test bank

1) Arrow's net profit of $113 million and average assets of $1,000 million results in a return
on assets of 11.30%.

⊚ true
⊚ false

Answer: TRUE
Return on Assets = Net Profit/Average Total Assets
Return on Assets = $113 million/$1,000 million = 11.30%

2) If a company is considering the purchase of a parcel of land that was acquired by the
seller for $94,000, is offered for sale at $168,000, is assessed for tax purposes at
$104,000, is considered by the purchaser as easily being worth $158,000, and is
purchased for $155,000, the land should be recorded in the purchaser's books at:

A) $104,000.
B) $155,000.
C) $156,500.
D) $158,000.
E) $168,000.

Answer :B

3) If a company uses $1,510 of its cash to purchase supplies, the effect on the accounting
equation would be:

A) Assets increase $1,510 and liabilities decrease $1,510.

B) One asset increases $1,510 and another asset decreases $1,510, causing no effect.
C) Assets decrease $1,510 and equity decreases $1,510.
D) Assets decrease $1,510 and equity increases $1,510.
E) Assets increase $1,510 and liabilities increase $1,510.

Answer B

4) If a company receives $11,800 from the owner to establish a proprietorship, the effect on
the accounting equation would be:

A) Assets decrease $11,800 and equity decreases $11,800.

B) Assets increase $11,800 and liabilities decrease $11,800.
C) Assets increase $11,800 and liabilities increase $11,800.
D) Liabilities increase $11,800 and equity decreases $11,800.
E) Assets increase $11,800 and equity increases $11,800.

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Answer :E

5) If a company purchases equipment costing $5,100 on credit, the effect on the accounting
equation would be:

A) Assets increase $5,100 and liabilities decrease $5,100.

B) Equity decreases $5,100 and liabilities increase $5,100.
C) One asset increases $5,100 and another asset decreases $5,100.
D) Assets increase $5,100 and liabilities increase $5,100.
E) Equity increases $5,100 and liabilities decrease $5,100.

Answer :D

6) If equity is $338,000 and liabilities are $188,000, then assets equal

A) $150,000.
B) $188,000.
C) $338,000.
D) $526,000.
E) $864,000.

Answer: D
Assets = Liabilities + Owner's Equity
Assets = $188,000 + $338,000 = $526,000.

7) If assets are $378,000 and liabilities are $186,000, then equity equals:

A) $192,000.
B) $186,000.
C) $378,000.
D) $564,000.
E) $942,000.

Answer: A

Assets = Liabilities + Owner’s Equity

Equity = $378,000 − $186,000 = $192,000.

8) If assets are $103,000 and liabilities are $34,500, then equity equals:

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A) $34,500.
B) $68,500.
C) 103,000.
D) $137,500.
E) $240,500.

Answer: B

Assets = Liabilities + Owner's Equity

$103,000 = $34,500 + Owner's Equity; Owner's Equity = $68,500

9) The assets of a company total $738,000; the liabilities, $219,000. What is the amount of
equity?

A) $957,000.
B) $738,000.
C) $519,000.
D) $219,000.
E) It is impossible to determine unless the amount of the owners' investment is known.

Answer :C

Assets = Liabilities + Owner's Equity

$738,000 = $219,000 + Owner's Equity (or Claims of the Owners); Owner's Equity = $519,000

10) On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash
$11,300; Accounts Receivable, $6,700; Supplies, $650; Equipment, $11,200; Accounts
Payable, $8,600. What is the amount of owner's equity as of May 31 of the current year?
A) $38,450.
B) $12,100.
C) $11,300.
D) $21,250.
E) $29,850.

Answer: D

Assets = Liabilities + Owner's Equity

Cash + Accounts Receivable + Supplies + Equipment = Accounts Payable + Owner's Equity
$11,300 + $6,700 + $650 + $11,200 = $8,600 + Owner's Equity
$29,850 = $8,600 + Owner's Equity; Owner's Equity = $21,250

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11) On August 31 of the current year, the assets and liabilities of Gladstone, Inc. are as
follows: Cash $29,400; Supplies, $790; Equipment, $9,400; Accounts Payable, $8,200.
What is the amount of owner's equity as of August 31 of the current year?

A) $30,600.
B) $29,810.
C) $31,390.
D) $11,010.
E) $12,590.

Answer: C

Assets - Liabilities = Owner’s Equity

Cash + Supplies + Equipment - Accounts Payable = Owner’s Equity
$29,400 + $790 + $9,400 − $8,200 = $31,390

12) Saddleback Company paid off $39,000 of its accounts payable in cash. What would be
the effects of this transaction on the accounting equation?
A) Assets, $39,000 increase; equity, $39,000 increase.
B) Assets, $39,000 decrease; liabilities, $39,000 decrease.
C) Assets, $39,000 decrease; liabilities, $39,000 increase.
D) Liabilities, $39,000 decrease; equity, $39,000 increase.
E) Assets, $39,000 decrease; equity $39,000 decrease.

Answer: B

Assets = Liabilities + Owner's Equity

Assets would decrease by $39,000 in Cash due to the payment of the accounts payable.
Liabilities would also decrease by $39,000 in Accounts Payable due to the payment of an
obligation. There is no effect on Owner's Equity.

13) If Houston Company billed a client for $26,000 of consulting work completed, the
accounts receivable asset increases by $26,000 and:

A) Accounts payable decreases $26,000.

B) Accounts payable increases $26,000.
C) Cash increases $26,000.
D) Revenue increases $26,000.
E) Revenue decreases $26,000.

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Answer :D

14) 14) Alpha Company has assets of $634,000, liabilities of $267,000, and equity of
$367,000. It buys office equipment on credit for $92,000. What would be the effects of
this transaction on the accounting equation?

A) Assets increase by $92,000 and expenses increase by $92,000.

B) Assets increase by $92,000 and expenses decrease by $92,000.
C) Liabilities increase by $92,000 and expenses decrease by $92,000.
D) Assets decrease by $92,000 and expenses decrease by $92,000.
E) Assets increase by $92,000 and liabilities increase by $92,000.

Answer: E

Assets = Liabilities + Owner's Equity

$634,000 = $267,000 + $367,000
Assets increase by $92,000 (Equipment) due to the purchase.
Liabilities also increase by $92,000 (Accounts Payable) due to the purchase on credit.

15) If the liabilities of a business increased $113,000 during a period of time and the owner's
equity in the business decreased $49,000 during the same period, the assets of the
business must have:

A) Decreased $162,000.
B) Decreased $64,000.
C) Increased $49,000.
D) Increased $64,000.
E) Increased $162,000.

Answer :D

Assets = Liabilities + Owner's Equity

Change in Assets = Change in Liabilities + Change in Owner's Equity
Change in Assets = +$113,000 – $49,000
Change in Assets = Increase of $64,000

16) If the assets of a business increased $93,000 during a period of time and its liabilities
increased $69,000 during the same period, equity in the business must have:

A) Increased $24,000.
B) Decreased $24,000.
C) Increased $93,000.
D) Decreased $162,000.
E) Increased $162,000.

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Answer :A

Assets = Liabilities + Owner's Equity

Change in Assets = Change in Liabilities + Change in Owner's Equity
Increase of $93,000 = Increase of $69,000 + Change in Owner's Equity
Change in Owner's Equity = Increase of $24,000

17) If the liabilities of a company increased $108,000 during a period of time and equity in
the company decreased $36,000 during the same period, what was the effect on the
assets?

A) Assets would have increased $72,000.

B) Assets would have decreased $72,000.
C) Assets would have increased $144,000.
D) Assets would have decreased $144,000.
E) None of the above.

Answer :A

Assets = Liabilities + Owner's Equity

Change in Assets = Change in Liabilities + Change in Owner's Equity
Change in Assets = +$108,000 – $36,000
Change in Assets = +$72,000

18) If assets are $381,000 and equity is $128,000, then liabilities are:

A) $128,000.
B) $253,000.
C) $381,000.
D) $509,000.
E) $634,000.

Answer: B

Assets = Liabilities + Owner's Equity

$381,000 = Liabilities + $128,000
Liabilities = $253,000

19) Rushing had net profit of $192 million and average total assets of $1,950 million. Its
return on assets is:

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A) 9.8%.
B) 98.5%.
C) 10.0%.
D) 102.0%.
E) 19.7%.

Answer: A

Return on Assets = Net Profit/Average Total Assets

Return on Assets = $192 million/$1,950 million = 0.098 = 9.8%

20) Cage Company had net profit of $380 million and average total assets of $2,080 million.
Its return on assets (ROA) is:

A) 1.8%.
B) 37.0%.
C) 18.3%.
D) 5.5%.
E) 3.7%.

Answer: C

Return on Assets = Net Profit / Average Total Assets

Return on Assets = $380 million/$2,080 million = 0.183 = 18.3%

21) Speedy has net profit of $37,955, and assets at the beginning of the year of $219,000.
Assets at the end of the year total $265,000. Compute its return on assets.

A) 14.3%.
B) 15.7%.
C) 17.3%.
D) 9.9%.
E) 18.8%.

Answer: B

Return on Assets = Net Profit/Average Total Assets

Return on Assets = $37,955/[($219,000 + $265,000)/2]
Return on Assets = $37,955/$242,000 = 0.157 = 15.7%

22) Chou Co. has a net profit of $54,000, assets at the beginning of the year are $261,000 and
assets at the end of the year are $311,000. Compute its return on assets.

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A) 10.4%.
B) 20.7%.
C) 17.4%.
D) 18.9%.
E) 1.8%.

Answer: D

Return on Assets = Net Profit/Average Assets

Return on Assets = $54,000/[($261,000 + $311,000)/2]
Return on Assets = $54,000/$286,000 = 0.189 = 18.9%

23)Use the following information as of December 31 to determine equity.

Cash $ 77,000
Buildings 195,000
Equipment 226,000
Liabilities 161,000

A) $77,000.
B) $161,000.
C) $337,000.
D) $498,000.
E) $659,000.

Answer: C

Assets = Liabilities + Owner's Equity

Cash + Equipment + Buildings = Liabilities + Owner's Equity
$77,000 + $226,000 + $195,000 = $161,000 + Owner's Equity
$498,000 = $161,000 + Owner's Equity; Owner's Equity = $337,000

24)Use the following information for Meeker Corp. to determine the amount of equity to report.

Cash $ 57,000
Buildings 118,000
Land 199,000
Liabilities 124,000

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A) $498,000.
B) $262,000.
C) $374,000.
D) $14,000.
E) $250,000.

Answer :E

Assets – Liabilities = Owner’s Equity

Cash + Buildings + Land – Liabilities = Owner’s Equity
$57,000 + $118,000 + $199,000 – $124,000 = $250,000

Determine the net profit of a company for which the following $ 195,000
information is available for the month of July.
Employee salaries expense
Interest expense 25,000
Rent expense 35,000
Consulting revenue 460,000

A) $205,000.
B) $255,000.
C) $275,000.
D) $460,000.
E) $715,000.
Answer :A

Net Profit = Revenues − Expenses

Net Profit = Consulting Revenue − Employee Salaries Expense − Interest Expense − Rent
Expense
Net Income = $460,000 − $195,000 − $25,000 − $35,000; Net Profit = $205,000

26) Zippy had cash inflows from operations of $82,500; cash outflows from investing activities
of $67,000; and cash inflows from financing of $45,000. The net change in cash was:

26) ______

A) $60,500 increase.
B) $60,500 decrease.
C) $194,500 decrease.
D) $194,500 increase.
E) $29,500 decrease.

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Answer: A

Net Change in Cash = Cash Flows from Operating Activities + Cash Flows from Investing
Activities + Cash Flows from Financing Activities
Net Change in Cash = $82,500 + ($67,000) + $45,000; Net Change in Cash = $60,500

27) Zapper has beginning equity of $273,000, net profit of $59,000, withdrawals of $48,000 and
investments by owners of $14,000. Its ending equity is:

A) $239,000.
B) $248,000.
C) $284,000.
D) $298,000.
E) $366,000.

Answer: D

Ending Equity = Beginning Equity + Investments by Owners + Net Income − Withdrawals

Ending Equity = $273,000 +$14,000 + $59,000 − $48,000; Ending Equity = $298,000

28) A company's balance sheet shows: cash $48,000, accounts receivable $29,000, office
equipment $63,000, and accounts payable $30,000. What is the amount of owner's equity?

A) $30,000.
B) $42,000.
C) $110,000.
D) $140,000.
E) $170,000.

Answer: C

Assets = Liabilities + Owner's Equity

Cash + Accounts Receivable + Office Equipment = Accounts Payable + Owner's Equity
$48,000 + $29,000 + $63,000 = $30,000 + Owner's Equity
$140,000 = $30,000 + Owner's Equity; Owner's Equity = $110,000

29) A company reported total equity of $149,000 at the beginning of the year. The company
reported $214,000 in revenues and $167,000 in expenses for the year. Liabilities at the end of the
year totaled $94,000. What are the total assets of the company at the end of the year?

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A) $47,000.
B) $94,000.
C) $102,000.
D) $214,000.
E) $290,000.

Answer: E

Assets = Liabilities + Owner's Equity

Assets = $94,000 + (Beginning Equity + Revenues - Expenses)
Assets = $94,000 + ($149,000 + $214,000 − $167,000)
Assets = $94,000 + $196,000; Assets = $290,000

30) Flitter reported net profit of $18,500 for the year. At the beginning of the year the company
had $202,000 in assets and $52,000 in liabilities. By the end of the year, assets had increased to
$302,000 and liabilities were $77,000. Calculate its return on assets:

A) 9.2%.
B) 7.3%.
C) 6.1%.
D) 35.1%.
E) 23.7%.

Answer: B

Return on Assets = Net Profit/Average Total Assets

Return on Assets = $18,500/[($202,000 + $302,000)/2]
Return on Assets = $18,500/$252,000 = 0.073 = 7.3%

31) Dawson Electronic Services had revenues of $114,000 and expenses of $67,000 for the year.
Its assets at the beginning of the year were $417,000. At the end of the year assets were worth
$467,000. Calculate its return on assets.

A) 10.6%.
B) 11.3%.
C) 10.1%.
D) 27.3%.
E) 25.8%.

Answer: A

Return on Assets = Net Profit/Average Total Assets

Return on Assets = (Revenues - Expenses)/Average Total Assets
Return on Assets = ($114,000 - $67,000)/[($417,000 + $467,000)/2]
Return on Assets = $47,000/$442,000 = 0.1063 = 10.6%

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32) Rico’s Taqueria had cash inflows from operating activities of $44,000; cash outflows
from investing activities of $39,000, and cash outflows from financing activities of $29,000.
Calculate the net increase or decrease in cash.

A) $112,000 increase.
B) $54,000 increase.
C) $24,000 decrease.
D) $24,000 increase.
E) $68,000 decrease.

Answer: C

Net Increase/(Decrease) in Cash = Cash Flows from Operating Activities + Cash Flows from
Investing Activities + Cash Flows from Financing Activities
Net Increase/(Decrease) in Cash = $44,000 + ($39,000) + ($29,000)
Net Increase/(Decrease) in Cash = ($24,000)

33) Charlie's Chocolates' owner made investments of $58,000 and withdrawals of $24,000. The
company has revenues of $91,000 and expenses of $68,000. Calculate its net profit.

A) $34,000.
B) $91,000.
C) $68,000.
D) $23,000.
E) $57,000.

Answer: D

Net profit = Revenues − Expenses

Net profit = $91,000 &minus $68,000; Net profit = $23,000

34) Savvy Sightseeing had beginning equity of $91,000; revenues of $147,000, expenses of
$84,000, and withdrawals by owners of $10,900. Calculate the ending equity.

A) $143,100.
B) $63,000.
C) $154,000.
D) $17,100.
E) $28,000.

Answer :A

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Ending Equity = Beginning Equity + Revenues − Expenses − Withdrawals by Owners
Ending Equity = $91,000 + $147,000 − $84,000 − $10,900
Ending Equity = $143,100

35) A company's balance sheet shows: cash $29,000, accounts receivable $35,000, equipment
$60,000, and equity $77,000. What is the amount of liabilities?

A) $124,000.
B) $101,000.
C) $47,000.
D) $73,000.
E) $201,000.

Answer: C

Assets− Equity = Liabilities

Cash + Accounts Receivable + Equipment − Equity = Liabilities
$29,000 + $35,000 + $60,000 − $77,000 = $47,000

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