8) A stockholders contributed $100,000 in exchange for stock in the company. What is the effect of this transaction?

A) assets increase and liabilities increase

B) assets increase and revenues increase

C) expenses increase and revenues increase

D) assets increase and paid-in capital increases

9) Which of the following explains the change in Retained Earnings from the beginning of the year to the end of the year?

A) revenues and expenses

B) contributions by owners

C) purchases of inventory

D) a purchase of a plant asset

10) Cash collections from customers who purchased goods on credit will decrease ________.

A) Accounts Receivable

B) Accounts Payable

C) Cash

D) Retained Earnings

11) A sale of inventory results in a(n) ________ in stockholders' equity equal to the selling price of the inventory. A sale of inventory also results in a(n) ________ in stockholders' equity equal to the cost of the inventory sold.

A) decrease; increase

B) increase; increase

C) increase; decrease

D) decrease; decrease

12) Consider a firm that provides services to customers. To record revenue, which of the following conditions must be met?

A) the firm must render the services only

B) the firm must render the services and receive cash or a promise of payment in the future

C) the firm must render the services and receive cash

D) the firm must promise to render the services in the future and receive cash

13) Under accrual basis accounting, we record revenue when ________.

A) cash is received from customers

B) cash is received for any reason

C) it meets the criteria for revenue recognition

D) a company receives cash from a customer on account

14) Under accrual basis accounting, we record expenses when ________.

A) a company pays cash to a supplier

B) a company incurs a liability

C) a company uses resources

D) a company pays cash to anyone

15) Which of the following is(are) a deficiency(deficiencies) of cash-basis accounting?

A) it omits key revenues and expenses from the balance sheet

B) it fails to match revenues and expenses to measure economic performance

C) it omits key assets and key liabilities from the balance sheet

D) B and C

16) Patrick Company had the following transactions:

1. The owner started the company by investing $10,000 of cash.

2. The company paid $2,000 for six months of rent. The rent was paid in advance.

3. The company acquired $3,300 in inventory and put one-third of the purchase on account. The company paid $2,200 cash.

4. The company sold inventory costing $1,400 for $2,900 on account.

After all these transactions, what is the balance in the cash account?

A) $1,600

B) $2,900

C) $5,800

D) $8,000

17) Given below are the activities of the Tamara Company:

Credit sales $90,000

Cash sales $50,000

Cash collections from credit customers $36,000

Purchased inventory on account $27,000

Using the cash basis of accounting, the total revenues for Tamara Company are ________.

A) $56,000

B) $86,000

C) $90,000

D) $173,000

18) An example of an explicit transaction is ________.

A) recording depreciation expense

B) paying cash for three months' rent in advance

C) accruing wages expense at the end of the month

D) accruing interest expense at the end of the year

19) Depreciation expense is recorded for ________.

A) equipment and land

B) land and buildings

C) equipment and buildings

D) equipment, land and building

20) Radison Company owns a fixed asset with an original cost of $100,000. The company estimates it will use the fixed asset for 5 years, at which time the fixed asset will be sold for $5,000. The company uses straight-line depreciation. The annual depreciation expense is ________.

A) $0

B) $10,000

C) $18,000

D) $19,000

21) The adjusting entry for ________ increases expenses and decreases assets.

A) wages expense

B) depreciation expense

C) unearned revenue

D) accruing interest expense

22) Fahnstock Company has the following information available for the most current year:

Paid-in capital, January 1, 2014 $475,000

Retained earnings, January 1, 2014 $100,000

Total revenues in 2014 $870,000

Total expenses in 2014 $550,000

Dividend declared in 2014 $70,000

Dividend paid in 2014 $0

Investments by owners in 2014 $10,000

What was the total amount of paid-in capital for Fahnstock Company at December 31, 2014?

A) $475,000

B) $485,000

C) $535,000

D) $835,000

23) Retained earnings indicate the amount of cash available for distribution to shareholders. (T / F )

24) Dividends paid are considered an expense on the income statement. (T / F)

25) Sunday Company reports the following information on December 31, 2014:

Cash $20,000

Accounts receivable 112,000

Accounts payable 91,000

Accrued wages payable 6,000

Unearned revenue 2,000

Paid-in capital 59,000

Retained earnings 80,000

Inventory 30,000

Prepaid rent 4,000

Equipment (net) 12,000

What are total assets at December 31, 2014?

A) $162,000

B) $166,000

C) $178,000

D) $180,000

26) The stockholders' equity section of a corporation's balance sheet can be divided into ________.

A) net income and retained earnings

B) retained earnings and paid-in capital

C) net income and paid-in capital

D) liabilities and retained earnings

27) Arizona Company has the following information available for the month of April:

Sales $100,000

Cost of goods sold $60,000

Interest expense $2,000

Income tax expense $1,000

Wages expense $12,000

Dividends declared $3,000

Equipment purchased $20,000

Rent expense $4,000

The company uses the accrual basis of accounting. What is the net income for the month of April?

A) $21,000

B) $22,000

C) $24,000

D) $27,000

28) The distinction between paid-in capital and retained earnings is not made for ________.

A) corporations

B) corporations and partnerships

C) corporations and sole proprietorships

D) partnerships and sole proprietorships

29) A sole proprietorship is a business organized as a separate legal entity and owned by its stockholders.

30) In the United States, Generally Accepted Accounting Principles are developed primarily by ________.

A) International Accounting Standards Board

B) Financial Accounting Standards Board

C) Securities and Exchange Commission

D) International Accounting Federation

31) An audit guarantees that there are absolutely no mistakes in the financial statements. (T / F)

32) Generally Accepted Accounting Principles in the United States are developed by the International Accounting Standards Committee.

33) One of the limitations of the balance sheet is that the dollar amounts for different assets reflect different levels of inflation. That is the result of the ________ assumption.

A) recognition

B) matching

C) stable monetary unit

D) conservatism

34) The matching concept matches ________ and ________.

A) assets; liabilities

B) assets; expenses

C) revenues; expenses incurred to generate revenues

D) net profit; expenses

35) The ________ assumption implies that a company will continue to use existing resources and pay existing liabilities at maturity in an orderly manner.

A) conservatism

B) relevance

C) going concern

D) materiality

36) The accounting convention of ________ means selecting the method of measurement that provides the most pessimistic immediate results.

A) cost benefit

B) objectivity

C) materiality

D) conservatism