Chapter 2 Basic Financial Statements Determine whether the following sentences are true or false. 1. The going concern principle assumes that the business will continue indefinitely. 2. Liabilities are usually listed in order of magnitude, from smallest dollar amount to largest dollar amount. 3. Total assets plus total liabilities must equal total owners' equity. 4. The payment of a liability causes an increase in owners' equity. Multiple Choice questions 1. A balance sheet is designed to show A) How much a business is worth B) The profitability of the business during the current year. C) The assets, liabilities, and owners' equity of a business as of a particular date. D) The cost of replacing the assets and of paying off the liabilities at December 31. 2. Which of the following best defines an asset? A) Something with physical form that is valued at cost in the accounting records. B) An economic resource owned by a business and expected to benefit future operations C) An economic resource representing cash or the right to receive cash in the near future. D) Something owned by a business that has a ready market value. 3. Eton Corporation purchased land in 1998 for $190,000. In 2018, it purchased a nearly identical parcel of land for $430,000. In its 2018 balance sheet, Eton valued these two parcels of land at a combined value of $860,000. Reporting the land in this manner violated the A) Cost principle B) Principle of the business entity, C) Objectivity principle. D) Going-concern assumption. 4. Which of the following will not cause a change in the owners' equity of a business? A) Purchase of land with cash. B) Withdrawal of cash by the owner. C) Sale of land at a profit. D) Losses from unprofitable operations. 5. If total assets equal $270,000 and total liabilities equal S202,500, the total owners' equity must equal: A) $472.500. B) $67,500 C) $270,000 D) Cannot be determined from the information given