Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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. 
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 3

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

Accepted Answer

A) True 
 B)False

Question 4

The way in which financial statements relate is known as:

Accepted Answer

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

Question 5

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

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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. 
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 9

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

Question 10

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. 
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 11

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

Accepted Answer

A) True 
 B)False

Question 12

On January 6, owners' equity amounts to:

Accepted Answer

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

Question 13

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

Question 14

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. 
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 15

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

Question 16

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 17

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. 
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 18

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. 
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 19

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

Question 20

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. 
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.

Exam 2: Basic Financial Statements

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

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:

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

The way in which financial statements relate is known as:

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

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.

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

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

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

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

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

On January 6, owners' equity amounts to:

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:

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

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

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.

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

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

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

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

Accounting: Information for Decision Making

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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