d. Paying a dividend to stockholders is an example of an asset use transaction.
e. Making a payment on a bank loan is an example of an asset exchange transaction.
a. T
b. F
c. F
d. T
e. F
The issuance of stock to stockholders for cash is an example of an assets source, not asset exchange, transaction. Purchasing equipment for cash is an
example of an asset exchange transaction in which one asset (cash) decreases and another asset (equipment) increases. Making a payment on a bank loan is
an example of an asset use, not asset exchange, transaction.
References
Essay Difficulty: 1 Easy Learning Objective: 01-06 Classify business events as asset source,
use, or exchange transactions.
39.
Award: 10.00 points
40.
Award: 10.00 points
Indicate whether each of the following statements about financial statements is true or false.
a. A cash dividend paid to stockholders is shown in the investing activities section of the statement of cash flows.
b. A cash dividend paid to stockholders is shown on the statement of changes in stockholders' equity.
c. A cash dividend paid to stockholders is shown on the income statement.
d. The balance sheet shows ending balances of permanent accounts as of the last day of the accounting period.
e. Changes in retained earnings for the accounting period are shown on the income statement.
a. F
b. T
c. F
d. T
e. F
A cash dividend paid to stockholders is shown in the financing activities section of the statement of cash flows. A cash dividend paid to stockholders is shown
on the statement of changes in stockholders’ equity, not on the income statement. That is shown on the statement of cash flows. Changes in retained earnings
for the accounting period are shown on the statement of changes in stockholders’ equity, not on the income statement.
References
Essay Learning Objective: 01-07
Prepare an income statement, a
statement of changes in
stockholders equity, and a
balance sheet.
Difficulty: 2 Medium Learning Objective: 01-08
Prepare a statement of cash
flows.
Indicate whether each of the following statements about stockholders’ equity is true or false.
a. Operating expenses reported on the income statement decrease retained earnings.
b. Stockholders’ equity and liabilities can be viewed either as sources of assets or claims to assets of the business.
c. Retained earnings is increased by loans received from a bank.
d. Dividends paid to stockholders decrease common stock.
e. Stockholders’ equity is the residual interest in the company resulting from the difference between assets and liabilities.
a. T
b. T
c. F
d. F
e. T
Loans received from a bank increase assets and liabilities, but do not affect retained earnings. Dividends paid to stockholders decrease retained earnings, not
common stock.
References
Essay Learning Objective: 01-04 Show
how business events affect the
accounting equation.
Difficulty: 2 Medium Learning Objective: 01-07
Prepare an income statement, a
statement of changes in
stockholders equity, and a
balance sheet.
41.
Award: 10.00 points
42.
Award: 10.00 points
Jessup Company was founded in Year 1. It acquired $45,000 cash by issuing stock to investors and an additional $15,000 cash by borrowing from creditors.
During Year 1, it received $25,000 cash revenues and paid $32,000 in cash expenses. The company then went out of business.
Required:
a. Explain the term, “business liquidation.”
b. What amount of cash should Jessup Company have had on hand immediately before going out of business?
c. What amount of cash will Jessup’s creditors receive?
d. What amount of cash will Jessup’s stockholders receive?
a. Liquidation is the process of dividing up assets and allocating them to resource providers (creditors and investors).
b. Amount of cash on hand = $45,000 + $15,000 + $25,000 − $32,000 = $53,000
c. Creditors would have first claim on Jessup’s cash. Therefore, they would receive $15,000.
d. Stockholders would receive the remaining cash, or a total of $38,000
References
Essay Learning Objective: 01-04 Show
how business events affect the
accounting equation.
Difficulty: 2 Medium Learning Objective: 01-05
Interpret information shown in an
accounting equation.
The transactions listed below apply to Bates Company for its first year in business. Assume that all transactions involve the receipt or payment of cash.
Transactions for Year 1:
1. Issued common stock to investors for $25,000 cash
2. Borrowed $18,000 from the local bank
3. Provided services to customers for $28,000 cash