Assets = Liabilities + Stockholders' Equity Revenue − Expense = Net Income
A. − + n/a n/a − −
B. + n/a + n/a n/a n/a
C. n/a n/a n/a + n/a +
D. +/− n/a n/a n/a n/a n/a
Option A
Option B
Option C
Option D
Investing in another company's stock would be an asset exchange transaction that would increase one asset (investments) and decrease another asset (cash).
Therefore, it would have no net impact on assets. It would not affect the income statement, but would be reported as a cash outflow for investing activities on
the statement of cash flows.
References
Multiple Choice Difficulty: 2 Medium Learning Objective: 01-10 Record business events using a horizontal
financial statements model.
127.
Award: 1.00 point
128.
Award: 1.00 point
Northern Corporation invested $800 cash in South Company stock.
As a result of this transaction:
The balance in the Cash account on Northern Corporation's books would decrease, while the balance in the Cash account on South Company's
books would increase.
South Company would have a cash inflow from investing activities.
Northern Corporation would have a cash outflow from financing activities.
All of these statements are true.
When Northern Corporation purchases stock in South Company, Northern Corporation's cash balance will decrease and South Company's cash balance will
increase. Northern Corporation will report it as a cash outflow for investing activities, and South Company will report it as a cash inflow from financing activities.
References
Multiple Choice Learning Objective: 01-04 Show
how business events affect the
accounting equation.
Difficulty: 2 Medium Learning Objective: 01-08
Prepare a statement of cash
flows.
Which of the following would not describe the effects of an asset source transaction on a company's financial statements?
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 n/a n/a
C. + n/a + + n/a +
D. n/a n/a n/a n/a n/a n/a
Option A
Option B
Option C
Option D
An asset source transaction is any transaction that results in a net increase in assets. It could be accompanied by an increase in liabilities (as in the case of
borrowing cash), an increase in stockholders' equity with no effect on the income statement (as in the case of issuing common stock), or an increase in
stockholders' equity that does increase net income (as in the case of earning revenue). It could be reported as either a financing activity or an operating activity
on the statement of cash flows.
References
Multiple Choice Learning Objective: 01-04 Show
how business events affect the
accounting equation.
Difficulty: 2 Medium Learning Objective: 01-10 Record
business events using a
horizontal financial statements
model.
129.
Award: 1.00 point
130.
Award: 1.00 point
131.
Award: 1.00 point
In a market, creditors are resource providers.
True
False
This is true. Resource providers include creditors and investors.
References
True / False Difficulty: 2 Medium Learning Objective: 01-01 Identify the ways accounting benefits
society.
In a market, a company that manufactures cars would be referred to as a business.
True
False
This is true. Businesses transform resources into goods and services, such as cars, that are desirable to consumers.
References
True / False Difficulty: 1 Easy Learning Objective: 01-01 Identify the ways accounting benefits
society.
The value created by a business may be called assets.
True
False
This is false. A business creates value by earning income, so earnings or income describe that value, not assets.
References
True / False Difficulty: 2 Medium Learning Objective: 01-01 Identify the ways accounting benefits
society.
132.
Award: 1.00 point
133.
Award: 1.00 point
134.
Award: 1.00 point
The stockholders of a business have a priority claim to its assets in the event of liquidation.