1. Which of the following statements about financial reports is correct?

(a) To provide useful information to current and potential investors, creditors, and other lenders

(b) Financial accounting reports are used primarily by management to understand whether a product line should be discontinued.

(c) Financial accounting reports primarily contain detailed internal records of the company

(d) Financial accounting reports are used primarily by employees to make business decisions related to production.

2. What is the difference between cash accounting and the accrual basis of accounting?

(a) with cash basis accounting, revenue/expenses are recognized when cash is received/disbursed; with accrual accounting, revenue is recognized when earned and expenses are recognized when incurred.

(b) with cash basis of accounting, income will be more reflective of the economics of the earnings process; with accrual accounting, income will generally fluctuate more from period to period.

(c) with cash you produce a cash flow statement; with accrual accounting you do not.

(d) There is no difference under US GAAP.

3. Equipment was purchased for $5,000 by signing a note for $2,000 and the balance paid with cash. The journal entry is:

(a) Debit Equipment, $5000; Debit Note Payable, $2,000; Credit Cash, $3,000

(b) Debit Equipment, $5,000; Debit Cash, $3,000; and credit Note Payable, $8,000

(c) Debit Cash, $3000; Debit Note Payable, $2,000; and Credit Equipment, $5,000

(d) Debit Equipment, $5,000; Credit Cash, $3,000; Credit Note Payable, $2,000

4.The WeBuild Construction Co. sold buildings costing $12 million for $15 million to customers in its first year of operation. The company received payments of $9.50 million for those buildings. The company's balance sheet accounts would be reflective of the following changes:

(a) Cash increased $15M; Inventory decreased $12M; Accounts Receivable increased $5.5M; Cost of Goods Sold (an expense) increased $12M.

(b) Cash increased $15M; Inventory decreased $12M; Accounts Receivable increased $5.5M.

(c) Cash decreased $15M; Inventory increased $12M; Accounts Receivable decreased $5.5M.

(d) Sales Revenue increased $15M; Inventory decreased $12M; Accounts Receivable increased $15M.