The accounting equation shows that a company's resources equal creditors' and owners' claims to those resources.

111. If total assets of a company equal $12,000 and total stockholders' equity equals $4,000, then total liabilities equal $8,000.
TRUE

112. If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000, then total assets equal $7,000.
FALSE

Total assets = Total liabilities ($16,000) + Total stockholders' equity ($9,000) = $25,000.

113. The accounting equation shows that a company's resources equal creditors' and owners' claims to those resources.
TRUE

 

114. The costs of advertising, utilities, and salaries in the current reporting period are examples of liabilities.
FALSE

These are examples of expenses.

115. The difference between revenues and expenses is referred to as net income or net loss.
TRUE

116. If a company reports revenues of $17,000 and expenses of $12,000, then net income equals $5,000.
TRUE

117. Expenses are regular cash payments by a corporation to its stockholders.
FALSE

Dividends are payments to stockholders.

118. Dividends represent a return of the company's profits to its owners, the stockholders.
TRUE

119. One of the differences between a partnership and a corporation is that owners of a partnership have limited liability.
FALSE

Stockholders of a corporation have limited liability.

120. Limited liability means the stockholders are not held personally responsible for the financial obligations of the corporation.
TRUE

The costs of providing goods and services to customers are referred to as:

21. The costs of providing goods and services to customers are referred to as: 

A. Assets.
B. Expenses.
C. Liabilities.
D. Revenues.

22. The accounts which represent the resources of the company are called:
A. Liabilities.
B. Revenues.
C. Expenses.
D. Assets.

23. An alternative form of the accounting equation is:
A. Net Income = Revenues - Expenses.
B. Stockholders' Equity = Assets + Liabilities.
C. Assets = Liabilities - Stockholders' Equity.
D. Assets - Liabilities = Stockholders' Equity.

 

24. The owners' interest in a corporation is called:
A. Dividends.
B. Assets.
C. Liabilities.
D. Stockholders' equity.

25. Creditors' claims to a corporation's resources are referred to as:
A. Dividends.
B. Assets.
C. Liabilities.
D. Stockholders' equity.

26. Net income can best be described as:
A. Net cash received by a company during the year.
B. Revenues minus expenses.
C. The amount of profits retained in a company for the year.
D. Resources owned by a company.

27. Use the following appropriate amounts to calculate net income: Revenues, $12,000; Liabilities, $5,000; Expenses, $4,000; Assets, $19,000; Dividends, $4,000.
A. $6,000.
B. $8,000.
C. $4,000.
D. $14,000.

Revenues ($12,000) - Expenses ($4,000) = Net Income.

28. Liabilities are best defined as:
A. Amounts the company expects to collect in the future from customers.
B. Debts or obligations the company owes resulting from past transactions.
C. The amounts that owners have invested in the business.
D. Payments to stockholders.

29. Which of the following best describes a revenue?
A. Resources owned.
B. Cash received from a customer.
C. Amounts earned from providing goods and services to a customer.
D. Dividends paid to stockholders.

30. The account type that represents payments to stockholders is called:
A. Liabilities.
B. Assets.
C. Stockholders' equity.
D. Dividends.

Financial accounting does not deal with which of the following?

The primary focus for financial accounting information is to provide information useful for:

 A. Option a
B. Option b
C. Option c
D. Option d

2. What is the primary purpose of financial accounting?

A. Determine the amount of tax liability owed to the government.
B. Communicate business transactions to internal management.
C. Measure business transactions and communicate those measures to external users to make decisions.
D. Measure the profitability of the company in order to assist employees with making decisions.

 3. Financial accounting does not deal with which of the following? 

A. Measuring a company's economic activity.
B. Preparing financial reports.
C. Making business decisions.
D. Communicating financial results to investors.

4. Which of the following groups is not among the external users for whom financial statements are prepared? 

A. Creditors.
B. Regulators.
C. Investors.
D. Managers.

5. Financial accounting:
A. Provides information primarily for external decision makers.
B. Provides information primarily for a company's employees.
C. Provides information primarily for the use of managers of the company.
D. Is primarily used to compute a company's tax obligation.

6. The primary purpose(s) of financial accounting is (are) to: 

A. Measure and record business transactions.
B. Prepare federal and state tax returns.
C. Communicate financial results to investors and creditors.
D. a and c

7. Which definition below best describes financial accounting? 

A. Process of measuring income taxes owed to the government.
B. System of maintaining communication with a company's customers and suppliers.
C. Procedures designed to enhance the company's image to potential investors.
D. Measuring business activities and communicating them to external parties.

 

8. The accounting equation is defined as:
A. Assets = Liabilities + Stockholders' Equity.
B. Assets = Liabilities - Stockholders' Equity.
C. Net Income = Revenues - Expenses.
D. Liabilities + Revenues = Assets.

9. Which statement below best describes the accounting equation? 

A. The change in retained earnings equals net income less dividends.
B. Equality of revenue and expense transactions over time.
C. Resources of the company equal creditors' and owners' claims to those resources.
D. Financing activities equal investing and operating activities.

Assets = Liabilities + Stockholders' Equity.

10. If a company has stockholders' equity of $60,000 at the end of the year, which of the following statements must be true?
A. The company's assets exceed liabilities by $60,000.
B. The company has issued $60,000 of common stock.
C. Net income for the year equals $60,000.
D. Total revenues earned during the year equal $60,000.

Assets - Liabilities = Stockholders' Equity.