Exam 1

The Duce Company has five plants nationwide that cost $100 million. The current market value of the plants is $500 million. The plants will be recorded and reported as assets at a) $100 million. b) $500 million. c) $400 million. d) $600 million.

a) $100 million.

A business that enjoys limited liability is a a) corporation. b) partnership. c) proprietorship. d) sole proprietorship.

a) corporation.

The economic entity assumption requires that the activities a) of an entity be kept separate from the activities of its owner. b) of a sole proprietorship cannot be distinguished from the personal economic events of its owners. c) of different entities can be combined if all the entities are corporations. d) must be reported to the Securities and Exchange Commission.

a) of an entity be kept separate from the activities of its owner.

Unearned revenues are a) received and recorded as liabilities before they are earned. b) earned but not yet received or recorded. c) earned and already received and recorded. d) earned and recorded as liabilities before they are received.

a) received and recorded as liabilities before they are earned.

The best interpretation of the word credit is the a) right side of an account. b) decrease side of an account. c) increase side of an account. d) offset side of an account.

a) right side of an account.

In a service-type business, revenue is considered earned a) when the service is performed. b) when cash is received. c) at the end of the month. d) at the end of the year.

a) when the service is performed.

When a corporation distributes cash or other assets from a business to owners, these are called a) depletions. b) dividends. c) consumptions. d) a credit line.

b) dividends.

The cost principle requires that when assets are acquired, they be recorded at a) exchange price paid. b) historical cost. c) appraisal value. d) market price.

b) historical cost.

A net loss will result during a time period when a) drawings exceed investments. b) revenues exceed expenses. c) expenses exceed revenues. d) liabilities exceed assets.

c) expenses exceed revenues.

Liabilities a) possess service potential. b) are future economic benefits. c) are things of value used by the business in its operation. d) are existing debts and obligations.

d) are existing debts and obligations.

The matching principle matches a) assets with liabilities. b) creditors with businesses. c) customers with businesses. d) expenses with revenues.

d) expenses with revenues.

The procedure of transferring journal entries to the ledger accounts is called a) journalizing. b) analyzing. c) reporting. d) posting.

d) posting.

Stockholders' equity can be described as a) benefactor's claim on total assets. b) creditorship claim on total assets. c) debtor claim on total assets. d) stockholders' claim on total assets.

d) stockholders' claim on total assets.