Question 1

Which of the following best describes the basic accounting equation?

Accepted Answer

$$Assets = Liabilities + Stockholders'\ Equity$$

Question 2

A company has total assets of $$500,000 and liabilities of 320$$,000. What is the amount of stockholders' equity?

Accepted Answer

$$180,000$$

Question 3

Which organizational form exposes its owners to personal liability for the debts of the business?

Accepted Answer

Sole proprietorship and partnership

Question 4

Which of the following is NOT considered an asset?

Accepted Answer

Accounts Payable

Question 5

A company reports the following: Revenues $$120,000, Expenses 85$$,000, and Dividends $10,000. What is the net income?

Accepted Answer

$$35,000$$

Question 6

Which financial statement reports a company’s financial position at a specific point in time?

Accepted Answer

Balance Sheet

Question 7

If a company issues common stock for $50,000 cash, how does this transaction affect the accounting equation?

Accepted Answer

Increase assets and increase stockholders' equity by $50,000

Question 8

Which of the following is true regarding dividends?

Accepted Answer

Dividends are not an expense and reduce retained earnings

Question 9

A company had retained earnings of $$10,000 at the beginning of the year. During the year, it reported net income of 7$$,000 and paid dividends of $2,000. What is the ending retained earnings?

Accepted Answer

$$15,000$$

Question 10

Which of the following best describes the purpose of the statement of cash flows?

Accepted Answer

To summarize how a business’s operating, investing, and financing activities caused its cash balance to change

Question 11

If total assets increased by $$40,000 during the year and liabilities increased by 25$$,000, what was the change in stockholders’ equity?

Accepted Answer

$$15,000$$ increase

Question 12

Which of the following is a correct formula for calculating net income?

Accepted Answer

$$Net\ Income = Revenues - Expenses$$

Question 13

A company has the following balances: Cash $$5,000, Equipment 15$$,000, Notes Payable $$8,000, and Common Stock 10$$,000. What is the amount of stockholders’ equity?

Accepted Answer

$$12,000$$

Question 14

Which of the following is a key implication for accounting when a company becomes public?

Accepted Answer

Increased accounting disclosures and greater public reporting of significant events

Question 15

Which of the following is an example of a liability?

Accepted Answer

Notes Payable

Question 16

If a company’s total revenues are $$200,000, total expenses are 150$$,000, and dividends are $20,000, what is the change in retained earnings for the period?

Accepted Answer

$$30,000$$ increase

Question 17

Which of the following best describes stockholders’ equity?

Accepted Answer

Owners’ claims to the business resources

Question 18

Which of the following is NOT a component of stockholders’ equity?

Accepted Answer

Notes Payable

Question 19

A company’s balance sheet shows assets of $$100,000 and liabilities of 60$$,000. If the company issues $10,000 of new common stock, what will be the new amount of stockholders’ equity?

Accepted Answer

$$50,000$$

Question 20

Which of the following best describes the relationship between the income statement and the statement of retained earnings?

Accepted Answer

Net income from the income statement is used in the statement of retained earnings

Business Decisions and Financial Accounting: Chapter 1 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards