ACCT 2000 LOWE-ARDOIN EXAM 1 – QUESTIONS 1-
200 (2027)
1. The accounting equation is defined as:
A) Assets = Liabilities + Stockholders' Equity
B) Assets = Liabilities − Stockholders' Equity
C) Assets + Liabilities = Stockholders' Equity
D) Assets = Revenues − Expenses
*A) Assets = Liabilities + Stockholders' Equity *
Rationale: The fundamental accounting equation is Assets = Liabilities + Stockholders'
Equity. This equation must always remain in balance, serving as the foundation for the
double-entry accounting system .
2. Which of the following is an example of an investing activity?
A) Borrowing money from a bank
B) Purchasing equipment
C) Issuing shares of stock
D) Paying dividends to stockholders
*B) Purchasing equipment *
Rationale: Purchasing equipment is an investing activity because it involves acquiring
long-term assets needed to operate the business .
3. Which of the following is an example of a financing activity?
A) Selling products to customers
B) Purchasing inventory
C) Issuing shares of common stock
D) Paying salaries to employees
*C) Issuing shares of common stock *
,Rationale: Issuing shares of common stock is a financing activity because it involves
raising capital from investors .
4. A company has liabilities of $50,000 and stockholders' equity of $75,000. What
are the total assets?
A) $25,000
B) $50,000
C) $75,000
D) $125,000
*D) $125,000 *
Rationale: Assets = Liabilities + Stockholders' Equity = $50,000 + $75,000 = $125,000 .
5. A company has assets of $200,000 and liabilities of $80,000. What is the
stockholders' equity?
A) $80,000
B) $120,000
C) $200,000
D) $280,000
*B) $120,000 *
Rationale: Stockholders' Equity = Assets − Liabilities = $200,000 − $80,000 = $120,000 .
6. If total assets increase by $10,000 and total liabilities increase by $4,000, then
stockholders' equity must:
A) Increase by $14,000
B) Increase by $6,000
C) Decrease by $6,000
D) Decrease by $14,000
*B) Increase by $6,000 *
,Rationale: Change in Equity = Change in Assets − Change in Liabilities = $10,000 −
$4,000 = $6,000 increase .
7. The purchase of office equipment for cash would:
A) Increase total assets
B) Decrease total assets
C) Have no effect on total assets
D) Increase total liabilities
*C) Have no effect on total assets *
Rationale: Purchasing equipment for cash increases one asset (equipment) and decreases
another asset (cash) by the same amount. Total assets remain unchanged .
8. The payment of a liability would:
A) Increase assets and increase liabilities
B) Decrease assets and decrease liabilities
C) Increase assets and decrease liabilities
D) Decrease assets and increase liabilities
*B) Decrease assets and decrease liabilities *
Rationale: Paying a liability decreases cash (asset) and decreases the liability (accounts
payable) by the same amount .
9. The issuance of common stock for cash would:
A) Increase assets and increase liabilities
B) Increase assets and increase stockholders' equity
C) Decrease assets and decrease stockholders' equity
D) Increase liabilities and decrease stockholders' equity
*B) Increase assets and increase stockholders' equity *
, Rationale: Issuing common stock for cash increases cash (asset) and increases common
stock (stockholders' equity) .
10. A company performed services for a customer on account. This transaction
would:
A) Increase assets and increase liabilities
B) Increase assets and increase stockholders' equity
C) Increase liabilities and decrease stockholders' equity
D) Decrease assets and decrease stockholders' equity
*B) Increase assets and increase stockholders' equity *
Rationale: Performing services on account increases accounts receivable (asset) and
increases revenue (stockholders' equity) .
11. Which of the following transactions would increase both assets and liabilities?
A) Purchasing equipment for cash
B) Borrowing money from the bank
C) Issuing common stock
D) Paying salaries
*B) Borrowing money from the bank *
Rationale: Borrowing money increases cash (asset) and increases notes payable (liability) .
12. Which of the following transactions would increase assets and decrease
liabilities?
A) Purchasing inventory on account
B) Paying an account payable
C) Issuing common stock
D) Performing services on account
*B) Paying an account payable *
200 (2027)
1. The accounting equation is defined as:
A) Assets = Liabilities + Stockholders' Equity
B) Assets = Liabilities − Stockholders' Equity
C) Assets + Liabilities = Stockholders' Equity
D) Assets = Revenues − Expenses
*A) Assets = Liabilities + Stockholders' Equity *
Rationale: The fundamental accounting equation is Assets = Liabilities + Stockholders'
Equity. This equation must always remain in balance, serving as the foundation for the
double-entry accounting system .
2. Which of the following is an example of an investing activity?
A) Borrowing money from a bank
B) Purchasing equipment
C) Issuing shares of stock
D) Paying dividends to stockholders
*B) Purchasing equipment *
Rationale: Purchasing equipment is an investing activity because it involves acquiring
long-term assets needed to operate the business .
3. Which of the following is an example of a financing activity?
A) Selling products to customers
B) Purchasing inventory
C) Issuing shares of common stock
D) Paying salaries to employees
*C) Issuing shares of common stock *
,Rationale: Issuing shares of common stock is a financing activity because it involves
raising capital from investors .
4. A company has liabilities of $50,000 and stockholders' equity of $75,000. What
are the total assets?
A) $25,000
B) $50,000
C) $75,000
D) $125,000
*D) $125,000 *
Rationale: Assets = Liabilities + Stockholders' Equity = $50,000 + $75,000 = $125,000 .
5. A company has assets of $200,000 and liabilities of $80,000. What is the
stockholders' equity?
A) $80,000
B) $120,000
C) $200,000
D) $280,000
*B) $120,000 *
Rationale: Stockholders' Equity = Assets − Liabilities = $200,000 − $80,000 = $120,000 .
6. If total assets increase by $10,000 and total liabilities increase by $4,000, then
stockholders' equity must:
A) Increase by $14,000
B) Increase by $6,000
C) Decrease by $6,000
D) Decrease by $14,000
*B) Increase by $6,000 *
,Rationale: Change in Equity = Change in Assets − Change in Liabilities = $10,000 −
$4,000 = $6,000 increase .
7. The purchase of office equipment for cash would:
A) Increase total assets
B) Decrease total assets
C) Have no effect on total assets
D) Increase total liabilities
*C) Have no effect on total assets *
Rationale: Purchasing equipment for cash increases one asset (equipment) and decreases
another asset (cash) by the same amount. Total assets remain unchanged .
8. The payment of a liability would:
A) Increase assets and increase liabilities
B) Decrease assets and decrease liabilities
C) Increase assets and decrease liabilities
D) Decrease assets and increase liabilities
*B) Decrease assets and decrease liabilities *
Rationale: Paying a liability decreases cash (asset) and decreases the liability (accounts
payable) by the same amount .
9. The issuance of common stock for cash would:
A) Increase assets and increase liabilities
B) Increase assets and increase stockholders' equity
C) Decrease assets and decrease stockholders' equity
D) Increase liabilities and decrease stockholders' equity
*B) Increase assets and increase stockholders' equity *
, Rationale: Issuing common stock for cash increases cash (asset) and increases common
stock (stockholders' equity) .
10. A company performed services for a customer on account. This transaction
would:
A) Increase assets and increase liabilities
B) Increase assets and increase stockholders' equity
C) Increase liabilities and decrease stockholders' equity
D) Decrease assets and decrease stockholders' equity
*B) Increase assets and increase stockholders' equity *
Rationale: Performing services on account increases accounts receivable (asset) and
increases revenue (stockholders' equity) .
11. Which of the following transactions would increase both assets and liabilities?
A) Purchasing equipment for cash
B) Borrowing money from the bank
C) Issuing common stock
D) Paying salaries
*B) Borrowing money from the bank *
Rationale: Borrowing money increases cash (asset) and increases notes payable (liability) .
12. Which of the following transactions would increase assets and decrease
liabilities?
A) Purchasing inventory on account
B) Paying an account payable
C) Issuing common stock
D) Performing services on account
*B) Paying an account payable *
