Question 1

Which of the following will NOT cause a change in the shareholder's equity of a business?

Accepted Answer

A)  Payment of a business debt.
B)  Payment of dividends.
C)  Sale of land at a profit.
D)  Losses from unprofitable operations.E) A) and B)
F) All of the above

Question 2

Why is the separate-entity assumption so important for statement of financial position reporting?

Accepted Answer

The separate-entity assumption is import...

Question 3

Which of the following defines shareholders' equity?

Accepted Answer

A)  Probable debts or obligations of an entity as a result of past transactions which will be paid with assets or services.
B)  Assets plus liabilities.
C)  Probable future economic benefits owned by an entity as a result of past transactions.
D)  The financing provided by the owners and the operations of a business.E) B) and C)
F) A) and C)

Question 4

Why is the continuity assumption so important for statement of financial position reporting?

Accepted Answer

Answer The continuity assumption is also...

Question 5

The objective of transaction analysis is to determine the economic effects of each transaction in terms of the accounting model.

Accepted Answer

A) True 
 B)False

Question 6

To determine the economic effect of a transaction on the entity in terms of its accounting equation,each transaction is analyzed as to the accounts (at least two)that are affected.

Accepted Answer

A) True 
 B)False

Question 7

If total liabilities decreased by $14,000 during a period of time and shareholders' equity increased by $6,000 during the same period,then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

Accepted Answer

A)  $20,000 increase.
B)  $8,000 decrease.
C)  $8,000 increase.
D)  $14,000 increase.E) A) and C)
F) All of the above

Question 8

If a company has assets of $60,000 and shareholders' equity of $30,000,then its liabilities must be $90,000.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following defines liabilities?

Accepted Answer

A)  Possible debts or obligations of an entity as a result of future transactions which will be paid with assets or services.
B)  Possible debts or obligations of an entity as a result of past transactions which will be paid with assets or services.
C)  Probable debts or obligations of an entity as a result of future transactions which will be paid with assets or services.
D)  Probable debts or obligations of an entity as a result of past transactions which will be paid with assets or services.E) All of the above
F) A) and B)

Question 10

When a new business is just starting up,which of the following must be done first?

Accepted Answer

A)  Generate positive cash flow through successful operations.
B)  Acquire the assets both long-lived and short-lived so they can operate.
C)  Acquire financing from issuance of shares and borrowing from creditors.
D)  These activities all occur simultaneously not sequentially.E) C) and D)
F) B) and D)

Question 11

The primary objective of external financial reporting is to provide useful economic information about a business to help external parties,primarily investors and creditors,make sound financial decisions.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following events will cause retained earnings to decrease?

Accepted Answer

A)  Dividends declared by the Board of Directors.
B)  A profitreported for the period.
C)  Aloss reported for the period.
D)  Both dividends declared by the Board and loss reported for the period decrease retained earnings.E) A) and D)
F) All of the above

Question 13

Which of the following would be an example of a financing transaction?

Accepted Answer

A)  Purchasing equipment for cash.
B)  Buying inventory from a supplier on credit.
C)  Selling shares to investors for cash.
D)  Buying inventory from a supplier for cash.E) A) and D)
F) A) and C)

Question 14

The collection of a trade receivable from a customer would do which of the following?

Accepted Answer

A)  Increase liabilities.
B)  Decrease liabilities.
C)  Not affect liabilities.
D)  Decrease shareholders' equity.E) None of the above
F) A) and D)

Question 15

Which of the following is least likely to have a liability called Deferred Revenue?

Accepted Answer

A)  an insurance company
B)  a retailer
C)  a magazine subscription company
D)  a university or college.E) C) and D)
F) All of the above

Question 16

The payment of a liability in cash will decrease shareholders'' equity.

Accepted Answer

A) True 
 B)False

Question 17

If you trade your computer plus cash for a new car,the cost of the new car is equal to the cash paid plus the market value of the computer.

Accepted Answer

A) True 
 B)False

Question 18

The usefulness of the debt-to-equity ratio is that it allows interested parties to assess all of the following except?

Accepted Answer

A)  How the company finances its assets.
B)  The relative risk assumed by the company caused by the use of debt financing.
C)  Whether the company should expand its use of debt to finance assets.
D)  How many shares the company has issued in the past year.E) B) and D)
F) B) and C)

Question 19

Recording the borrowing of cash with a note payable increases shareholders' equity.

Accepted Answer

A) True 
 B)False

Question 20

A T-account is an accounting method of expressing the effects of a single transaction in a debits-equal-credits format.

Accepted Answer

A) True 
 B)False

Exam 2: Investing and Financing Decisions and the Accounting System

A T-account is an accounting method of expressing the effects of a single transaction in a debits-equal-credits format.

Correct AnswerverifiedShow Answer

Which of the following defines shareholders' equity?

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If you trade your computer plus cash for a new car,the cost of the new car is equal to the cash paid plus the market value of the computer.

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Which of the following defines liabilities?

Correct AnswerverifiedShow Answer

If total liabilities decreased by $14,000 during a period of time and shareholders' equity increased by $6,000 during the same period,then the amount and direction (increase or decrease) of the period's change in total assets is a(n)

Correct AnswerverifiedShow Answer

When a new business is just starting up,which of the following must be done first?

Correct AnswerverifiedShow Answer

The primary objective of external financial reporting is to provide useful economic information about a business to help external parties,primarily investors and creditors,make sound financial decisions.

Correct AnswerverifiedShow Answer

Why is the continuity assumption so important for statement of financial position reporting?

Correct AnswerverifiedAnswer The continuity assumption is also...View AnswerShow Answer

Recording the borrowing of cash with a note payable increases shareholders' equity.

Correct AnswerverifiedShow Answer

The payment of a liability in cash will decrease shareholders'' equity.

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Why is the separate-entity assumption so important for statement of financial position reporting?

Correct AnswerverifiedThe separate-entity assumption is import...View AnswerShow Answer

To determine the economic effect of a transaction on the entity in terms of its accounting equation,each transaction is analyzed as to the accounts (at least two)that are affected.

Correct AnswerverifiedShow Answer

The objective of transaction analysis is to determine the economic effects of each transaction in terms of the accounting model.

Correct AnswerverifiedShow Answer

The collection of a trade receivable from a customer would do which of the following?

Correct AnswerverifiedShow Answer

If a company has assets of $60,000 and shareholders' equity of $30,000,then its liabilities must be $90,000.

Correct AnswerverifiedShow Answer

The usefulness of the debt-to-equity ratio is that it allows interested parties to assess all of the following except?

Correct AnswerverifiedShow Answer

Which of the following is least likely to have a liability called Deferred Revenue?

Correct AnswerverifiedShow Answer

Which of the following events will cause retained earnings to decrease?

Correct AnswerverifiedShow Answer

Which of the following would be an example of a financing transaction?

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Which of the following will NOT cause a change in the shareholder's equity of a business?

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Answer The continuity assumption is also...
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The separate-entity assumption is import...
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