the store on the first day of the year. How many reporting entities exist in this scenario?
One reporting entity
Two reporting entities
Three reporting entities
Four reporting entities
The three reporting entities are Jack Henry, Walt Bank, and Wooden Wheels. A separate set of accounting records would be kept for each entity.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-02 Identify reporting entities.
Jack Henry borrowed $800,000 from Walt Bank to open a new bike store called Wooden Wheels. Jack transferred $650,000 of the cash he borrowed to
Wooden Wheels on the first day of the year. Which of the following appropriately reflects the cash transactions between these reporting entities?
Option Jack Henry Wooden Wheels Walt Bank
A. $ 150,000 increase $ 650,000 increase $ 800,000 decrease
B. $ 800,000 increase $ 650,000 increase $ 150,000 decrease
C. $ 800,000 decrease $ 800,000 increase $ 650,000 decrease
D. $ 650,000 increase $ 150,000 increase $ 800,000 decrease
Option A
Option B
Option C
Option D
Jack Henry’s cash increase of $150,000 is calculated by subtracting the $650,000 in cash he transferred to Wooden Wheels from the $800,000 in cash he
borrowed from Walt Bank. Wooden Wheels will report an increase in cash of $650,000 from the transfer of cash from Jack Henry. Finally, Walt Bank will report
a decrease in cash of $800,000 due to the loan it provided Jack Henry.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-02 Identify reporting entities.
10.
Award: 1.00 point
11.
Award: 1.00 point
12.
Award: 1.00 point
Ellen Gatsby and her siblings, Ben and Sarah, started Gatsby Company when they each invested $100,000 in the company. After the investments there will be
One reporting entity
Two reporting entities
Three reporting entities
Four reporting entities
The four reporting entities are Ellen Gatsby, her siblings Ben and Sarah, and Gatsby Company.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-02 Identify reporting entities.
Which of the following is an accurate definition of the term “asset?”
An obligation to creditors
A resource that will be used to produce revenue
A transfer of wealth from the business to its stockholders
A sacrifice incurred from operating the business
Assets are resources that a business uses to conduct its operations. Examples include cash, inventory, equipment, building, land, etc. In the process of
conducting operations, a business uses some assets in order to produce greater quantities of other assets. For example, Walmart may use (sell) some of its
inventory in order to receive cash from a customer. The cash received is revenue. In this case, the remaining inventory is a resource (asset) that will be used
(sold) in the future to produce revenue.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting
equation.
Which of the following is (are) source(s) of assets to a business?
Creditors
Investors
Operations
All the answers represent sources of assets.
Businesses obtain assets from three sources. They acquire assets from owners (stockholders); they borrow assets from creditors; and they earn assets through
profitable operations. Asset source transactions increase total assets and total claims.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting
equation.
13.
Award: 1.00 point
14.
Award: 1.00 point
15.
Award: 1.00 point
If total assets decrease, then which of the following statements is true?
Liabilities must increase and retained earnings must decrease.
Common stock must decrease and retained earnings must increase.
Liabilities, common stock, or retained earnings must decrease.
Liabilities, common stock, or retained earnings must increase.
If total assets decrease, then assets were used. Since the accounting equation must balance (i.e. assets must equal claims), the decrease on the asset (left)
side of the accounting equation must be offset by a decrease on the claims (right) side of the equation. Since liabilities, common stock, and retained earnings
appear on the right side of the equation, a decrease in an asset account must be offset by a decrease in one of these right-side accounts.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting