1. On a balance sheet, assets are listed in the order of a. dollar amount (largest first). b. date of acquisition (earliest first). c. ease of conversion to cash. d. importance to the operation of the business. 2. On the statement of cash flows, a company would report the purchase of machinery as cash used in a. operating activities. b. financing activities. c. purchasing activities. d. investing activities. 3. The two categories of stockholders' equity usually found on the balance sheet of a corporation are a. contributed capital and long-term liabilities. b. contributed capital and property, plant, and equipment. c. retained earnings and notes payable. d. contributed capital and retained earnings. 4. Most businesses earn revenues a. when they collect accounts receivable. b. through sales of goods or services to customers. c. by borrowing money from a bank. d. by selling shares of stock to shareholders. 5. What are the categories of cash flows that appear on a statement of cash flows? a. cash flows from investing, financing, and service activities. b. cash flows from operating, production, and internal activities. c. cash flows from financing, production, and growth activities. d. cash flows from operating, investing, and financing activities. 6. The amount of rent expense reported on the income statement is a. the amount of cash paid for rent in the current period. b. the amount of cash paid for rent in the current period less any unpaid rent at the end of the period. c. the amount of rent used up (incurred) in the current period to help generate revenue. d. an increase in net income. 7. If you wanted to know what accounting rules a company follows related to its inventory, where would you look? a. the balance sheet. b. the income statement. c. the notes to the financial statements. d. the headings to the financial statements.8. What financial statement would you look at to determine the total expenses of a business?a. income statement. b. statement of retained earnings. c. statement of cash flows. d. balance sheet. 9. Abrahams Corporation reported the following amounts at the end of the first year of operations, December 31, 2003: contributed capital $50,000; sales revenue $200,000; total assets $150,000; $10,000 dividends; and total liabilities $80,000. Retained earnings and total expenses would be a. retained earnings $20,000 and expenses $170,000 b. retained earnings $30,000 and expenses $160,000. c. retained earnings $70,000 and expenses $120,000. d. retained earnings $80,000 and expenses $110,000 10. The government regulatory agency that has the legal authority to prescribe financial reporting requirements for corporations that sell their securities in interstate commerce is the a. FASB. b. FTC. c. SEC. d. APB. 11. An examination of the financial statements of a business to ensure that they conform withgenerally accepted accounting principles is called a. a certification. b. an audit. c. a verification. d. a validation.12. One of the disadvantages of a corporation when compared to a partnership is that a. the stockholders have limited liability. b. the stockholders are treated as a separate legal entity from the corporation. c. the corporation and its stockholders are subject to double taxation. d. the corporation must account for the business's transactions separate and apart from those of the owners. 13. Failure to make an adjusting entry to recognize accrued income taxes payable would cause an a. understatement of expenses, liabilities and stockholders' equity. b. overstatement of expenses and liabilities. c. understatement of expenses and liabilities and an overstatement of stockholders' equity. d. understatement of assets and stockholders' equity. 14. Which of the following is not a liability? a. accounts payable. b. Retained earnings. c. Notes payable. d. Unearned revenue.15. adjusting entries a. are primarily used to change account balances because of accounting errors that have been made. b. usually are recorded as of the last day of the accounting period. c. always change at least one income statement account balance and one balance sheet account balance. d. only B and C are correct. 16. Which of the following direct effects on the fundamental accounting model is not possible as a result of transaction analysis? a. Increase a liability and increase an asset. b. Decrease stockholders' equity and increase an asset. c. Increase an asset and decrease an asset. d. Decrease stockholders' equity and decrease an asset. 17. The principle which holds that all of the expenses incurred in earning revenue should be identified with the revenue recognized and reported for the same period is the a. revenue principle. b. liability principle. c. timing principle. d. matching principle.18. When a company buys equipment for $60,000 and pays for one third in cash and the other two thirds is financed by a note payable, the following are the effects on the equationa. equipment increases by $60,000 b. liabilities increase by $40,000 c. total assets increase by $40,000 d. all of the above effects occur on the equation 19. The accounts payable account has a beginning balance of $2,000 and we purchased $5,000 of inventory on credit during the month. The ending balance was $1,200. How much did we pay our creditors during the month? a. $5,800 b. $3,800 c. $800 d. None of the above amounts is correct. 20. Payment of a liability would a. Decrease stockholders' equity. b. Decrease assets. c. Not affect assets. d. Increase stockholders' equity21. If Gilden Company paid $500 for the telephone bill, this would a. decrease assets. b. increase assets. c. decrease expenses. d. increase liabilities. 22. For each transaction recorded in an accounting system, the two basic equalities that must be maintained at all times are a. (1) Assets = Liabilities + Stockholders' Equity. (2) Net Income = Revenues + Expenses. b. (1) Cash Increase = Cash Inflows - Cash Outflows. (2) Net income = Revenues + Expenses. c. (1) Assets = Liabilities + Stockholders' Equity. (2) Debits = Credits. d. (1) Net Income = Revenues + Expenses. (2) Debits = Credits. 23. On April 1, 2003, the premium on a one-year insurance policy on equipment was paid amounting to $1,800. at the end of 2003 (end of the accounting period), the financial statements for 2003, would report a. Insurance expense, $1,350; Prepaid insurance $450. b. Insurance expense, $1,800; Prepaid insurance $0. c. Insurance expense, $0; Prepaid insurance $1,800. d.