Accounting Pre Test

Clayton Company purchased a new coffee maker in the amount of $3,500. Clayton paid $1,000 down and will pay the remainder in 60 days. What effect does this transaction have on the accounting equation?

$2,500 net increase in assets and $2,500 increase in liabilities

Given the following information, determine the amount of cash on the balance sheet (assume there are only three assets). Liabilities equal $3,050, stockholders' equity equals $25,000, supplies equal $1,500, and land equals $22,500

$4,050

Assets and stockholders' equity of a company are $150,000 and $75,000, respectively. Determine liabilities using the accounting equation.

$75,000

Equipment with a sales price of $100,000 is purchased at a discount of 10% by Aaron Company. At what value should the equipment be recorded in Aaron Company's records?

$90,000

Which of the following best represents the accounting equation? A. Assets = Liabilities - Stockholders' Equity B. Assets = Liabilities + Stockholders' Equity C. Assets + Liabilities = Stockholders' Equity D. Assets + Stockholders' Equity = Liabilities

B. Assets = Liabilities + Stockholders' Equity

The following data were taken from Reynolds Company's balance sheet: Dec. 31, 20Y8 Dec. 31, 20Y7 Total liabilities $240,000 $210,000 Total stockholders equity $160,000 $150,000 Which of the following best explains the change in creditors' risk from 20Y7 to 20Y8? A. Decreased risk B. Increased risk C. Risk did not change D. Not enough information is provided to answer this question

B. Increased risk

The numerator in the calculation of the ratio of liabilities to stockholders' equity is A. Total Stockholder's Equity B. Total Liabilities C. Total Assets D. Total Liabilities minus Total Stockholders' Equity

B. Total Liabilities

Which of the following forms of business entities generates 90% of business revenues in the United States? A. Partnerships B. Proprietorships C. Corporations D. Manufacturing companies

C. Corporations

Which of the following statements is not true? A. The two sides of the accounting equation are always equal B. The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements (assets, liabilities, and stockholder's equity) C. Stockholders' equity is increased by stockholders' investments and is decreased by dividends D. Expenses increase stockholders' equity

D. Expenses increase stockholders' equity

The business entity assumption is important because

It limits economic data in the accounting system to data directly related to the activities of the business.

Stockholders' equity can best be defined as the rights of

Owners

The ratio of liabilities to stockholders' equity is a tool used to assess a company's ability to

Pay it's creditors

__________________ businesses sell products purchased from other businesses to make their objective of maximizing their profit

Retail

Paying an amount on account reduces

The amount owed on a liability -- Paying an amount on account reduces the amount owed on a liability

Which of following users is not considered an external user of accounting information?

A manager

Which financial statement reports financial data based on the revenue and expense recognition principles? A. Income statement B. Balance sheet C. Statement of stockholders' equity D. Statement of cash flows

A. Income statement

Included on the balance sheet are

Assets, liabilities, and stockholders' equity. -- The balance sheet is used to record the financial position of a company as of a specific date. The format is based on the accounting equation, which requires that assets will be equal to liabilities plus stockholders' equity