Multiple Choice

1. Assets at the beginning of the period amount to $20,000 and $25,000 at the end of the period.
Liabilities at the beginning of the period amount to $12,000 and $10,000 at the end of the
period. What is the amount of the change and the direction of the change in owners' equity for
the period?
a. increase of $2,000
b. decrease of $2,000
c. increase of $5,000
d. decrease of $7,000
e. increase of $7,000

Solution: e

2. Chuck’s Upholstery acquired 60 chairs from a manufacturer at a cost of $100 per chair and
purchased the chairs on credit. The effect of this transaction on Chuck’s Upholstery would be
to:
a. increase inventory by $6,000, and increase capital by $6,000
b. increase inventory by $6,000, and decrease capital by $6,000
c. increase inventory by $6,000 and decrease cash by $6,000
d. increase inventory by $6,000, and increase accounts payable by $6,000
e. increase inventory by $6,000, and decrease accounts payable by $6,000

Solution: d

3. A corporation is an organization:
a. with owners assuming personal liability for business losses
b. that joins two or more people together as co-owners
c. that is an "artificial person" created by individual state laws
d. that gives stockholders control of everyday management decisions

Solution: c

4 A stock or share dividend will:

a. reduce total assets
b. have no effect on total assets
c. have no effect on total assets or total owners’ equity
d. increase total owners’ equity
(c)

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5. The accounting concept which maintains that each organization or section of an organization
stands apart from other organizations and individuals is known as the:
a. reliability principle
b. going-concern concept
c. entity concept
d. monetary unit concept
(c )

6. The principle which states that assets acquired by the business should be recorded at their
actual price to the business is the:
a. objectivity principle
b. stable dollar principle
c. cost principle
d. reliability principle
(c)

7. The assumption which states that the entity will not be liquidated in the near future is the:
A. Historical cost assumption
B. Accounting entity assumption
C. Going concern assumption
D. Objectivity assumption
E. Accounting period assumption
( c)

8. The term "matching process" refers to the matching of

A. Cash inflows and outflows
B. Assets and liabilities
C. Profit and drawings
D. Liabilities and owner's equity
E. Revenues and expenses
(e )

9. Revenue is recognised when earned, and expenses are recognised when incurred, regardless
of the time the money is received or paid. This is an application of:
A. Cash basis accounting
B. The matching process
C. Accrual accounting
D. The cash flow principle
E. None of the above
(c )

10 . Which of the following statements regarding accounts is false?

a. An asset is increased by a debit and decreased by a credit.
b. Expenses are increased by credits and decreased by debits.
c. A liability is decreased by a debit and increased by a credit.
d. Revenue is increased by a credit and an expense is increased by a debit.
( b)

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