___ 2. What financial statement would you look at to determine a business's total assets? A. Income statement B. Statement of retained earnings C. Statement of cash flows D. Balance sheet.

___ 3. The separate entity assumption states that A. Assets should be recorded at their initial acquisition cost B. Each business is considered to be part of its owners C. Each accounting principle or measurement rule should be applied separately from all others D. For measurement purposes, the sources, debts, and activities of a business should be kept separate from those of all other entities and the owners.

___ 4. A business's balance sheet cannot be used to predict accurately what the business might be sold for because A. It does not identify all the assets and liabilities of the business. B. Assets are listed on the balance sheet at their historical cost, not their current value C. It gives the results of operations for the current period D. Some of the assets and liabilities on the balance sheet may actually be those of another entity.

___ 5. Parker Bank, in deciding whether to make a loan to Davis company, would be interested in the amount of liabilities Davis has on its balance sheet because A. The liabilities represent resources that could be used to repay the loan B. If Davis already has many other obligations, it might not be able to repay the loan. C. Existing liabilities give an indication of how profitable Davis has been in the past. D. Parker would be interested in the amount of Davis's assets but not the amount of liabilities.

___ 6. Owners' equity is defined as A. Probable debts or obligations of an entity as a result of past transactions which will be paid with assets or services. B. Assets plus liabilities C. Probable future economic benefits owned by an entity as a result of past transactions D. The financing provided by the owners and the operations of a business.

___ 7. Which of the following is not a liability? A. Accounts payable B. Retained earnings C. Notes payable D. Dividend payable E. None of the above is correct.

___ 8. The collection of an account receivable from a customer would: A. Increase liabilities B. Decrease liabilities C. Not affect liabilities D. Not affect receivables

___ 9. Which of the following is a proper application of the cost principle? A. Record the purchase of inventory with a note payable B. Record salaries expense for services received but not yet paid for. C. Record the purchase of a two year insurance policy dividing the cost between insurance expense and prepaid insurance. D. Record the purchase of a truck with cash. E. All of the above are proper application of cost principle.

___ 10. The purchase of supplies for cash would: A. Not change total assets B. Increase total assets C. Increase liabilities D. Decrease liabilities.