53) Which of the following statements is false?
A) Absent evidence to the contrary, a company is expected to continue operating for the
foreseeable future.
B) An item is considered relevant if it has the ability to influence a decision.
C) Information is considered to be faithfully represented when it is complete, neutral, and free
from error.
D) Accounting information should be reported in the national monetary unit with adjustment for
inflation.
54) Which of the following describes the primary objective of financial accounting?
A) To provide useful financial information only to stockholders.
B) To provide information about a business’ future business strategies.
C) To provide useful financial information about a business to help external parties make
informed decisions.
D) To provide useful financial information about a business to help internal parties make
informed decisions.
55) For accounting information to be useful, it must be which of the following?
A) It must be consistent and comparable.
B) It must be a faithful representation and relevant.
C) It must be comparable and reliable.
D) It must be relevant and consistent.
56) Which of the following would not be considered a current asset?
A) Inventory.
B) Prepaid expenses.
C) Land used in daily operations.
D) Accounts receivable.
57) Which of the following statements is true?
A) Contributed capital is a noncurrent asset.
B) Current liabilities are debts expected to be paid within the next year.
C) Current assets are resources of a company that might include cash and copyrights.
D) Patents, copyrights, and research and development expense are classified as intangible assets
on the balance sheet.
58) Which of the following does not correctly describe business transactions or events?
A) They include exchanges of assets or services by one business for assets, services, or promises
to pay from another business.
B) They include the using up of insurance paid for in advance.
C) They have an economic impact on a business entity.
D) They do not include measurable internal events such as the use of assets in operations.
59) Which of the following would not be included under the account category of expenses
within the chart of accounts?
A) Cost of goods sold.
B) Interest expense.
C) Prepaid insurance expense.
D) Income tax expense.
60) Which of the following liability accounts does not usually require a future cash payment?
A) Accounts payable.
B) Unearned revenues.
C) Taxes payable.
D) Notes payable.
61) Which of the following transactions would not be considered an external exchange?
A) The purchase of supplies on credit.
B) Cash received from the issuance of common stock.
C) Cash paid to a bank for interest on a loan.
D) Using up insurance, which had been paid for in advance.
62) Which of the following reflects the impact of a transaction where $200,000 cash was
invested by stockholders in exchange for stock?
A) Assets and retained earnings each increased $200,000.
B) Assets and revenues each increased $200,000.
C) Stockholders’ equity and revenues each increased $200,000.
D) Stockholders’ equity and assets each increased $200,000.
63) A corporation purchased factory equipment using cash. Which of the following statements
regarding this purchase is correct?
A) The cost of the factory equipment is an expense at the time of purchase.
B) The total assets will not change.
C) The total liabilities will increase.
D) The current stockholders’ equity will decrease.
64) Which of the following direct effects on the accounting equation is not possible as a result of
a single business transaction which impacts only two accounts?
A) An increase in a liability and a decrease in an asset.
B) An increase in stockholders’ equity and an increase in an asset.
C) An increase in an asset and a decrease in an asset.
D) A decrease in stockholders’ equity and a decrease in an asset.
65) Which of the following direct effects on the accounting equation is not possible as a result of
a single business transaction which impacts only two accounts?
A) An increase in an asset and a decrease in another asset.
B) An increase in an asset and an increase in stockholders’ equity.
C) A decrease in stockholders’ equity and an increase in an asset.
D) An increase in a liability and an increase in an asset.
66) A company’s January 1, 2019 balance sheet reported total assets of $150,000 and total
liabilities of $60,000. During January 2019, the company completed the following transactions:
(A) paid a note payable using $10,000 cash (no interest was paid); (B) collected a $9,000
accounts receivable; (C) paid a $5,000 accounts payable; and (D) purchased a truck for $5,000
cash and by signing a $20,000 note payable from a bank. The company’s January 31, 2019
balance sheet would report which of the following?
A)
Assets
Liabilities
Stockholders’ Equity
$150,000
$60,000
$90,000
B)
Assets
Liabilities
Stockholders’ Equity
$155,000
$65,000
$90,000
C)
Assets
Liabilities
Stockholders’ Equity
$160,000
$75,000
$85,000
D)
Assets
Liabilities
Stockholders’ Equity
$170,000
$100,000
$70,000
67) Which of the following is a result of equipment purchased with cash?
A) Total assets decrease.
B) Current assets do not change.
C) Current assets increase.
D) Stockholders’ equity does not change.
68) A company’s January 1, 2019 balance sheet reported total assets of $120,000 and total
liabilities of $40,000. During January 2019, the following transactions occurred: (A) the
company issued stock and collected cash totaling $30,000; (B) the company paid an account
payable of $6,000; (C) the company purchased supplies for $1,000 with cash; (D) the company
purchased land for $60,000, paying $10,000 with cash and signing a note payable for the
balance. What is total stockholders’ equity after the transactions above?
A) $30,000.
B) $110,000.
C) $80,000.
D) $194,000.
69) Which of the following describes the impact on the balance sheet of purchasing supplies for
cash?
A) Current assets will decrease.
B) Current assets will increase.
C) Stockholders’ equity will decrease.
D) Total assets remain the same.
70) Which of the following describes the impact on the balance sheet of paying a current liability
using cash?
A) Current assets will decrease.
B) Current liabilities will increase.
C) Stockholders’ equity will decrease.
D) Total assets will remain the same.
71) Which of the following describes the impact on the balance sheet when cash is received from
the collection of an account receivable?
A) Current assets will not change.
B) Current assets will increase.
C) Stockholders’ equity will increase.
D) Total assets will increase.
72) A corporation has $80,000 in total assets, $36,000 in total liabilities, and a $12,000 credit
balance in retained earnings. What is the balance in the contributed capital accounts?
A) $56,000.
B) $44,000.
C) $48,000.
D) $32,000.
73) The dual effects concept states that:
A) Both the income statement and balance sheet are impacted by every transaction.
B) Every transaction has an impact on assets and stockholders’ equity.
C) There are only two accounts involved in every transaction.
D) Every transaction has at least two effects on the accounting equation.
74) Which of the following is not considered to be a recordable transaction?
A) Signing a contract to have an outside cleaning service clean offices nightly.
B) Paying employees their wages.
C) Selling stock to investors.
D) Buying equipment and agreeing to pay a note payable and interest at the end of a year.
75) Which of the following transactions will cause both the left and right side of the accounting
equation to decrease?
A) Collecting cash from a customer who owed us money.
B) Paying a supplier for inventory we previously purchased on account.
C) Borrowing money from a bank.
D) Purchasing equipment using cash.
76) When a company buys equipment for $150,000 and pays for one third in cash and the other
two thirds is financed by a note payable, which of the following are the effects on the accounting
equation?
A) Total assets increase $150,000.
B) Total liabilities increase $150,000.
C) Total liabilities decrease $50,000.
D) Total assets increase $100,000.
77) Which of the following describes the impact on the balance sheet when a company uses cash
to purchase the stock of another company?
A) Total assets increase.
B) Stockholders’ equity increases.
C) Stockholders’ equity decreases.
D) Total assets remain the same.
78) Which of the following transactions will not change a company’s total stockholders’ equity?
A) Reporting of net income.
B) Issuing stock to stockholders in exchange for cash.
C) The declaration of a cash dividend.
D) The purchase of a factory building.
79) Alpha Company issued 1,000 shares of $10 par value common stock to stockholders, in
exchange for $15,000 cash. Which of the following correctly describes the impact of this
transaction on Alpha’s financial statements?
A) A $15,000 investment is reported as a long-term investment.
B) Stockholders have invested $25,000 as stockholders’ equity.
C) Common stock is reported at $15,000 in stockholders’ equity.
D) Additional paid-in capital of $5,000 is reported in stockholders’ equity.
80) Which of the following statements is incorrect?
A) Stockholders’ equity accounts normally have credit balances.
B) Liability accounts are decreased by credits.
C) Stockholders’ equity accounts are increased by credits.
D) Asset accounts are increased by debits.
81) Selling stock to investors for cash would result in which of the following?
A) A debit to additional paid-in capital and a credit to cash.
B) A credit to both cash and additional paid-in capital.
C) A debit to cash and a credit to common stock.
D) A debit to cash and a credit to the investment account.
82) Borrowing cash from a bank would result in which of the following?
A) A debit to cash and a credit to notes payable.
B) A debit to notes payable and a credit to cash.
C) A debit to both cash and notes payable.
D) A debit to cash and a credit to additional paid-in capital.
83) Which of the following journal entries is correct when common stock is sold for cash at a
price greater than par value?
A)
Cash
xxx
Retained earnings
xxx
B)
Cash
xxx
Additional paid-in capital
xxx
C)
Cash
xxx
Common Stock
xxx
D)
Cash
xxx
Common Stock
xxx
Additional paid-in capital
xxx
84) Which of the following statements is false?
A) The common stock account has a credit balance.
B) The additional paid-in capital account has a credit balance.
C) Common stock may be issued for more than par value.
D) The par value of common stock represents the stock’s market value.
85) A company purchases a delivery van by paying $5,000 cash and by signing a $25,000 note
payable. Which of the following correctly describes the recording of the delivery van purchase?
A) The delivery van account is debited for $25,000.
B) Notes payable is debited for $25,000.
C) The delivery van account is debited for $30,000.
D) Cash is debited for $5,000.
86) Cadet Company paid an accounts payable of $1,000. This transaction should be recorded on
the payment date as follows:
A)
Accounts payable
1,000
Cash
1,000
B)
Cash
1,000
Accounts payable
1,000
C)
Notes Payable
1,000
Cash
1,000
D)
Cash
1,000
Cost of goods sold
1,000
87) Centex, Inc. issued 50,000 shares of its $1 par value common stock for $20 per share. The
journal entry to record the stock issue would include which of the following?
A) A credit to cash for $1,000,000.
B) A credit to additional paid-in capital for $1,000,000.
C) A credit to additional paid-in capital for $50,000.
D) A credit to common stock for $50,000.
88) Which of the following correctly describes the recording of a dividend declaration by a
company’s board of directors?
A) A debit to retained earnings and a credit to cash.
B) A debit to additional paid-in capital and a credit to dividends payable.
C) A debit to cash and a credit to retained earnings.
D) A debit to retained earnings and a credit to dividends payable.