Deck 2: Basic Accounting Systems: Cash Basis

Question 1

The integrated financial statement approach has built-in controls to ensure that all transactions are correctly analyzed, recorded, and summarized.

Answer 1

True

Question 2

A business receives $10,000 cash for a sale of merchandise and records this receipt of cash as an increase in accounts receivable by mistake.The accounting equation is still in balance.

Answer 2

True

Question 3

Equality of the accounting equation means that no errors have occurred.

Answer 3

False

Question 4

On a statement of cash flows, each cash transaction is recorded and classified as an operating, investing, or financing activity.

Question 5

It is possible for a transaction to change the makeup of assets, but to not affect assets in total.

Question 6

When a notes payable account is paid in cash, the stockholders' equity in the business increases.

Question 7

Fees earned and received in cash will increase cash flows from operating activity as well as retained earnings.

Question 8

The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements.

Question 9

Any given transaction must affect at least two different parts of the accounting equation.

Question 10

The payment of utilities expense in cash would affect the operating activities in the statement of cash flows and the income statement but not the balance sheet.

Question 11

Accounts receivable is less liquid than Furniture, so it is listed after Furniture on a balance sheet.

Question 12

Retained earnings will be increased by the amount in the dividend account.

Question 13

By keeping a running total of the effects of transactions, the accounting equation provides a framework for summarizing the effects of a series of transactions.

Question 14

When common stock is issued by a corporation for cash, both the income statement and the balance sheet are affected.

Question 15

Miscellaneous expenses are expenses that have an undetermined amount to be paid.

Question 16

Dividends are an example of an expense.

Question 17

The basic elements of a financial accounting system include a framework for preparing financial statements.

Question 18

The accounting equation can be expressed as: Assets − Liabilities = Revenues.

Question 19

When an account receivable is collected in cash, the total assets of the business increase.

Question 20

The accounting equation is expressed as follows: Assets = Liabilities + Stockholders' Equity.

Question 21

The gross increases in stockholders' equity attributable to business activities are called:

A) assets.
B) liabilities.
C) revenues.
D) net income.

Question 22

If a $15,000 purchase of equipment for cash is incorrectly recorded as an increase to equipment and as an increase to cash, at the end of the period assets will:

A) exceed liabilities and stockholders' equity by $15,000.
B) equal liabilities and stockholders' equity.
C) exceed liabilities and stockholders' equity by $30,000.
D) exceed liabilities and stockholders' equity by $40,000.

Question 23

Yuan Corporation purchased office equipment on account.What is the effect of this transaction?

A) Cash will decrease and office equipment will increase.
B) Total assets will increase and shareholders' equity will decrease.
C) Total assets and total liabilities will increase.
D) Cash flow from financing activities will decrease.

Question 24

When comparing operating performance across companies within the same industry, companies prefer common-sized income statements prepared through net income rather than those prepared through operating income.This is because other income and expenses are influenced by a variety of factors that are independent of operations and that can vary significantly across companies.

Question 25

Which of the following transactions changes the mix of only liabilities?

A) Paying off accounts payables by raising a short-term loan
B) Writing off accounts receivable as bad debt
C) Financing the purchase of land with a long-term loan
D) Paying accounts receivable with cash

Question 26

Brite Inc.had the following assets and liabilities at the end of the year: $$\begin{array} { l l } \text { Assets } & \$ 54,800 \\\text { Liabilities } & \$ 32,000\end{array}$$ What is the year-end stockholders' equity of Brite Inc.?

A) $32,000
B) $22,800
C) $86,800
D) Cannot be determined with this information

Question 27

Which of the following is considered to be a liability?

A) Prepaid expenses
B) Investments
C) Unearned revenues
D) Accrued revenues

Question 28

Which of the following is a control that is built into the integrated financial statement approach?

A) Assets + Liabilities = Stockholders' Equity
B) Cash from operating activities is equal to cash on the balance sheet.
C) Net income on the income statement must equal the net effects of revenues and expenses on retained earnings.
D) Total assets on balance sheet should equal income from investing activities on the statement of cash flows.

Question 29

The stockholders' equity will increase as a result of the:

A) issue of common stock.
B) repayment of long-term debt.
C) buyback of common stock.
D) issue of long-term debt.

Question 30

Sunlight, Inc.had the following assets and liabilities as of September 30, 2016 $$\begin{array} { l l } \text { Assets } & \$ 60,600 \\\text { Liabilities } & \$ 27,500\end{array}$$ If assets increased by $4,350 and equity increased by $2,900 during October, what is the increase or decrease in liabilities of Sunlight as of October 31, 2016?

A) ($1,450)
B) $1,450
C) $7,250
D) ($7,250)

Question 31

A _____ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded.

A) framework
B) control
C) set of rules
D) transaction

Question 32

The basic financial statements include the:

A) trial balance.
B) bank reconciliation statement.
C) balance sheet.
D) ledger account.

Question 33

Flow Inc.received cash from fees earned.How does this transaction affect the Statement of Cash Flows?

A) Increase cash from Operating Activities
B) Increase cash from Investing Activities
C) Increase cash from Financing Activities
D) No effect on the Statement of Cash Flows

Question 34

Rush Corporation borrowed $25,000 from the bank.Which of the following accurately shows the effects of the transaction?

A) Increase cash $25,000 and decrease notes payable $25,000
B) Increase cash $25,000 and increase notes payable $25,000
C) Decrease cash $25,000 and decrease notes payable $25,000
D) Decrease cash $25,000 and increase notes payable $25,000

Question 35

The statement of cash flows is integrated with the balance sheet because:

A) the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet.
B) the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet.
C) the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet.
D) the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet.

Question 36

The payment of $20,000 for expenses was incorrectly recorded by Elite Co.as an increase in cash of $20,000 and a decrease in retained earnings of $20,000.What is the effect of this error on the accounting equation?

A) Total assets will exceed total liabilities and stockholders' equity by $20,000.
B) Total assets will exceed total liabilities and stockholders' equity by $40,000.
C) Total assets will be less than total liabilities and stockholders' equity by $40,000.
D) The error will not affect the accounting equation.

Question 37

Which of the following statements is true about liabilities?

A) Liabilities include insurance premium paid in advance.
B) Liabilities arise when a company sells goods on account.
C) Liabilities equal assets plus stockholders' equity.
D) Liabilities are the debt owed by a company.

Question 38

Expenses can be defined as:

A) assets consumed.
B) services used in the process of generating revenues.
C) costs that have been incurred during the normal course of business.
D) all of these.

Question 39

Which of the following group of accounts are all assets?

A) Cash, Accounts Payable, Buildings
B) Accounts Receivable, Revenue, Cash
C) Prepaid Expenses, Buildings, Patents
D) Unearned Revenues, Prepaid Expenses, Cash

Question 40

Which of the following situations increase stockholders' equity?

A) Supplies are purchased on account.
B) Services are provided on account.
C) Cash is received from customers.
D) Utility bill will be paid next month.

Question 41

JNC Company sells its products for cash, at a profit of 20%.Which of the following financial statement elements are affected as a result of this transaction?

A) Assets
B) Assets and liabilities
C) Liabilities and stockholders' equity
D) Assets and stockholders' equity

Question 42

If assets have a balance of $80,000 and stockholders' equity has a balance of $60,000, then liabilities must have a balance of:

A) $140,000.
B) $60,000.
C) $80,000.
D) $20,000.

Question 43

​JNC Co.buys equipment for $1,500,000 cash.This transaction:

A) ​decreases JNC Co.'s liquidity and has no effect on its profitability metric.
B) ​has no effect on JNC Co.'s liquidity and profitability.
C) ​increases JNC Co.'s liquidity and profitability.
D) ​has no effect on JNC Co.'s liquidity and decreases its profitability.

Question 44

?Blue Ivy Inc.has the following transactions for the month of March: $$\begin{array} { l r } \text { Issued common stock } & \$ 60,000 \\\text { Purchased land by paying cash } & \$ 100,000 \\\text { Paid expenses } & \$ 25,000 \\\text { Earned cash fees } & \$ 75,000\end{array}$$ As a cumulative result of these transactions, the liquidity of Blue Ivy Inc.:

A) ?increases by $75,000.
B) ?increases by $10,000.
C) ?decreases by $25,000.
D) ?decreases by $50,000.

Question 45

ABC Company deposited $20,000 in a bank account in return for issuing shares in the corporation.This transaction would affect which two financial statement elements?

A) Assets and stockholders' equity
B) Assets and liabilities
C) Liabilities and stockholders' equity
D) None of these

Question 46

If liabilities have a balance of $10,000 and stockholders' equity has a balance of $60,000, then assets must have a balance of:

A) $50,000.
B) $60,000.
C) $70,000.
D) $10,000.

Question 47

Dim Co.issues common stock of $15,000.Which of the following statements regarding the effect of this transaction on the company's liquidity and profitability metric is true?​

A) ​The transaction increases the liquidity and decreases the profitability of the company.
B) ​The transaction decreases the liquidity and increases the profitability of the company.
C) ​The transaction increases the liquidity and has no effect on the profitability of the company.
D) ​The transaction has no effect on the liquidity and increases the profitability of the company.

Question 48

Johnson, Inc.paid rent expense of $3,500 for the month of October.How are the accounts affected due to this transaction?

A) Increase in cash $3,500 and increase in retained earnings $3,500
B) Increase in cash $3,500 and decrease in retained earnings $3,500
C) Decrease in cash $3,500 and decrease in retained earnings $3,500
D) Decrease in cash $3,500 and increase in retained earnings $3,500

Question 49

Which of the following transactions changes the mix of assets only?

A) Paid for supplies with cash.
B) Borrowed money from Second National Bank.
C) Received money for fees earned.
D) Received a utility bill.

Question 50

Johnson, Inc.purchased land for cash.What effect does this transaction have?

A) Increase in Cash and decrease in Land
B) Decrease in Cash and decrease in Land
C) Increase in Cash and increase in Land
D) Decrease in Cash and increase in Land

Question 51

Johnson, Inc.receives $5,000 cash for fees earned.What is the effect of this transaction?

A) Total assets remain unchanged.
B) Cash flow from Financing Activities will increase.
C) Net income will increase.
D) Retained earnings will remain unchanged.

Question 52

Stockholders' equity will be reduced by:

A) payment of dividends.
B) increase in revenues.
C) owners' investments.
D) issuance of bonds.

Question 53

Blue Lilly Co.paid $50,000 to stockholders as dividends.As a result of this transaction, _____.​

A) ​the liquidity of Blue Lilly Co.increases
B) ​the profitability of Blue Lilly Co.remains unchanged
C) ​the profitability of Blue Lilly Co.decreases
D) ​the liquidity of Blue Lilly Co.remains unchanged

Question 54

Johnson, Inc.issued $15,000 in common stock in exchange for cash.What is the effect of this transaction?

A) Total assets remain unchanged.
B) Cash flow from Financing Activities will increase.
C) Net Income will increase.
D) Total Retained Earnings will increase.

Question 55

Lazer Company paid a utility bill of $12,000 and paid rent of $20,000.As a result of these transactions, the stockholders' equity:

A) increases by $8,000.
B) decreases by $32,000.
C) increases by $20,000.
D) decreases by $12,000.

Question 56

​Jade Inc.paid rent of $25,000 for the current month.This transaction:

A) ​decreases the profitability of the company.
B) ​has no effect on the profitability of the company.
C) ​increases the liquidity of the company.
D) ​has no effect on the liquidity of the company.

Question 57

The statement of shareholders' equity is prepared:

A) before the preparation of the income statement.
B) after the preparation of the statement of cash flows.
C) before the preparation of the balance sheet.
D) after the audit of the financial statements.

Question 58

ABC Inc.borrows $50,000 from a bank to finance its operations.Which of the following statements regarding the effect of this transaction on the company's liquidity and profitability metric is true?​

A) ​The transaction decreases the liquidity and increases the profitability of ABC Inc.
B) ​The transaction increases the liquidity and decreases the profitability of ABC Inc.
C) ​The transaction has no effect on the liquidity and profitability of ABC Inc.
D) ​The transaction increases the liquidity and has no effect on the profitability of ABC Inc.
​

Question 59

WFC Company paid wages of $50,000 and received interest of $60,000.As a result of these transactions, the stockholders' equity:

A) increases by $ 60,000.
B) decreases by $110,000.
C) increases by $10,000.
D) decreases by $50,000.

Question 60

Following is the summary of the balance sheet of AWR Company: $$\begin{array} { l c c } & \text { Total Assets } & \text { Total Liabilities } \\\text { Beginning of the year } & \$ 250,000 & \$ 180,000 \\\text { End of the year } & \$ 500,000 & \$ 370,000\end{array}$$ Determine the net income (or loss) for the year, assuming no common stock was issued and no dividends were paid during the year?

A) $70,000
B) $200,000
C) $60,000
D) $130,000

Question 61

Lewis Company has $25,000 in retained earnings, $40,000 in assets, and $11,000 in liabilities.How much is in common stock?

A) $29,000
B) $25,000
C) $14,000
D) $4,000

Question 62

An increase in Stockholders' Equity from revenues earned will also result in an increase in:

A) liabilities.
B) assets.
C) expenses.
D) cash flow from financing activities.

Question 63

For EFG Co., the transaction "payment of quarterly taxes" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) increase stockholders' equity.

Question 64

For EFG Co., the transaction "receipt of a utility bill" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) decrease total liabilities.

Question 65

Following are the summaries of balance sheet of LCF Company: $$\begin{array} { l c c } & \text { Total Assets } & \text { Total Liabilities } \\\text { Beginning of the year } & \$ 250,000 & \$ 180,000 \\\text { End of the year } & \$ 500,000 & \$ 370,000\end{array}$$ Determine the net income (or loss) for the year, assuming $80,000 of common stock was issued and no dividends were paid during the year?

A) $140,000
B) ($20,000)
C) $160,000
D) ($60,000)

Question 66

Glocal Inc.has retained earnings of $60,000, common stock of $110,000, and liabilities of $35,000.The total assets of the company are worth:

A) $205,000
B) $145,000
C) $95,000
D) $170,000

Question 67

The income statement for August indicates net income of $100,000.The corporation also paid $25,000 in dividends during the same period.If the company is in operation for only one month and has no beginning balance in retained earnings, what is the ending balance in retained earnings?

A) $75,000
B) $100,000
C) $20,000
D) $125,000

Question 68

For EFG Co., the transaction "purchase of store equipment with a note payable" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) decrease total liabilities.

Question 69

For EFG Co., the transaction "payment of interest expense" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) increase stockholders' equity.

Question 70

For EFG Co., the transaction "payment of dividends" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) increase stockholders' equity.

Question 71

For EFG Co., the transaction "receipt of interest income" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) decrease total liabilities.

Question 72

If total assets increased by $500,000 during a period and total liabilities increased by $420,000 during the same period, determine the net income (or loss) for the year , assuming no common stock was issued and dividends of $40,000 were paid.​

A) $40,000
B) $210,000
C) $120,000
D) $290,000

Question 73

For EFG Co., the transaction "purchase of store equipment with cash" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) decrease stockholders' equity.

Question 74

A to Z Corporation issued a $30,000 note payable to borrow cash from the bank.On the Statement of Cash Flows, the transaction would be classified as:

A) Cash Flows from Operating Activities.
B) Cash Flows from Investing Activities.
C) Cash Flows from Financing Activities.
D) Noncash transaction.

Question 75

Anthony, Inc.buys land for $50,000 cash.The net effect on assets is:

A) $50,000 increase.
B) $0.
C) $50,000 decrease.
D) $25,000 increase.

Question 76

For EFG Co., the transaction "payment to creditors" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) decrease stockholders' equity.

Question 77

A to Z Corporation purchased a building for $80,000 cash.On the Statement of Cash Flows, the transaction would be classified as:

A) Cash Flows from Operating Activities.
B) Cash Flows from Investing Activities.
C) Cash Flows from Financing Activities.
D) Noncash transaction.

Question 78

A to Z Corporation paid a $10,000 cash dividend.On the Statement of Cash Flows, the transaction would be classified as:

A) Cash Flows from Operating Activities.
B) Cash Flows from Investing Activities.
C) Cash Flows from Financing Activities.
D) Noncash transaction.

Question 79

For EFG Co., the transaction "billed a customer for fees earned" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) increase total liabilities.

Question 80

For EFG Co., the transaction "cash sales to customers at a profit" would:

A) increase total assets.
B) decrease total assets.
C) have no effect on total assets.
D) decrease stockholders' equity.