1. The accounting equation is defined as: a. Common Stock + Retained Earnings =
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Question
1. The accounting equation is defined as: a. Common Stock + Retained Earnings = Stockholders’ Equity. b. Revenues - Expenses = Net Income. c. Revenues - Expenses - Dividends = Retained Earnings. d. Assets = Liabilities + Stockholders’ Equity.
2. On January 1, Art Inc. started the year with a $492,000 balance in Retained Earnings and a $605,000 balance in Common Stock. During the year, the company earned net income of $92,000, paid a dividend of $15,200, and issued more common stock for $27,500. What is total stockholders' equity at the end of the year? a. $1,231,700. b. $1,097,000. c. $1,201,300. d. $1,588,300.
3. Which financial statement is typically prepared first? a. Balance sheet. b. Income statement. c. Statement of stockholders’ equity. d. Statement of cash flows.
4. Which of the following would increase assets and increase liabilities? a. Provide services to customers on account. b. Purchase office supplies on account. c. Pay dividends to stockholders. d. Receive a utility bill but do not pay it immediately. 2 / 10
5. The Unearned Revenue account is shown in which statement? a. Income statement. b. Statement of cash flows. c. Balance sheet. d. Statement of stockholders’ equity.
6. Consider the following accounts: Utility Expense Accounts Payable Service Revenue Common Stock How many of these accounts are increased with credits? a. One. b. Two. c. Three. d. Four.
7. Schooner Inc. purchased equipment by signing a note payable. This transaction would be recorded as: a. Debit Equipment, credit Cash. b. Debit Cash, credit Notes Payable. c. Debit Notes Payable, credit Equipment. d. Debit Equipment, credit Notes Payable.
8. Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue? a. January. b. February. c. April. d. Evenly in each of the three months.
9. Which of the following regarding adjusting entries is correct? a. Adjusting entries are recorded for all external transactions. b. Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period. c. Adjusting entries are needed because we use accrual-basis accounting. d. After adjusting entries, all temporary accounts should have a balance of zero. 3 / 10
10. An adjusted trial balance: a. Is a list of all accounts and their balances after adjusting entries. b. Is a list of all accounts and their balances before adjusting entries. c. Is a list of all accounts and their balances after closing entries. d. Is a trial balance adjusted for cash-basis accounting.
Explanation / Answer
Answer to Question 1 is D:
The accounting equation is defined as Assets = Liabilities + Stockholders’ Equity.
Answer to Question 2 is C:
Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
Ending Retained Earnings = $492,000 + $92,000 - $15,200
Ending Retained Earnings = $568,800
Ending Common Stock = Beginning Common Stock + Issuance of Common Stock
Ending Common Stock = $605,000 + $27,500
Ending Common Stock = $632,500
Total Stockholders’ Equity = Ending Common Stock + Ending Retained Earnings
Total Stockholders’ Equity = $632,500 + $568,800
Total Stockholders’ Equity = $1,201,300
Answer to Question 3 is B:
Financial statements are prepared in following order:
Income Statement
Statement of Stockholders’ Equity
Balance Sheet
Statement of Cash Flows
Answer to Question 4 is B:
Provide Service on account:
Increase in assets, increase in equity
Purchase office supplies on account:
Increase in assets, increase in liabilities
Pay dividends to stockholders:
Decrease in cash, decrease in equity
Receive a utilities bill:
Increase in liabilities, increase in equity.
Answer to Question 5 is C:
Unearned revenue account is shown on liabilities side of balance sheet.
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