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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,Student name: g
1) Indicate whether each of the following statements about markets is trueor false.
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a) Financial resources can be provided to a business by investors.
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b) Resource owners are the businesses that transform resources into products that
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satisfy consumer desires.
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c) Labor resources include both the physical and intellectual labor of a business's
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employees.
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d) Businesses purchase their resources from resource owners.
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e) Consumers are the main providers of resources in any market.
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2) Indicate whether each of the following statements about accounting information is true or
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false.
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a) Financial accounting is primarily intended to satisfythe information needs of
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internal stakeholders.
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b) Managerial accounting information includes financial and nonfinancial
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information.
g
c) The accounting information intended to satisfy the needs of a company's
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employees is managerial accounting information.
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d) GAAP requires that companies adhere to financial accounting standards.
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e) Managerial accounting information is usually less detailed than financial
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accounting information.
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3) Indicate whether each of the following statements about liabilities is true or false.
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a) A net loss on the income statement decreases liabilities.
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b) The acquisition of a bank loan increases both assets and liabilities.
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c) The accounting equation requires that liabilities be equal to stockholders’ equity.
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d) The amount of a company's liabilities is equal to the difference between its assets and
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its stockholders’ equity.
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e) Liabilities are reported on the statement of cash flows of a business.
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,4) Indicate whether each of the following statements about retained earnings is true or false.
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a) A dividend paid to stockholders decreases retained earnings.
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b) Issuing common stock for cash increases retained earnings.
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c) The amount of net income for a period must equal retained earnings.
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d) The purchase of a truck decreases retained earnings.
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e) Net income increases retained earnings.
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5) Indicate whether each of the following statements about the types of transactions is true or
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false.
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a) An asset source transaction increases total assets and increases claims to assets.
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b) The issuance of stock to owners for cash would be an example of an asset
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exchange transaction.
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c) Purchasing equipment for cash is an example of an asset use transaction.
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d) Paying a dividend to stockholders is an example of an asset use transaction.
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e) Making a payment on a bank loan is an example of an asset exchange transaction.
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6) Indicate whether each of the following statements about financial statements is true or
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false.
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a) A cash dividend paid to stockholders is reported in the investing activities section of
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the statement of cash flows.
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b) A cash dividend paid to stockholders is reported on the statement of changes in
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stockholders' equity.
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c) A cash dividend paid to stockholders is reported on the income statement.
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d) The balance sheet reports the ending balances of permanent accounts as of the last day
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of the accounting period.
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e) Changes in retained earnings during the accounting period are reported on the
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income statement.
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, 7) Indicate whether each of the following statements about stockholders’ equity is true or
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false.
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a) Expenses decrease retained earnings. g g g g
b) Stockholders' equityand liabilities can be viewed either as sources of assets or
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claims to assets of the business.
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c) Retained earnings is increased by loans received from a bank.
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d) Dividends paid to stockholders decrease common stock.
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e) Generally, assets are reported at the actual price paid for them when purchased
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regardless of subsequent changes in market value.
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8) Jessup Company was founded in Year 1. It acquired $45,000 cash by issuing stock to
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investors and an additional $15,000 cash by borrowing from creditors. During Year 1 it received
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$25,000 cash revenues and paid $32,000 in cash expenses. The companythen went out of
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business.
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Required:
a) Explain the term, "business liquidation."
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b) What amount of cash should Jessup Company have had on hand immediately before going out
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of business?
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c) What amount of cash will Jessup's creditors receive?
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d) What amount of cash will Jessup's stockholders receive?
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9) Bates Companyentered into the following transactions during its first year in business.
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Assume that all transactions involve the receipt or payment of cash.
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1) Issued common stock to investors for $25,000 cash.
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2) Borrowed $18,000 from the local bank. g g g g g
3) Provided services to customers for $28,000. g g g g g
4) Paid expenses amounting to $21,400.
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5) Purchased a plot of land costing $22,000. g g g g g g
6) Paid a dividend of $15,000 to its stockholders.
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7) Repaid $12,000 of the loan listed in item 2.
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Required:
(a) Fill in the three column headings of the accounting equation in the first row of the table
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shown below.
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(b) Show the effects of the above transactions on the accounting equation.
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11th Edition
g
by Thomas Edmonds, Philip Olds, Christopher Edmonds
g g g g g g
,Student name: g
1) Indicate whether each of the following statements about markets is trueor false.
g g g g g g g g g g g g
a) Financial resources can be provided to a business by investors.
g g g g g g g g g g
b) Resource owners are the businesses that transform resources into products that
g g g g g g g g g g g
satisfy consumer desires.
g g g
c) Labor resources include both the physical and intellectual labor of a business's
g g g g g g g g g g g g
employees.
g
d) Businesses purchase their resources from resource owners.
g g g g g g g
e) Consumers are the main providers of resources in any market.
g g g g g g g g g g
2) Indicate whether each of the following statements about accounting information is true or
g g g g g g g g g g g g
false.
g
a) Financial accounting is primarily intended to satisfythe information needs of
g g g g g g g g g g g
internal stakeholders.
g g
b) Managerial accounting information includes financial and nonfinancial
g g g g g g g
information.
g
c) The accounting information intended to satisfy the needs of a company's
g g g g g g g g g g g
employees is managerial accounting information.
g g g g g
d) GAAP requires that companies adhere to financial accounting standards.
g g g g g g g g g
e) Managerial accounting information is usually less detailed than financial
g g g g g g g g g
accounting information.
g g
3) Indicate whether each of the following statements about liabilities is true or false.
g g g g g g g g g g g g
a) A net loss on the income statement decreases liabilities.
g g g g g g g g g
b) The acquisition of a bank loan increases both assets and liabilities.
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c) The accounting equation requires that liabilities be equal to stockholders’ equity.
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d) The amount of a company's liabilities is equal to the difference between its assets and
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its stockholders’ equity.
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e) Liabilities are reported on the statement of cash flows of a business.
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,4) Indicate whether each of the following statements about retained earnings is true or false.
g g g g g g g g g g g g g
a) A dividend paid to stockholders decreases retained earnings.
g g g g g g g g
b) Issuing common stock for cash increases retained earnings.
g g g g g g g g
c) The amount of net income for a period must equal retained earnings.
g g g g g g g g g g g g
d) The purchase of a truck decreases retained earnings.
g g g g g g g g
e) Net income increases retained earnings.
g g g g g
5) Indicate whether each of the following statements about the types of transactions is true or
g g g g g g g g g g g g g g
false.
g
a) An asset source transaction increases total assets and increases claims to assets.
g g g g g g g g g g g g
b) The issuance of stock to owners for cash would be an example of an asset
g g g g g g g g g g g g g g g
exchange transaction.
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c) Purchasing equipment for cash is an example of an asset use transaction.
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d) Paying a dividend to stockholders is an example of an asset use transaction.
g g g g g g g g g g g g g
e) Making a payment on a bank loan is an example of an asset exchange transaction.
g g g g g g g g g g g g g g g
6) Indicate whether each of the following statements about financial statements is true or
g g g g g g g g g g g g
false.
g
a) A cash dividend paid to stockholders is reported in the investing activities section of
g g g g g g g g g g g g g g
the statement of cash flows.
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b) A cash dividend paid to stockholders is reported on the statement of changes in
g g g g g g g g g g g g g g
stockholders' equity.
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c) A cash dividend paid to stockholders is reported on the income statement.
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d) The balance sheet reports the ending balances of permanent accounts as of the last day
g g g g g g g g g g g g g g g
of the accounting period.
g g g g
e) Changes in retained earnings during the accounting period are reported on the
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income statement.
g g
, 7) Indicate whether each of the following statements about stockholders’ equity is true or
g g g g g g g g g g g g
false.
g
a) Expenses decrease retained earnings. g g g g
b) Stockholders' equityand liabilities can be viewed either as sources of assets or
g g g g g g g g g g g g g
claims to assets of the business.
g g g g g g
c) Retained earnings is increased by loans received from a bank.
g g g g g g g g g g
d) Dividends paid to stockholders decrease common stock.
g g g g g g g
e) Generally, assets are reported at the actual price paid for them when purchased
g g g g g g g g g g g g g
regardless of subsequent changes in market value.
g g g g g g g
8) Jessup Company was founded in Year 1. It acquired $45,000 cash by issuing stock to
g g g g g g g g g g g g g g
investors and an additional $15,000 cash by borrowing from creditors. During Year 1 it received
g g g g g g g g g g g g g g g
$25,000 cash revenues and paid $32,000 in cash expenses. The companythen went out of
g g g g g g g g g g g g g g
business.
g
Required:
a) Explain the term, "business liquidation."
g g g g
b) What amount of cash should Jessup Company have had on hand immediately before going out
g g g g g g g g g g g g g g
of business?
g g
c) What amount of cash will Jessup's creditors receive?
g g g g g g g
d) What amount of cash will Jessup's stockholders receive?
g g g g g g g
9) Bates Companyentered into the following transactions during its first year in business.
g g g g g g g g g g g g
Assume that all transactions involve the receipt or payment of cash.
g g g g g g g g g g g
1) Issued common stock to investors for $25,000 cash.
g g g g g g g
2) Borrowed $18,000 from the local bank. g g g g g
3) Provided services to customers for $28,000. g g g g g
4) Paid expenses amounting to $21,400.
g g g g
5) Purchased a plot of land costing $22,000. g g g g g g
6) Paid a dividend of $15,000 to its stockholders.
g g g g g g g
7) Repaid $12,000 of the loan listed in item 2.
g g g g g g g g
Required:
(a) Fill in the three column headings of the accounting equation in the first row of the table
g g g g g g g g g g g g g g g g
shown below.
g g
(b) Show the effects of the above transactions on the accounting equation.
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