following reports is one of the required financial statements? A) statement of cash flows B) statement of return on assets C) statement of dividends D) expense statement

A) statement of cash flows

Which of the following financial statements reports cash receipts and cash payments during a period of time? A) statement of cash flows B) balance sheet C) cash receipts budget D) statement of retained earnings

A) statement of cash flows

The amount of net income is transferred from ________ to ________. A) the income statement; the statement of retained earnings B) the balance sheet; the of cash flow C) the balance sheet; the income statement D) the income; the statement of expenditures

A) the income statement; the statement of retained earnings

Which of the following can be an effect of a transaction that increased an asset of a corporation for the accounting equation to balance? A) there is an equal decrease in another asset B) there is an equal decrease in equity C) there is an equal decrease in a liability account D) both liabilities and equity decrease

A) there is an equal decrease in another asset

The net income of Vista Camera Services is $29,000. The beginning and ending stockholders' equity balances were $34,000 and $55,000, respectively. The company issued no common stock. Calculate the amount of dividends. A) $18,000 B) $8,000 C) $5,000 D) $60,000

B) $8,000

Marsh Supply Services paid $350 cash to a materials supplier that it owed from the previous month. Which of the following accounts decreases? A) Accounts Receivable B) Accounts Payable C) Retained Earnings D) Office Supplies

B) Accounts Payable

Which of the following is the correct accounting equation? A) Assets + Liabilities = Equity B) Assets = Liabilities + Equity C) Assets + Revenues = Equity D) Assets + Revenues = Liabilities + Expenses

B) Assets = Liabilities + Equity

Marsh Supply Services received $1,000 cash from a customer which was owed to the business from the previous month. What is the effect of the cash receipt on the accounting equation? A) Accounts Receivable decreases and Stockholders' Equity decreases B) Cash account increases and Accounts Receivable decreases C) Accounts Payable increases and Stockholders' Equity decreases D) Cash account increases and Accounts Payable decreases

B) Cash account increases and Accounts Receivable decreases

Which of the following is a characteristic of a limited-liability company (LLC)? A) An LLC's life is terminated at any member's choice or death. B) Each member of an LLC is liable only for his or her own actions. C) An LLC must have more than five members. D) The income of members from an LLC is not taxed.

B) Each member of an LLC is liable only for his or her own actions.

Lush Lawns Corporation incurred $1,500 labor expense and promised to pay the labor agency within 30 days. Which of the following would decrease as a result of this transaction? A) Assets B) Stockholders' Equity C) Liabilities D) Revenues

B) Stockholders' Equity

Different users of financial statements focus on the different parts of the financial statements for the information they need. TRUE/FALSE

TRUE

Aventis Company distributes cash dividends. How does this transaction affect the accounting equation? A) The assets, liabilities, and equity remain the same. B) The assets decrease and equity decreases. C) The assets increase and liabilities decrease. D) The assets decrease and equity increases.

B) The assets decrease and equity decreases.

Which of the following statements is true of a sole proprietorship? A) A sole proprietorship joins two or more individuals as co-owners. B) The sole proprietor is personally liable for the liabilities of the business. C) A sole proprietorship is taxed separately from the owner. D) A sole proprietorship has to pay business income taxes.

B) The sole proprietor is personally liable for the liabilities of the business.

A debt that a business owes to an outside party is called ________. A) an asset B) a liability C) stockholders' equity D) revenue

B) a liability

Lush Lawns Corporation performs lawn mowing services for its customers. The payments for the current month's services are expected to be received next month. How does this transaction affect the accounting equation of Lush Lawn? A) liabilities increase and equity decreases B) assets and equity increase C) assets and equity decrease D) liabilities and equity increase

B) assets and equity increase

Venus Inc. paid $5,000 on accounts payable. How does this transaction affect the accounting equation of Venus? A) assets decrease by $5,000 and equity increases by $5,000 B) assets decrease by $5,000 and liabilities decrease by $5,000 C) assets increase by $5,000 and equity decreases by $5,000 D) assets increase by $5,000 and liabilities increase by $5,000

B) assets decrease by $5,000 and liabilities decrease by $5,000

Accord Corporation collected $5,000 from its customer, who owed it since the previous month. How does this affect the accounting equation of the business? A) assets increase by $5,000; liabilities decrease by $5,000 B) assets increase by $5,000; assets decrease by $5,000 C) assets increase by $5,000; liabilities increase by $5,000 D) assets increase by $5,000; equity increases by $5,000

B) assets increase by $5,000; assets decrease by $5,000

Which of the following financial statements is used to analyze the economic resources, debt, and overall financial position of a company? A) income statement B) balance sheet C) statement of cash flows D) statement of retained earnings

B) balance sheet

Joshua Thomas Corporation manufactures and retails computer hardware. The president of the corporation bought a new car as a gift for his daughter and paid for it using cash from the business. Since the corporation paid for the car, it was recorded in its books as an asset. Which of the following concepts or principles of accounting did the corporation violate? A) monetary unit assumption B) economic entity assumption C) cost principle D) going concern assumption

B) economic entity assumption

Which of the following financial statements reports expenses in decreasing order of their amounts, by stating the largest expense first? A) statement of cash flows B) income statement C) statement of retained earnings D) balance sheet

B) income statement

Zetom Company receives a bill from one of its suppliers for services received. The company will pay the supplier next month. How does the receipt of the bill from the supplier affect the accounting equation of the business? A) assets and equity decrease B) liabilities increase and equity decrease C) assets and liabilities increase D) liabilities and equity increase

B) liabilities increase and equity decrease

Caleb Brown has been the sole owner of a bicycle sales and repair shop for several years. Which of the following business types would limit Caleb's personal liability exposure to the entity's debts? A) partnership B) limited-liability company C) sole proprietorship D) limited-liability partnership

B) limited-liability company

In a statement of retained earnings, decreases in retained earnings result from ________. A) issue of stock B) net losses C) net income D) revenues earned

B) net losses

Which of the following transactions will affect the balance of retained earnings? A) issued common stock for cash B) paid rent expense for the month C) purchased land for cash D) collection on account

B) paid rent expense for the month

Which of the following financial statements shows the dividends distributed to stockholders? A) income statement B) statement of retained earnings C) budgeted balance sheet D) balance sheet

B) statement of retained earnings

The ultimate control of the corporation rests with the ________. A) board of directors B) stockholders C) chairperson D) chief operating officer

B) stockholders

Bubble Wraps Company receives cash from a stockholder, John Trent, and issues common stock to him. The two accounts involved in this transaction are ________. A) the Bubble Wraps Liability account and the Cash account B) the Cash account and the Common Stock account C) the Equity account and John, Payables account D) the Bubble Wraps Equity account and John, Receivables account

B) the Cash account and the Common Stock account

Vista Camera Services started the year with total assets of $80,000 and total liabilities of $40,000. The revenues and the expenses for the year amounted to $120,000 and $70,000, respectively. During the year, the company did not issue any common stock, but it distributed dividends of $60,000. What is the amount of stockholders' equity at the end of the year? A) $70,000 B) $120,000 C) $30,000 D) $60,000

C) $30,000

Hamilton Lawn Services incurred $500 as labor expense and promised to pay the labor agency within 30 days. Which of the following accounts would increase as a result of this transaction? A) Accounts Receivable B) Cash C) Accounts Payable D) Retained Earnings

C) Accounts Payable

John contributed $6,000 in the business by opening a bank account in the name of the business, United Internists. The corporation issued common stock to John. This transaction results in an increase in the assets of the business. TRUE/FALSE

TRUE

Which of the following statements best defines financial statements? A) Financial statements are the information systems that record monetary and nonmonetary business transactions. B) Financial statements are the verbal statements made to business news organizations by chief financial officers. C) Financial statements are documents that report on a business in monetary terms, providing information to help people make informed business decisions. D) Financial statements are plans and forecasts for future time periods based on information from past financial periods.

C) Financial statements are documents that report on a business in monetary terms, providing information to help people make informed business decisions.

Which of the following will be categorized as an operating activity on the statement of cash flows? A) cash received by selling old equipment B) cash paid for purchase of new machinery C) cash paid for purchase of raw materials D) cash received from issue of shares

C) cash paid for purchase of raw materials

According to the ________, the acquired assets should be recorded at the amount actually paid rather than at the estimated market value. A) going concern assumption B) economic entity concept C) cost principle D) monetary unit assumption

C) cost principle

The return on assets is calculated by ________. A) subtracting net income from average total assets B) adding net income and average total assets C) dividing net income by average total assets D) multiplying net income and average total assets

C) dividing net income by average total assets

The owners' claim to the assets of the business is called ________. A) return on assets B) expenses C) equity D) debt

C) equity

As per the ________, the entity will remain in operation for the foreseeable future. A) economic entity concept B) monetary unit assumption C) going concern assumption D) cost principle

C) going concern assumption

Which of the following amounts appears on both the income statement and statement of retained earnings? A) ending stockholders' equity B) total revenues C) net income D) dividends

C) net income

From a legal perspective, a sole proprietorship is ________. A) an entity separate from its proprietor B) not favored by small businesses C) not a distinct entity from its proprietor D) subject to strict regulation of the SEC

C) not a distinct entity from its proprietor

Which of the following financial statements reports an increase or decrease in net cash during the time period covered? A) income statement B) statement of retained earnings C) statement of cash flows D) cash budget

C) statement of cash flows

Glendale Corporation had the following transactions in August: Earned $2,000 as revenues on account; collected $4,000 from a customer for goods sold last month; incurred $600 of repair expense and paid cash; paid $200 to a supplier that it owed from the previous month. What is the net income in August? A) $500 B) $5,700 C) $2,700 D) $1,400

D) $1,400

Liabilities represent creditors' claims on the business's assets. TRUE/FALSE

TRUE

Marsh Supply Services received $1,000 cash from a customer which was owed to the business from the previous month. Which of the following accounts would decrease as a result of this transaction? A) Cash B) Equity C) Accounts Payable D) Accounts Receivable

D) Accounts Receivable

Which of the following statements is true of a corporation? A) Corporations pay the same variety of taxes as the other two forms of business. B) Although a corporation is a separate legal entity, it cannot be sued. C) Any stockholder of a corporate can commit the corporation to his or her act. D) The owners of a corporation are called stockholders.

D) The owners of a corporation are called stockholders.

The income statement presents a summary of an entity's revenues and expenses for a period of time. Which of the following statements is true of an income statement? A) There is net income when total revenues are lesser than total expenses. B) There is a net loss when total expenses are lesser than total revenue. C) There is a net loss when total expenses are greater than total liabilities. D) There is net income when total revenues are greater than total expenses.

D) There is net income when total revenues are greater than total expenses.

Accord Corporation purchased land for $100,000 by a cash payment of $20,000 and promised to pay the remaining amount at a later period. What is the net effect of this transaction on the business's accounting equation? A) assets increase by $100,000 and liabilities decrease by $20,000 B) assets increase by $100,000 and liabilities decrease by $80,000 C) assets and equity increase by $80,000 D) assets and liabilities increase by $80,000

D) assets and liabilities increase by $80,000

Which of the following financial statements reports that total assets are equal to total liabilities plus total stockholders' equity? A) statement of retained earnings B) statement of cash flows C) income statement D) balance sheet

D) balance sheet

Which of the following will be categorized as a financing activity on the statement of cash flows? A) cash received by selling old equipment B) cash paid for purchase of new machinery C) cash paid for purchase of raw materials D) cash received from issue of shares

D) cash received from issue of shares

Which of the following users would rely on management accounting information for decision-making purposes? A) potential investors B) creditors C) customers D) company managers

D) company managers

The Sarbanes-Oxley Act (SOX) made it a criminal offense to ________. A) transfer shares of stock B) issue debentures C) declare bankruptcy D) falsify financial information

D) falsify financial information

In a limited-liability company, the ________. A) members are personally liable to pay the entity's debts B) business pays the tax on earnings C) members are liable for each other's actions D) members pay tax on their share of earnings

D) members pay tax on their share of earnings

Genity Inc., located in Texas, records business transactions in dollars and disregards changes in the value of a dollar over time. Which of the following accounting assumptions does this represent? A) economic entity assumption B) going concern assumption C) accounting period assumption D) monetary unit assumption

D) monetary unit assumption

Which of the following items is included in the headings of the financial statements? A) date and time of filing tax returns B) place and time of preparation of the statement C) name of the preparer of the statement D) name of the business

D) name of the business

The explanation of why the net income differs from the change in cash balance for the period is explained in the ________. A) income statement B) balance sheet C) statement of retained earnings D) statement of cash flows

D) statement of cash flows

Accord Corporation had originally purchased land for $20,000. It later sold it for $20,000 in cash. Which of the following is true of the effect of the sale on the accounting equation? A) assets increase and liabilities decrease by $20,000 B) assets and equity increase by $40,000 C) assets increase by $20,000; equity increases by $20,000 D) the amount of total assets remains the same

D) the amount of total assets remains the same

The formation of a partnership firm requires a minimum of ________. A) four partners B) three partners C) one partner D) two partners

D) two partners

Stockholders primarily use managerial accounting information for decision-making purposes. TRUE/FALSE

FALSE

The balance sheet of a business summarizes an entity's revenues and expenses. TRUE/FALSE

FALSE

The balance sheet shows whether or not a business is earning profits. TRUE/FALSE

FALSE

The total of the amount of assets that a business possesses may or may not be equal to the total of liabilities and equity of the business. TRUE/FALSE

FALSE

Which of the following statements helps analyze the business performance in terms of profitability? TRUE/FALSE

FALSE