Test Bank for Fundamental Financial Accounting Concepts, 11th Edition by Thomas Edmonds, Philip Olds & Christopher Edmonds

Test Bank for Fundamental Financial Accounting Concepts
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11th Edition
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by Thomas Edmonds, Philip Olds, Christopher Edmonds
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1) Indicate whether eachofthe following statements about markets is trueor false.
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a)Financialresources can be provided to a businessby investors.
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b) Resourceownersarethe businessesthat transformresources into productsthat
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e satisfy consumer desires.
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c)Labor resourcesinclude boththe physicaland intellectuallabor ofa business's
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e employees.
d)Businesses purchase their resources fromresourceowners.
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e)Consumers are the mainproviders ofresources inany market.
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2) Indicatewhether eachofthefollowing statementsabout accounting information istrueor false.
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a)Financialaccounting isprimarilyintended to satisfythe informationneedsof
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e internal stakeholders.
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b)Managerialaccounting informationincludesfinancialandnonfinancial
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e information.
c)Theaccounting informationintendedto satisfytheneeds ofacompany's
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e employees is managerial accounting information.
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d)GAAP requiresthat companiesadhereto financialaccounting standards.
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e)Managerialaccounting informationisusuallylessdetailedthanfinancial
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e accounting information.
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3) Indicatewhether eachofthe following statements about liabilities is trueor false.
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a)Anet loss onthe income statement decreases liabilities.
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b)The acquisitionofa bank loan increases bothassetsand liabilities.
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c)The accounting equationrequires that liabilities be equalto stockholders’ equity.
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d)Theamount ofacompany's liabilities isequaltothedifference between itsassets and its
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e stockholders’ equity. e




e)Liabilities are reportedonthe statement ofcash flows ofa business.
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,4) Indicatewhether eachofthe following statements about retained earnings is trueor false.
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a)Adividend paid to stockholders decreases retained earnings.
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b)Issuing commonstock forcash increases retained earnings.
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c)The amount ofnet income for a periodmust equalretained earnings.
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d)The purchase ofa truck decreases retained earnings.
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e)Net income increasesretained earnings.
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5) Indicate whether eachofthe following statements about thetypes oftransactions is true or
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false.
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a)Anasset sourcetransaction increases totalassets and increases claims to assets.
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b) The issuance ofstockto owners forcashwould be anexample ofanasset
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e exchange transaction.
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c)Purchasing equipment for cash isanexample ofanasset usetransaction.
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d)Paying a dividend to stockholders is anexample ofanasset usetransaction.
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e)Making a payment ona bank loan is anexample ofanasset exchange transaction.
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6) Indicate whether eachofthe following statements about financialstatements is trueor false.
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a)Acashdividend paid to stockholders isreportedinthe investing activitiessection of the
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e statement of cash flows.
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b) Acashdividend paid to stockholders isreportedonthe statement ofchanges in
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e stockholders' equity. e




c)Acashdividend paid to stockholders is reportedonthe income statement.
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d)The balance sheet reportsthe ending balancesofpermanent accounts asofthe last day of
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e the accounting period.
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e)Changes inretained earningsduring the accounting period are reportedonthe
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e income statement.
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, 7) Indicate whether eachofthe following statements about stockholders’ equityis trueor false. e e e e e e e e e e e e e




a)Expensesdecrease retained earnings. e e e e




b) Stockholders'equityand liabilities can be viewed either as sources ofassetsor claims
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e to assets of the business.
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c)Retained earnings is increased by loansreceived froma bank. e e e e e e e e e e




d)Dividends paid to stockholders decrease commonstock. e e e e e e e




e)Generally, assets are reportedat theactualprice paid forthemwhenpurchased
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e regardless of subsequent changes in market value. e e e e e e




8) Jessup Company was founded in Year 1. It acquired $45,000 cash by issuing stock to investors e e e e e e e e e e e e e e e




and anadditional$15,000 cashby borrowing fromcreditors.During Year 1 it received
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$25,000 cashrevenues and paid $32,000 incashexpenses. The companythenwent out of business.
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Required:
a) Explaintheterm, "business liquidation." e e e e




b) What amount ofcashshouldJessupCompanyhave hadonhand immediatelybeforegoing out of
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business?
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c) What amount ofcashwillJessup's creditorsreceive?
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d) What amount ofcashwillJessup'sstockholders receive?
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9) BatesCompanyenteredintothe followingtransactionsduring itsfirst year inbusiness.
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Assume that all transactions involve the receipt or payment of cash.
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1) Issued commonstockto investors for $25,000cash.
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2) Borrowed $18,000fromthe localbank. e e e e e




3) Providedservicesto customers for $28,000. e e e e e




4) Paid expensesamounting to $21,400.
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5) Purchaseda plot ofland costing $22,000. e e e e e e




6) Paid a dividend of$15,000to its stockholders.
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7) Repaid $12,000 ofthe loan listed in item2. e e e e e e e e




Required:
(a) Fillin the three column headingsofthe accounting equation inthe first rowofthe table shown
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e below.
(b) Showthe effects ofthe above transactions onthe accounting equation.
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