Income Statement Formula: Revenues - Expenses = Net Income
Statement of Stockholder's Equity Formulas: Common Stock Equation: Beginning Common Stock + Issuance of New Common Stock = End Balance of Common Stock (Beg. C.S. + Issuance = End. C.S.)
Retained Earnings Equation: Beginning Retained Earni...
ACG 2021 Exam 1 Review (Chapters 1-
3) Questions and Correct Answers
Income Statement Formula: ✅Revenues - Expenses = Net Income
Statement of Stockholder's Equity Formulas: ✅Common Stock Equation: Beginning
Common Stock + Issuance of New Common Stock = End Balance of Common Stock
(Beg. C.S. + Issuance = End. C.S.)
Retained Earnings Equation: Beginning Retained Earnings + Net Income - Dividends =
End Balance of Retained Earnings. (Beg. R.E. + N.I. - Div. = End. R.E.)
True/False: The more dividends you have, the less retained earnings you have. ✅True
Dividends: ✅Not an expense; a distribution to owners; follows the same rules as
expenses in the accounting equation.
When a company performs a service on account for a customer, which of the following
would occur?
a. Expenses would decrease
b. Assets would decreases
c. Net income would decrease
d. Stockholders' equity would increase ✅Answer: D
Explain: When we perform a service on account, we have more service revenue
(increase in service revenue and an increase in accounts receivable). Accounts
receivable is an asset.
When we perform a service account, we don't actually get the money, but we have the
right to receive money.
The more service revenue, the more equity we have.
Normal Balance: ✅What is done to increase the balance of an account?
Example: Assets increases with a debit, so assets normal balance is debit.
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