42. Resources that a firm owns are called
a. revenue.
b. liabilities.
c. owners’ equity.
d. assets.
e. expenses.
43. Debts owed by a business are called
a. assets.
b. expenses.
c. liabilities.
d. equities.
e. revenues.
44. In order for The Gift Market, a local specialty store, to purchase Christmas merchandise for selling in its store, it
had to borrow money from a local bank. This debt owed to the bank is a(n)
a. liability.
b. expense.
c. owners‘ equity.
d. asset.
e. credit.
45. If total liabilities were subtracted from total assets, the residual value would be
a. revenues.
b. owners’ equity.
c. net income.
d. working capital.
e. expenses.
46. If the assets of Martin‘s Pet Store are $107,000 and the owners‘ equity is $75,000, which of the following is a
correct statement?
a. The owners’ investment equals $182,000.
b. The current assets are worth $32,000.
c. The new income for the period is $32,000.
d. The long–term liabilities are $75,000.
e. The liabilities are $32,000.
47. According to the accountant for Michael‘s Floral Supply, the firm’s assets are $124,000 and its liabilities are
$31,000. Which of the following statements is correct?
a. The owners‘ equity is $155,000.
b. The owners’ equity is $93,000.
c. The firm’s current assets are $62,000.
d. The firm’s current liabilities are $24,000.
e. The firm’s accounting equation won’t balance.
48. The resources owned by David’s Spa and Salon total $148,000. The total amount of debt that it owes to others is
$87,000. Which of the following is correct?
a. David’s owners’ equity is $87,000.
b. The owners’ equity in David‘s is $61,000.
c. David’s liabilities are $148,000.
d. The firm’s liabilities are $61,000.
e. The firm has more owners’ equity than liabilities.
49. Chase invests $5,000 of his own money in his new auto detailing business. He then obtains a loan and builds a small
workshop in his backyard for $10,000. At this point assets are
____.
a. $10,000; $5,000; $15,000
b. $15,000; $10,000; $5,000
c. $5,000; $0; $5,000
d. $15,000; $10,000; $0
e. $10,000; $5,000; $5,000
, liabilities are , and owners’ equity is
50. All of the following are acceptable ways of stating the accounting equation except
a. owners’ equity = assets − liabilities.
b. assets = liabilities + owners’ equity.
c. owners‘ equity − liabilities = assets.
d. assets − liabilities = owners‘ equity.
e. assets = shareholders’ equity + liabilities.
51. The Cheese Shoppe’s liabilities total $59,000 and its owners’ equity is $124,000. Which of the following is true?
a. The total assets equal $65,000.
b. The firm’s assets are $124,000.
c. The current liabilities are less than the current assets.
d. The total assets equal $183,000.
e. The firm’s sales are $183,000.
52. If the liabilities of a business are $85,000 and the owners‘ equity is $110,000, which of the following is a correct
statement?
a. Assets equal $25,000.
b. Assets equal $195,000.
c. Assets equal $110,000.
d. Assets equal $85,000.
e. It is impossible to determine the value of the assets.
53. If a company has $50,000 of assets, which of the following could be true?
a. It has −$50,000 in stockholders‘ equity and $100,000 in liabilities.
b. The company has fewer assets than it does liabilities.
c. It has $30,000 in liabilities and $80,000 in owners’ equity.
d. The company has more owners’ equity than assets.
e. It has $23,000 in owners‘ equity and $27,000 in liabilities.
54. Another name for the statement of financial position is the
a. income statement.
b. statement of owners’ equity.
c. earnings statement.
d. statement of changes.
e. balance sheet.
55. What is the correct order for the balance sheet?
a. Assets, owners’ equity, liabilities
b. Owners‘ equity, financial position, assets
c. Liabilities, owners‘ equity, assets
d. Assets, liabilities, owners’ equity
e. Owners‘ equity, assets, liabilities
56. Assets = liabilities + owners‘ equity is the equation for information reported on the
a. checking balance.
b. balance sheet.
c. income statement.
d. earnings statement.
e. statement of owners’ equity.
57. The balance sheet is composed of
a. owners’ equity, assets, and liabilities.
b. expenses, revenue, and net income.
c. revenue, expenses, and owners‘ equity.
d. assets, expenses, and net income.
e. assets, liabilities, and revenues.
58. Jack Stanley graduated from college and obtained a full-time job in accounting. At the end of his first year of
employment, his assets totaled $9,000. His liabilities totaled $3,000. His was $6,000.
a. asset total
b. profit
c. net worth
d. cost of living
e. allocated total
59. The ease with which an asset can be converted into cash is referred to as its
a. liquidity.
b. profitability.
c. solvency.
d. convertibility.
e. capitalization capacity.
60. The term describes assets that can be quickly converted into cash or consumed in one year or less.
a. expenses
b. overhead costs
c. current assets
d. acid-test assets
e. fixed assets
61. The most liquid asset is
a. sales.
b. accounts receivable.
c. marketable securities.
d. cash.
e. capital.
62. Cash, marketable securities, notes receivable, and merchandise inventory are examples of
a. current assets.
b. expenses.
c. acid-test assets.
d. fixed assets.
e. overhead costs.
63. Which of the following presents assets in the correct balance sheet order?
a. Cash, land, accounts receivable, equipment
b. Marketable securities, equipment, prepaid insurance, inventory
c. Cash, inventory, equipment
d. Accounts receivable, buildings, inventory, land
e. Buildings, prepaid expenses, inventory, equipment
64. Dr. Ted Walker runs a chiropractic clinic. He typically bills his customers for services he performs and gives them
about 30 days to make the payments. These amounts of money that his customers owe are called
a. allowances for doubtful accounts.
b. prepaid expenses.
c. unearned revenue.
d. intangible assets.
e. accounts receivable.
65. All of the following are current assets except
a. office equipment.
b. cash.
c. prepaid insurance.
d. accounts receivable.
e. marketable securities.
66. Kim‘s Copy Shop is in the process of organizing its assets in the appropriate order. They ask you for help in
arranging the following assets: equipment, accounts receivable, cash, merchandise inventory, and notes receivable.
You list first and last.
a. merchandise inventory; notes receivable
b. accounts receivable; equipment
c. notes receivable; accounts receivable
d. equipment; accounts receivable
e. cash; equipment
67. The value of goods on hand for sale to customers is called
a. sales.
b. merchandise inventory.
c. cost of goods sold.
d. prepaid expenses.
e. operating expenses.
68. Television sets that Best Buy owns for selling to its customers are classified as
a. equipment.
b. machinery.
c. receivables.
d. merchandise inventory.
e. prepaid merchandise.
69. For John Deere, a tractor and farm equipment manufacturer, spark plugs to be installed in its equipment would be
classified on the balance sheet as
a. prepaid expenses.
b. supplies.
c. equipment.
d. depreciation.
e. inventory.
70. A prepaid expense would be classified as
a. an expense.
b. an unearned revenue.
c. a liability.
d. an asset.
e. cost of goods sold.
71. Since furniture and store equipment for Rosalind’s Boutique will be held or used for a period longer than one year,
they are considered
a. fixed assets.
b. owners’ equity.
c. revenue.
d. current assets.
e. prepaid expenses.
72. All of the following are classified as fixed assets except
a. factory equipment.
b. a company car.
c. computers held for resale.
d. property.
e. buildings.
73. The process of spreading the cost of a fixed asset over the asset’s useful life is called
a. expensing.
b. depreciation.
c. apportioning.
d. crediting.
e. distributing.
74. Trademarks and goodwill are both
a. current assets.
b. liabilities.
c. sources of revenue.
d. intangible assets.
e. fixed assets.
75. The debts of a business that will be paid in one year or less are called its
a. current liabilities.
b. expenses.
c. prepaid expenses.
d. current assets.
e. long–term liabilities.
76. Extreme Sports, a bicycle, ATV, and motorbike retailer, buys its inventory on credit. Before Extreme pays for this
merchandise in 60 days, the money owed is classified on its balance sheet as a(n)
a. current asset.
b. intangible asset. c.
account payable. d.
long–term liability.
e. account receivable.
77. Salaries payable, accounts payable, and taxes payable are examples of
a. expenses.
b. current liabilities.
c. current assets.
d. long–term liabilities.
e. owners‘ equity.
78. Jessica has worked for one week but her employer only pays its employees every two weeks. The amount of
money her company owes her is classified as
a. accounts notable.
b. accounts receivable.
c. notes payable.
d. prepaid wages.
e. salaries payable.
79. Debts that are to be repaid in two years are referred to as
a. expenses.
b. current assets.
c. long–term liabilities.
d. fixed assets.
e. current liabilities.
80. The mortgage on Prudential Insurance’s local facility will be paid off over the next 30 years. The majority of this
mortgage would be classified on Prudential’s balance sheet as a(n)
a. current asset.
b. current liability.
c. long-term asset.
d. long–term liability.
e. account payable.
81. The value of a firm’s stock plus any retained earnings that have accumulated to date is referred to as
a. current assets.
b. long–term liabilities.
c. fixed assets.
d. owners’ equity.
e. revenue.