1.3-11 Ramos, Inc. has monthly revenues of $30,000 and monthly expenses of $18,000, and the company paid
$4,000 in dividends. Therefore, net income for the month is $8,000.
1.3-12 Able Co. has $500,000 in assets and $400,000 in liabilities. Therefore, the equity is $900,000.
1.3-13 Yummy Inc. has beginning retained earnings of $10,000, net income of $50,000, and dividends paid of
$5,000. Therefore, the ending retained Earnings is $65,000.
1.3-14 The accounting equation can be stated as:
A) Assets + Shareholders’ Equity = Liabilities.
B) Assets –Liabilities = Shareholders’ Equity.
C) Assets = Liabilities – Shareholders’ Equity.
D) Assets – Shareholders’ Equity + Liabilities = Zero.
1.3-15 The owners’ equity of any business is its:
A) revenues minus expenses.
B) assets minus liabilities.
C) assets plus liabilities.
D) paid-in capital plus assets.
1.3-16 The sum of “outsider claims” plus “insider claims” equals:
A) net income.
B) total liabilities.
C) total assets.
D) total shareholders’ equity.
1.3-17 Revenues are:
A) decreases in assets resulting from delivering goods or services to customers.
B) increases in liabilities resulting from delivering goods or services to customers.
C) increases in retained earnings resulting from delivering goods or services to customers.
D) decreases in retained earnings resulting from delivering goods or services to customers.
1.3-18 Expenses are:
A) increases in liabilities resulting from purchasing assets.
B) increases in assets resulting from operations.
C) increases in retained earnings resulting from operations.
D) decreases in retained earnings resulting from operations.
1.3-19 Dividends:
A) are expenses.
B) always affect net income.
C) are distributions to shareholders of assets (usually cash) generated by net income.
D) are distributions to shareholders of assets (usually cash) generated by a favorable balance in retained
earnings.
1.3-20 Net income is computed as:
A) revenues – expenses – dividends.
B) revenues + expenses.
C) revenues – expenses.
D) revenues – expenses + dividends.
1.3-21 When total expenses exceed total revenues, the result is a:
A) net profit.
B) net loss.
C) dividend.
D) net earnings.
1.3-22 Which of the following must be added to beginning Retained Earnings to compute ending Retained
Earnings?
A) Net income
B) Expenses
C) Dividends
D) All of the above
1.3-23 At the end of the current accounting period, account balances were as follows: Cash, $180,000; Accounts
Receivable, $75,000; Share Capital, $20,000; Retained Earnings, $65,000. Liabilities for the period
were:
A) $ 70,000.
B) $170,000.
C) $190,000.
D) $210,000.
1.3-24 On January 1, 20X6, total assets for Liftoff Technologies were $125,000; on December 31, 20X6, total
assets were $145,000. On January 1, 20X6, total liabilities were $110,000; on December 31, 20X6, total
liabilities were $115,000. What is the amount of the change and the direction of the change in Liftoff
Technologies’ shareholders’ equity for 20X6?
A) Decrease of $15,000
B) Increase of $15,000
C) Increase of $30,000
D) Decrease of $30,000
1.3-25 Revenues were $170,000, expenses were $90,000, and cash dividends were $30,000. What was the net
income and the change in retained earnings for the period?
A) Net income was $50,000; the change in retained earnings was $50,000.
B) Net income was $80,000; the change in retained earnings was $50,000.
C) Net income was $80,000; the change in retained earnings was $80,000.
D) Net income was $250,000; the change in retained earnings was $250,000.
1.3-26 At the beginning of the period, assets were $490,000 and shareholders’ equity was $240,000. During the
year, assets increased by $60,000, liabilities increased by $40,000, and shareholders’ equity increased by
$20,000. Beginning liabilities must have been:
A) $230,000.
B) $250,000.
C) $280,000.
D) $300,000.
1.3-27 If assets increase $210,000 during a given period and liabilities increase $65,000 during the same period,
shareholders’ equity must:
A) increase $145,000.
B) decrease $275,000.
C) decrease $145,000.
D) increase $275,000.
1.3-28 Shareholders’ equity for Commerce Corporation on January 1, 20X6 and December 31, 20X6 were
$60,000 and $75,000, respectively. Assets on January 1, 20X6 and December 31, 20X6 were $115,000
and $105,000, respectively. Liabilities on January 1, 20X6 were $55,000. What is the amount of liabilities on
December 31, 20X6?
A) $40,000
B) $15,000
C) $30,000
D) The amount is indeterminable from the given information.
1.3-29 Identify the missing amount in the accounting equation for each example below:
Assets
Liabilities
Shareholders’ Equity
A)
$230,000
?
$120,000
B)
?
$250,000
$90,000
C)
$220,000
$120,000
?
1.4-1 Net income is the profit left over after subtracting expenses and losses from revenues and gains.
1.4-2 Cost of goods sold is the major expense of merchandising and manufacturing companies.
1.4-3 If expenses have exceeded sales revenue during the life of the company, the accumulation of these losses
will result in an accumulated deficit in retained earnings.
1.4-4 Shareholders determine if a corporation will pay dividends.
1.4-5 Net income appears on both the income statement and the balance sheet.
1.4-6 The statement of cash flows is organized in terms of the organization’s operating, investing, and financing
activities.
1.4-7 The amount of cash received on the sale of the company’s shares in excess of par value is called retained
earnings.
1.4-8 The statement of cash flows contains three “parts”—operating activities, investing activities, and share
activities.
1.4-9 In accounting, the word “net” refers to an amount after a subtraction.
1.4-10 A balance sheet reports the company’s financial position at a specific point in time.
1.4-11 Net income and net profit mean the same thing to accountants.
1.4-12 The statement that reports revenues and expenses for the period is the:
A) Statement of Changes in Equity.
B) Balance Sheet.
C) Statement of Cash Flows.
D) Income Statement.
1.4-13 A company sells its product for $100. The cost of the product to the company is $60. Selling expenses
are $15. Cost of goods sold is:
A) $100.
B) $60.
C) $40.
D) $75.
1.4-14 Retained earnings is increased by:
A) net income.
B) net loss.
C) dividends.
D) expenses.
1.4-15 Dividends appear on:
A) the Statement of Changes in Equity.
B) both the Statement of Changes in Equity and the Income Statement.
C) the Income Statement.
D) the Balance Sheet.
1.4-16 Assets appear on:
A) the Balance Sheet.
B) the Income Statement.
C) the Statement of Changes in Equity.
D) both the Balance Sheet and the Statement of Changes in Equity.
1.4-17 Share Capital appears on:
A) the Balance Sheet.
B) the Income Statement.
C) the Statement of Cash Flows and the Statement of Changes in Equity.
D) none of the above.
1.4-18 A company’s gross profit for the period is reported on the:
A) Balance Sheet.
B) Income Statement.
C) Statement of Cash Flows.
D) Statement of Changes in Equity.
1.4-19 Gains and losses appear on which of the financial statements listed below?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Statement of Changes in Equity
1.4-20 The ending balance in Retained Earnings appears on the:
A) Balance Sheet only.
B) Balance Sheet and Statement of Changes in Equity.
C) Statement of Changes in Equity only.
D) Income Statement and Statement of Cash Flows.
1.4-21 Cash dividends:
A) decrease revenue on the income statement.
B) decrease retained earnings on the Statement of Changes in Equity.
C) increase expenses on the income statement.
D) decrease operating activities on the statement of cash flows.
1.4-22 Which of the following financial statements shows the net increase or decrease in cash during the period?
A) Balance Sheet only
B) Statement of Operations
C) Statement of Changes in Equity and Balance Sheet
D) Statement of Cash Flows
1.4-23 An investor wishing to assess a company’s overall financial position at the end of the period would
probably examine the:
A) Statement of Cash Flows and the Income Statement.
B) Income Statement only
C) Balance Sheet.
D) Statement of Changes in Equity.
1.4-24 A potential investor interested in evaluating a company’s financial earning performance for the current
period would probably examine which of the following financial statements?
A) Balance Sheet only
B) Income Statement only
C) Statement of Cash Flows and Income Statement
D) Statement of Changes in Equity and Balance Sheet
1.4-25 Which statement(s) summarizes the revenues and expenses of an entity?
A) Balance Sheet only
B) Statement of Cash Flows and Income Statement
C) Statement of Changes in Equity and Statement of Operations
D) Income Statement
1.4-26 Which financial statement provides a “snapshot photo” of one moment in time for the whole entity?
A) Balance Sheet only
B) Income Statement only
C) Statement of Changes in Equity and Income Statement
D) Statement of Cash Flows only
1.4-27 The income statement:
A) is not dated.
B) may cover a period of time or only one day in time, like a snapshot photograph.
C) covers a defined period of time.
D) reports the results of operations since the inception of the business.
1.4-28 The income statement presents a summary of the:
A) cash inflows and outflows of an entity.
B) assets and liabilities of an entity.
C) revenues and expenses of an entity for a specific time period.
D) changes that occurred in the shareholders’ equity of an entity.
1.4-29 An example of a selling, general, and administrative expense is:
A) cost of goods sold.
B) sales.
C) sales commissions paid to employees.
D) interest expense.
1.4-30 Cost of goods sold appears on the:
A) Statement of Changes in Equity as an addition to beginning retained earnings.
B) Income Statement as a deduction from sales.
C) Balance Sheet as a deduction from sales.
D) Income Statement as a deduction from gross profit.
1.4-31 The portion of net income that the company has kept over a period of years is called:
A) share capital.
B) retained earnings.
C) revenue.
D) gross profit.
1.4-32 A retail store sells t-shirts for $85 and purchases them for $60. The store’s cost of goods sold would be:
A) $25.
B) $85.
C) $60.
D) none of the above.
1.4-33 Net income is:
A) added to assets on the balance sheet.
B) deducted from beginning retained earnings on the retained earnings statement.
C) added to beginning retained earnings on the retained earnings statement.
D) deducted from ending retained earnings on the retained earnings statement.
1.4-34 Capital and retained earnings are the main components of paid-in capital.
1.4-35 The balance sheet is also known as the:
A) statement of profit and loss.
B) operating statement.
C) assets statement.
D) statement of financial position.
1.4-36 The balance sheet reports information about:
A) revenues, expenses, and equity.
B) liabilities, equity, and expenses.
C) assets, revenues, and liabilities.
D) assets, liabilities, and owners’ equity.
1.4-37 The income statement is prepared to determine:
A) the change in cash due to results of operations.
B) the change in retained earnings due to the results of operations.
C) the change in assets and liabilities due to the results of operations.
D) all of the above.
1.4-38 The amount of net income shown on the income statement also appears on the:
A) balance sheet and operations statement.
B) statement of assets.
C) statement of financial position.
D) Statement of Changes in Equity.