Question 1

What amount of net income will be reported on an income statement for the month of August?

Accepted Answer

A)   $20,000.
B)   $7,500.
C)   $0.
D)   $33,500.

Question 2

Which of the following is correct when a corporation uses cash to pay for an expense?

Accepted Answer

A)   Total assets will decrease.
B)   Retained earnings will decrease.
C)   Owners' equity will decrease.
D)   All three of the above statements are correct.

Question 3

The purchase of an asset, such as office equipment, for cash will cause owners' equity to decrease.

Accepted Answer

A) True 
 B)False

Question 4

The going concern principle assumes that the business will continue indefinitely.

Accepted Answer

A) True 
 B)False

Question 5

If a company purchases equipment with cash, its total assets will increase.

Accepted Answer

A) True 
 B)False

Question 6

Owners' equity in a business increases as a result of which of the following?

Accepted Answer

A)   Payments of cash to the owners.
B)   Losses from unprofitable operation of the business.
C)   Earnings from profitable operation of the business.
D)   Borrowing from a commercial bank.

Question 7

A statement of cash flows for August, would report net cash flows from financing activities of:

Accepted Answer

A)   $26,000.
B)   $32,400.
C)   $40,000.
D)   $46,400.

Question 8

The way in which financial statements relate is known as:

Accepted Answer

A)   Solvency.
B)   Objectivity.
C)   Articulation.
D)   Entity.

Question 9

The accounting principle that assumes that a company will operate in the foreseeable future is:

Accepted Answer

A)   Going concern.
B)   Objectivity.
C)   Liquidity.
D)   Disclosure.

Question 10

Which of the following is not a generally accepted accounting principle relating to the valuation of assets?

Accepted Answer

A)   The cost principle - in general, assets are valued at cost, rather than at estimated market values.
B)   The objectivity principle - accountants prefer to use objective, rather than subjective, information as the basis for accounting information.
C)   The safety principle - assets are valued at no more than the value for which they are insured.
D)   The going-concern assumption - one reason for valuing assets such as buildings and equipment at cost rather than at their current market values is the assumption that the business will use these assets rather than sell them.

Question 11

Which of the following transactions would cause an increase in both assets and owners' equity?

Accepted Answer

A)   Investment of cash in the business by the owner.
B)   Sale of land for a price less than its cost.
C)   Borrowing money from a bank.
D)   Sale of land for cash at a price equal to its cost.

Question 12

The owner of Westhampton Fish Eatery purchased a new car for his daughter who is away at college at a cost of $43,000 and reported this amount as Delivery Vehicle in the restaurant's balance sheet. The reporting of this item in this manner violated the:

Accepted Answer

A)   Cost principle.
B)   Business entity concept.
C)   Objectivity principle.
D)   Going-concern assumption.

Question 13

A statement of cash flows for August, would report net cash flows from operating activities of:

Accepted Answer

A)   $26,000.
B)   $32,400.
C)   $40,000.
D)   $46,400.

Question 14

Development of generally accepted accounting principles
(A.) What is meant by the phrase "generally accepted accounting principles"?
(B.) Give the names of three organizations that currently play an active role in the development of accounting principles in the United States.

Accepted Answer

(A.) Generally accepted accounting princ...

Question 15

According to the Sarbanes-Oxley Act, CEOs and CFOs must certify to the accuracy of their company's financial statements:

Accepted Answer

A)   Monthly and Quarterly.
B)   Quarterly and Annually.
C)   Monthly and Annually.
D)   CEOs and CFOs are not required to certify to the company's financial statement; only CPA's do.

Question 16

When a business borrows money from a bank, the immediate effect is an increase in total assets and a decrease in liabilities or owners' equity.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following will not cause a change in the owners' equity of a business?

Accepted Answer

A)   Payment of an interest free business debt.
B)   Withdrawal of cash by the owner.
C)   Sale of land at a profit.
D)   Losses from unprofitable operations.

Question 18

Assets need not always have physical characteristics as do buildings, machinery, or inventory.

Accepted Answer

A) True 
 B)False

Question 19

Water world Boat Shop purchased a truck for $12,000, making a down payment of $5,000 cash, and signing a $7,000 note payable due in 60 days. As a result of this transaction:

Accepted Answer

A)   Total assets increased by $12,000.
B)   Total liabilities increased by $7,000.
C)   From the viewpoint of a short-term creditor, this transaction makes the business more solvent.
D)   This transaction had no immediate effect upon the owner's equity in the business.

Question 20

On January 6, owners' equity amounts to:

Accepted Answer

A)   $752,400.
B)   $44,550.
C)   $796,950.
D)   $895,950.

Exam 2: Basic Financial Statements

The going concern principle assumes that the business will continue indefinitely.

Correct AnswerverifiedShow Answer

The owner of Westhampton Fish Eatery purchased a new car for his daughter who is away at college at a cost of $43,000 and reported this amount as Delivery Vehicle in the restaurant's balance sheet. The reporting of this item in this manner violated the:

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Which of the following is correct when a corporation uses cash to pay for an expense?

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Water world Boat Shop purchased a truck for $12,000, making a down payment of $5,000 cash, and signing a $7,000 note payable due in 60 days. As a result of this transaction:

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What amount of net income will be reported on an income statement for the month of August?

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A statement of cash flows for August, would report net cash flows from financing activities of:

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According to the Sarbanes-Oxley Act, CEOs and CFOs must certify to the accuracy of their company's financial statements:

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Which of the following will not cause a change in the owners' equity of a business?

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Which of the following transactions would cause an increase in both assets and owners' equity?

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When a business borrows money from a bank, the immediate effect is an increase in total assets and a decrease in liabilities or owners' equity.

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On January 6, owners' equity amounts to:

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Owners' equity in a business increases as a result of which of the following?

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If a company purchases equipment with cash, its total assets will increase.

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Assets need not always have physical characteristics as do buildings, machinery, or inventory.

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The way in which financial statements relate is known as:

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A statement of cash flows for August, would report net cash flows from operating activities of:

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Which of the following is not a generally accepted accounting principle relating to the valuation of assets?

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The accounting principle that assumes that a company will operate in the foreseeable future is:

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The purchase of an asset, such as office equipment, for cash will cause owners' equity to decrease.

Correct AnswerverifiedShow Answer

Development of generally accepted accounting principles (A.) What is meant by the phrase "generally accepted accounting principles"? (B.) Give the names of three organizations that currently play an active role in the development of accounting principles in the United States.

Correct Answerverified(A.) Generally accepted accounting princ...View AnswerShow Answer

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(A.) Generally accepted accounting princ...
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