Question 1

During Year 2, Chico Company earned $1,950 of cash revenue, paid $1,600 of cash expenses, and paid a $150 cash dividend to its owners. Based on this information alone, which of the following is not correct?
A) Net income amounted to $350.
B) Total assets increased by $200.
C) Cash inflow from operating activities was $350.
D) Cash inflow from operating activities was $200.

Accepted Answer

Revenue minus expenses equal net income ($1,950 − $1,600 = $350). Total assets increased by $200 ($1,950 − $1,600 − $150). Cash from operating activities increased by $350 ($1,950 − $1,600). Cash from financing activities decreased by $150.

Question 2

At the end of Year 2, retained earnings for the Baker Company was $3,500. Revenue earned by the company in Year 2 was $1,500, expenses paid during the period were $800, and dividends paid during the period were $500. Based on this information alone, retained earnings at the beginning of Year 2 was:
A) $3,300.
B) $3,700.
C) $2,800.
D) $3,800.

Accepted Answer

Beginning Retained Earnings + Revenue − Expenses − Dividends = Ending Retained Earnings
Beginning Retained Earnings + $1,500 − $800 − $500 = $3,500
Beginning Retained Earnings = $3,300

Question 3

Which financial statement matches asset increases from operating a business with asset decreases from operating the business?
A) Balance sheet.
B) Statement of changes in equity.
C) Income statement.
D) Statement of cash flows.

Accepted Answer

The income statement matches asset increases from operations (revenues) with asset decreases from operations (expenses).

Question 4

Chow Company earned $1,500 of cash revenue, paid $1,200 for cash expenses, and paid a $200 cash dividend to its owners. Which of the following statements is true?
A) The net cash inflow from operating activities was $100.
B) The net cash outflow for investing activities was $200.
C) The net cash inflow from operating activities was $300.
D) The net cash outflow for investing activities was $100.

Accepted Answer

Cash revenue and cash expenses are operating activities. Paying dividends is a financing activity. $1,500 revenue − $1,200 expense = $300 cash inflow from operating activities.

Question 5

Jackson Company had a net increase in cash from operating activities of $10,000 and a net decrease in cash from financing activities of $2,000. If the beginning and ending cash balances for the company were $4,000 and $11,000, then net cash change from investing activities was:
A) an outflow or decrease of $1,000.
B) an inflow or increase of $2,000.
C) an inflow or increase of $1,000.
D) zero.

Accepted Answer

Beginning cash balance + Increase from operating activities − Decrease from financing activities +/− Increase or decrease from investing activities = Ending cash balance
$4,000 + $10,000 - $2,000 +/− Increase or decrease from investing activities = $11,000
$1,000 = Decrease from investing activities

Question 6

Which of the following financial statements provides information about a company as of a specific point in time?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of changes in stockholders' equity

Accepted Answer

The balance sheet provides information about a company as of a specific point in time, the other three statements provide information about a period of time such as a month, a quarter, or a year.

Question 7

Borrowing cash from the bank is an example of which type of transaction?
A) Asset source
B) Claims exchange
C) Asset use
D) Asset exchange

Accepted Answer

Borrowing cash is an asset source transaction that increases a business's assets (cash) and increases its liabilities (notes payable).

Question 8

The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500. Based on this information, the amount of expenses on Calloway's income statement was:
A) $18,500.
B) $13,000.
C) $16,500.
D) $10,000.

Accepted Answer

Beginning retained earnings + Revenue − Expenses − Dividends = Ending retained earnings
$3,500 + $22,000 − Expenses − $1,500 = $7,500
Expenses = $16,500

Question 9

Which of the following accounts are permanent?
A) Retained earnings.
B) All income statement accounts.
C) Dividends.
D) All balance sheet accounts including dividends.

Accepted Answer

Accounts that do not close at the end of the accounting period are permanent accounts. Income statement accounts and dividends are temporary accounts, as they close to retained earnings at the end of the accounting period.

Question 10

Which of the following cash transactions results in no net change in assets?
A) Borrowing cash from a bank
B) Issuing common stock for cash
C) Purchasing land for cash
D) Providing services for cash

Accepted Answer

Purchasing land for cash is an asset exchange transaction that does not affect total assets. Borrowing cash, issuing stock, and providing services for cash are all asset source transactions that increase assets.

Question 11

Which of the following items appears in the investing activities section of the statement of cash flows?
A) Cash inflow from interest revenue.
B) Cash inflow from the issuance of common stock.
C) Cash outflow for the payment of dividends.
D) Cash outflow for the purchase of land.

Accepted Answer

Purchasing land (a long-lived asset) for cash is an investing activity. Issuing common stock and paying dividends are both financing activities. Cash inflow from interest revenue is an operating activity.

Question 12

Which of the following is not an asset use transaction?
A) Paying cash dividends
B) Paying cash expenses
C) Paying off the principal of a loan
D) Paying cash to purchase land

Accepted Answer

Paying cash to purchase land is an asset exchange transaction.

Question 13

During the year, Millstone Company earned $6,500 of cash revenue, paid cash dividends of $1,000 to owners and paid $4,000 for cash expenses. Liabilities were unchanged. Which of the following accurately describes the effect of these events on the elements of the company's financial statements?
A) Assets increased by $6,500.
B) Assets increased by $1,500.
C) Equity increased by $2,500.
D) Assets increased by $5,500.

Accepted Answer

Change in equity = Revenue − Expenses − Dividends
Change in equity = $6,500 − $4,000 − $1,000 = $1,500
If there was no change in liabilities, the change in assets must also equal $1,500.

Question 14

In which section of a statement of cash flows would the payment of cash dividends be reported?
A) Investing activities.
B) Operating activities.
C) Financing activities.
D) Dividends are not reported on the statement of cash flows.

Accepted Answer

Paying cash dividends, and any cash exchanged between a company and its stockholders, is a financing activity.

Question 15

The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $50,000; Liabilities = ?; Common Stock = $15,000; Revenue = $22,000; Dividends = $1,500; Beginning Retained Earnings = $3,500; Ending Retained Earnings = $7,500. The amount of liabilities reported on the end-of-period balance sheet was:
A) $27,500.
B) $31,500.
C) $35,000.
D) $42,500.

Accepted Answer

Assets = Liabilities + Common Stock + Ending Retained Earnings
$50,000 = Liabilities + $15,000 + $7,500
Liabilities = $27,500

Question 16

Which of the following could describe the effects of an asset exchange transaction on a company's financial statements? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

An asset exchange transaction is one that increases one asset account and decreases another, resulting in no net change in assets. There are no changes to the company's liabilities and equity either. If one of the asset accounts affected is cash, there will be an effect on cash flows.

Question 17

Which of the following does not describe the effects of an asset use transaction on a company's financial statements? 
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

An asset use transaction is one that decreases a business's assets and decreases either liabilities or equity. An asset use transaction may or may not affect expenses. If the asset account decreased is cash, there will be an effect on cash flows.

Question 18

Glavine Company repaid a bank loan with cash. The cash flow from this event should be shown on the horizontal statements model as:
A) an operating activity that decreases cash, decreases equity, and decreases net income.
B) a financing activity that decreases cash and decreases liabilities.
C) a financing activity that decreases cash, decreases equity, and decreases net income.
D) an investing activity that decreases cash and decreases liabilities.

Accepted Answer

Repaying a bank loan is a cash outflow for financing activities that decreases assets and decreases liabilities.

Question 19

Retained Earnings at the beginning and ending of the accounting period was $300 and $800, respectively. If revenues were $1,100 and dividends paid to stockholders were $200, expenses for the period must have been:
A) $500.
B) $400.
C) $900.
D) $700.

Accepted Answer

Beginning retained earnings + Revenues − Expenses − Dividends = Ending retained earnings
$300 + $1,100 − Expenses − $200 = $800
Expenses = $400

Question 20

Yi Company provided services to a customer for $5,500 cash. As a result of this event:
A) total assets increased and total equity decreased.
B) total assets were unchanged and cash flows from operating activities increased.
C) liabilities decreased and net income increased.
D) total assets increased and net income increased.

Accepted Answer

Providing services to a customer for cash increases assets and equity on the balance sheet. It also increases revenue, and therefore, net income on the income statement, and increases cash from operating activities on the statement of cash flows.

Quiz 1: An Introduction to Accounting

During Year 2, Chico Company earned $1,950 of cash revenue, paid $1,600 of cash expenses, and paid a $150 cash dividend to its owners. Based on this information alone, which of the following is not correct?

At the end of Year 2, retained earnings for the Baker Company was $3,500. Revenue earned by the company in Year 2 was $1,500, expenses paid during the period were $800, and dividends paid during the period were $500. Based on this information alone, retained earnings at the beginning of Year 2 was:

Which financial statement matches asset increases from operating a business with asset decreases from operating the business?

Chow Company earned $1,500 of cash revenue, paid $1,200 for cash expenses, and paid a $200 cash dividend to its owners. Which of the following statements is true?

Jackson Company had a net increase in cash from operating activities of $10,000 and a net decrease in cash from financing activities of $2,000. If the beginning and ending cash balances for the company were $4,000 and $11,000, then net cash change from investing activities was:

Which of the following financial statements provides information about a company as of a specific point in time?

Borrowing cash from the bank is an example of which type of transaction?

Which of the following accounts are permanent?

Which of the following cash transactions results in no net change in assets?

Which of the following items appears in the investing activities section of the statement of cash flows?

Which of the following is not an asset use transaction?

During the year, Millstone Company earned $6,500 of cash revenue, paid cash dividends of $1,000 to owners and paid $4,000 for cash expenses. Liabilities were unchanged. Which of the following accurately describes the effect of these events on the elements of the company's financial statements?

In which section of a statement of cash flows would the payment of cash dividends be reported?

Which of the following could describe the effects of an asset exchange transaction on a company's financial statements?

Which of the following does not describe the effects of an asset use transaction on a company's financial statements?

Glavine Company repaid a bank loan with cash. The cash flow from this event should be shown on the horizontal statements model as:

Retained Earnings at the beginning and ending of the accounting period was $300 and $800, respectively. If revenues were $1,100 and dividends paid to stockholders were $200, expenses for the period must have been:

Yi Company provided services to a customer for $5,500 cash. As a result of this event: