Question 1

Which of the following correctly describes retained earnings?

Accepted Answer

A)   It is the cumulative earnings of a company.
B)   It represents the investments by stockholders in a company.
C)  It equals total assets minus total liabilities.
D)  It is the cumulative earnings of a company less dividends declareD.Retained earnings are the cumulative earnings not distributed to the owners. That is the cumulative net income less dividends declared.E) A) and D)
F) C) and D)

Question 2

Alpha Company issued 1,000 shares of $10 par value common stock to stockholders, in exchange for $15,000 cash. Which of the following correctly describes the impact of this transaction on Alpha's financial statements?

Accepted Answer

A)   A $15,000 investment is reported as a long-term investment.
B)   Stockholders have invested $25,000 as stockholders' equity.
C)  Common stock is reported at $15,000 as a liability.
D)  Additional paid-in capital of $5,000 is reported in stockholders' equity.E) C) and D)
F) All of the above

Question 3

The T-account is an actual account in the general ledger of the accounting records.

Accepted Answer

A) True 
 B)False

Question 4

A company purchases a delivery van by paying $5,000 cash and by signing a $25,000 note payable. Which of the following correctly describes the recording of the delivery van purchase?

Accepted Answer

A)   The delivery van account is debited for $25,000.
B)   Notes payable is debited for $25,000.
C)  The delivery van account is debited for $30,000.
D)  Cash is debited for $5,000.E) B) and D)
F) C) and D)

Question 5

An account payable would be reported within which of the following financial statements?

Accepted Answer

A)   Statement of cash flows.
B)   Income statement.
C)  Balance sheet.
D)  Statement of retained earnings.E) A) and B)
F) A) and C)

Question 6

Which of the following statements about stockholders' equity is false?

Accepted Answer

A)   Stockholders' equity is the shareholders' residual interest in the company resulting from the difference in assets and liabilities.
B)   Stockholders' equity accounts are increased with credits.
C)  Stockholders' equity results only from contributions of the owners.
D)  The purchase of land for cash has no effect on stockholders' equity.E) A) and B)
F) B) and D)

Question 7

A corporation has $80,000 in total assets, $36,000 in total liabilities, and a $12,000 credit balance in retained earnings. What is the balance in the contributed capital accounts?

Accepted Answer

A)   $56,000.
B)   $44,000.
C)  $48,000.
D)  $32,000.E) B) and C)
F) A) and D)

Question 8

Which of the following statements does not properly describe the current ratio?

Accepted Answer

A)   It measures the ability of a firm to pay its debts in the short-run.
B)   It is current assets divided by current liabilities.
C)  It is a measure of a firm's short-run liquidity.
D)  It measures a firm's ability to pay its long-term debts as they mature.E) A) and B)
F) All of the above

Question 9

When a company borrows money from a bank, the statement of cash flows will report a cash increase from an investing activity.

Accepted Answer

A) True 
 B)False

Question 10

Additional-paid in capital is reported on the balance sheet as a component of shareholders' equity.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is false?

Accepted Answer

A)   The common stock account has a credit balance.
B)   The additional paid-in capital account has a credit balance.
C)  Common stock may be issued for more than par value.
D)  The par value of common stock represents the stock's market value.E) All of the above
F) C) and D)

Question 12

A journal entry is a written expression of the effects of a transaction on accounts and has equal debits and credits.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following transactions would create an increase in cash from a financing activity?

Accepted Answer

A)   Issuing shares of common stock to stockholders in exchange for cash.
B)   Selling a short-term stock investment in exchange for cash.
C)  Selling used equipment, which was a part of property, and equipment for cash.
D)  The payment of an account payable.E) A) and D)
F) C) and D)

Question 14

How is the current ratio calculated and what does it measure?

Accepted Answer

The current ratio is current assets divi...

Question 15

Which of the following would be classified as investing cash flows on a cash flow statement? 1. Acquiring a building by signing a long-term mortgage payable.
2)  Lending cash to others.
3)  Issuing stock for cash.
4)  Purchasing long-term assets for cash.
5)  Selling stock investments for cash.

Accepted Answer

A)   1, 4, 5.
B)   1, 2, 4.
C)  1, 3, 5.
D)  2, 4, 5.E) C) and D)
F) A) and B)

Question 16

Common stock and additional-paid in capital represent the financing sources from shareholders.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is correct?

Accepted Answer

A)   Assets normally have a credit balance and are increased with debits.
B)   Assets normally have a debit balance and are increased with credits.
C)  Liability accounts normally have debit balances and are increased with debits.
D)  Stockholders' equity accounts normally have credit balances and are increased with credits.E) C) and D)
F) B) and C)

Question 18

Liability and stockholders' equity accounts normally have credit balances and are decreased by debiting the accounts.

Accepted Answer

A) True 
 B)False

Question 19

Issuing stock in exchange for cash creates an increase in cash from a financing activity.

Accepted Answer

A) True 
 B)False

Question 20

The current ratio is current assets divided by current liabilities.

Accepted Answer

A) True 
 B)False

Exam 2: Investing and Financing Decisions and the Accounting System

Which of the following transactions would create an increase in cash from a financing activity?

Correct AnswerverifiedShow Answer

A journal entry is a written expression of the effects of a transaction on accounts and has equal debits and credits.

Correct AnswerverifiedShow Answer

When a company borrows money from a bank, the statement of cash flows will report a cash increase from an investing activity.

Correct AnswerverifiedShow Answer

Which of the following statements does not properly describe the current ratio?

Correct AnswerverifiedShow Answer

Which of the following would be classified as investing cash flows on a cash flow statement? 1. Acquiring a building by signing a long-term mortgage payable. 2) Lending cash to others. 3) Issuing stock for cash. 4) Purchasing long-term assets for cash. 5) Selling stock investments for cash.

Correct AnswerverifiedShow Answer

Which of the following correctly describes retained earnings?

Correct AnswerverifiedShow Answer

Liability and stockholders' equity accounts normally have credit balances and are decreased by debiting the accounts.

Correct AnswerverifiedShow Answer

The current ratio is current assets divided by current liabilities.

Correct AnswerverifiedShow Answer

A company purchases a delivery van by paying $5,000 cash and by signing a $25,000 note payable. Which of the following correctly describes the recording of the delivery van purchase?

Correct AnswerverifiedShow Answer

The T-account is an actual account in the general ledger of the accounting records.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following statements about stockholders' equity is false?

Correct AnswerverifiedShow Answer

Common stock and additional-paid in capital represent the financing sources from shareholders.

Correct AnswerverifiedShow Answer

A corporation has $80,000 in total assets, $36,000 in total liabilities, and a $12,000 credit balance in retained earnings. What is the balance in the contributed capital accounts?

Correct AnswerverifiedShow Answer

An account payable would be reported within which of the following financial statements?

Correct AnswerverifiedShow Answer

How is the current ratio calculated and what does it measure?

Correct AnswerverifiedThe current ratio is current assets divi...View AnswerShow Answer

Alpha Company issued 1,000 shares of $10 par value common stock to stockholders, in exchange for $15,000 cash. Which of the following correctly describes the impact of this transaction on Alpha's financial statements?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Additional-paid in capital is reported on the balance sheet as a component of shareholders' equity.

Correct AnswerverifiedShow Answer

Issuing stock in exchange for cash creates an increase in cash from a financing activity.

Correct AnswerverifiedShow Answer

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The current ratio is current assets divi...
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