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Indicate whether the statement is true or false.
1. The role of accounting is to provide many different users with financial information to make economic decisions.
2. Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the companies where they work.
3. Proper ethical conduct implies that you only consider what's in your best interest.
4. An example of a general-purpose financial statement would be a report about projected price increases related to transportation costs.
5. Proprietorships are owned by one owner and provide only services to their customers.
6. The accounting equation can be expressed as Assets – Liabilities = Stockholders' Equity.
7. If net income for a company was $50,000, $20,000 in cash dividends were paid and the stockholders invested $10,000 in cash, the stockholders' equity increased by $40,000.
8. Purchasing supplies on account increases liabilities and decreases equity.
9. The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities.
10. The primary financial statements of a corporation are the income statement, retained earnings statement, and the balance sheet.
Indicate the answer choice that best completes the statement or answers the question.
11. Which of the following best describes accounting?
records economic data but does not communicate the data to users according to any specific rules
is an information system that provides reports to users regarding economic activities and condition of a business
is used only for filling out tax returns and for financial statements for various type of governmental reporting requirements
12. Which of the following groups of companies are all examples of a merchandising business?
Delta Airlines, Marriott, Gap
Gap, Amazon, NIKE
GameStop, Sony, Dell
GameStop, Best Buy, Gap
13. Which of the following would not normally operate as a service business?
lawn care company
14. Equipment with an estimated market value of $30,000 is offered for sale at $45,000. The equipment is acquired for $15,000 in cash and a note payable of $20,000 due in 30 days. The amount used in the buyer's accounting records to record this acquisition is
15. The assets and liabilities of a company are $128,000 and $84,000, respectively. Stockholders' equity should equal
16. A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to
increase an asset, decrease another asset
decrease an asset, decrease a liability
increase an asset, increase a liability
increase an asset, increase stockholders' equity
17. If total assets decreased by $88,000 during a period of time and stockholders' equity increased by $71,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total liabilities is
a $17,000 increase
an $88,000 decrease
a $159,000 increase
a $159,000 decrease
18. Shiny Kar Company had the following transactions. For each transaction, show the effect on the accounting equation by putting the amount and direction (plus, minus, or NC for no change) in each box of the table below.
Shiny Kar withdrew $500 cash for food
Shiny Kar Company sold 2 cars for a total of $55,000 on account
The cost of the cars sold in (b) above was $40,000
Shiny Kar received $35,000 payment for a car previously sold on account
Shiny Kar paid $450 for advertising
Shiny Kar purchased $150 of cleaning supplies on account
19. The account balances of Awesome Travel Services at December 31 are listed below. No additional common stock was issued and no cash dividends were paid.
Retained earnings (Jan. 1)
Income taxes expense
Prepare an income statement and a retained earnings statement for the current year ended. Prepare a balance sheet as of December 31.
20. Using the following accounts and their amounts, prepare in good format a retained earnings statement for Bright Futures Company for the month ended August 31.
Retained earnings (August 1)
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