Question 1

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

Accepted Answer

Gross increases in stockholders' equity attributable to business activities are referred to as revenues. This represents the amount of money earned by the business from its operations. Assets are resources owned by a company, while liabilities are obligations to pay debts or other financial obligations. Net income is the difference between a company's revenues and expenses.

Question 2

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:

Accepted Answer

If the $15,000 purchase of equipment for cash is incorrectly recorded as an increase to both equipment and cash, then assets will be overstated by $15,000 and liabilities and stockholders' equity will not be affected. Therefore, the assets will exceed liabilities and stockholders' equity by $15,000, which when added to the initial overstatement of $15,000, will result in an overall overstatement of assets by $30,000.

Question 3

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

Accepted Answer

When Yuan Corporation purchases office equipment on account, it means the company is acquiring the equipment without paying cash immediately but rather promising to pay in the future. This increases the company's assets (office equipment) and also increases its liabilities (accounts payable or a similar obligation), with no immediate effect on cash or shareholders' equity.

Question 4

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.

Accepted Answer

Common-sized income statements are typically prepared through operating income rather than net income because operating income provides a clearer view of the core operations of a company, excluding the effects of financing and other non-operational items that can vary significantly across companies.

Question 5

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

Accepted Answer

Paying off accounts payables by raising a short-term loan changes the mix of only liabilities because it decreases accounts payable (a current liability) and increases the short-term loan (another current liability). The other transactions involve changes to both assets and liabilities.

Question 6

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.?

Accepted Answer

Stockholders' equity is calculated as Assets minus Liabilities, which is $54,800 - $32,000 = $22,800.

Question 7

Which of the following is considered to be a liability?

Accepted Answer

Unearned revenues are considered to be liabilities because they represent cash received by a company for goods or services that have not yet been provided. The company has an obligation to fulfill these services or provide these goods, and until they do, the cash received is considered a liability. Prepaid expenses are assets, investments could be either assets or liabilities depending on the nature of the investment, and accrued revenues are revenues that have been earned but not yet received, and therefore are not considered liabilities.

Question 8

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

Accepted Answer

The control built into the integrated financial statement approach is that the net income on the income statement must equal the net effects of revenues and expenses on retained earnings. This ensures that there are no errors or omissions in the calculation of net income, and that all revenues and expenses have been properly accounted for in determining the company's retained earnings. Choices A, B, and D are not controls but rather basic principles of accounting that are used in creating financial statements.

Question 9

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

Accepted Answer

The issue of common stock increases the company's total stockholders' equity, as it represents the amount of money invested by shareholders in exchange for ownership in the company.

Question 10

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?

Accepted Answer

The answer of Sunlight, Inc.had the following assets and liabilities...

Question 11

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

Accepted Answer

A transaction is a specific economic event that has occurred and must be recorded according to generally accepted accounting principles. The other options (framework, control, set of rules) are more general concepts and do not specifically refer to a recorded economic event.

Question 12

The basic financial statements include the:

Accepted Answer

The basic financial statements include the balance sheet, income statement, and statement of cash flows. The trial balance and ledger accounts are not considered financial statements, and the bank reconciliation statement is not a required basic financial statement.

Question 13

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

Accepted Answer

Cash received from fees earned is an operating cash inflow and would increase cash from operating activities on the Statement of Cash Flows. Therefore, the correct choice is A.

Question 14

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

Accepted Answer

When Rush Corporation borrows $25,000 from the bank, it receives cash, increasing its cash account. Simultaneously, it incurs a liability (notes payable) for the same amount, increasing its notes payable account.

Question 15

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

Accepted Answer

The statement of cash flows shows the sources and uses of cash during a particular period, and it is integrated with the balance sheet because 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. This means that the statement of cash flows provides the explanation of the changes in the cash balance reported on the balance sheet between two periods. Choice B is incorrect because net income is not the same as cash flows, and it does not take into account the investing and financing activities. Choice C is incorrect because assets and liabilities are not directly related to cash flows. Choice D is incorrect because it does not take into account the investing and financing activities.

Question 16

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?

Accepted Answer

The error incorrectly increased cash (an asset) by $20,000 instead of decreasing it, and it decreased retained earnings (part of stockholders' equity) by $20,000, which should not have been affected this way for an expense payment. This double error inflates total assets by $20,000 and decreases stockholders' equity by $20,000, leading to a $40,000 discrepancy where total assets exceed total liabilities and stockholders' equity by $40,000.

Question 17

Which of the following statements is true about liabilities?

Accepted Answer

Liabilities are the debt owed by a company. Option A is incorrect as insurance premium paid in advance is considered as a prepaid expense. Option B is incorrect as it talks about accounts receivable which is an asset, not a liability. Option C is incorrect as liabilities plus stockholders' equity equals assets, not the other way around.

Question 18

Expenses can be defined as:

Accepted Answer

Expenses can be defined as assets consumed, services used in the process of generating revenues, and costs that have been incurred during the normal course of business. Therefore, option D is the best choice.

Question 19

Which of the following group of accounts are all assets?

Accepted Answer

Prepaid Expenses, Buildings, and Patents are all assets. Prepaid Expenses represent payments made in advance for goods or services to be received in the future, Buildings are long-term physical assets, and Patents are intangible assets representing exclusive rights to inventions.

Question 20

Which of the following situations increase stockholders' equity?

Accepted Answer

Services provided on account increase stockholders' equity because it represents revenue earned but not yet collected.

Quiz 2: Basic Accounting Systems: Cash Basis