Student name:__________
1) Indicate whether each of the following statements about markets is true or false.
________ a) Financial resources can be provided to a business by investors.
________ b) Resource owners are the businesses that transform resources into products that
satisfy consumer desires.
________ c) Labor resources include both the physical and intellectual labor of a business's
employees.
________ d) Businesses purchase their resources from resource owners.
________ e) Consumers are the main providers of resources in any market.
2) Indicate whether each of the following statements about accounting information is true or
false.
________ a) Financial accounting is primarily intended to satisfy the information needs of
internal stakeholders.
________ b) Managerial accounting information includes financial and nonfinancial
information.
________ c) The accounting information intended to satisfy the needs of a company's
employees is managerial accounting information.
________ d) GAAP requires that companies adhere to financial accounting standards.
________ e) Managerial accounting information is usually less detailed than financial
accounting information.
3) Indicate whether each of the following statements about liabilities is true or false.
________ a) A net loss on the income statement decreases liabilities.
________ b) The acquisition of a bank loan increases both assets and liabilities.
________ c) The accounting equation requires that liabilities be equal to stockholders’ equity.
________ d) The amount of a company's liabilities is equal to the difference between its assets
and its stockholders’ equity.
________ e) Liabilities are reported on the statement of cash flows of a business.
,4) Indicate whether each of the following statements about retained earnings is true or false.
________ a) A dividend paid to stockholders decreases retained earnings.
________ b) Issuing common stock for cash increases retained earnings.
________ c) The amount of net income for a period must equal retained earnings.
________ d) The purchase of a truck decreases retained earnings.
________ e) Net income increases retained earnings.
5) Indicate whether each of the following statements about the types of transactions is true
or false.
________ a) An asset source transaction increases total assets and increases claims to assets.
________ b) The issuance of stock to owners for cash would be an example of an asset
exchange transaction.
________ c) Purchasing equipment for cash is an example of an asset use transaction.
________ d) Paying a dividend to stockholders is an example of an asset use transaction.
________ e) Making a payment on a bank loan is an example of an asset exchange transaction.
6) Indicate whether each of the following statements about financial statements is true or
false.
________ a) A cash dividend paid to stockholders is reported in the investing activities section
of the statement of cash flows.
________ b) A cash dividend paid to stockholders is reported on the statement of changes in
stockholders' equity.
________ c) A cash dividend paid to stockholders is reported on the income statement.
________ d) The balance sheet reports the ending balances of permanent accounts as of the last
day of the accounting period.
________ e) Changes in retained earnings during the accounting period are reported on the
income statement.
,7) Indicate whether each of the following statements about stockholders’ equity is true or
false.
________ a) Expenses decrease retained earnings.
________ b) Stockholders' equity and liabilities can be viewed either as sources of assets or
claims to assets of the business.
________ c) Retained earnings is increased by loans received from a bank.
________ d) Dividends paid to stockholders decrease common stock.
________ e) Generally, assets are reported at the actual price paid for them when purchased
regardless of subsequent changes in market value.
8) Jessup Company was founded in Year 1. It acquired $45,000 cash by issuing stock to
investors and an additional $15,000 cash by borrowing from creditors. During Year 1 it received
$25,000 cash revenues and paid $32,000 in cash expenses. The company then went out of
business.
Required:
a) Explain the term, "business liquidation."
b) What amount of cash should Jessup Company have had on hand immediately before going
out of business?
c) What amount of cash will Jessup's creditors receive?
d) What amount of cash will Jessup's stockholders receive?
9) Bates Company entered into the following transactions during its first year in business.
Assume that all transactions involve the receipt or payment of cash.
1) Issued common stock to investors for $25,000 cash.
2) Borrowed $18,000 from the local bank.
3) Provided services to customers for $28,000.
4) Paid expenses amounting to $21,400.
5) Purchased a plot of land costing $22,000.
6) Paid a dividend of $15,000 to its stockholders.
7) Repaid $12,000 of the loan listed in item 2.
Required:
(a) Fill in the three column headings of the accounting equation in the first row of the table
shown below.
(b) Show the effects of the above transactions on the accounting equation.
, Event number = +
1.
2.
3.
4.
5.
6.
7.
Total
10) Each of the following requirements is independent of the others.
a) Valdez Corporation has liabilities of $95,000 and stockholders’ equity of $115,000. What is
the amount of Valdez's assets?
b) Global Company has assets of $320,000 and liabilities of $95,000. What is the amount of
Global's stockholders’ equity?
c) Brown Company has assets of $90,000 and liabilities of $25,000. What is the amount of
Brown's claims?
1) Indicate whether each of the following statements about markets is true or false.
________ a) Financial resources can be provided to a business by investors.
________ b) Resource owners are the businesses that transform resources into products that
satisfy consumer desires.
________ c) Labor resources include both the physical and intellectual labor of a business's
employees.
________ d) Businesses purchase their resources from resource owners.
________ e) Consumers are the main providers of resources in any market.
2) Indicate whether each of the following statements about accounting information is true or
false.
________ a) Financial accounting is primarily intended to satisfy the information needs of
internal stakeholders.
________ b) Managerial accounting information includes financial and nonfinancial
information.
________ c) The accounting information intended to satisfy the needs of a company's
employees is managerial accounting information.
________ d) GAAP requires that companies adhere to financial accounting standards.
________ e) Managerial accounting information is usually less detailed than financial
accounting information.
3) Indicate whether each of the following statements about liabilities is true or false.
________ a) A net loss on the income statement decreases liabilities.
________ b) The acquisition of a bank loan increases both assets and liabilities.
________ c) The accounting equation requires that liabilities be equal to stockholders’ equity.
________ d) The amount of a company's liabilities is equal to the difference between its assets
and its stockholders’ equity.
________ e) Liabilities are reported on the statement of cash flows of a business.
,4) Indicate whether each of the following statements about retained earnings is true or false.
________ a) A dividend paid to stockholders decreases retained earnings.
________ b) Issuing common stock for cash increases retained earnings.
________ c) The amount of net income for a period must equal retained earnings.
________ d) The purchase of a truck decreases retained earnings.
________ e) Net income increases retained earnings.
5) Indicate whether each of the following statements about the types of transactions is true
or false.
________ a) An asset source transaction increases total assets and increases claims to assets.
________ b) The issuance of stock to owners for cash would be an example of an asset
exchange transaction.
________ c) Purchasing equipment for cash is an example of an asset use transaction.
________ d) Paying a dividend to stockholders is an example of an asset use transaction.
________ e) Making a payment on a bank loan is an example of an asset exchange transaction.
6) Indicate whether each of the following statements about financial statements is true or
false.
________ a) A cash dividend paid to stockholders is reported in the investing activities section
of the statement of cash flows.
________ b) A cash dividend paid to stockholders is reported on the statement of changes in
stockholders' equity.
________ c) A cash dividend paid to stockholders is reported on the income statement.
________ d) The balance sheet reports the ending balances of permanent accounts as of the last
day of the accounting period.
________ e) Changes in retained earnings during the accounting period are reported on the
income statement.
,7) Indicate whether each of the following statements about stockholders’ equity is true or
false.
________ a) Expenses decrease retained earnings.
________ b) Stockholders' equity and liabilities can be viewed either as sources of assets or
claims to assets of the business.
________ c) Retained earnings is increased by loans received from a bank.
________ d) Dividends paid to stockholders decrease common stock.
________ e) Generally, assets are reported at the actual price paid for them when purchased
regardless of subsequent changes in market value.
8) Jessup Company was founded in Year 1. It acquired $45,000 cash by issuing stock to
investors and an additional $15,000 cash by borrowing from creditors. During Year 1 it received
$25,000 cash revenues and paid $32,000 in cash expenses. The company then went out of
business.
Required:
a) Explain the term, "business liquidation."
b) What amount of cash should Jessup Company have had on hand immediately before going
out of business?
c) What amount of cash will Jessup's creditors receive?
d) What amount of cash will Jessup's stockholders receive?
9) Bates Company entered into the following transactions during its first year in business.
Assume that all transactions involve the receipt or payment of cash.
1) Issued common stock to investors for $25,000 cash.
2) Borrowed $18,000 from the local bank.
3) Provided services to customers for $28,000.
4) Paid expenses amounting to $21,400.
5) Purchased a plot of land costing $22,000.
6) Paid a dividend of $15,000 to its stockholders.
7) Repaid $12,000 of the loan listed in item 2.
Required:
(a) Fill in the three column headings of the accounting equation in the first row of the table
shown below.
(b) Show the effects of the above transactions on the accounting equation.
, Event number = +
1.
2.
3.
4.
5.
6.
7.
Total
10) Each of the following requirements is independent of the others.
a) Valdez Corporation has liabilities of $95,000 and stockholders’ equity of $115,000. What is
the amount of Valdez's assets?
b) Global Company has assets of $320,000 and liabilities of $95,000. What is the amount of
Global's stockholders’ equity?
c) Brown Company has assets of $90,000 and liabilities of $25,000. What is the amount of
Brown's claims?
