91 Free Test Bank for Financial and Managerial Accounting The Basis for Business Decisions 17th Edition Williams

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Which of the following is correct when a corporation uses cash to pay for an expense?

•  A. Total assets will decrease.
•  B. Retained earnings will increase.
•  C. Owners' equity will increase.
•  D. Liabilities will increase.

If a transaction causes an asset account to decrease, which of the following related effects may occur?

•  A. An increase of equal amount in an owners' equity account.
•  B. An increase in a liability account.
•  C. An increase of equal amount in another asset account.
•  D. An increase in the combined total of liabilities and owners' equity.

Which of the following best defines an asset?

•  A. Something with physical form that is valued at cost in the accounting records.
•  B. An economic resource owned by a business and expected to benefit future operations.
•  C. An economic resource representing cash or the right to receive cash in the near future.
•  D. Something owned by a business that has a ready market value.

A balance sheet is designed to show:

•  A. How much a business is worth.
•  B. The profitability of the business during the current year.
•  C. The assets, liabilities, and owners' equity of a business as of a particular date.
•  D. The cost of replacing the assets and of paying off the liabilities at December 31.

Which of the following is not a generally accepted accounting principle relating to the valuation of assets?

•  A. The cost principle - in general, assets are valued at cost, rather than at estimated market values.
•  B. The objectivity principle - accountants prefer to use objective, rather than subjective, information as the basis for accounting information.
•  C. The safety principle - assets are valued at no more than the value for which they are insured.
•  D. The going-concern assumption - one reason for valuing assets such as buildings and equipment at cost rather than at their current market values is the assumption that the business will use these assets rather than sell them.

Which of the following will not cause a change in the owners' equity of a business?

•  A. Purchase of land with cash.
•  B. Withdrawal of cash by the owner.
•  C. Sale of land at a profit.
•  D. Losses from unprofitable operations.

Eton Corporation purchased land in 1998 for $190,000. In 2014, it purchased a nearly identical parcel of land for $430,000. In its 2014 balance sheet, Eton valued these two parcels of land at a combined value of $860,000. Reporting the land in this manner violated the:

•  A. Cost principle.
•  B. Principle of the business entity.
•  C. Objectivity principle.
•  D. Going-concern assumption.

On the statement of financial position, assets are normally presented in and liabilities are usually presented in:

•  A. Their order of permanence; the order in which they become due.
•  B. The order in which they become due; their order of permanence.
•  C. Order of profitability; order of liquidity.
•  D. Order of liquidity; order of profitability.

Blue Wholesale Shirt Co. sold shirts to Pink Retail Shoppe. The owner of Pink Retail said she would pay Blue at a later date, which Blue Wholesale agreed to. Blue Wholesale Shirt Co. is considered to be a:

•  A. borrower.
•  B. liability.
•  C. creditor.
•  D. debtor.

Bob Bertolucci, owner of Bob's Bazaar, also owns a personal residence that costs $575,000. The market value of his residence is $725,000. During preparation of the financial statements for Bob's Bazaar, the accounting principle most relevant to the presentation of Bob's home is:

•  A. The concept of the business entity.
•  B. The cost principle.
•  C. The going-concern assumption.
•  D. The objectivity principle.

Which of the following describes the proper form of a balance sheet?

•  A. The heading sets forth the period of time covered.
•  B. Cash is always the first asset listed, followed by permanent assets (such as land and buildings), and finally by assets such as receivables and supplies.
•  C. Liabilities are listed before owners' equity.
•  D. A subtotal for total assets plus total liabilities is shown.

Each year, the accountant for Southern Real Estate Company adjusts the recorded value of each asset to its market value. Using these market value figures on the balance sheet violates:

•  A. The accounting equation.
•  B. The stable-dollar assumption.
•  C. The business entity concept.
•  D. The cost principle.

The valuation of assets in the balance sheet is based primarily upon:

•  A. What it would cost to replace the assets.
•  B. Cost, because cost is usually factual and verifiable.
•  C. Current fair market value as established by independent appraisers.
•  D. Cost, because in the event of liquidation, the assets would be sold at an amount equal to their original cost.

If total assets equal $270,000 and total liabilities equal $202,500, the total owners' equity must equal:

•  A. $472,500.
•  B. $67,500.
•  C. $270,000.
•  D. Cannot be determined from the information given.

If total assets equal $345,000 and total owners' equity equal $120,000, then total liabilities must equal:

•  A. $465,000.
•  B. $225,000.
•  C. $120,000.
•  D. Cannot be determined from the information given.

Deerpark Corporation recently borrowed $70,000 cash from its bank. Which of the following was unaffected by this transaction?

•  A. Assets.
•  B. Liabilities.
•  C. Owners' equity.
•  D. Cash.

Which of the following transactions would cause a change in owners' equity?

•  A. Repayment of the principal on a bank loan.
•  B. Purchase of a delivery truck on credit.
•  C. Sale of land on credit for a price above cost.
•  D. Borrowing money from a bank.

The amount of owners' equity in a business is not affected by:

•  A. The percentage of total assets held in cash.
•  B. The investments made in the business by the owner.
•  C. The profitability of the business.
•  D. The amount of dividends paid to stockholders.

Which of the following transactions would cause an increase in both assets and owners' equity?

•  A. Investment of cash in the business by the owner.
•  B. Sale of land for a price less than its cost.
•  C. Borrowing money from a bank.
•  D. Sale of land for cash at a price equal to its cost.

A transaction caused an increase in both assets and owners' equity. This transaction could have been resulted from the:

•  A. Sale of services to a customer.
•  B. Sale of land for a price less than its cost.
•  C. Borrowing money from a bank.
•  D. Sale of land for cash at a price equal to its cost.