Question

1.

Which of the following statements is the rationale for the accounting equation?

a.The value of the firm's assets must equal the total amount of financing used to purchase assets.

b.The value of a firm's assets must always be greater than the total amount of financing to purchase those assets.

c.The firm can calculate its profit margin by subtracting expenses and liabilities from revenue.

d.A firm's financial worth is calculated by subtracting the assets from shareholder equity.

2.

ABC Inc.'s Balance Sheet appears to understate the true value of its long-term assets. What is the likely reason?

1. ABC’s balance sheet shows land at the original purchase price
2. ABC’s balance sheet shows land at current market price
3. ABC’s balance sheet shows all its economic assets
4. ABC’s balance sheet shows market price per share

3.

What is the earnings per share of a company that has $1,000 in revenue, $400 of expenses, and 20 outstanding shares of stock?

a. 30

b. 1

c. 20

d. 50

4.

If I borrowed the money to buy the asset then the source of financing is considered equity. On the other hand, if the money was invested by owners, I say liability was the source of money to buy the asset.

T/F

5.

Which is an example of a bookkeeping system?

A.Recording how much money you spend on gas every month

B. Going to the gym to make your membership payment

C. Making a weekly grocery list

D. Paying all your bills online

6.

What is the primary asset of any bank?

A. Checking and savings accounts

B. Investments

C. Accounts receivable

D. Real estate

Answer 1

Answer:-

1.Rationale for accounting equation is --a.The value of the firm's assets must equal to the total amount of financing used to purchase assets.

Explanation:-Balance sheet equation is Equity/Net worth=Assets-Liabilities.i.e,Assets=Equity+Liabilities.In double entry system of book-keeping,minimum two accounts are affected and debits will always be equal to credits.Hence left side of the balance sheet will be equal to right side of balance sheet.

2.ABC Inc's Balance Sheet appears to understate the true value of its long-term assets because a.ABC's balance sheet shows land at the original purchase price.

Explanation:-Principle of Historical cost requires long-term assets to be recorded at the original cost of purchase.Also,principle of conservatism states value of long-term assets should not be overstated.

3.Earning per share of a company that has $1,000 in revenue and $ 400 of expenses and 20 outstanding shares of stock is a.30

Explanation:-Earning per share=(Revenue - Cost)/Number of outstanding shares

=($1000 - $400)/20

=600/20

= 30/share

4.If I borrowed money to buy the asset then the source of financing is considered equity.On the other hand if the money was invested by owners,I say liability was the source of money to buy the asset:-FALSE

Explanation:-If I borrowed money to buy the asset then the source of financing is considered LIABILITY.On the other hand if the money was invested by owners,I say EQUITY was the source of money to buy the asset.