Question

Part 1: True or False (1.5 point each, 15 points total) Indicate whether the following statements are true (T) or false (F). 1. An income statement presents the revenues, expenses, gains, losses, and net income (or net loss) of the business for a period of time. 2. A debit to a liability account increases that account. 3. The purchase of equipment for cash has no effect on the amount of total assets. 4. Unearned revenue is an income statement account. 5. The declaration of a cash dividend to be paid to stockholders decreases stockholders' equity. 6. It is possible that a transaction causes an increase in assets and a decrease in liabilities and affects no other accounts. 7. A gain causes an increase in income as a result of primary operating activities. 8. Prepaid items are classified as assets until they are used up. 9. Utilities expense and wages payable are both elements of the income statement. 10. Cash basis accounting is the preferred method of accounting according to GAAP.

Answer 1

1.True

2. False. A debit to a liability decreases that account

3. True. Since the amount of cash outgoing and the value of asset incoming will be the same. So the assets amount does not change.

4. False. Unearned revenue is a liability.

5.True. Declaration of dividends will decrease the reserves & surplus. So as a result shareholder's equity decreases.

6.False.

7.False.

8.True

9.True

10. False.