1. In a Financing Lease the Lessee records an Asset and a Liability
   1. False B) True

2. The balance sheet of ABC reports total assets of $1,500,000 and $1,700,000 at the beginning and end of the year, respectively. Net income and sales for the year are $240,000 and $2,000,000, respectively. What is ABC's return on assets?

A) 16%. B) 15%. C) 12%. D) 14.12%.

3. ABC purchases inventory for $2,000 and incurs shipping costs of $100 for the goods to be delivered. To record this transaction, the company debits Inventory for $2,000, debits Selling Expenses for $100, and credits Cash for $2,100. Which of the following statements is correct?
   1. Net income is overstated. B) Assets are understated.

C) Revenues are understated. D) All accounts are accurately stated.

4. ABC spends $50,000 this year in research and development for a new drug to cure liver damage. By the end of the year, management feels confident that the new drug will gain FDA approval and lead to higher future sales. What impact will the $50,000 spending have on this year's financial statements?
   1. Increase Expenses. B) Decrease Revenues.

C) Increase Revenues. D) Increase Assets.

5. For a journal entry with only two lines, the following entry is valid: Decrease in Owners' Equity, Increase in Dividends.
   1. True B) False