Question 1

A company's retained earnings at the beginning and ending of the accounting period were $48,000 and $55,000,respectively.If the company had revenues of $61,000 and expenses of $50,000,the amount of cash dividends paid must have been
A) $2,000.
B) $9,000.
C) $3,000.
D) $4,000.

Accepted Answer

D

Question 2

A business's equity comes from
A) its creditors.
B) investments by owners.
C) amounts earned by the business.
D) both B and C

Accepted Answer

Equity represents the net assets of a business, which is the residual amount left after deducting liabilities from assets. A business's equity comes from two main sources - investments made by the owners (shareholders) and amounts earned by the business through profits or retained earnings. Therefore, both options B and C are correct. Option A is incorrect as creditors do not contribute to a business's equity, but rather provide debt financing to the business.

Question 3

Rowena Company spent cash to purchase equipment.As a result of this event,
A) total liabilities increased.
B) total assets increased.
C) net income increased.
D) total assets were unchanged.

Accepted Answer

The purchase of equipment with cash results in a decrease in cash (an asset) and an increase in equipment (another asset), leaving total assets unchanged.

Question 4

Which of the following items would be an example of revenue?
A) cash investments made by owners
B) cash received from a bank loan
C) cash received from customers for services provided
D) all of these

Accepted Answer

Revenue is the amount of money that a company earns from its business activities, specifically from the sale of goods or services. Cash received from customers for services provided is an example of revenue, whereas cash investments made by owners and cash received from a bank loan are not considered revenue.

Question 5

Retained Earnings is
A) a part of a company's assets.
B) a category or type of liability.
C) a part of stockholders' equity.
D) a result of asset use transactions.

Accepted Answer

Retained Earnings is a part of stockholders' equity, representing the portion of a company's profits that are not distributed as dividends but are instead kept by the company for reinvestment or other uses. It is not a part of a company's assets or liabilities, nor is it a result of asset use transactions.

Question 6

Generally accepted accounting principles (GAAP)are measurement rules for
A) managerial accounting.
B) financial accounting.
C) tax accounting.
D) determining the market rate of return on a company's stock.

Accepted Answer

GAAP are a set of rules and standards used in financial accounting to ensure that financial statements are consistent, accurate, and comparable. They are not used in managerial accounting or tax accounting. While financial accounting may be used in determining the market rate of return on a company's stock, GAAP are specifically focused on financial reporting rather than market analysis. Therefore, the best answer is B.

Question 7

The claims side of the accounting equation
A) lists the resources that a business owns or controls.
B) lists the sources of the business's assets.
C) must balance out to zero.
D) indicates the amount of profit that a business has earned.

Accepted Answer

The claims side of the accounting equation shows the sources of the business's assets, including liabilities (debts owed to others) and equity (the owner's investment in the business).

Question 8

The claims of a business's creditors are called
A) assets.
B) liabilities.
C) equity.
D) revenue.

Accepted Answer

The claims of a business's creditors are called liabilities, as creditors are owed a certain amount of money by the business. Assets are what the business owns, equity refers to the amount of money invested in the business by its owners, and revenue is the income earned by the business from its operations.

Question 9

Resources that a business uses to operate the business are called
A) assets.
B) equity.
C) revenues.
D) liabilities.

Accepted Answer

Assets are the resources that a business uses to operate, such as property, equipment, inventory, and cash. Equity represents the ownership in the business, revenues are income earned from the business operations, and liabilities are debts owed by the business.

Question 10

The broad categories of information reported on a business's financial statements are referred to as
A) accounts.
B) elements of the financial statements.
C) components.
D) assets.

Accepted Answer

The broad categories of information reported on a business's financial statements are referred to as elements of the financial statements. These elements include assets, liabilities, equity, revenue, and expenses.

Question 11

Ohio Company provided services to a customer for $1,700 cash.As a result of this event,
A) total assets decreased.
B) total liabilities increased.
C) retained earnings increased.
D) cash flows from financing activities increased.

Accepted Answer

The revenue earned from providing services increases the company's retained earnings, which is a component of stockholders' equity. There is no impact on total assets or liabilities, and cash flows from financing activities are not affected by this transaction.

Question 12

During 2010,Cruz Company earned $5,000 in cash revenue,incurred $3,200 in cash expenses,and paid $500 in cash dividends to its owners.Based on this information,
A) retained earnings increased by $1,300 during the year.
B) net income was $1,300 for 2010.
C) the net cash flow from operating activities was $1,300 for the year.
D) total assets increased by $1,800 during 2010.

Accepted Answer

Retained earnings can be calculated by subtracting expenses and dividends paid from revenue earned. Therefore, retained earnings increased by $1,300 ($5,000 - $3,200 - $500) during the year.

Question 13

As of December 31,2009,Bueno Company had $1,000 in liabilities,$8,000 in common stock,and $2,500 in retained earnings.The total amount of assets on that date is
A) $10,000.
B) $12,500.
C) $11,500.
D) $7,500.

Accepted Answer

The accounting equation is Assets = Liabilities + Stockholders' Equity. Therefore, we can calculate the total assets of Bueno Company as follows:

Assets = Liabilities + Common Stock + Retained Earnings
Assets = $1,000 + $8,000 + $2,500
Assets = $11,500

Therefore, the best choice is C, $11,500.

Question 14

Accounting information focused on the needs of external users is
A) financial accounting.
B) managerial accounting.
C) claims accounting.
D) not-for-profit accounting.

Accepted Answer

Financial accounting provides accounting information that is focused on the needs of external users, such as investors, creditors, and government agencies. It involves the preparation of financial statements, which are used to communicate the financial performance and position of a company to these external users. Managerial accounting, on the other hand, is focused on the needs of internal users, such as managers and employees, and is used to support decision making within the organization. Claims accounting is not a recognized term, and not-for-profit accounting is a specialized form of financial accounting that is focused on the unique accounting and reporting requirements of nonprofit organizations.

Question 15

A stockholder in a corporation would use ___ to learn about the company.
A) financial accounting information
B) managerial accounting information
C) not-for-profit accounting information
D) both A and C

Accepted Answer

Financial accounting information is used to communicate the financial position and performance of a company to external users such as stockholders, creditors, and investors. This information can be found in financial statements such as the balance sheet, income statement, and statement of cash flows. Not-for-profit accounting information is not relevant for stockholders as it pertains to organizations that do not aim to make a profit, and managerial accounting information is used for internal decision-making purposes by managers and is not typically provided to external users such as stockholders.

Question 16

The accounting equation may be written,
A) Revenues - Expenses = Net Income
B) Assets = Liabilities
C) Liabilities = Equity
D) Assets = Claims

Accepted Answer

The accounting equation states that Assets = Claims. Claims include both liabilities and equity, which represent the sources of funding for the assets owned by the entity. The equation must always balance, meaning that the total assets must always equal the total claims (liabilities plus equity).

Question 17

A creditor
A) provides financial resources to a business in exchange for an ownership interest.
B) provides labor resources to a business.
C) lends financial resources to a business.
D) is a resource user.

Accepted Answer

A creditor is someone who lends financial resources to a business. They provide monetary loans with an agreement that the borrowed amount shall be repaid with interest.

Question 18

Which of the following groups has primary responsibility for establishing generally accepted accounting principles for businesses in the United States?
A) the US Congress
B) the Securities and Exchange Commission
C) the Financial Accounting Standards Board
D) the Internal Revenue Service

Accepted Answer

The Financial Accounting Standards Board (FASB) has primary responsibility for establishing generally accepted accounting principles (GAAP) for businesses in the United States. The other options, US Congress, Securities and Exchange Commission (SEC), and Internal Revenue Service (IRS) have important roles in accounting regulation but do not have primary responsibility for establishing GAAP.

Question 19

An investor provides resources to a business in exchange for
A) physical resources.
B) priority of claims in event of liquidation.
C) an ownership interest in the business.
D) a promise that the resources will be repaid at a given date.

Accepted Answer

An investor provides resources to a business in exchange for an ownership interest in the business. This means that the investor will have a share in the profits and losses of the company and may also have voting rights in important decision-making processes. Choices A and D are incorrect as physical resources and promises of repayment do not necessarily constitute a form of investment. Choice B is partially correct as the investor may have priority of claims in the event of liquidation, but this is not the primary purpose of investing in a business.

Question 20

The balance sheet for Raymond Company shows total assets of $4,000,liabilities of $1,500,and retained earnings of $1,200.Based on this information,the amount of common stock must be
A) $1,300.
B) $5,500.
C) $4,200.
D) $1,700.

Accepted Answer

The balance sheet equation is Assets = Liabilities + Owner's Equity. In this case, Assets = $4,000, Liabilities = $1,500, and Retained Earnings = $1,200. Therefore, Owner's Equity = $4,000 - $1,500 - $1,200 = $1,300. Since the only component of Owner's Equity listed is Common Stock, the amount of Common Stock must be $1,300.

Quiz 1: An Introduction to Accounting

A company's retained earnings at the beginning and ending of the accounting period were $48,000 and $55,000,respectively.If the company had revenues of $61,000 and expenses of $50,000,the amount of cash dividends paid must have been

A business's equity comes from

Rowena Company spent cash to purchase equipment.As a result of this event,

Which of the following items would be an example of revenue?

Retained Earnings is

Generally accepted accounting principles (GAAP) are measurement rules for

The claims side of the accounting equation

The claims of a business's creditors are called

Resources that a business uses to operate the business are called

The broad categories of information reported on a business's financial statements are referred to as

Ohio Company provided services to a customer for $1,700 cash.As a result of this event,

During 2010,Cruz Company earned $5,000 in cash revenue,incurred $3,200 in cash expenses,and paid $500 in cash dividends to its owners.Based on this information,

As of December 31,2009,Bueno Company had $1,000 in liabilities,$8,000 in common stock,and $2,500 in retained earnings.The total amount of assets on that date is

Accounting information focused on the needs of external users is

A stockholder in a corporation would use ___ to learn about the company.

The accounting equation may be written,

A creditor

Which of the following groups has primary responsibility for establishing generally accepted accounting principles for businesses in the United States?

An investor provides resources to a business in exchange for

The balance sheet for Raymond Company shows total assets of $4,000,liabilities of $1,500,and retained earnings of $1,200.Based on this information,the amount of common stock must be