30) Maxwell Plumbing Services earned $500 by completing a job for Smith Company. The $500 earned by
Maxwell Plumbing Services is its ________.
A) revenue
B) equity
C) gain
D) debt
31) The owners’ claims to the assets of the business are called ________.
A) return on assets
B) expenses
C) equity
D) debt
32) Precision Camera Services started the year with total assets of $90,000 and total liabilities of $65,000.
The revenues and the expenses for the year amounted to $100,000 and $70,000, respectively. During the
year, the company did not issue any common stock, but it distributed dividends of $40,000. What is the
amount of stockholders’ equity at the end of the year?
A) $70,000
B) $100,000
C) $15,000
D) $40,000
33) Dynamic Production Services started the year with total assets of $120,000 and total liabilities of
$55,000. The revenues and the expenses for the year amounted to $100,000 and $80,000, respectively.
During the year, the company did not issue any common stock, but it distributed dividends of $50,000.
Calculate Dynamic’s net income for the year.
A) $20,000
B) $100,000
C) $80,000
D) $120,000
34) Metropolitan Casting Services started the year with total assets of $130,000 and total liabilities of
$45,000. The revenues and the expenses for the year amounted to $130,000 and $50,000, respectively.
During the year, the company did not issue any common stock, but it distributed dividends of $60,000.
Calculate the amount of increase or decrease in stockholders‘ equity for the year.
A) a $20,000 increase
B) a $105,000 increase
C) a $85,000 decrease
D) a $60,000 increase
35) The net income of Hollywood Talent Services is $26,000. The beginning and ending stockholders’
equity balances were $35,000 and $56,000, respectively. The company issued no common stock. Calculate
the amount of dividends.
A) $15,000
B) $5,000
C) $9,000
D) $8,000
36) ________ is the equity earned by profitable operations that is not distributed to stockholders.
A) Assets
B) Dividend
C) Retained earnings
D) Common stock
37) Which of the following is true of retained earnings?
A) Retained earnings decrease with payment of dividends.
B) Retained earnings increase with purchase of assets.
C) Retained earnings decrease with collection of revenue.
D) Retained earnings increase with payment on account.
38) Equity of a corporation is broken out into two components. Which of the following are the two
components of the equity of a corporation?
A) current assets and fixed assets
B) common stock and liabilities
C) revenues and expenses
D) contributed capital and retained earnings
39) For each of the following events:
(1) State whether the event increases (INC) or decreases (DEC) retained earnings. If the event does not
affect retained earnings, state NE for no effect.
(2) State which equity account is affected.
Event
1. Retained earnings: INC, DEC, NE
2. Which equity account is affected?
Distribution of a corporation’s earnings
to stockholders
Creditor loaned money to the business
Costs of selling goods or services
Distribution of a corporation’s earnings
to stockholders
1. DEC
2. Dividends
Creditor loaned money to the business
1. NE
2. None
Costs of selling goods or services
2. COGS, Expense
40) For each of the following events:
(1) State whether the event increases (INC) or decreases (DEC) retained earnings. If the event does not
affect retained earnings, state NE for no effect.
(2) State which equity account is affected.
Event
1. Retained earnings: INC, DEC , NE
2. Which equity account is affected?
Owner contributions to a corporation
Amounts earned from delivering goods
or services to customers
Cash paid to acquire land for use in the
business
2. Common Stock
or services to customers
2. Sales Revenue, Service Revenue
business
2. None
2) Accountants record ________.
A) economic recessions
B) estimated future transactions
C) only those events that have dollar amounts than can be measured reliably
D) the $20,000 increase in value of a building that actually cost $50,000 but could be sold for $70,000
3) Which of the following events is NOT recorded by accountants?
A) purchase of a building for $200,000 cash
B) effects of an economic boom
C) sale of merchandise on account
D) signing a $400,000 note to purchase land
4) John contributed $6,000 to the business by opening a bank account in the name of the business, United
Marketing. The corporation issued common stock to John. This transaction results in an increase in the
assets of the business.
5) For the accounting equation to balance, a transaction must affect both sides of the equation.
6) As long as an increase and decrease of the same amount is recorded on one side of the accounting
equation, the accounting equation remains in balance.
7) A payable is always a liability.
8) Office Supplies is an expense because the supplies will be used up in the future.
9) Dividends affect the business’s net income or net loss and are recorded as an expense.
10) Janice Wilford contributed $50,000 cash to JW Corporation in exchange for stock. As a result of this
transaction, assets and revenues will increase.
11) A corporation purchased office supplies on account. As a result of this transaction, expenses and
liabilities will increase.
12) A law firm provides legal services for clients who do not pay immediately. There is no effect on the
accounting equation until the clients pay for the services.
13) A law firm provides legal services for clients who do not pay immediately. As a result of this
transaction, assets and revenues increase.
14) An accounting firm collected cash on account. As a result of this transaction, assets and revenues
increase.
15) An accounting firm collected cash on account. As a result of this transaction, total assets, liabilities,
and equity are all unchanged.
16) Mars Electronic Company receives cash from a stockholder, John Tilden, and issues common stock to
him. The two accounts involved in this transaction are ________.
A) Accounts Payable and Cash
B) Cash and Common Stock
C) Common Stock and Accounts Payable
D) Common Stock and Accounts Receivable
17) Green Lawns Corporation earned $500 for landscaping services rendered. The customer promised to
pay at a later time. Which of the following accounts increased as a result of this transaction?
A) Accounts Payable
B) Supplies
C) Cash
D) Accounts Receivable
18) Adventures Unlimited Company distributes cash dividends. How does this transaction affect the
accounting equation?
A) The assets, liabilities, and equity remain the same.
B) The assets decrease and equity decreases.
C) The assets increase and liabilities decrease.
D) The assets decrease and equity increases.
19) Jackson Electric Services incurred $800 as a repair expense and paid for it in cash. This transaction will
________.
A) decrease the stockholders’ equity
B) increase the assets of the business
C) increase the liabilities of the business
D) decrease the liabilities of the business
20) Nick’s Landscaping Services incurred $500 as a repair expense and promised to pay the repair
company within 30 days. Which of the following accounts will increase as a result of this transaction?
A) Accounts Receivable
B) Cash
C) Accounts Payable
D) Retained Earnings