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Chapter 2
b.
Increase in cash $3,500 and decrease in retained earnings $3,500
c.
Decrease in cash $3,500 and decrease in retained earnings $3,500
d.
Decrease in cash $3,500 and increase in retained earnings $3,500
42. Johnson, Inc. purchased land for cash. What effect does this transaction have?
a.
Increase in Cash and decrease in Land
b.
Decrease in Cash and decrease in Land
c.
Increase in Cash and increase in Land
d.
Decrease in Cash and increase in Land
43. Johnson, Inc. issued $15,000 in common stock in exchange for cash. What is the effect of this transaction?
Chapter 2
a.
Total assets remain unchanged.
b.
Cash flow from Financing Activities will increase.
c.
Net Income will increase.
d.
Total Retained Earnings will increase.
44. Johnson, Inc. receives $5,000 cash for fees earned. What is the effect of this transaction?
a.
Total assets remain unchanged.
b.
Cash flow from Financing Activities will increase.
c.
Net income will increase.
d.
Retained earnings will remain unchanged.
Chapter 2
45. Stockholders' equity will be reduced by:
a.
payment of dividends.
b.
increase in revenues.
c.
owners' investments.
d.
issuance of bonds.
46. ABC Company deposited $20,000 in a bank account in return for issuing shares in the corporation. This transaction
would affect which two financial statement elements?
a.
Assets and stockholders' equity
b.
Assets and liabilities
c.
Liabilities and stockholders' equity
d.
None of these
Chapter 2
47. JNC Company sells its products for cash, at a profit of 20%. Which of the following financial statement elements are
affected as a result of this transaction?
a.
Assets
b.
Assets and liabilities
c.
Liabilities and stockholders' equity
d.
Assets and stockholders' equity
48. Lazer Company paid a utility bill of $12,000 and paid rent of $20,000. As a result of these transactions, the
stockholders' equity:
a.
increases by $8,000.
b.
decreases by $32,000.
c.
increases by $20,000.
d.
decreases by $12,000.
Chapter 2
49. WFC Company paid wages of $50,000 and received interest of $60,000. As a result of these transactions, the
stockholders' equity:
a.
increases by $ 60,000.
b.
decreases by $110,000.
c.
increases by $10,000.
d.
decreases by $50,000.
50. If liabilities have a balance of $10,000 and stockholders' equity has a balance of $60,000, then assets must have a
balance of:
a.
$50,000.
b.
$60,000.
c.
$70,000.
d.
$10,000.
Chapter 2
51. Which of the following transactions changes the mix of assets only?
a.
Paid for supplies with cash.
b.
Borrowed money from Second National Bank.
c.
Received money for fees earned.
d.
Received a utility bill.
52. If assets have a balance of $80,000 and stockholders' equity has a balance of $60,000, then liabilities must have a
balance of:
a.
$140,000.
b.
$60,000.
c.
$80,000.
d.
$20,000.
Chapter 2
53. Dim Co. issues common stock of $15,000. Which of the following statements regarding the effect of this transaction
on the company's liquidity and profitability metric is true?
a.
The transaction increases the liquidity and decreases the profitability of the company.
b.
The transaction decreases the liquidity and increases the profitability of the company.
c.
The transaction increases the liquidity and has no effect on the profitability of the company.
d.
The transaction has no effect on the liquidity and increases the profitability of the company.
54. Blue Ivy Inc. has the following transactions for the month of March:
Issued common stock
$60,000
Purchased land by paying cash
$100,000
Paid expenses
$25,000
Earned cash fees
$75,000
As a cumulative result of these transactions, the liquidity of Blue Ivy Inc.:
a.
increases by $75,000.
b.
increases by $10,000.
c.
decreases by $25,000.
d.
decreases by $50,000.
Chapter 2
55. Jade Inc. paid rent of $25,000 for the current month. This transaction:
a.
decreases the profitability of the company.
b.
has no effect on the profitability of the company.
c.
increases the liquidity of the company.
d.
has no effect on the liquidity of the company.
56. Blue Lilly Co. paid $50,000 to stockholders as dividends. As a result of this transaction, _____.
a.
the liquidity of Blue Lilly Co. increases
b.
the profitability of Blue Lilly Co. remains unchanged
c.
the profitability of Blue Lilly Co. decreases
d.
the liquidity of Blue Lilly Co. remains unchanged
Chapter 2
57. JNC Co. buys equipment for $1,500,000 cash. This transaction:
a.
decreases JNC Co.'s liquidity and has no effect on its profitability metric.
b.
has no effect on JNC Co.'s liquidity and profitability.
c.
increases JNC Co.'s liquidity and profitability.
d.
has no effect on JNC Co.'s liquidity and decreases its profitability.
58. ABC Inc. borrows $50,000 from a bank to finance its operations. Which of the following statements regarding the
effect of this transaction on the company's liquidity and profitability metric is true?
a.
The transaction decreases the liquidity and increases the profitability of ABC Inc.
b.
The transaction increases the liquidity and decreases the profitability of ABC Inc.
Chapter 2
c.
The transaction has no effect on the liquidity and profitability of ABC Inc.
d.
The transaction increases the liquidity and has no effect on the profitability of ABC Inc.
59. The statement of shareholders' equity is prepared:
a.
before the preparation of the income statement.
b.
after the preparation of the statement of cash flows.
c.
before the preparation of the balance sheet.
d.
after the audit of the financial statements.
60. Following is the summary of the balance sheet of AWR Company:
Chapter 2
Total Assets
Total Liabilities
Beginning of the year
$250,000
$180,000
End of the year
$500,000
$370,000
Determine the net income (or loss) for the year, assuming no common stock was issued and no dividends were paid during
the year?
a.
$70,000
b.
$200,000
c.
$60,000
d.
$130,000
61. If total assets increased by $500,000 during a period and total liabilities increased by $420,000 during the same period,
determine the net income (or loss) for the year , assuming no common stock was issued and dividends of $40,000 were
paid.
a.
$40,000
b.
$210,000
c.
$120,000
d.
$290,000
Chapter 2
62. Following are the summaries of balance sheet of LCF Company:
Total Assets
Total Liabilities
Beginning of the year
$250,000
$180,000
End of the year
$500,000
$370,000
Determine the net income (or loss) for the year, assuming $80,000 of common stock was issued and no dividends were
paid during the year?
a.
$140,000
b.
($20,000)
c.
$160,000
d.
($60,000)
63. Glocal Inc. has retained earnings of $60,000, common stock of $110,000, and liabilities of $35,000. The total assets of
the company are worth:
a.
$205,000
b.
$145,000
c.
$95,000
d.
$170,000
Chapter 2
64. Lewis Company has $25,000 in retained earnings, $40,000 in assets, and $11,000 in liabilities. How much is in
common stock?
a.
$29,000
b.
$25,000
c.
$14,000
d.
$4,000
65. A to Z Corporation paid a $10,000 cash dividend. On the Statement of Cash Flows, the transaction would be classified
as:
a.
Cash Flows from Operating Activities.
b.
Cash Flows from Investing Activities.
c.
Cash Flows from Financing Activities.
d.
Noncash transaction.
Chapter 2
66. A to Z Corporation purchased a building for $80,000 cash. On the Statement of Cash Flows, the transaction would be
classified as:
a.
Cash Flows from Operating Activities.
b.
Cash Flows from Investing Activities.
c.
Cash Flows from Financing Activities.
d.
Noncash transaction.
67. A to Z Corporation issued a $30,000 note payable to borrow cash from the bank. On the Statement of Cash Flows, the
transaction would be classified as:
a.
Cash Flows from Operating Activities.
b.
Cash Flows from Investing Activities.
Chapter 2
c.
Cash Flows from Financing Activities.
d.
Noncash transaction.
68. An increase in Stockholders' Equity from revenues earned will also result in an increase in:
a.
liabilities.
b.
assets.
c.
expenses.
d.
cash flow from financing activities.
69. For EFG Co., the transaction "payment to creditors" would:
a.
increase total assets.
Chapter 2
b.
decrease total assets.
c.
have no effect on total assets.
d.
decrease stockholders' equity.
70. For EFG Co., the transaction "cash sales to customers at a profit" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
decrease stockholders' equity.
71. For EFG Co., the transaction "payment of interest expense" would:
Chapter 2
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
increase stockholders' equity.
72. For EFG Co., the transaction "purchase of store equipment with cash" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
decrease stockholders' equity.
Chapter 2
73. For EFG Co., the transaction "payment of dividends" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
increase stockholders' equity.
74. For EFG Co., the transaction "purchase of store equipment with a note payable" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
decrease total liabilities.
Chapter 2
75. For EFG Co., the transaction "payment of quarterly taxes" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
increase stockholders' equity.
76. For EFG Co., the transaction "receipt of interest income" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
decrease total liabilities.
Chapter 2
4OTI-GO4W-NQNBEE
77. For EFG Co., the transaction "receipt of a utility bill" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
decrease total liabilities.
78. For EFG Co., the transaction "billed a customer for fees earned" would:
a.
increase total assets.
b.
decrease total assets.
c.
have no effect on total assets.
d.
increase total liabilities.
