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Why is the continuity assumption so important for balance sheet reporting?

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The continuity assumption is also known ...

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The Lake Company has provided the following account balances: Cash $76,000; Short-term investments $8,000; Accounts receivable $96,000; Supplies $12,000; Long-term notes receivable $4,000; Equipment $192,000; Factory Building $360,000; Intangible assets $12,000; Accounts payable $90,000; Accrued liabilities payable $12,000; Short-term notes payable $42,000; Long-term notes payable $184,000. What is Lake's current ratio?

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Current assets = $192,000 = $7...

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A transaction may be an exchange of assets or services by one business for assets,services,or promises to pay from a different business.

A) True
B) False

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Which of the following would result when a company borrows cash and signs a note payable that is due in two years?


A) A noncurrent liability and an investing cash flow are created.
B) A noncurrent liability and a financing cash flow are created.
C) A current liability and an investing cash flow are created.
D) A current liability and a financing cash flow are created.

E) All of the above
F) A) and B)

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A company's assets and stockholders' equity both increase when the company sells additional shares of stock in exchange for cash.

A) True
B) False

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Which of the following would cause a decrease in cash from investing activities?


A) Purchasing shares of stock of another company.
B) Paying a cash dividend to stockholders.
C) Issuing additional shares of the company's common stock.
D) Using cash to purchase supplies.

E) All of the above
F) None of the above

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Which of the following journal entries is correct when a business entity uses cash to pay an account payable?


A) Which of the following journal entries is correct when a business entity uses cash to pay an account payable? A) B) C) D)
B) Which of the following journal entries is correct when a business entity uses cash to pay an account payable? A) B) C) D)
C) Which of the following journal entries is correct when a business entity uses cash to pay an account payable? A) B) C) D)
D) Which of the following journal entries is correct when a business entity uses cash to pay an account payable? A) B) C) D)

E) All of the above
F) C) and D)

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Which of the following statements is incorrect concerning balance sheets prepared under IFRS and GAAP?


A) The same elements are used in preparing balance sheets under both GAAP and IFRS.
B) Under IFRS stockholders' equity is listed before liabilities,while under GAAP liabilities are listed before stockholders' equity.
C) Under GAAP assets are usually listed in increasing order of liquidity,while under IFRS assets are usually listed in decreasing order of liquidity.
D) Under GAAP current items are presented first,while under IFRS noncurrent items are presented first.

E) None of the above
F) A) and B)

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Superior has provided the following information for its recent year of operation: The common stock account balance at the beginning of the year was $20,000 and the year-end balance was $25,000. The additional paid-in capital account balance increased $2,500 during the year. The retained earnings balance at the beginning of the year was $75,000 and the year-end balance was $91,000. Net income was $26,000. - How much did Superior sell its common stock for during the year?


A) $5,000.
B) $2,500.
C) $7,500.
D) $27,500.

E) C) and D)
F) B) and D)

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Chad Jones is the sole owner and manager of Jones Glass Repair Shop.Jones purchased a truck,to be used in the business,for its market value of $35,000.Which of the following fundamentals requires Jones to record the truck at the price paid to buy it?


A) Separate-entity assumption.
B) Revenue principle.
C) Monetary unit assumption.
D) Historical cost principle.

E) B) and C)
F) A) and C)

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The Pioneer Company has provided the following account balances: Cash $38,000; Short-term investments $4,000; Accounts receivable $48,000; Supplies $6,000; Long-term notes receivable $2,000; Equipment $96,000; Factory Building $180,000; Intangible assets $6,000; Accounts payable $30,000; Accrued liabilities payable $4,000; Short-term notes payable $14,000; Long-term notes payable $92,000; Common stock $180,000; Retained earnings $60,000. - What are Pioneer's total current assets?


A) $48,000.
B) $96,000.
C) $90,000.
D) $42,000.

E) None of the above
F) C) and D)

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Cadet Company paid an accounts payable of $1,000.This transaction should be recorded on the payment date as follows:


A) Cadet Company paid an accounts payable of $1,000.This transaction should be recorded on the payment date as follows: A) B) C) D)
B) Cadet Company paid an accounts payable of $1,000.This transaction should be recorded on the payment date as follows: A) B) C) D)
C) Cadet Company paid an accounts payable of $1,000.This transaction should be recorded on the payment date as follows: A) B) C) D)
D) Cadet Company paid an accounts payable of $1,000.This transaction should be recorded on the payment date as follows: A) B) C) D)

E) B) and C)
F) B) and D)

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Which of the following assumptions implies that a business can continue to remain in operation into the foreseeable future?


A) Historical cost principle.
B) Monetary unit assumption.
C) Continuity assumption.
D) Separate-entity assumption.

E) C) and D)
F) B) and C)

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Which of the following statements is incorrect?


A) Stockholders' equity accounts normally have credit balances.
B) Liability accounts are decreased by credits.
C) Stockholders' equity accounts are increased by credits.
D) Asset accounts are increased by debits.

E) B) and C)
F) A) and D)

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Complete the following schedule for Red Eye Company. Complete the following schedule for Red Eye Company.

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Liability and stockholders' equity accounts normally have credit balances and are decreased by debiting the accounts.

A) True
B) False

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A corporation purchased factory equipment using cash.Which of the following statements regarding this purchase is correct?


A) The cost of the factory equipment is an expense at the time of purchase.
B) The total assets will not change.
C) The total liabilities will increase.
D) The current stockholders' equity will decrease.

E) None of the above
F) All of the above

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Where would changes in stockholders' equity resulting from financing provided by operations be reported?


A) Within a long-term asset account.
B) Within the additional paid-in capital account.
C) Within a liability account.
D) Within the retained earnings account.

E) C) and D)
F) All of the above

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Unearned revenue is reported on the balance sheet as a liability and represents amounts paid to an entity in exchange for future services and/or goods.

A) True
B) False

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Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable?


A) Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable? A) B) C) D)
B) Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable? A) B) C) D)
C) Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable? A) B) C) D)
D) Which of the following journal entries is correct when a business entity purchases land costing $30,000 by signing a one-year note payable? A) B) C) D)

E) B) and C)
F) A) and D)

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