equation.
Which of the following statements about liabilities is true?
They represent obligations to repay debts.
They may increase when assets increase.
They are found on the claims side of the accounting equation.
All of the answers are characteristics of liabilities.
When a business borrows money from a creditor it accepts an obligation (liability) to repay the money to the creditor in the future. Borrowing money causes the
business’ assets and its liabilities to increase. In the accounting equation, assets must equal claims. Liabilities and stockholders’ equity represent the claims on
assets.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting
equation.
Which term describes assets generated through operations that have been reinvested into the business?
rev: 06_18_2020_QC_CS-215070
Liability
Dividend
Common stock
Retained earnings
When a company has an increase in assets generated through operations and chooses to reinvest the profits into the business it is referred to as retained
earnings. If the business chooses to distribute the increase in assets from operations to the owners of the business, it is called a dividend. A liability would
represent an obligation to repay debt to an external party. Common stock represents the proportionate share of ownership each stockholder has in the
business.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting
equation.
16.
Award: 1.00 point
17.
Award: 1.00 point
18.
Award: 1.00 point
Which of the following is an accurate depiction of the accounting equation?
Assets = Liabilities + Common Stock + Retained Earnings
Assets = Liabilities + Common Stock − Expenses
Assets = Liabilities + Retained Earnings − Dividends
Assets = Liabilities + Common Stock + Dividends
The accounting equation expresses the equality between a business’s assets and the claims on its assets. The accounting equation can be developed as
follows:
Assets = Claims
Assets = Liabilities + Stockholders’ Equity
Assets = Liabilities + Common Stock + Retained Earnings
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting
equation.
Which term describes a distribution of the business’s assets back to the owners of the business?
Liability
Dividend
Retained earnings
Common stock
When a company redistributes its assets back to the owners of the business it is referred to as a dividend. A liability would represent an obligation to repay
debt to an external party. Retained earnings are the profits that have been retained within the company rather than distributed to the owners. Common stock
represents the proportionate share of ownership each stockholder has in the company.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting
equation.
Finn Company reported assets of $1,000 and stockholders’ equity of $600. What amount will Finn report for liabilities?
$400
$600
$1,600
Cannot be determined
In the accounting equation, assets equal claims (liabilities + stockholders’ equity). If assets are $1,000, total claims must also be $1,000. Therefore, liabilities
must be $1,000 − $600, or $400.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-03 Identify the elements of the accounting
equation.
19.
Award: 1.00 point
20.
Award: 1.00 point
21.
Award: 1.00 point
Which of the following items is an example of revenue?
Cash received from a bank loan
Cash received from investors from the sale of common stock
Cash received from customers at the time services were provided
Cash received from the sale of land for its original selling price
Cash received from providing services to customers is an example of revenue, and is an asset source transaction. Cash received from a bank loan results in a
liability, notes payable. Cash investments made by owners increase the stockholders' equity account common stock. Cash received from the sale of land for its
original selling price is an asset exchange transaction that decreases one asset, land, and increases another asset, cash.
References
Multiple Choice Difficulty: 1 Easy Learning Objective: 01-04 Show how business events affect the