Carl and Stefanie each invest $15,000 in a business and are given shares of stock in
Thibeau Industries as evidence of their ownership interests. For this transaction,
identify the effect on the accounting equation.
a. Assets increase and liabilities increase.
b. Assets increase and stockholders’ equity increases.
c. Liabilities increase and stockholders’ equity decreases.
d. Liabilities decrease and assets decrease.
Which of the following statements is true with respect to long-term liabilities?
a. They are obligations that will be satisfied within one year.
b. An account payable is a good example of a long-term liability because it is
interest-bearing.
c. Long-term liabilities include bonds, other long-term liabilities and deferred income
taxes.
d. Accrued expenses are considered to be long-term liabilities.
Which internal control procedure is followed when the work of one department acts as
a check on the work of another?
a. Segregation of duties
b. Safeguarding assets and records
c. Independent verifications
d. Proper authorizations
The cash flow from operations to capital expenditures ratio measures a company’s
ability to
a. use operations to finance its acquisitions of productive assets.
b. use cash flows from capital expenditure transactions to maintain working capital.
c. increase its capital expenditures as a result of profitable operations.
d. pay its current bills from profits made using productive assets.
International accounting standards require companies to present classified balance
sheets with liabilities classified as either current or long term.
a. True
b. False
Autumn Resorts purchased guest room furniture on January 1, 2014 for $120,000. The
furniture has an estimated useful life of ten years. What amount will appear on
Autumn’s income statement for depreciation expense for the year ending June 30, 2015?
a. $1,000
b. $6,000
c. $10,000
d. $12,000
A trial balance can be distributed to stockholders in place of the balance sheet.
a. True
b. False
From the following list, identify whether the change in the account balance during the
year would be reported as operating (O) cash flow, investing (I) cash flow, financing (F)
cash flow or not separately (N) reported on the statement of cash flows. Assume that the
indirect method is used to prepare the operating activities section. Use the following
response choices a-d.
a. operating (O) cash flow
b. investing (I) cash flow
c. financing (F) cash flow
d. not separately (N) reported on the statement of cash flows
Salaries and wages payable
Identify whether the following investor questions are associated with (a) primary or sec
ondary financial reporting objectives.
a. primary financial reporting objective
b. secondary financial reporting objective If I buy 50 shares of Apple, how much cash
will I receive in dividends each year?
Which internal control procedure is followed when management authorizes the
purchasing department to order goods and services for the company?
a. Segregation of duties
b. Safeguarding of assets and records
c. Independent verifications
d. Proper authorizations
Drew Mellow, owner of Mellow’s Melodies, also owns a personal residence that costs
$400,000. The market value of his residence is $600,000. During preparation of the
financial statements for Mellow’s Melodies, the accounting concept most relevant to the
presentation of Drew’s home is:
a. monetary unit.
b. a going concern entity.
c. the economic entity concept.
d. the time period assumption.
As part of good internal control, disbursements can be made either by check or cash.
a. True
b. False
Morton & Associates Use the following five transactions for Morton & Associates, Inc.
to answer the question(s).
See the transactions to Morton & Associates. The journal entry to record the May 23
transaction will include a credit of $430 to
a. Salaries Expense
b. Cash
c. Prepaid Expenses
d. Accounts Payable
Income taxes payable are recognized as an expense once they are paid to the respective
government or taxing authority.
a. True
b. False
A bank loaned $62 million to Apex Corporation to finance the construction of a new
distribution warehouse. In which section of Apex’s statement of cash flows would you
be able to determine whether the company repaid any portion of the debt during the
year?
a. Operating Activities
b. Investing Activities
c. Financing Activities
d. Profit Activities
What effect does ‘œrecognizing an accrued liability for utilities at the end of the
accounting period’ have on the accounting equation?
a. Assets decrease and stockholders’ equity decreases.
b. Liabilities increase and stockholders’ equity increases.
c. Assets decrease and liabilities decrease.
d. Liabilities increase and stockholders’ equity decreases.
On January 1, 2013, Petersen Corp. sold a piece of equipment for $3,000 which it had
used for several years. The equipment had cost $13,000, and its accumulated
depreciation amounted to $9,000 at the time of the sale. What are the net effects on the
accounting equation of selling the equipment?
a. Assets and Stockholders’ Equity increase $1,000.
b. Assets decrease and Stockholders’ Equity increases $3,000.
c. Assets and Stockholders’ Equity decrease $1,000.
d. Assets and Stockholders’ Equity decrease $3,000.