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    1. A decision whether to borrow money or sell stock is an example of

    a financing decision
    an investing decision
    an operating decision
    a future decision

    2. After months of planning, Alana opened a Natural Foods store on April 1 by investing $15,000 of her own money. She spent $10,000 on furnishings and fixtures that had been delivered and set up the night before. A friend had loaned Alana $5,000, which she used to purchase inventory prior to opening. When Alana opened for business on April 1, her accounting system should have contained what balances for total assets and total liabilities.

    Total Assets Total Liabilities

    $20,000 $0
    >$20,000 $5,000
    $15,000 $5,000
    $15,000 $0

    3. The following amounts of capital were obtained to start operations of Lightning Enterprises at the beginning of 2007:
    Owners' contribution of cash $80,000
    Owners' contribution of machinery & equipment 18,000
    Loan from the bank 46,000
    What is the amount of liabilities for this firm?

    Which of the following is an operating activity?

    purchase of equipment
    payment of cash dividends
    sale of equipment
    purchase of inventory

    5. Net cash flow is generally NOT thought to be a valid measure of an organization's performance for a period because it
    is usually smaller than the amount of net income
    includes the results of activities not related to operations
    focuses only on the net change in owners' equity
    violates the periodic measurement concept

    Orlando owns a supper club and needed to obtain funds for the business. A bank loaned the supper club $20,000. Concerning the supper club, which of the following increased because of this loan?

    owners' equity

    7. A firm must depend on its ____ activities to generate profits.

    During May, the Family Resort had revenues of $20,000 and expenses of $8,000. The owner withdrew $7000 cash from the business during the month. If owners' equity on May 31 was $18,200, owners' equity on May 1 must have been


    Assets are resources controlled by an organization and available for its use in the future.


    Investing decisions involve choices about when and where to obtain financial resources and the amount needed.


    The purpose of financial reports is to provide information useful to current and potential investors and creditors in making decisions.


    13. The Fast Freight Company purchased a new delivery truck by making a cash down payment and signing a note payable for the balance. How will assets, liabilities, and owners' equity be affected by this transaction?

    Assets Liabilities Equity
    decreased increased no change

    Assets Liabilities Equity
    increased increased no change

    Assets Liabilities Equity
    increased decreased increased

    Assets Liabilities Equity
    no change increased decreased

    Assets Liabilities Equity
    no change decreased increased

    Which of the following accounts is a liability?
    interest expense
    interest payable
    interest revenue
    interest receivable

    Which of the following accounts would be increased as a result of the sale of inventory to a customer?

    cost of goods sold
    owners' equity
    accounts payable

    Match the event below to the proper category of activity.

    Operating Activity Financing Activity

    paying employee salaries paying off a bank loan
    obtaining a loan designing a new product
    buying factory equipment refunding a customer's money
    paying off a bank loan buying new tools

    17. What effect do revenues and expenses eventually have on Retained Earnings?

    Revenues Expenses
    decrease decrease

    Revenues Expenses
    decrease increase

    Revenues Expenses
    increase increase

    Revenues Expenses
    increase decrease

    Tyler & Company had the following account balances at the end of September:
    Cash received from customers $5,400
    Sales revenue (all on account) 7,000
    Purchase of land (all for cash) 700
    Cash paid for equipment 2,200
    Cost of goods sold 3,000
    Other operating expenses 900

    What amounts should be reported for each of the following?

    Net Income Cash Flow

    $8,500 $1,600
    $3,800 $3,200
    $6,300 $(500)
    $3,100 $2,500

    19. Which of these is NOT an expense?

    cost of goods sold
    wages paid to employees for services consumed
    merchandise inventory purchased
    taxes paid to government

    20. At the end of an accounting period, the amount of net income earned by a company is transferred to the balance sheet and reported under which one of the following categories?

    owners' equity
    all of the above

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    Solution Summary

    The Solution addresses various questions about expenses, accounting periods, and financial reports in general.