21) The assets of a company:
A) must equal the liabilities of the company.
B) include property, plant, and equipment and accounts payable.
C) represent economic resources that are expected to produce a future benefit.
D) include short-term investments and notes payable.
22) The owners’ equity of a business is equal to:
A) revenues minus expenses.
B) assets minus liabilities.
C) assets plus liabilities.
D) paid-in capital plus assets.
23) The major types of transactions that affect retained earnings are:
A) paid-in capital and common stock.
B) assets and liabilities.
C) revenues, expenses, and dividends.
D) revenues and liabilities.
24) Which of the following increases retained earnings?
A) net loss
B) net income
C) expenses
D) dividends
25) Receivables are classified as:
A) increases in earnings.
B) decreases in earnings.
C) liabilities.
D) assets.
26) Net income:
A) is calculated by subtracting total expenses and total dividends from total revenues.
B) occurs when total revenues are less than total expenses.
C) is often referred to as the “bottom line” on an income statement.
D) decreases total stockholders’ equity.
27) 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.
28) Expenses of a business include:
A) sales and cash equivalents.
B) common stock and rent expense.
C) cost of goods sold and salaries expense.
D) retained earnings and utilities expense.
29) Net income is computed as:
A) revenues – expenses – dividends.
B) revenues + expenses.
C) revenues – expenses.
D) revenues – expenses + dividends.
30) When total expenses exceed total revenues, the result is:
A) a net profit.
B) a net loss.
C) a dividend.
D) an increase to retained earnings.
31) Owners’ equity consists of two accounts, Amy Jones, Capital, and Mindy Lenz, Capital. This
indicates the entity is a:
A) proprietorship.
B) corporation.
C) not-for-profit.
D) partnership.
32) 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.
33) At the end of the current accounting period, account balances were as follows: Cash, $29,000;
Accounts Receivable, $44,000; Common Stock, $18,000; Retained Earnings, $12,000. Liabilities for the
period were:
A) $73,000.
B) $55,000.
C) $61,000.
D) $43,000.
34) On January 1, 2017, total assets for Wininger Technologies were $140,000; on December 31, 2017,
total assets were $155,000. On January 1, 2017, total liabilities were $111,000; on December 31, 2017, total
liabilities were $118,000. What is the amount of the change and the direction of the change in Wininger
Technologies’ stockholders’ equity for 2017?
A) decrease of $8000
B) increase of $8000
C) increase of $22,000
D) decrease of $22,000
35) Revenues were $150,000, expenses were $141,000, and cash dividends declared and paid were $4000.
What were the net income and the change in retained earnings for the period?
A) Net income was $9000; the change in retained earnings was $9000.
B) Net income was $150,000; the change in retained earnings was $13,000.
C) Net income was $9000; the change in retained earnings was $5000.
D) Net income was $150,000; the change in retained earnings was $146,000.
36) Golden Company had the following accounts and balances at the end of the year. What are total
assets at the end of the year?
Cash
$75,000
Accounts Payable
$14,000
Common Stock
$21,000
Cost of Goods Sold
$95,000
Dividends Declared and Paid
$12,000
Operating Expenses
$12,000
Accounts Receivable
$55,000
Inventory
$42,000
Long-term Notes Payable
$33,000
Revenues
$130,000
Salaries Payable
$28,000
A) $75,000
B) $117,000
C) $130,000
D) $172,000
37) Census Company had the following accounts and balances at the end of the year. What are total
liabilities at the end of the year?
Cash
$75,000
Accounts Payable
$12,000
Common Stock
$21,000
Cost of Goods Sold
$80,000
Dividends Declared and Paid
$12,000
Operating Expenses
$12,000
Accounts Receivable
$56,000
Inventory
$49,000
Long-term Notes Payable
$37,000
Revenues
$105,000
Salaries Payable
$29,000
A) $12,000
B) $49,000
C) $41,000
D) $78,000
38) Beck Company had the following accounts and balances at the end of the year. What is net income
or net loss for the year?
Cash
$74,000
Accounts Payable
$12,000
Common Stock
$21,000
Cost of Goods Sold
$88,000
Dividends Declared and Paid
$12,000
Operating Expenses
$16,000
Accounts Receivable
$0
Inventory
$0
Long-term Notes Payable
$33,000
Revenues
$91,000
Salaries Payable
$26,000
A) net income of $91,000
B) net income of $75,000
C) net loss of $13,000
D) net income of $3000
39) Seidner Company had the following account balances at the end of the first year of operations:
Revenues
$106,000
Cost of Goods Sold
$42,000
Salaries Expense
$15,000
Dividends Declared and Paid
$13,000
Utilities Expense
$15,000
Advertising Expense
$9000
Short-term Investments
$20,000
Cash
$34,000
Land
$50,000
Common Stock
$50,000
What is the amount of net income or net loss for the year?
A) $25,000
B) $34,000
C) $67,000
D) $76,000
40) Lorna Company has the following account balances at the end of the first year of operations:
Accounts Payable
$37,000
Revenues
$104,000
Cost of Goods Sold
$40,000
Salaries Expense
$13,000
Dividends Declared and Paid
$10,000
Utilities Expense
$14,000
Advertising Expense
$9000
Short-term Investments
$20,000
Cash
$32,000
Land
$50,000
Common Stock
$50,000
What is the ending balance in Retained Earnings?
A) $18,000
B) $27,000
C) $28,000
D) $40,000
41) Gerald Company has the following account balances at the end of the first year of operations:
Revenues
$103,000
Cost of Goods Sold
$40,000
Salaries Expense
$13,000
Dividends Declared and Paid
$12,000
Utilities Expense
$11,000
Advertising Expense
$7000
Short-term Investments
$24,000
Cash
$36,000
Land
$58,000
Common Stock
$53,000
What are total assets at the end of the first year?
A) $36,000
B) $94,000
C) $118,000
D) $221,000
42) Michael Company reports the following account balances at the end of the first year of operations:
Revenues
$130,000
Cost of Goods Sold
$47,000
Salaries Expense
$20,000
Dividends Declared and Paid
$12,000
Utilities Expense
$18,000
Advertising Expense
$10,000
Short-term Investments
$15,000
Cash
$107,000
Land
$45,000
Common Stock
$50,000
What are total liabilities at the end of the first year?
A) $94,000
B) $50,000
C) $90,000
D) $167,000
43) At the end of the current fiscal year, ABC Corporation had the following balances:
Assets
$50,000
Common Stock
$30,000
Dividends
Declared
$ 5,000
Expenses
$75,000
Liabilities
$20,000
Revenues
$90,000
What is the increase (or decrease) to Retained Earnings? Support your answer with well labeled
computations.
44) At the end of the current fiscal year , Smith Corporation had the following balances:
Assets
$ 100,000
Common Stock
$ 25,000
Dividends
Declared
$ 10,000
Expenses
$ 80,000
Liabilities
$ 30,000
Revenues
$120,000
The beginning balance of Retained Earnings was $15,000.
a. What is the ending balance of Retained Earnings? Support your answer with well labeled
computations.
b. Prepare an accounting equation that shows assets, liabilities, and components of stockholders’
equity.
4 Learning Objective 1-4
1) Net income is the profit left over after subtracting expenses and dividends from revenues and gains.
2) The balance sheet is also called the statement of financial position.
3) Every corporation must pay dividends every year.
4) The balance sheet is organized in terms of the organization’s operating, investing, and financing
activities.
5) The amount of cash received on the sale of the company’s stock in excess of par value is called
retained earnings.
6) The statement of cash flows measures operating performance.
7) A balance sheet reports the company’s financial position over a period of time.
8) Which financial statement answers the following question: What is the company’s financial position
at fiscal year end?
A) statement of cash flows
B) income statement
C) statement of retained earnings
D) balance sheet
9) Which financial statement answers the following question: How well did the company perform
during the year?
A) statement of cash flows
B) income statement
C) statement of retained earnings
D) balance sheet
10) Which financial statement reports cash payments and cash receipts over a period of time?
A) statement of retained earnings
B) income statement
C) balance sheet
D) statement of cash flows
11) A company reports the purchase of equipment for $1,000,000 in cash. On a statement of cash flows,
this is a(n) example of:
A) cash outflow from financing activity.
B) cash outflow from operating activity.
C) cash outflow from investing activity.
D) noncash activity.
12) All of the following will appear on the income statement EXCEPT for:
A) assets.
B) expenses.
C) gains.
D) revenues.
13) Cost of goods sold:
A) is considered a selling expense.
B) is the direct cost of the product sold.
C) is classified as revenue on the income statement.
D) is the same as gross profit.
14) A company issues common stock for $100,000. On a statement of cash flows, this will be reported as
a(n):
A) financing cash flow.
B) investing cash flow.
C) operating cash flow.
D) noncash activity.
15) A company’s interest expense for the period is reported on the:
A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of retained earnings.
16) The CORRECT data flow from one financial statement to the next is:
A) statement of retained earnings, income statement, balance sheet, statement of cash flows.
B) balance sheet, statement of retained earnings, income statement, statement of cash flows.
C) statement of retained earnings, income statement, statement of cash flows, balance sheet.
D) income statement, statement of retained earnings, balance sheet, statement of cash flows.
17) If an investor wants to know a company’s cash balance at the end of the year, this balance is
reported on the:
A) balance sheet.
B) statement of cash flows.
C) income statement.
D) A and B.
18) Cash dividends declared:
A) decrease revenue on the income statement.
B) decrease retained earnings on the statement of retained earnings.
C) increase expenses on the income statement.
D) decrease operating activities on the statement of cash flows.
19) When analyzing a company’s income statement, a fact to remember is that:
A) cost of products is another term for gross profit.
B) operating expenses are the costs of everyday operations such as selling expenses.
C) companies are not allowed to offset items such as interest income and interest expense against each
other.
D) net income is a very important number because it communicates whether the company’s core
business operations were profitable.
20) An investor, wishing to assess the reasons for a change in retained earnings over a period of a year,
would probably examine the:
A) statement of cash flows and the income statement.
B) income statement only.
C) balance sheet.
D) statement of retained earnings.
21) A potential investor, interested in predicting the earnings of a company in the future, should
examine the:
A) Balance Sheet only.
B) Income Statement only.
C) Statement of Retained Earnings.
D) Statement of Retained Earnings and Balance Sheet.
22) Which statement(s) reports the revenues, gains, expenses, and losses of an entity?
A) Balance sheet
B) Statement of cash flows and income statement
C) Statement of retained earnings and statement of operations
D) Income statement
23) Which financial statement is dated at the moment in time when the accounting period ends?
A) Balance sheet
B) Income statement
C) Statement of retained earnings and income statement
D) Statement of cash flows
24) The income statement:
A) is not dated.
B) must cover only a month in time.
C) covers a defined period of time.
D) reports the results of operations since the inception of the business.
25) An example of an operating expense is:
A) cost of goods sold.
B) sales returns.
C) sales commissions paid to employees.
D) interest expense.
26) Which is the CORRECT order for items to appear on the income statement?
A) revenues, operating expenses, net income
B) cost of goods sold, revenues, net income
C) revenues, net income, operating expenses
D) interest expense, revenues, income from operations