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Indicate whether the statement is true or false.
1. Cash paid for utilities would be listed as a cash outflow in the Investing Activities section on a statement of cash flows.
a.
True
b.
False
2. Paying the principal on a line of credit would be listed as a cash inflow in the Financing Activities section on a
statement of cash flows.
a.
True
b.
False
3. Paying cash dividends is an example of a financing activity.
a.
True
b.
False
4. The issuance of bonds payable is an example of an investing activity.
a.
True
b.
False
5. If a company uses reversing entries, a reversing entry should be made for every adjusting entry that created a balance in
an asset or a liability account.
a.
True
b.
False
6. If Merchandise Inventory decreases from the beginning to the end of the fiscal period, the adjusting entry includes a
debit to Income Summary.
a.
True
b.
False
7. Retained Earnings represents previous years’ earnings that have been distributed to stockholders.
a.
True
b.
False
8. The net income of a corporation increases retained earnings.
a.
True
b.
False
9. Receiving cash from the sale of equipment is an example of an investing activity.
a.
True
b.
False
10. Receiving cash from interest income is an example of an operating activity.
a.
True
b.
False
11. The purchase of store equipment for cash would be listed as a cash outflow in the Investing Activities section on a
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statement of cash flows.
a.
True
b.
False
12. Paying cash for inventory is an example of an operating activity.
a.
True
b.
False
13. Dividends decrease the earnings retained by a corporation.
a.
True
b.
False
14. Paying cash for office equipment is an example of a financing activity.
a.
True
b.
False
15. If a company has a net income, the entry to close the Income Summary account includes a debit to Income Summary.
a.
True
b.
False
16. The statement of cash flows is prepared using the accrual basis of accounting.
a.
True
b.
False
17. If Merchandise Inventory increases from the beginning to the end of the fiscal period, the adjusting entry includes a
credit to Merchandise Inventory.
a.
True
b.
False
18. The unadjusted trial balance and other financial data are used to plan and record adjusting entries.
a.
True
b.
False
19. If a company does not use reversing entries, the last step in its accounting cycle is to prepare a post-closing trial
balance.
a.
True
b.
False
20. The adjusted trial balance is used to prepare financial statements.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
21. The reversing entry for accrued interest expense would include a debit to
a.
Income Summary.
b.
Interest Expense.
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c.
Interest Income.
d.
Interest Payable.
22. A corporation’s total stockholders’ equity is increased by
a.
net income.
b.
declaring dividends.
c.
paying dividends.
d.
receiving payment on account.
23. The reversing entry for accrued interest income would include a debit to
a.
Income Summary.
b.
Interest Expense.
c.
Interest Income.
d.
Interest Receivable.
24. The closing entry for the Loss on Plant Assets account includes a debit to
a.
Retained Earnings.
b.
Income Summary.
c.
Loss on Plant Assets.
d.
Gain on Plant Assets.
25. Paid-in Capital in Excess of Par—Common appears on the
a.
balance sheet and statement of cash flows.
b.
income statement and statement of stockholders’ equity.
c.
statement of stockholders’ equity and balance sheet.
d.
income statement and statement of cash flows.
26. An asset account that would not be included in current assets is
a.
Merchandise Inventory.
b.
Prepaid Insurance.
c.
Store Equipment.
d.
Supplies.
27. The closing entry for the Dividends account includes a credit to
a.
Retained Earnings.
b.
Dividends.
c.
Income Summary.
d.
Capital Stock—Common.
28. All of the following accounts would appear in the Other Revenue section of an income statement except
a.
Interest Income.
b.
Rent Income.
c.
Gain on Plant Assets.
d.
Sales.
29. An amount earned by a corporation and not yet distributed to stockholders is
a.
retained earnings.
b.
net income.
c.
capital stock.
d.
stockholders’ equity.
30. All of the following accounts would appear in the Other Expenses section of an income statement except
a.
Interest Expense.
b.
Utilities Expense.
c.
Loss on Plant Assets.
d.
none of these.
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