Chapter 1

The two primary groups of financial resource providers for a business (conversion agent) are

• Creditors and investors

• Suppliers and lenders

• Venders and employees

• Accountants and CPAs

Accountants establish measurement and reporting rules that business people use to facilitate communication of financial information. The financial accounting measurement rules used in the United States are referred to as

• Standard U.S. accounting rules

• Generally accepted accounting principles

• Financial Accounting Standards Board Rules

• U.S. accounting measurement rules

The information reported in financial statements is organized into categories known as elements. Which of the following categories is NOT a financial statement element

• Net income

• Liabilities

• Land

• Revenue

The accounting equation is defined as

• Assets + Equity = Liabilities

• Assets = Liabilities + Equity

• Assets = Liabilities - Equity

• Asset + Liabilities = Equity

Hammond Company borrowed $20,000 from Neptune Bank. How does this transaction affect the accounting equation?

• Assets decrease and equity decreases.

• Assets increase and equity increases.

• Assets decrease and liabilities decrease.

• Assets increase and liabilities increase.

As of December 31, 2015, Juneau Company had total cash of $155,000, notes payable of $85,600, and common stock of $52,400. During 2016, Juneau earned $36,000 of cash revenue, paid $20,000 for cash expenses and paid a $3,000 cash dividend to the stockholders. Assuming no change in notes payable and common stock, determine the amount of retained earnings as of December 31, 2016.

• $30,000

• $17,000

• $12,000

• $15,000

The land that Birmingham Company purchased on April 15, 2016, for $120,000 cash had an appraised market value of $135,000 on December 31, 2016. How does this change in the market value of the land affect the accounting equation?

• Assets increase and liabilities increase by $15,000

• Assets increase and equity increases by $15,000

• Assets increase and equity decreases by $15,000

• The accounting equation is not affected

Suarez Company purchased land for $115,000 cash. Which of the following best describes this transaction type?

• Asset source transaction

• Asset use transaction

• Asset exchange transaction

• Claims exchange transaction

Huang Company paid $25,000 cash for operating expenses such as salaries and rent during the current accounting period. Which of the following best describes this transaction type?

• Asset source transaction

• Asset use transaction

• Asset exchange transaction

• Claims exchange transaction

Which of the following financial statements matches the expenses with revenues that occur when operating a business?

• Balance sheet

• Statement of changes in stockholders' equity

• Income statement

• Statement of cash flows

On which of the following financial statements would you expect to find financing, operating, and investing activities?

• Statement of cash flows

• Statement of changes in stockholders' equity

• Balance sheet

• Income statement

Closing is the process of transferring the temporary account balances to the Retained Earnings account at the end of the accounting period. Which of the following are temporary accounts?

• Asset, liability, and equity accounts

• Asset, revenue, and expense accounts

• Revenue, expense, and dividend accounts

• Revenue, liability, and dividend accounts

Buccaneer Corporation paid $6,000 in cash dividends to its owners. Which of the following answers in this horizontal financial statements model reflects how this payment of cash dividends would affect Buccaneer Corporation's financial statements?

Moore Company provided services to customers for $8,000 cash. Which of the following answers in this horizontal financial statements model reflects how this event would affect Moore Company's financial statements?