Question 1

To appear in a balance sheet of a business entity,an asset need not:
A)Be an economic resource.
B)Have a ready market value.
C)Be expected to benefit future operations.
D)Be owned by the business.

Accepted Answer

An asset does not need to have a ready market value to appear on a balance sheet. The key criteria for an asset to be recognized include being an economic resource, expected to benefit future operations, and being owned by the business. The ready market value is not a requirement for recognition on the balance sheet, as some assets may not have an easily determinable market value yet still provide economic benefits to the entity.

Question 2

Which of the following is correct if at the end of Crystal Imports' first year of operations,Assets are $800,000 and Owners' Equity is $720,000?
A)The owner(s)must have invested $800,000 to start the business.
B)The business must be operating profitably.
C)Liabilities are $80,000.
D)Liabilities are $1,520,000.

Accepted Answer

The accounting equation states that Assets = Liabilities + Owners' Equity. Given that Assets are $800,000 and Owners' Equity is $720,000, subtracting Owners' Equity from Assets gives Liabilities of $80,000 ($800,000 - $720,000 = $80,000).

Question 3

A transaction caused a $60,000 increase in both assets and total liabilities.This transaction could have been which of the following?
A)Purchase for office equipment for $60,000 cash.
B)Purchase of office equipment for $120,000,paying $60,000 cash and issuing a note payable for the balance.
C)Repayment of a $60,000 bank loan.
D)Investment of $60,000 cash in the business by the owner.

Accepted Answer

Option A would only increase assets, not liabilities. Option C would decrease liabilities, not increase them. Option D would only increase assets, not liabilities. Option B fits the description as it increases both assets (office equipment) and total liabilities (note payable).

Question 4

A revenue transaction will result in all of the following except:
A)An increase in assets.
B)An increase in owners' equity.
C)A positive cash flow in either the past,present,or future.
D)An increase in liabilities.

Accepted Answer

A revenue transaction typically results in an increase in assets and owners' equity, as well as a positive cash flow either currently or in the future. It does not, however, result in an increase in liabilities. If anything, it may decrease liabilities if the business is able to pay off debts or obligations using the revenue earned.

Question 5

A balance sheet:
A)Provides owners,investors,and other interested parties with all the financial information they need to evaluate the financial strength,profitability,and future prospects of a given business entity.
B)Shows the current market value of the owners' equity in the business at the balance sheet date.
C)Assists creditors in evaluating the debt-paying ability of a business by showing the assets and liabilities of the business combined with those of its owner (or owners).
D)Shows the assets,liabilities,and owners' equity of a business entity,valued in conformity with generally accepted accounting principles.

Accepted Answer

A balance sheet shows the assets, liabilities, and owners' equity of a business entity, valued in conformity with generally accepted accounting principles. It does not provide all the financial information needed to evaluate the financial strength, profitability, and future prospects of a business entity (choice A), nor does it show the current market value of the owners' equity in the business at the balance sheet date (choice B). While a balance sheet can assist creditors in evaluating a business's debt-paying ability, it does not combine assets and liabilities with those of its owner or owners (choice C).

Question 6

Capital stock represents:
A)The amount invested in the business by stockholders when shares of stock were initially issued by a corporation.
B)The owners' equity for a business organized as a corporation.
C)The owners' equity accumulated through profitable operations that have not been paid out as dividends.
D)The price paid by the current owners to acquire shares of stock in the corporation,regardless of whether they bought the shares directly from the corporation or from another stockholder.

Accepted Answer

Capital stock represents the amount invested in the business by stockholders when shares of stock were initially issued by a corporation. This initial investment forms the basis for the company's financial foundation and serves as a starting point for the calculation of the company's value.

Question 7

If during the current year,liabilities of Corbett's Store increased by $220,000 and owners' equity increased by $160,000,then:
A)Assets at the end of the year total $380,000.
B)Assets at the end of the year total $60,000.
C)Assets increased during the year by $380,000.
D)Assets decreased during the year by $60,000.

Accepted Answer

According to the accounting equation, Assets = Liabilities + Owners' Equity. If liabilities increased by $220,000 and Owners' equity increased by $160,000, then the total increase in Assets would be $220,000 + $160,000 = $380,000. Therefore, assets increased during the year by $380,000.

Question 8

During the current year,the assets of Wheatley's increased by $362,000,and the liabilities increased by $260,000.The owners' equity in the business must have:
A)Decreased by $102,000.
B)Decreased by $622,000.
C)Increased by $102,000.
D)Increased by $622,000.

Accepted Answer

The increase in assets ($362,000) is equal to the sum of the increase in liabilities ($260,000) and the increase in owner's equity. Therefore, the increase in owner's equity is $102,000 ($362,000 - $260,000 = $102,000).

Question 9

During the current year,the assets of Quality Stairs increased by $175,000 and the liabilities decreased by $15,000.If the owners' equity in the business is $475,000 at the end of the year,the owners' equity at the beginning of the year must have been:
A)$335,000.
B)$285,000.
C)$665,000.
D)$615,000.

Accepted Answer

The answer of During the current year,the assets of Quality...

Question 10

At the end of the current year,the owners' equity in Durante Co.is $360,000.During the year,the assets of the business had increased by $68,000 and the liabilities had increased by $118,000.Owners' equity at the beginning of the year must have been:
A)$410,000.
B)$310,000.
C)$546,000.
D)$174,000.

Accepted Answer

The answer of At the end of the current year,the...

Question 11

An expense is best defined as:
A)Any payment of cash for the benefit of the company.
B)Past,present,or future payments of cash required to generate revenues.
C)Past payments of cash required to generate revenues.
D)Future payments of cash required to generate revenues.

Accepted Answer

An expense is defined as any past, present, or future payments of cash required to generate revenues. Expenses are costs incurred by a company to earn revenue, and may include salaries, rent, utilities, and other costs associated with running a business. Option A is too broad and does not necessarily relate to generating revenue. Options C and D are too narrow and only cover past or future expenses, respectively.

Question 12

If a company has a profit:
A)Assets will be equal to liabilities plus owners' equity.
B)Assets will be less than liabilities plus owners' equity.
C)Assets will be greater than liabilities plus owners' equity.
D)Owners' equity will be greater than its assets.

Accepted Answer

The accounting equation states that assets equal liabilities plus owners' equity, regardless of a company's profit status. Profits increase owners' equity but do not directly change this fundamental relationship.

Question 13

If a company purchases equipment for $65,000 by issuing a note payable:
A)Total assets will increase by $65,000.
B)Total assets will decrease by $65,000.
C)Total assets will remain the same.
D)The company's total owners' equity will decrease.

Accepted Answer

When a company purchases equipment for $65,000 by issuing a note payable, the equipment will be added to the asset side of the balance sheet, thus increasing the total assets by $65,000. The note payable will also be recorded as a liability. The transaction will not affect the total owners' equity at this point.

Question 14

The total liabilities of Hogan's Company on the balance sheet are $270,000; this amount is equal to three-fourths of the total assets.What is the amount of owners' equity?
A)$202,500.
B)$90,000.
C)$360,000.
D)$630,000.

Accepted Answer

The answer of The total liabilities of Hogan's Company on...

Question 15

If during the current year,liabilities of Hayden Travel decreased by $50,000 and owners' equity increased by $75,000,then:
A)Assets at the end of the year total $125,000.
B)Assets at the end of the year total $25,000.
C)Assets increased during the year by $25,000.
D)Assets decreased during the year by $125,000.

Accepted Answer

The decrease in liabilities resulted in a decrease in total liabilities and increase in owners' equity increased the total equity. Since assets are equal to liabilities plus equity, a decrease in liabilities and an increase in equity means that assets must have increased by the same amount. Therefore, the assets increased during the year by $25,000.

Question 16

Thirty percent of the total assets of Shanahan Corporation have been financed through borrowing.The total liabilities of the company are $600,000.What is the amount of owners' equity?
A)$180,000.
B)$2,000,000.
C)$1,400,000.
D)$2,600,000.

Accepted Answer

Let's assume the total assets of Shanahan Corporation are X. As stated in the question, 30% of X has been financed through borrowing.
So, the amount borrowed by the company = 0.3X
Total liabilities of the company are given as $600,000.
Therefore, 0.3X = $600,000
=> X = $2,000,000
Now, the amount of owner's equity can be calculated as follows:
Total Assets = Total Liabilities + Owner's Equity
$2,000,000 = $600,000 + Owner's Equity
Owner's Equity = $2,000,000 - $600,000
Owner's Equity = $1,400,000. 
Hence, the correct answer is option C.

Question 17

If $9,600 cash and a $31,000 note payable are given in exchange for some office machines to be used in a business:
A)Total assets are increased.
B)Total liabilities are decreased.
C)Total assets are decreased.
D)The owners' equity is increased.

Accepted Answer

Cash is an asset and the note payable is a liability. When these are exchanged for office machines, the business now has a new asset (the machines) but still has the same amount of liabilities. Therefore, the total assets have increased.

Question 18

The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is:
A)Accounts receivable.
B)Cash.
C)Capital stock.
D)Retained earnings.

Accepted Answer

Retained earnings represent the portion of owners' equity resulting from profitable operations of the business, as it reflects the accumulated profits that the company has kept instead of distributing to its owners as dividends. Choices A and B represent current assets, while choice C represents the initial investment made by the owners.

Question 19

Which of the following is correct if a company purchases equipment for $70,000 cash?
A)Total assets will increase by $70,000.
B)Total assets will decrease by $70,000.
C)Total assets will remain the same.
D)The company's total owners' equity will decrease.

Accepted Answer

When a company purchases equipment for cash, it exchanges one asset (cash) for another asset (equipment). Therefore, total assets remain the same.

Question 20

At the end of the current year,the owners' equity in Barclay Bakery is $246,000.During the year,the assets of the business had increased by $120,000 and the liabilities had increased by $72,000.Owners' equity at the beginning of the year must have been:
A)$198,000.
B)$174,000.
C)$284,000.
D)$438,000.

Accepted Answer

Owners' equity increases when assets increase more than liabilities. The increase in owners' equity is calculated as the increase in assets ($120,000) minus the increase in liabilities ($72,000), which equals $48,000. Therefore, the owners' equity at the beginning of the year was $246,000 (end of year) - $48,000 (increase) = $198,000.

Quiz 2: Basic Financial Statements

To appear in a balance sheet of a business entity,an asset need not:

Which of the following is correct if at the end of Crystal Imports' first year of operations,Assets are $800,000 and Owners' Equity is $720,000?

A transaction caused a $60,000 increase in both assets and total liabilities.This transaction could have been which of the following?

A revenue transaction will result in all of the following except:

A balance sheet:

Capital stock represents:

If during the current year,liabilities of Corbett's Store increased by $220,000 and owners' equity increased by $160,000,then:

During the current year,the assets of Wheatley's increased by $362,000,and the liabilities increased by $260,000.The owners' equity in the business must have:

During the current year,the assets of Quality Stairs increased by $175,000 and the liabilities decreased by $15,000.If the owners' equity in the business is $475,000 at the end of the year,the owners' equity at the beginning of the year must have been:

At the end of the current year,the owners' equity in Durante Co.is $360,000.During the year,the assets of the business had increased by $68,000 and the liabilities had increased by $118,000.Owners' equity at the beginning of the year must have been:

An expense is best defined as:

If a company has a profit:

If a company purchases equipment for $65,000 by issuing a note payable:

The total liabilities of Hogan's Company on the balance sheet are $270,000; this amount is equal to three-fourths of the total assets.What is the amount of owners' equity?

If during the current year,liabilities of Hayden Travel decreased by $50,000 and owners' equity increased by $75,000,then:

Thirty percent of the total assets of Shanahan Corporation have been financed through borrowing.The total liabilities of the company are $600,000.What is the amount of owners' equity?

If $9,600 cash and a $31,000 note payable are given in exchange for some office machines to be used in a business:

The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is:

Which of the following is correct if a company purchases equipment for $70,000 cash?

At the end of the current year,the owners' equity in Barclay Bakery is $246,000.During the year,the assets of the business had increased by $120,000 and the liabilities had increased by $72,000.Owners' equity at the beginning of the year must have been: