Q: Which of the following is the correct accounting equation?

$$ \text{Assets} = \text{Liabilities} + \text{Equity} $$

Q: If a company has total assets of $$120,000, total liabilities of 45$$,000, and contributed capital of $50,000, what is its retained earnings?

$$ \text{Retained Earnings} = \120$$,000 - \$$45,000 - \50$$,000 = \$$25,000 $$

Q: A company earned $$10,000 in service revenue and incurred 7$$,000 in expenses during the year. What is its net income?

$$ \text{Net Income} = \10$$,000 - \$$7,000 = \3$$,000 $

Q: If a company’s assets increase by $$20,000 and its liabilities increase by 8$$,000, what is the change in equity?

$$ \text{Change in Equity} = \20$$,000 - \$$8,000 = \12$$,000 $

Question 1

Which of the following best describes the purpose of the Securities and Exchange Commission (SEC)?

Accepted Answer

To oversee U.S. financial markets and enforce accounting regulations.

Question 2

A company purchased equipment for $50,000 cash. Which accounts are affected and how?

Accepted Answer

Increase Equipment (Asset), Decrease Cash (Asset)

Question 3

Which of the following is the correct accounting equation?

Accepted Answer

$$ 	ext{Assets} = 	ext{Liabilities} + 	ext{Equity} $$

Question 4

Which principle requires that assets and services be recorded at their actual cost rather than their current market value?

Accepted Answer

Cost Principle

Question 5

A business pays $2,000 in cash to settle an account payable. What is the effect on the accounting equation?

Accepted Answer

Decrease Assets by $$2,000; Decrease Liabilities by 2$$,000

Question 6

Which financial statement reports a company’s assets, liabilities, and stockholders’ equity at a specific point in time?

Accepted Answer

Balance Sheet

Question 7

If a company has total assets of $$120,000, total liabilities of 45$$,000, and contributed capital of $50,000, what is its retained earnings?

Accepted Answer

$$ 	ext{Retained Earnings} = \120$$,000 - \$$45,000 - \50$$,000 = \$$25,000 $$

Question 8

Which assumption states that a business will continue to operate for the foreseeable future?

Accepted Answer

Going Concern Assumption

Question 9

Which of the following is NOT a component of stockholders’ equity?

Accepted Answer

Accounts Payable

Question 10

A company earned $$10,000 in service revenue and incurred 7$$,000 in expenses during the year. What is its net income?

Accepted Answer

$$ 	ext{Net Income} = \10$$,000 - \$$7,000 = \3$$,000 $

Question 11

Which organization is responsible for creating U.S. accounting standards (GAAP)?

Accepted Answer

Financial Accounting Standards Board (FASB)

Question 12

Which type of business organization provides limited liability to all its owners and is not taxed as a corporation?

Accepted Answer

Limited Liability Company (LLC)

Question 13

A company receives $5,000 cash from a customer for services to be performed next month. How should this transaction be recorded?

Accepted Answer

Increase Cash (Asset), Increase Unearned Revenue (Liability)

Question 14

Which financial statement shows the changes in retained earnings for a specific period?

Accepted Answer

Statement of Retained Earnings

Question 15

If a company’s assets increase by $$20,000 and its liabilities increase by 8$$,000, what is the change in equity?

Accepted Answer

$$ 	ext{Change in Equity} = \20$$,000 - \$$8,000 = \12$$,000 $

Question 16

Which of the following is an example of an expense?

Accepted Answer

Rent Expense

Question 17

What is the primary purpose of an audit?

Accepted Answer

To examine a company’s financial statements and records for accuracy.

Question 18

Which of the following transactions would increase both assets and equity?

Accepted Answer

Owner invests cash into the business.

Question 19

Which financial statement reports cash flows from operating, investing, and financing activities?

Accepted Answer

Statement of Cash Flows

Question 20

A company has beginning retained earnings of $$15,000, net income of 8$$,000, and dividends paid of $3,000. What is the ending retained earnings?

Accepted Answer

$$ 	ext{Ending Retained Earnings} = \15$$,000 + \$$8,000 - \3$$,000 = \$$20,000 $$

Fundamentals of Financial Accounting: Key Concepts, Entities, and Statements

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