Multiple Choice: Information Accumulation and Analysis Select the correct answer for each of the following:

1. The year-end balance sheet of Orange Company reported assets of $10,000, liabilities of $3,000, and equity of

$7,000. The income statement for the year reported revenue of $9,000 and expenses of $6,000. Which of the following statements is correct?

a. The accounting equation is out of balance because total equity and net income are not the same.

b. Net income for the year was $7,000.

c. Cash generated during the period was $7,000.

d. The balance in equity at the beginning of the period was $4,000.
2. During 2001, the total assets of the AIT company increased by $350,000. The increase could have resulted from:

a. A decrease in liabilities of $700,000 and an increase in equity of $350,000.

b. Net income of $350,000.

c. A decrease in liabilities of $350,000 and net income of $350,000.

d. Collecting $350,000 of accounts receivable.
3. The primary function of an account in the accounting system is to:

a. Identify the type of organization.

b. Determine at what point a transaction should be recorded.

c. Accumulate accounting information.

d. Store accounting transactions until they are classified.
4. Which of the following is an important factor in the choice of individual accounts used by a company?

a. The type of information needed by decision makers.

b. The number and types of products sold.

c. The decision to form a corporation rather than a partnership.

d. All of the above.
5. Debits and credits are:

a. Used only for adjusting entries.

b. Used to indicate whether an account balance is increased or decreased.

c. Needed to determine which accounts are used to record transactions.

d. All of the above.