Chapter 2

Question 1

Which of the following is considered to be a liability?

a. Investments

b. Unearned revenues	
c. Accrued revenues	
d. Prepaid expenses

Answer 1

b. Unearned revenues

Question 2

Which of the following group of accounts are all assets?

a. Unearned Revenues, Prepaid Expenses, Cash

b. Accounts Receivable, Revenue, Cash	
c. Cash, Accounts Payable, Buildings	
d. Prepaid Expenses, Buildings, Patents

Answer 2

d. Prepaid Expenses, Buildings, Patents

Question 3

Expenses can be defined as:

a. costs that have been incurred during the normal course of business.

b. assets consumed.	
c. All of these choices are correct.	
d. services used in the process of generating reve

Answer 3

c. All of these choices are correct

Question 4

The payment of $20,000 for expenses was incorrectly recorded by Elite Co. as an increase in cash of $20,000 and a decrease in retained earnings of $20,000. What is the effect of this error on the accounting equation?

a. Total assets will be less than total liabilities and stockholders

’

equity by $40,000.

b. Total assets will exceed total liabilities and stockholders' equity by $20,000.	
c. The error will not affect the accounting equation.	
d. Total assets will exceed total liabilities and stockholders' equity by $40,000

Answer 4

d. Total assets will exceed total liabilities and stockholders’ equity by $40,000.

Question 5

Which of the following statements is true about liabilities?

a. Liabilities include insurance premium paid in advance.

b. Liabilities equal assets plus stockholders' equity.	
c. Liabilities arise when a company sells goods on account.	
d. Liabilities are the debt owed by a company

Answer 5

d. Liabilities are the debt owed by a company

Question 6

Stockholders’ equity will be increased by:

a. increase in expenses.

b. increase in revenues.	
c. issuance of bonds.	
d. payment of dividend

Answer 6

b. increase in revenues.

Question 7

unlight, Inc. had the following assets and liabilities as of September 30, 2016:

Assets $60,600
Liabilities $27,500

What is the stockholders’ equity of Sunlight as of September 30, 2016?

a. $88,100

b. $0	
c. $33,100	
d. Cannot be determined with this information

Answer 7

c. $33,100

Question 8

Rush Corporation borrowed $25,000 from the bank. Which of the following accurately shows the effects of the transaction?

a. Increase cash $25,000 and increase notes payable $25,000

b. Decrease cash $25,000 and increase notes payable $25,000	
c. Decrease cash $25,000 and decrease notes payable $25,000	
d. Increase cash $25,000 and decrease notes payable $25,000

Answer 8

a. Increase cash $25,000 and increase notes payable $25,000

Question 9

Philip Corporation purchased equipment on account. What is the effect of this transaction?

a. Cash will decrease and equipment will increase.

b. Total assets and total liabilities will both increase.	
c. Total assets will remain unchanged.	
d. Cash flow from Investing Activities will decrease.

Answer 9

b. Total assets and total liabilities will both increase.

Question 10

Johnson, Inc. paid rent expense of $3,500 for the month of October. How are the accounts affected due to this transaction?

a. Decrease in cash $3,500 and decrease in retained earnings $3,500

b. Increase in cash $3,500 and increase in retained earnings $3,500	
c. Decrease in cash $3,500 and increase in retained earnings $3,500	
d. Increase in cash $3,500 and decrease in retained earnings $3,500

Answer 10

a. Decrease in cash $3,500 and decrease in retained earnings $3,500

Question 11

BOY 300,000 Total Assets 130,000 Total Liabilities
EOY 800,000 Total Assets 550,000 Total Liabilities

Refer to Exhibit 2-1. Determine the net income (or loss), assuming $50,000 of stock was issued and no dividends were paid?

a. $80,000

b. $220,000	
c. $30,000	
d. $130,00

Answer 11

c. $30,000

Question 12

or EFG Co., the transaction "payment to creditors" would:
 	a. increase total assets.	
	b. decrease total assets.	
	c. decrease stockholders' equity.	
	d. have no effect on total assets.	
Hide Feedback

Answer 12

b. decrease total assets

Question 13

Anthony, Inc. buys land for $50,000 cash. The net effect on assets is:

a. $50,000 decrease.

b. $25,000 increase.	
c. $50,000 increase.	
d. $0.

Answer 13

d. $0.

Question 14

The first month of operation showed the net cash from operating activities to be $1,850, the net cash from investing activities to be ($3,000), and the ending cash balance to be $1,600. The net cash from financing activities must be:

a. $2,750.

b. $450.	
c. $6,450.	
d. $3,250

Answer 14

a. $2,750.

Question 15

A common-sized balance sheet is prepared by expressing each stockholders’ equity item as a percent of:
a. total liabilities plus stockholders’ equity.
b. total sales.
c. total stockholders’ equity.
d. total liabilities.
Hide Feedback

Answer 15

a. total liabilities plus stockholders’ equity

Question 16

Year 2	             Year 1
Sales	$170,000	$130,000
Cost of sales	135,000	105,000
Gross profit	$35,000	$25,000
Using the above information, calculate the percentage increase or decrease in cost of sales from Year 1 to Year 2?
 	a. Increase of 1.4%	
	b. Decrease of 1.4%	
	c. Increase of 2.1%	
	d. Decrease of 2.1%

Answer 16

b. Decrease of 1.4%

Question 17

On November 1 of the current year, the assets and liabilities of Jim Chu, Inc., are as follows: Cash, $10,933; Accounts Receivable, $8,810; Supplies, $1,835; Land, $24,474; Accounts Payable, $5,937. What is the amount of stockholders’ equity as of November 1 of the current year?
Select the correct answer.

$19,743

$40,115

$10,933

$51,989

Answer 17

$40,115