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A decision whether to borrow money or sell stock is an examp

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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.