of wealth from the business to its owners. Purchasing land is not an expense because it is not an economic sacrifice incurred to produce revenue.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-07 Prepare an income statement, a
statement of changes in stockholders equity, and a balance sheet.
Which of the following shows the effects of paying a cash dividend on the balance sheet and income statement?
Balance Sheet Income Statement
Assets = Liabilities + Stockholders' Equity Revenue Expense = Net Income
A. − + n/a n/a n/a n/a
B. − n/a − n/a + −
C. − n/a + n/a + −
D. − n/a − n/a n/a n/a
Option A
Option B
Option C
Option D
A cash dividend decreases the asset account Cash and decreases the stockholders’ equity account Retained Earnings. Paying a dividend is not recognized as
an expense. Therefore, it has no effect on the income statement.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-07 Prepare an income statement, a
statement of changes in stockholders equity, and a balance sheet.
56.
Award: 1.00 point
57.
Award: 1.00 point
58.
Award: 1.00 point
Which of the following shows the effects of providing services for cash on the balance sheet and income statement?
Balance Sheet Income Statement
Assets = Liabilities + Stockholders' Equity Revenue Expense = Net Income
A. + n/a n/a + n/a +
B. + n/a + + n/a +
C. − n/a + n/a + −
D. + n/a + n/a n/a n/a
Option A
Option B
Option C
Option D
Providing services for cash increases assets (Cash) and stockholders’ equity (Retained Earnings). It also increases revenues, which increases net income.
References
Multiple Choice Learning Objective: 01-07
Prepare an income statement, a
statement of changes in
stockholders equity, and a
balance sheet.
The statement of changes in stockholders’ equity shows changes in which of the following accounts?
Retained Earnings and Assets
Assets and Liabilities
Common Stock and Retained Earnings
Liabilities and Common Stock
Stockholders’ equity is made up of two accounts: Common Stock and Retained Earnings. The statement of changes in stockholders’ equity shows changes in
those two accounts over the period.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-07 Prepare an income statement, a
statement of changes in stockholders equity, and a balance sheet.
Which of the following transactions would be reported on the statement of changes in stockholders’ equity?
Borrowed $5,000 cash from the bank
Paid a $100 cash dividend to the stockholders
Purchased land for $2,000 cash
Paid $1,500 cash to pay off a portion of its note payable
Dividends are reported as a deduction from retained earnings on the statement of changes in stockholders’ equity. The other transactions listed (borrowing
cash from the bank, purchasing land for cash and paying off a portion of a note payable) do not affect stockholders’ equity.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-07 Prepare an income statement, a
statement of changes in stockholders equity, and a balance sheet.
59.
Award: 1.00 point
60.
Award: 1.00 point
61.
Award: 1.00 point
Dividends are reported on which financial statement?
Balance Sheet
Income Statement
Statement of Changes in Stockholders’ Equity
Both the income statement and statement of changes in stockholders’ equity
Dividends are reported as a deduction from retained earnings on the statement of changes in stockholders’ equity.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-07 Prepare an income statement, a
statement of changes in stockholders equity, and a balance sheet.
Salaries expense appears in the:
Liabilities section of the balance sheet
Financing activities section of the statement of cash flows
Asset section of the balance sheet
Expense section of the income statement
The income statement matches revenue (benefits) with the expenses (sacrifices) that were incurred to generate the revenue.