37) The payment of cash dividends would have which of the following effects on the accounting
equation?
A) Increase Liabilities
B) Decrease Stockholders’ Equity
C) Increase Assets
D) Increase Stockholders’ Equity
38) Payment of expenses would have which of the following effects on the accounting equation?
A) Increase Liabilities
B) Decrease Stockholders’ Equity
C) Increase Assets
D) Increase Stockholders’ Equity
39) Amounts owed to a company by its customers are classified as:
A) payables.
B) dividends.
C) cash.
D) receivables.
40) Crispy’s is famous for their cupcakes. Crispy’sTotal Assets were $345,000, and Total
Liabilities were $129,500. How much was Crispy’s Stockholders’ Equity?
A) $474,500
B) $345,000
C) $215,500
D) Some other number
41) Tumbler, Inc. purchased office supplies on account for $40,000. How would this transaction
affect Tumbler’s accounting equation?
A) Increase Assets and Stockholders’ Equity by $40,000
B) Increase Liabilities and Stockholders’ Equity by $40,000
C) Increase Assets by $40,000 and decrease Liabilities by $40,000
D) Increase Assets by $40,000 and increase Liabilities by $40,000
42) How would the purchase of a computer on account affect the accounting equation?
A) Assets increase; Liabilities decrease.
B) Assets increase; Stockholder Equity increases.
C) Assets increase; Liabilities increase.
D) Assets decrease; Liabilities increase.
43) Beginning Retained Earnings are $65,000; sales are $29,500; expenses are $33,000 and
dividends paid are $3,500. How much is the net income or loss for the company?
A) $26,000
B) ($3,500)
C) ($7,000)
D) $0
44) Beginning Retained Earnings are $31,000; sales are $46,800; expenses are $43,500 and
dividends paid are $2,800. How much is the net income or loss for the company?
A) $3,300
B) $500
C) $34,300
D) ($3,300)
45) Beginning Retained Earnings are $65,000; sales are $29,500; expenses are $33,000; and
dividends paid are $3,500. How much is the amount in ending Retained Earnings?
A) $58,000
B) $61,500
C) $68,500
D) $65,000
46) Beginning Retained Earnings are $31,000; sales are $46,800; expenses are $43,500; and
dividends paid are $2,800. How much is the amount in ending Retained Earnings?
A) $34,400
B) $28,200
C) $34,300
D) $31,500
47) Which of the following is a FALSE statement?
A) Revenues provide inward flows of assets.
B) Revenue is categorized as an asset.
C) Revenue is categorized as part of Retained Earnings.
D) Revenues are generated from the sale of goods and services.
48) Which of the following is a TRUE statement?
A) Purchasing office equipment for cash is a shift of Assets.
B) Buying something on account decreases total Liabilities.
C) Retained Earnings do not include payments of dividends.
D) Paying off an account increases the total of Assets.
49) Dividends are part of:
A) sales.
B) expenses.
C) Retained Earnings.
D) Assets.
50) Payables are categorized as:
A) Liabilities.
B) Assets.
C) Retained Earnings.
D) Common Stock.
51) J & J Metalworks buys a new machine for its shop on credit. The effect on the accounting
equation is to:
A) increase Liabilities and increase Assets.
B) decrease Liabilities and increase Assets.
C) increase Assets and increase Stockholders’ Equity.
D) increase Liabilities and decrease Stockholders’ Equity.
52) Paloma’s Plumbing buys a new van for the business using cash. The accounts affected are:
A) Increase cash and increase Equipment.
B) Decrease cash and increase Equipment.
C) Increase Equipment and increase Stockholders’ Equity.
D) Decrease cash and decrease Stockholders’ Equity.
1.6 Questions
1) Financial statements are historical reports of what has taken place financially in a business.
2) The Income Statement details how cash changed over an accounting period or cycle.
3) The Balance Sheet is dated as of a period of time.
4) The Statement of Retained Earnings is prepared to determine the final amount of Retained
Earnings shown on the Balance Sheet.
5) The Income Statement is the first financial statement prepared.
6) Financial statements are prepared primarily for internal company use.
7) The Statement of Cash Flows is used to report sources and uses of cash for a specific date.
8) The Statement of Cash Flows is used to report sources and uses of cash for a given period of
time.
9) Which of the following is TRUE regarding revenue and profit?
A) The terms revenue and profit mean the same thing.
B) Both revenue and profit are found on the Income Statement.
C) Profit equals liabilities plus Stockholders’ Equity.
D) Revenue is found on the Balance Sheet and profit is found on the Income Statement.
10) The first financial statement that is prepared is the:
A) Statement of Cash Flows.
B) Income Statement.
C) Statement of Retained Earnings.
D) Balance Sheet.
11) The net income figure is needed to prepare:
A) a Balance Sheet.
B) a Statement of Retained Earnings.
C) a Statement of Liabilities.
D) some other report.
12) A Statement of Cash Flows is usually prepared:
A) first.
B) second.
C) third.
D) last.
13) Net income or loss is originally shown on the:
A) Statement of Cash Flows.
B) Balance Sheet.
C) Statement of Retained Earnings.
D) Income Statement.
14) Which of the following financial statements illustrates the accounting equation?
A) Statement of Retained Earnings
B) Income Statement
C) Balance Sheet
D) Statement of Cash Flows
15) Beginning Retained Earnings for the period would be shown on the:
A) Statement of Retained Earnings.
B) Income Statement.
C) Balance Sheets.
D) Statement of Cash Flows.
16) Of the financial statements, which is dated as of a specific date?
A) Statement of Cash Flows
B) Income Statement
C) Balance Sheet
D) Statement of Retained Earnings
17) Which of the financial statements includes a listing of assets owned by the company?
A) Statement of Cash Flows
B) Income Statement
C) Balance Sheet
D) Statement of Retained Earnings
18) The correct order for the preparation of financial statements is:
1. Statement of Cash Flows
2. Income Statement
3. Balance Sheet
4. Statement of Retained Earnings
A) 4, 3, 2, 1.
B) 1, 2, 3, 4.
C) 2, 3, 4, 1.
D) 2, 4, 3, 1.
19) Dividends are shown on the:
A) Income Statement.
B) Statement of Retained Earnings.
C) Balance Sheet.
D) Statement of Cash Flows.
20) The Balance Sheet is used to report:
A) results of operations for a specific date.
B) the financial position on a specific date.
C) results of operations for a specific period.
D) the financial position for a specific period.
21) The Income Statement is used to report:
A) results of operations for a specific date.
B) the financial position on a specific date.
C) results of operations for a specific period.
D) the financial position for a specific period.
22) Which of the following would be reported in the Investing Activities section of the Statement
of Cash Flows?
A) Sale of common stock
B) Purchase of equipment
C) Payment of dividends
D) Both A and C would be in this section.