Question 1

Which transaction decreases stockholders' equity?
A)Inventory was purchased on account.
B)Services were performed on account.
C)Services were performed and cash was immediately received from the customers.
D)Employees worked one week and were paid at the end of the week.

Accepted Answer

Option D decreases stockholders' equity because it involves cash leaving the company for an expense (employee salaries), which reduces the overall wealth of the company and therefore decreases stockholders' equity. Options A, B, and C do not necessarily decrease stockholders' equity.

Question 2

Interest payable,income tax payable and salary payable are all examples of:
A)accrued liabilities.
B)prepaid expenses.
C)expenses of future periods.
D)retained earnings.

Accepted Answer

Accrued liabilities are the obligations that a company has incurred but has not yet paid for. Interest payable, income tax payable and salary payable are all examples of accrued liabilities, as they represent expenses that the company has incurred but not yet paid for. Prepaid expenses are payments made in advance for goods or services that will be received in the future. Expenses of future periods refer to expenses that will be incurred in future periods, but have not yet been incurred. Retained earnings refers to the portion of a company's profits that is kept by the company rather than distributed as dividends.

Question 3

All of the following accounts would be considered assets EXCEPT for:
A)Cash.
B)Retained Earnings.
C)Prepaid Expenses.
D)Notes Receivable.

Accepted Answer

Retained Earnings is a part of equity and not an asset. The other choices, cash, prepaid expenses, and notes receivable, are all considered assets.

Question 4

The account is the basic summary device of accounting.

Accepted Answer

An account is a basic summary device of accounting as it records and summarizes transactions related to a particular category, such as assets, liabilities, revenues, or expenses. It helps in organizing financial information and presenting it in a useful and understandable way.

Question 5

A record of all the changes in a particular asset during a period of time is found in a(n):
A)transaction.
B)trial balance.
C)prior period's balance sheet.
D)account.

Accepted Answer

A record of all the changes in a particular asset during a period of time is found in an account. Transactions are individual events that affect at least two accounts, a trial balance is a list of all the balances in the accounts at a specific point in time, and a prior period's balance sheet reflects the balances of the accounts at the end of the prior period.

Question 6

An account receivable represents the promise of the business to pay a debt.

Accepted Answer

An account receivable represents the promise of a customer to pay a debt to the business, not the other way around.

Question 7

Prepaid rent is an expense because the payment provides a future benefit of the company.

Accepted Answer

Prepaid rent is considered an asset, not an expense, because it represents a future economic benefit to the company by securing the right to use a property for a period of time.

Question 8

Which of the following is a CORRECT statement?
A)Shareholders' equity is also called proprietorship equity.
B)A proprietorship has more than one capital account.
C)A partnership has a separate owner's equity account for each partner.
D)Retained earnings is the owner's investment in the corporation.

Accepted Answer

A partnership indeed maintains a separate owner's equity account for each partner to track each partner's investment, share of profits, and withdrawals. This allows for clear accounting and distribution of the partnership's financial outcomes.

Question 9

Which of the following is NOT a business transaction?
A)A company buys goods on account.
B)A company sells land for cash.
C)A company fired 10 percent of the employees due to lackluster sales.
D)A company borrows money from the bank.

Accepted Answer

Firing employees due to lackluster sales is not considered a business transaction as it does not involve a financial exchange between the company and an external party. The other options involve financial exchanges and are considered business transactions.

Question 10

Which of the following is a business transaction?
A)A company signs a contract for services to be provided during the first quarter of the next fiscal year.
B)A company pays its employees a year-end bonus.
C)A company hires a new marketing manager.
D)A company applies for a mortgage that will be used to purchase a new office building.

Accepted Answer

A business transaction involves an exchange of economic value, such as the payment of bonuses to employees.

Question 11

An accrued liability is a liability for an expense that has not yet been paid.

Accepted Answer

An accrued liability is a true statement. It refers to a liability that has been incurred but not yet paid. It is also known as an accrued expense. Examples of accrued liabilities include salaries payable, interest payable, and taxes payable.

Question 12

Which transaction increases stockholders' equity?
A)sale of common stock
B)dividends that are declared and paid
C)expenses greater than revenues for the period
D)payment of operating expenses

Accepted Answer

Sale of common stock increases stockholders' equity as it represents the amount of capital contributed by the investors to the company. Dividends that are declared and paid reduce stockholders' equity. Expenses greater than revenues for the period result in a net loss and reduce stockholders' equity. Payment of operating expenses reduces assets and has no effect on stockholders' equity.

Question 13

Assets include cash,land,and accounts payable.

Accepted Answer

Assets include cash and land, but accounts payable is a liability, not an asset.

Question 14

Which account includes balances in multiple checking accounts?
A)Accounts Receivable
B)Notes Receivable
C)Cash
D)Prepaid Expenses

Accepted Answer

The account "Cash" includes balances in multiple checking accounts as well as in savings accounts, money market accounts, and other liquid assets.

Question 15

Business events are recorded even if the financial impact cannot be measured.

Accepted Answer

Business events are only recorded if their financial impact can be measured in monetary terms, as per the principles of accounting.

Question 16

Which transaction decreases stockholders' equity?
A)sale of common stock
B)cash purchase of land
C)total revenues greater than total expenses for the period
D)total expenses greater than total revenues for the period

Accepted Answer

Total expenses greater than total revenues for the period would result in a net loss, which would decrease stockholders' equity. Choices A and B would increase stockholders' equity as they represent an increase in assets or liabilities. Choice C would result in net income, which would increase stockholders' equity.

Question 17

Transactions provide objective information about the financial impact of an exchange on an entity.

Accepted Answer

Transactions record actual exchanges of assets, liabilities or equity between parties, resulting in objective financial information about the entity's financial standing.

Question 18

Cost of goods sold is an example of a revenue account.

Accepted Answer

Cost of goods sold is not a revenue account, it is an expense account.

Question 19

A transaction is any event that has a financial impact on the business and that can be measured reliably.

Accepted Answer

This is correct, as all transactions must have a financial impact and be measurable in order to be recorded in a business's financial statements.

Question 20

A prepaid expense is an asset.

Accepted Answer

A prepaid expense is considered an asset because it represents a payment made in advance for a future expense. As the future expense is incurred, the prepaid amount is gradually recognized as an expense on the income statement, reducing the asset balance.

Quiz 2: Transaction Analysis

Which transaction decreases stockholders' equity?

Interest payable,income tax payable and salary payable are all examples of:

All of the following accounts would be considered assets EXCEPT for:

The account is the basic summary device of accounting.

A record of all the changes in a particular asset during a period of time is found in a(n) :

An account receivable represents the promise of the business to pay a debt.

Prepaid rent is an expense because the payment provides a future benefit of the company.

Which of the following is a CORRECT statement?

Which of the following is NOT a business transaction?

Which of the following is a business transaction?