1. Which one of the following is an item of owners’ equity?
• Bank loan
• Suppliers’ monetary claims
• Prepaid expenses
• Earnings generated by the entity
2. Complete the following sentence: The Conservatism Concept directs an entity to consider recognizing a liability when it is __________________.
• absolutely certain economic resources may be sacrificed in the future
• remotely possible economic resources may be sacrificed in the future
• reasonably possible economic resources may be sacrificed in the future
• reasonably certain economic resources may be sacrificed in the future
3. The realization concept states that revenue is recorded when:
• It has been earned and realized or realizable
• All the associated costs have been paid in cash
• It has been received in cash
4. On its June 30, 2005 balance sheet, Barrows Corporation has total assets of $100,000, current liabilities of $40,000, and owners’ equity of $60,000.
Which one of the following statements must be true on June 30, 2005?
• It has current assets of $40,000
• It has no long-term liabilities
• It has a cash balance of $40,000 raised through short-term debt
• None of the above
