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If assets are $99,000 and liabilities are $32,000, then equity equals:


A) $32,000.
B) $67,000.
C) $99,000.
D) $131,000.
E) $198,000.

F) C) and D)
G) A) and B)

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An example of an operating activity is:


A) Paying wages.
B) Purchasing office equipment.
C) Borrowing money from a bank.
D) Selling stock.
E) Paying off a loan.

F) All of the above
G) A) and E)

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Match the following terms with definitions.

Premises
Balance sheet
Time period assumption
Full disclosure principle
Objectivity principle
Securities and Exchange Commission
IASB
Generally accepted accounting principles
Statement of retained earnings.
Cost principle
Statement of cash flows
Responses
A principle that requires the information in financial statements to be supported by independent unbiased evidence.
A report that describes a company's financial position at a point in time.
The governmental agency that has the legal authority to establish accounting rules.
Prescribes that a company report the details behind financial statements that would impact user decisions.
A financial statement that reports the changes in retained earnings over the reporting period; including increases such as net income and for decreases such as dividends or net loss.
Prescribes that assets and services to be recorded initially on a cash or equal-to-cash basis.
Presumes that the life of a company can be divided into periods for reporting purposes.
A report that identifies cash receipts and cash payments over a period of time.
The concepts and rules that govern financial accounting.
An independent group consisting of individuals from many countries that identify preferred accounting practices.

Correct Answer

Balance sheet
Time period assumption
Full disclosure principle
Objectivity principle
Securities and Exchange Commission
IASB
Generally accepted accounting principles
Statement of retained earnings.
Cost principle
Statement of cash flows

Accounting is an information and measurement system that does all of the following except:


A) Identifies business activities.
B) Records business activities.
C) Communicates business activities.
D) Eliminates the need for interpreting financial data .
E) Helps people make better decisions.

F) B) and E)
G) C) and D)

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The statement of cash flows reports all of the following except:


A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) The net increase or decrease in assets for the period reported.
E) The net increase or decrease in cash for the period reported.

F) D) and E)
G) A) and E)

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Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

A) True
B) False

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If the liabilities of a business increased $75,000 during a period of time and the stockholders' equity in the business decreased $30,000 during the same period, the assets of the business must have:


A) Decreased $105,000.
B) Decreased $45,000.
C) Increased $30,000.
D) Increased $45,000.
E) Increased $105,000.

F) A) and C)
G) All of the above

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Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

A) True
B) False

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The Sarbanes-Oxley Act (SOX) does not require public companies to apply both accounting oversight and stringent internal controls.

A) True
B) False

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Dividends are expenses.

A) True
B) False

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Creditors' claims on the assets of a company are called:


A) Net losses.
B) Expenses.
C) Revenues.
D) Equity.
E) Liabilities.

F) A) and E)
G) D) and E)

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Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or dividends to stockholders.

A) True
B) False

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Another name for equity is:


A) Net income.
B) Expenses.
C) Net assets.
D) Revenue.
E) Net loss.

F) B) and D)
G) None of the above

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If assets are $365,000 and equity is $120,000, then liabilities are:


A) $120,000.
B) $245,000.
C) $365,000.
D) $485,000.
E) $610,000.

F) C) and D)
G) A) and B)

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The ________________ assumption states that transactions and events are expressed in money units.

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Describe the income statement and the relation between revenues, expenses, and net income or loss.

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The income statement describes a company...

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The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:


A) Accounting equation.
B) Cost principle.
C) Going-concern assumption.
D) Realization principle.
E) Business entity assumption.

F) C) and E)
G) B) and D)

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The first section of the income statement reports cash flows from operating activities.

A) True
B) False

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Determine the net income of a company for which the following information is available for the month of September. Service revenue......................... $300,000 Rent expense............................. 48,000 Utilities expense........................ 3,200 Salaries expense........................ 81,000


A) $263,800.
B) $432,200.
C) $171,000.
D) $167,800.
E) $252,000.

F) A) and D)
G) A) and E)

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The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

A) True
B) False

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