Chapter 1

Alliance Corporation holds cash of $8,000 and owes $27,000 on accounts payable. Alliance has accounts receivable of $47,000, inventory of $20,000, and land that cost $60,000. How much are Alliance's total assets and liabilities? Total Assets Liabilities a. $75,000 $87,000 b. $135,000 $27,000 c. $135,000 $47,000 d. $115,000 $47,000

Total Assets Liabilities b. $135,000 $27,000 [Total assets = $135,000 ($8,000 + $47,000 + $60,000 + $20,000). Liabilities = $27,000]

Which of the following is the most accurate statement regarding ethics as applied to decision making in accounting? a. Ethics involves making difficult choices under pressure and should be kept in mind in making every decision, including those involving accounting. b. Ethics has no place in accounting because accounting deals purely with numbers. c. It is impossible to learn ethical decision making because it is just something you decide to do or not to do. d. Ethics is becoming less and less important as a field of study in business

a. Ethics involves making difficult choices under pressure and should be kept in mind in making every decision, including those involving accounting.

How would the issuance of common stock for cash affect the accounting equation? a. Increase assets and increase stockholders' equity b. Increase liabilities and decrease stockholders' equity c. Increase assets and increase liabilities d. Decrease assets and decrease liabilities

a. Increase assets and increase stockholders' equity

To be useful, information must have which of the following fundamental qualitative characteristics? a. Relevance and faithful representation b. Timeliness and affordability c. Expediency and relevance d. Faithful representation and diversity

a. Relevance and faithful representation

During the year, ChemClean Corporation has $280,000 in revenues, $130,000 in expenses, and $10,000 in dividend declarations and payments. Net income for the year was: a. $140,000. b. $150,000. c. $160,000. d. $280,000.

b. $150,000 ($280,000 - $130,000 = $150,000)

Dynasty Company has current assets of $50,000 and long-term assets of $45,000. Its total liabilities equal $35,000. Stockholders' equity is: a. $95,000. b. $60,000. c. $130,000. d. $80,000.

b. $60,000 ($60,000 = $50,000 + $45,000 - $35,000)

Which financial statement would show how well a company performed over the past year? a. Balance sheet b. Income statement c. Statement of cash flows d. Statement of retained earnings

b. Income statement

Hoot Enterprises buys a warehouse for $590,000 to use for its East Coast distribution operations. On the date of the purchase, a professional appraisal shows a value of $650,000 for the warehouse. The seller had originally purchased the building for $480,000. Hoot has a similar warehouse on the West Coast that has a book value of $603,000. Under the historical cost principle, Hoot should record the building for a. $650,000. b. $480,000. c. $590,000. d. $603,000.

c. $590,000

The accounting equation can be expressed as a. Assets = Liabilities − Equity. b. Assets + Liabilities = Equity. c. Assets − Liabilities = Equity. d. Equity − Assets = Liabilities.

c. Assets − Liabilities = Equity. [This is not the typical way the accounting equation is expressed (Assets - Liabilities = Equity), but it may be rearranged this way.]

On which financial statement would the ending balance of the account "accounts receivable" be found? a. Income statement b. Statement of retained earnings c. Balance sheet d. Statement of cash flows

c. Balance sheet

Nicholas is a software engineer and is starting a consulting practice. What form of business organization limits his liability to the amount he has invested in the business? a. Proprietorship b. Partnership c. Corporation d. None of the above

c. Corporation

What item flows from the income statement to the statement of retained earnings? a. Cash b. Dividends c. Net income d. Inventory

c. Net income

Which of the following is a true statement about International Financial Reporting Standards? a. They are considered to be the single strongest set of accounting standards in the world. b. They are more exact (contain more rules) than U.S. generally accepted accounting principles. c. They are converging gradually with U.S. standards. d. They are not being applied anywhere in the world yet, but soon they will be.

c. They are converging gradually with U.S. standards.

Financial statements can be used by which of the following groups? a. Individuals b. Investors and creditors c. Regulatory bodies d. All of the above

d. All of the above

What item flows from the statement of retained earnings to the balance sheet? a. Cash b. Dividends c. Net income d. Retained earnings

d. Retained earnings

The costs of doing business are classified as: a. assets. b. liabilities. c. revenues. d. expenses

d. expenses