Deck 1: An Introduction to Accounting

Question 1

A business and the person who owns the business are separate reporting entities.

Answer 1

True

Question 2

Which resource providers lend financial resources to a business with the expectation of repayment with interest?

A)Consumers
B)Creditors
C)Investors
D)Owners

Answer 2

B

Question 3

Land is an element of the financial statements.

Answer 3

False

Question 4

Which type of accounting information is intended to satisfy the needs of external users of accounting information?

A)Cost accounting
B)Managerial accounting
C)Tax accounting
D)Financial accounting

Question 5

The types of resources needed by a business are financial, physical, and labor resources.

Question 6

An asset use transaction does not affect the total amount of claims to a company's assets.

Question 7

The four financial statements prepared by a business bear no relationship to each other.

Question 8

The Financial Accounting Standards Board is a privately funded organization with authority for establishing accounting standards for businesses in the US.

Question 9

Borrowing money from the bank is an example of an asset source transaction.

Question 10

Retained earnings reduces a company's commitment to use its assets for the benefit of its stockholders.

Question 11

Which of the following statements is false regarding managerial accounting information?

A)It is often used by investors.
B)It is more detailed than financial accounting information.
C)It can include nonfinancial information.
D)It focuses on divisional rather than overall profitability.

Question 12

The value created by a business is created by its assets.

Question 13

Financial accounting information is usually less detailed than managerial accounting information.

Question 14

An asset source transaction increases a business's assets and the claims to assets.

Question 15

Liabilities are obligations of a business to relinquish assets, provide services, or accept other obligations.

Question 16

The dividends a business pays to its owners appear on the income statement.

Question 17

The Heritage Company is a manufacturer of office furniture. Which term best describes Heritage's role in society?

A)Business
B)Regulatory agency
C)Consumer
D)Resource owner

Question 18

Liabilities are not a source of assets for a business.

Question 19

The historical cost concept requires that most assets be recorded at the amount paid for them, regardless of increases in market value.

Question 20

In a market, a company that manufactures cars would be referred to as a business.

Question 21

If total assets decrease, then

A)liabilities must increase and retained earnings must decrease.
B)common stock must decrease and retained earnings must increase.
C)liabilities, common stock, or retained earnings must decrease.
D)liabilities, common stock, or retained earnings must increase.

Question 22

Ellen Gatsby and her siblings, Ben and Sarah, started Gatsby Company when they each invested $100,000 in the company. After the investments there will be

A)One reporting entity.
B)Two reporting entities.
C)Three reporting entities.
D)Four reporting entities.

Question 23

Financial accounting standards are known collectively as GAAP. What does that acronym stand for?

A)Generally Accepted Accounting Principles
B)Generally Applied Accounting Procedures
C)Governmentally Approved Accounting Practices
D)Generally Authorized Auditing Principles

Question 24

Ballard Company reported assets of $500 and liabilities of $200. What amount will Ballard's report for stockholders' equity?

A)$300
B)$500
C)$700
D)Cannot be determined.

Question 25

Which of the following is the most accurate depiction of the accounting equation?

A)Assets = Liabilities + Common Stock + Retained Earnings
B)Assets = Liabilities + Common Stock − Expenses
C)Assets = Liabilities + Retained Earnings − Dividends
D)Assets = Liabilities + Common Stock + Dividends

Question 26

International accounting standards are formulated by the IASB. What does that acronym stand for?

A)Internationally Accepted Standards Board
B)International Accounting Standards Board
C)International Accountability Standards Bureau
D)International Accounting and Sustainability Board

Question 27

Which of the following is an example of revenue?

A)Cash received as a result of a bank loan.
B)Cash received from investors from the sale of common stock.
C)Cash received from customers at the time services were provided.
D)Cash received from the sale of land for its original selling price.

Question 28

Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden Wheels. Jack transferred $650,000 of the cash he borrowed to Wooden Wheels on the first day of the year. Which of the following appropriately reflects the cash transactions between these reporting entities?

A)Option A
B)Option B
C)Option C
D)Option D

Question 29

Algonquin Company reported assets of $50,000, liabilities of $22,000 and common stock of $15,000. Based on this information only, what is the amount of the company's retained earnings?

A)$7,000.
B)$57,000.
C)$13,000.
D)$87,000.

Question 30

Which of the following is an accurate definition of the term asset?

A)An obligation to creditors.
B)A resource that will be used to produce revenue.
C)A transfer of wealth from the business to its owners.
D)A sacrifice incurred from operating the business.

Question 31

Which term describes assets earned from operations that have been reinvested into the business?

A)Liability
B)Dividend
C)Common stock
D)Retained earnings

Question 32

Hazeltine Company issued common stock for $200,000 cash. What happened as a result of this event?

A)Assets increased.
B)Stockholders' Equity increased.
C)Claims increased.
D)Assets, claims, and Stockholders' Equity all increased.

Question 33

Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden Wheels. Jack transferred $650,000 of the cash he borrowed to the store on the first day of the year. How many reporting entities exist in this scenario?

A)One reporting entity.
B)Two reporting entities.
C)Three reporting entities.
D)Four reporting entities.

Question 34

Finn Company reported assets of $1,000 and stockholders' equity of $600. What amount will Finn report for liabilities?

A)$400
B)$600
C)$1,600
D)Cannot be determined

Question 35

Stosch Company's balance sheet reported assets of $40,000, liabilities of $15,000 and common stock of $12,000 as of December 31, Year 1. Retained earnings on the December 31, Year 2 balance sheet is $18,000 and Stosch paid a $14,000 dividend during Year 2. What is the amount of net income for Year 2?

A)$17,000
B)$19,000
C)$13,000
D)$21,000

Question 36

Which of the following is not an element of the financial statements?

A)Stockholders' Equity
B)Liabilities
C)Assets
D)Cash

Question 37

Liabilities

A)represent obligations to repay debts.
B)may increase when assets increase.
C)are found on the claims side of the accounting equation.
D)All of the answers are characteristics of liabilities.

Question 38

Which term describes a distribution of the Company's assets back to the owners of the business?

A)Liability
B)Dividend
C)Retained earnings
D)Common stock

Question 39

Stosch Company's balance sheet reported assets of $67,000, liabilities of $20,000 and common stock of $17,000 as of December 31, Year 1. Retained earnings on the December 31, Year 2 balance sheet is $38,000 and Stosch paid a $19,000 dividend during Year 2. What is the amount of net income for Year 2?

A)$30,000
B)$27,000
C)$8,000
D)$19,000

Question 40

Which of the following is a source of assets?

A)Creditors
B)Investors
C)Operations
D)All the answers represent sources of assets.

Question 41

Tandem Company borrowed $32,000 of cash from a local bank. Which of the following choices accurately reflects how this event affects the accounting equation?

A)Option A
B)Option B
C)Option C
D)Option D

Question 42

Borrowing cash from the bank is an example of which type of transaction?

A)Asset source
B)Claims exchange
C)Asset use
D)Asset exchange

Question 43

Kelly Company experienced the following events during its first accounting period. (1)Issued common stock for $10,000 cash.
(2)Earned $8,000 of cash revenue.
(3)Paid $1,000 cash to purchase land.
(4)Paid cash dividends amounting to $500.
(5)Paid $4,400 of cash expenses.
Based on this information the amount of net income is

A)$2,100.
B)$2,600.
C)$3,600.
D)$5,600.

Question 44

At the end of Year 2, retained earnings for the Baker Company was $2,350. Revenue earned by the company in Year 2 was $2,600, expenses paid during the period were $1,400, and dividends paid during the period were $800. Based on this information alone, what was the amount of retained earnings at the beginning of Year 2?

A)$1,150
B)$2,750
C)$1,950
D)$5,200

Question 45

Which of the following is not an example of an asset use transaction?

A)Paying cash dividends
B)Paying cash expenses
C)Paying off the principal of a loan
D)Paying cash to purchase land

Question 46

At the end of Year 2, retained earnings for the Baker Company was $3,500. Revenue earned by the company in Year 2 was $1,500, expenses paid during the period were $800, and dividends paid during the period were $500. Based on this information alone, what was the amount of retained earnings at the beginning of Year 2?

A)$3,300
B)$3,700
C)$2,800
D)$3,800

Question 47

Which of the following could describe the effects of an asset exchange transaction on a company's total assets, total liabilities and total stockholders' equity?

A)Option A
B)Option B
C)Option C
D)Option D

Question 48

Which of the following describes the effects of an asset use transaction on the accounting equation?

A)Option A
B)Option B
C)Option C
D)Option D

Question 49

When a business provides services for cash, what is the effect on the accounting equation are affected?

A)Revenue and Expense
B)Cash and Retained Earnings
C)Cash and Expense
D)Cash and Dividends

Question 50

Li Company paid cash to purchase land.What happened as a result of this business event?

A)Total assets decreased.
B)Total assets were unaffected.
C)Total stockholders' equity decreased.
D)Both total assets and total stockholders' equity decreased.

Question 51

Which of the following shows the effects of paying a cash dividend on the accounting equation?

A)Option A
B)Option B
C)Option C
D)Option D

Question 52

During Year 2, Millstone Company provided $6,500 of services for cash, paid cash dividends of $1,000 to owners, and paid $4,000 cash for expenses. Liabilities were unchanged. Which of the following statements accurately describes the effect of these events on the elements of the company's financial statements?

A)Assets increased by $6,500.
B)Assets increased by $1,500.
C)Stockholders' equity increased by $2,500.
D)Assets increased by $5,500.

Question 53

As of December 31, Year 2, Bristol Company had $100,000 of assets, $40,000 of liabilities and $25,000 of retained earnings. What percentage of Bristol's assets were obtained through investors?

A)60%
B)25%
C)40%
D)35%

Question 54

The statement of changes in stockholders' equity shows changes in which of the following accounts?

A)Retained Earnings and Assets
B)Assets and Liabilities
C)Common Stock and Retained Earnings
D)Liabilities and Common Stock

Question 55

Which of the following shows the effects of providing services for cash on the accounting equation?

A)Option A
B)Option B
C)Option C
D)Option D

Question 56

Which of the following cash transactions would not affect total assets?

A)Borrowing cash from a bank.
B)Issuing common stock for cash.
C)Purchasing land for cash.
D)Providing services for cash.

Question 57

Which of the following transactions would be reported on the statement of changes in stockholders' equity?

A)Borrowed $5,000 cash from the bank.
B)Paid a $100 cash dividend to the owners.
C)Purchased land for $2,000 cash.
D)Paid $1,500 cash to pay off a portion of its note payable.

Question 58

On January 1, Year 2, Chavez Company had beginning balances as follows: total assets of $12,500, total liabilities of $4,500, and common stock of $3,000. During Year 2, Chavez paid dividends to its stockholders of $2,000. Given that retained earnings amounted to $6,000 at the end of Year 2, what was Chavez's net income for Year 2?

A)$3,000
B)$5,000
C)$7,000
D)$2,000

Question 59

Turner Company reported assets of $20,000 (including cash of $9,000), liabilities of $8,000, common stock of $7,000, and retained earnings of $5,000. Based on this information, what can be concluded?

A)25% of Turner's assets are the result of prior earnings.
B)$5,000 is the maximum dividend that can be paid to shareholders.
C)40% of Turner's assets are the result of borrowing from creditors.
D)25% of Turner's assets are from prior earnings, $5,000 is the maximum possible dividend, and 40% of assets are the result of borrowed resources.

Question 60

A company's total assets increased during the period while its liabilities and common stock were unchanged. No dividends were declared or paid during the period. Which of the following would explain this situation?

A)Revenues were greater than expenses during the period.
B)Retained earnings were less than net income during the period.
C)No dividends were paid during the period.
D)The company must have purchased assets with cash during the period.

Question 61

Retained earnings at the beginning and ending of the accounting period were $300 and $800, respectively. Revenues of $1,100 and dividends paid to stockholders of $200 were reported during the period. What was the amount of expenses reported for the period?

A)$500
B)$400
C)$900
D)$700

Question 62

Yowell Company began operations on January 1, Year 1. During Year 1, the company engaged in the following cash transactions: 1)issued stock for $74,0002)borrowed $59,000 from its bank3)provided consulting services for $72,0004)paid back $32,000 of the bank loan5)paid rent expense for $17,5006)purchased equipment costing $29,0007)paid $4,700 dividends to stockholders8)paid employees' salaries for work completed during the year, $38,000
What is Yowell's net cash flow from operating activities?

A)Inflow of $34,000
B)Inflow of $16,500
C)Inflow of $75,500
D)Inflow of $11,800

Question 63

Yowell Company began operations on January 1, Year 1. During Year 1, the company engaged in the following cash transactions: 1)issued stock for $40,0002)borrowed $25,000 from its bank3)provided consulting services for $39,0004)paid back $15,000 of the bank loan5)paid rent expense for $9,0006)purchased equipment costing $12,0007)paid $3,000 dividends to stockholders8)paid employees' salaries for work completed during the year, $21,000
What is Yowell's net cash flow from operating activities?

A)Inflow of $6,000
B)Inflow of $9,000
C)Inflow of $18,000
D)Inflow of $30,000

Question 64

Glavine Company repaid a bank loan with cash. The cash flow from this event should be reported as:

A)an outflow for investing activities on the Statement of Cash Flows.
B)an outflow for financing activities on the Statement of Cash Flows.
C)an inflow for investing activities on the Statement of Cash Flows.
D)an inflow for operating activities on the Statement of Cash Flows.

Question 65

During Year 2, Chico Company earned $1,950 of cash revenue, paid $1,600 of cash expenses, and paid a $150 cash dividend to its owners. Based on this information alone,which of the following statements is not true?

A)Net income amounted to $350.
B)Total assets increased by $200.
C)Cash inflow from operating activities was $350.
D)Cash outflow from financing activities was $200.

Question 66

Jackson Company had a net increase in cash from operating activities of $9,700 and a net decrease in cash from financing activities of $3,550. If the beginning and ending cash balances for the company were $4,700 and $14,400, what was the net cash change from investing activities?

A)An outflow or decrease of $3,550.
B)An inflow or increase of $1,150.
C)An inflow or increase of $3,550.
D)Zero.

Question 67

Yi Company provided services to a customer for $5,500 cash. Based on this information alone, which of the following statements is true?

A)Total assets increased and total stockholders' equity decreased.
B)Total assets were unchanged.
C)Liabilities decreased and net income increased.
D)Total assets increased and net income increased.

Question 68

At the beginning of Year 2, Jones Company had a balance in common stock of $300,000 and a balance of retained earnings of $15,000. During Year 2, the following transactions occurred:Issued common stock for $90,000Earned net income of $50,000Paid dividends of $8,000Issued a note payable for $20,000 Based on the information provided, what is the total stockholders' equity on December 31, Year 2?

A)$147,000
B)$357,000
C)$427,000
D)$447,000

Question 69

Jackson Company had a net increase in cash from operating activities of $10,000 and a net decrease in cash from financing activities of $2,000. If the beginning and ending cash balances for the company were $4,000 and $11,000, what was the net cash change from investing activities?

A)An outflow or decrease of $1,000
B)An inflow or increase of $2,000
C)An inflow or increase of $1,000
D)Zero

Question 70

The financial statements of Calloway Company prepared at the end of the current year contained the following elements and corresponding amounts: Assets = $36,000; Liabilities = ?; Common Stock = $6,600; Revenue = $14,200; Dividends = $1,550; Beginning Retained Earnings = $4,550; Ending Retained Earnings = $8,600. Based on this information, what was the amount of expenses reported on Calloway's income statement for the current year?

A)$8,600
B)$17,200
C)$4,050
D)$10,150

Question 71

Chow Company earned $3,300 of cash revenue, paid $1,900 for cash expenses, and paid a $650 cash dividend to its owners. Which of the following statements is true?

A)The net cash inflow from operating activities was $1,400.
B)The net cash outflow for investing activities was $650.
C)The net cash inflow from operating activities was $750.
D)The net cash outflow for investing activities was $1,400.

Question 72

The financial statements of Calloway Company prepared at the end of the current year contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500. Based on this information, what was the amount of expenses reported on Calloway's income statement for the current year?

A)$18,500
B)$13,000
C)$16,500
D)$10,000

Question 73

Chow Company earned $1,500 of cash revenue, paid $1,200 for cash expenses, and paid a $200 cash dividend to its owners. Which of the following statements is true?

A)The net cash inflow from operating activities was $100.
B)The net cash outflow for investing activities was $200.
C)The net cash inflow from operating activities was $300.
D)The net cash outflow for investing activities was $100.

Question 74

Which financial statement matches asset increases from operating a business with asset decreases from operating the business?

A)Balance sheet
B)Statement of changes in equity
C)Income statement
D)Statement of cash flows

Question 75

The financial statements of Calloway Company prepared at the end of the current year contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500. What was the amount of total liabilities reported on the balance sheet as of the end of the current year?

A)$27,500
B)$31,500
C)$35,000
D)$42,500

Question 76

During Year 2, Chico Company earned $2,750 of cash revenue, paid $1,200 of cash expenses, and paid a $700 cash dividend to its owners. Based on this information alone, which of the following statements is not true?

A)Net income amounted to $1,550
B)Total assets increased by $850
C)Cash inflow from operating activities was $1,550
D)Cash outflow from financing activities was $850

Question 77

Which of the following financial statements provides information about a company as of a specific point in time?

A)Income statement
B)Balance sheet
C)Statement of cash flows
D)Statement of changes in stockholders' equity

Question 78

Which of the following appears in the investing activities section of the statement of cash flows?

A)Cash inflow from interest revenue.
B)Cash inflow from the issuance of common stock.
C)Cash outflow for the payment of dividends.
D)Cash outflow for the purchase of land.

Question 79

In which section of a statement of cash flows would the payment of cash dividends be reported?

A)Investing activities.
B)Operating activities.
C)Financing activities.
D)Dividends are not reported on the statement of cash flows.

Question 80

Retained earnings at the beginning and ending of the accounting period were $1,000 and $2,100, respectively. Revenues of $3,900 and dividends paid to stockholders of $900 were reported during the period. What was the amount of expenses reported for the period?

A)$3,000.
B)$1,100.
C)$2,800.
D)$1,900.