Multiple Choice Questions

1. What type of activities relate to what the firm is in business to do?

a. Investing activities

b. Operating activities

c. Financing activities

d. Protection activities

2. Which financial statement is similar to the accounting equation?

a. The income statement

b. The balance sheet

c. The statement of changes in shareholders’ equity

d. The statement of cash flows

3. The Pets Plus Superstore, Inc., acquires 50 doggie beds from a supplier for $500 in cash. What is the give portion of this transaction?

a. Pets Plus giving the doggie beds to customers in return for cash

b. The supplier giving the doggie beds to Pets Plus

c. Pets Plus giving $500 in cash to the supplier

d. The supplier giving $500 to Pets Plus

4. The two parts of shareholders’ equity are

a. assets and liabilities.

b. net income and common stock.

c. contributed capital and retained earnings.

d. revenues and expenses.

5. Which financial statement is a snapshot of the financial position of a company at a specific point in time?

a. Income statement

b. Balance sheet

c. Statement of changes in shareholders’ equity

d. Statement of cash flows

6. Online Pharmacy Company borrowed $5,000 cash from the National Bank. As a result of this transaction,

a. assets would decrease by $5,000.

b. liabilities would increase by $5,000.

c. equity would increase by $5,000.

d. revenue would increase by $5,000.

7. Accounting information is

a. useful in profitable businesses only.

b. considered the most important part of a company’s information system by all managers.

c. an integral part of business.

d. used only by CPAs.

8. During its first year of business, West Company earned service revenues of $2,000. If the company collected $700 related to those sales, how much revenue would be shown on West’s income statement for the year?

a. $2,000

b. $700

c. $1,300

d. Cannot be determined with the given information

9. Interest is the cost of

a. purchasing inventory.

b. making a sale.

c. being in business.

d. using someone else’s money.

10. The balance sheet of United Studios at December 31 showed assets of $30,000 and shareholders’ equity of $20,000. What were the liabilities at December 31?

a. $30,000

b. $10,000

c. $20,000

d. $50,000