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Exam 1: Introducing Financial Statements

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Question 111

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If a company purchases equipment costing $4,500 on credit,the effect on the accounting equation would be:

A) Assets increase $4,500 and liabilities decrease $4,500.
B) Equity decreases $4,500 and liabilities increase $4,500.
C) Liabilities decrease $4,500 and assets increase $4,500.
D) Assets increase $4,500 and liabilities increase $4,500.
E) Equity increases $4,500 and liabilities decrease $4,500.

F) C) and E)
G) A) and E)

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Question 112

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Equity increases as a result of stockholder investments and business revenues.

A) True
B) False

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Question 113

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The cost-benefit constraint prescribes that only information with benefits of disclosure greater than the costs of providing it need be disclosed.

Return on assets reflects a company's ability to generate profit through productive use of its assets.

All of the following are classified as assets except:

Investing activities are the means an organization uses to pay for resources like land,buildings,and equipment to carry out its plans.

Accounting is an information and measurement system that identifies,records,and communicates information about an organization's business activities.

Which of the following accounts is not included in the calculation of net income?

Prepare a December 31 balance sheet in proper form for Cane Property Management using the following accounts and amounts:

A stockholder's investment increases equity via net income.

Risk is the ________ about the return an investor expects to earn.

A company borrows $125,000 from the Northern Bank and receives the loan proceeds in cash.This represents a(n) :

Which of the following purposes would financial statements serve for external users?

Financial accounting serves external users by providing them with general-purpose financial statements.

Stockholder investments are increases in equity from a company's earnings activities.

Regulators have legal authority over certain activities of organizations.

Equity decreases as a result of revenues and expenses.

Financing activities provide the means organizations use to pay for resources such as land,buildings,and equipment.

The ________ assumption assumes that a business will continue operating indefinitely instead of being closed or sold.

In the partnership form of business,the owners are called stockholders.