Introduction to Accounting and Business Ch 1 Part 2

Chapter 01-Introduction to Accounting and Business 74. The business entity assumption means that a. the owner is part of the business entity b. an entity is organized according to state or federal statutes. c. an entity is organized according to the rules set by the FASB d. the entity is an individual economic unit for which data are recorded, analyzed, and reported ANSWER: 75. For accounting purposes, the business entity should be considered separate from its owners if the entity is a. a corporation b. a proprietorship a partnership d. any of these ANSWER: 76. The measurement principle requires that a. business transactions be consistent with the objectives of the entity d d b. the Financial Accounting Standards Board be fair and unbiased in its deliberations over new accounting standards c. accounting principles meet the objectives of the Security and Exchange Commission d. amounts recorded in the financial statements be based on independently verifiable evidence ANSWER: d 77. Karen Meyer owns and operates Crystal Cleaning Company. Recently, Meyer withdrew $10,000 from Crystal Cleaning, and she contributed $6,000, in her name, to the American Red Cross. The contribution of the $6,000 should be recorded on the accounting records of which of the following entities? a. Crystal Cleaning and the American Red Cross b. Karen Meyer's personal records and the American Red Cross c. Karen Meyer's personal records and Crystal Cleaning d. Karen Meyer's personal records, Crystal Cleaning, and the American Red Cross ANSWER: b 78. Which one of the following is the authoritative body in the United States having the primary responsibility for developing accounting principles? a. FASB b. IRS c. SEC d. AICPA a ANSWER: 79. Which of the following items relates to separating the reporting of business and personal economic transactions? a. cost principle b. monetary unit assumption Chapter 01-Introduction to Accounting and Business C. business entity assumption. d. measurement principle ANSWER: C 80. Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. The Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost principle, at what amount should the land be recorded in the accounting records of Focus Company? a. $177,000 b. $212,000 $220,000 d. $232,000 ANSWER: 81. Many countries outside the United States use financial accounting standards issued by the a. AICPA b. SEC c. IASB d. FASB b ANSWER: 82. The monetary unit assumption a. is only used in the financial statements of manufacturing companies b. is not important when applying the cost principle c. requires that different units be used for assets and liabilities d. requires that economic data be reported in yen in Japan or dollars in the United States ANSWER: 83. Which of the following is not true of accounting principles? a. Financial accountants follow generally accepted accounting principles (GAAP). b. Following GAAP allows accounting information users to compare one company to another. c. A new accounting principle can be adopted with stockholders' approval. d d. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles. ANSWER: 84. The initials GAAP stand for a. General Accounting Procedures. b. Generally Accepted Plans C. Generally Accepted Accounting Principles d. Generally Accepted Accounting Practices C ANSWER: 85. Assets are C Chapter 01-Introduction to Accounting and Business 141. Received cash for services provided ANSWER: C 142. Received utility bill to be paid next month ANSWER: b 143. Contribution of land by stockholder ANSWER: C 144. Paid part of an amount owed to a creditor ANSWER: e 145. Paid cash for the purchase of supplies ANSWER: d 146. Received payment from a customer on account ANSWER: d 147. Payment of dividends. ANSWER: 148. Provided a service to a customer on account ANSWER: C 149. Purchased supplies on credit ANSWER: a 150. Paid wages ANSWER: 151. Payment for common stock by stockholder ANSWER: C 152. Borrowed money from a bank ANSWER: a 153. Purchased equipment for cash ANSWER: d 154. Received cash for providing services to customers ANSWER: C 155. Used up supplies that were already on hand ANSWER: Chapter 01-Introduction to Accounting and Business a. always lower than liabilities b. equal to liabilities less stockholders' equity c. the same as expenses because they are acquired with cash d. financed by the stockholders and/or creditors ANSWER: 86. Debts owed by a business are referred to as a. accounts receivables b. expenses C. stockholders' equity d. liabilities ANSWER: 87. The accounting equation may be expressed as a Assets Expenses - Liabilities b. Assets + Liabilities = Stockholders' Equity c. Assets Revenues Liabilities d. Assets-Liabilities = Stockholders' Equity ANSWER: d d d 88. The assets and liabilities of a company are $128,000 and $84,000, respectively. Stockholders' equity should equal a. $212,000 b. $44,000 c. $128,000 d. $84,000 ANSWER: b 89. If total liabilities decreased by $46,000 during a period of time and stockholders' equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a a. $106,000 increase b. $14,000 increase c. $14,000 decrease d. $106,000 decrease ANSWER: 90. Which of the following is not a business transaction? a. make a sales offer b. sell goods for cash C. receive cash for services to be rendered later d. pay for supplies. b ANSWER: a 91. A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting Chapter 01-Introduction to Accounting and Business equation was to a increase an asset, decrease another asset b. decrease an asset, decrease a liability C. increase an asset, increase a liability d. increase an asset, increase stockholders' equity ANSWER: 92. Earning revenue a. increases assets, increases stockholders' equity b. increases assets, decreases stockholders' equity increases one asset, decreases another asset d. decreases assets, increases liabilities ANSWER: 93. The monetary value carned for selling goods or services to customers is called a(n) a. asset b. net income c. capital d. revenue ANSWER: 94. Goods purchased on account for future use in the business, such as supplies, are called a. prepaid liabilities b. revenues C. prepaid expenses d. liabilities ANSWER: 95. The asset created by a business when it makes a sale on account is termed a. accounts payable b. prepaid expense c. interest revenue d. accounts receivable ANSWER: 96. The debt created by a business when it makes a purchase on account is referred to as an account payable b. account receivable asset d. expense payable ANSWER: b a d C d a 97. If total assets decreased by $88,000 during a period of time and stockholders' equity increased by $71,000 during the Chapter 01-Introduction to Accounting and Business same period, then the amount and direction (increase or decrease) of the period's change in total liabilities is a $17,000 increase b. an $88,000 decrease с. a $159,000 increase d a $159,000 decrease ANSWER: 98. Cash dividends a. increase expenses b. decrease expenses C. increase cash d decrease stockholders' equity ANSWER: 99. How does paying a liability in cash affect the accounting equation? 8. assets increase; liabilities decrease b. assets increase; liabilities increase C. assets decrease; liabilities decrease d. liabilities decrease; stockholders' equity increases ANSWER: 100. How does receiving a bill to be paid next month for services received affect the accounting equation? d d assets decrease; stockholders' equity decreases b. assets increase; liabilities increase C. liabilities increase; stockholders' equity increases d. liabilities increase; stockholders' equity decreases ANSWER: d 101. How does the payment of rent for equipment affect the accounting equation? a. assets increase; assets decrease b. assets decrease; stockholders' equity decreases c. assets decrease; liabilities increase d. assets increase; stockholders' equity increases ANSWER: b C 102. Land, originally purchased for $30,000, is sold for $62,000 in cash. What is the effect of the sale on the accounting equation? a. assets increase by $62,000; stockholders' equity increases by $62,000 b. assets increase by $32,000; stockholders' equity increases by $32,000 c. assets increase by $62,000; liabilities decrease by $30,000; stockholders' equity increases by $32,000 d. assets increase by $30,000; no change in liabilities; stockholders' equity increases by $62,000 ANSWER: b Chapter 01-Introduction to Accounting and Business 103. Which of the following accounts is a liability? a. Accounts Payable b. Accounts Receivable с. Wages Expense d. Service Revenue ANSWER: a 104. As of the end of its accounting period, December 31, Year 1, Great Plains Company has assets of $940,000 and liabilities of $300,000. During Year 2, stockholders invested an additional $73,000 and received $33,000 in dividends from the business. What is the amount of net income during Year 2, assuming that as of December 31, Year 2, assets were $995,000 and liabilities were $270,000? a. $45,000 b. $50,000 $106,000 d. $370,000 ANSWER: 105. Which of the following asset accounts is increased when a receivable is collected? a. Accounts Receivable b. Supplies c. Accounts Payable d. Cash a ANSWER: 106. Transactions affecting stockholders' equity include a. stockholder investments and payment of liabilities b. stockholder investments, dividends, earning of revenues, and incurrence of expenses d c. stockholder investments, earning of revenues, incurrence of expenses, and collection of accounts receivable d. stockholder dividends, earning of revenues, incurrence of expenses, and purchase of supplies on account ANSWER: b 107. Computer Corporation is starting its computer programming business and has sold stock of $15,000. Identify how the accounting equation will be affected. a. increase in assets (Cash) and increase in liabilities (Accounts Payable) b. increase in assets (Cash) and increase in stockholders' equity (Common Stock) c. increase in assets (Accounts Receivable) and decrease in liabilities (Accounts Payable) d. increase in assets (Cash) and increase in assets (Accounts Receivable) ANSWER: b 108. Ramos Repair Company is paying a cash dividend. How does this transaction affect Ramos Repair Company's accounting equation? a. increase in assets (Accounts Receivable) and decrease in assets (Cash) b. decrease in assets (Cash) and decrease in stockholders' equity (Dividends) c. decrease in assets (Cash) and decrease in liabilities (Accounts Payable) Chapter 01-Introduction to Accounting and Business d. increase in assets (Cash) and decrease in stockholders' equity (Dividends) ANSWER: 109. Which of the following is not a business transaction? a. Erin, the CEO, buys $15,000 in stock, placing the money in a bank account in the name of Bob's Lawn Service. b. Erin provided services to customers, carning fees of $600. c. Erin purchased hedge trimmers for Bob's Lawn Service, agreeing to pay the supplier next month. d. Erin pays her monthly personal credit card bill. ANSWER: 110. Which of the following is a business transaction? purchase supplies on account b. plan advertising for upcoming sale b d c. give employees a raise beginning next month d. submit estimate for construction project ANSWER: a 111. The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n) a. prior period statement b. statement of stockholders' equity C. income statement d. balance sheet ANSWER: 112. Which of the following financial statements reports information as of a specific date? a. income statement b statement of stockholders' equity c. statement of cash flows d balance sheet ANSWER: d 113. Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The statement of stockholders' equity (SSE), the balance sheet (B), and the income statement (1) are prepared in a certain order to obtain information needed for the next statement. In what order are these three statements prepared? a. 1, SSE, B b. B. 1, SSE с. SSE, I, B d. B. SSE, 1 ANSWER: 114. Liabilities are reported on the a. income statement a Chapter 01-Introduction to Accounting and Business b. statement of stockholders' equity statement of cash flows d. balance sheet ANSWER: 115. Cash investments made by the owner in the business are reported on the statement of cash flows in the a. financing activities section b. investing activities section с. operating activities section d. supplemental statement d ANSWER: 116. The ending balance of the retained earnings account appears in a. both the statement of stockholders' equity and the income statement b. only the statement of stockholders' equity c. both the statement of stockholders' equity and the balance sheet d. both the statement of stockholders' equity and the statement of cash flows ANSWER: a C 117. A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing the a. income statement b. balance sheet c. statement of cash flows d. statement of stockholders' equity ANSWER: a 118. If a shareholder wanted to know how money flowed into and out of the company, which financial statement would the shareholder use? a. income statement b. statement of cash flows C. balance sheet d. statement of stockholder's equity ANSWER: 119. The assets section of the balance sheet normally presents assets in a. alphabetical order b. the order of largest to smallest dollar amounts c. the order in which they will be converted into cash or used in operations d. the order of smallest to largest dollar amounts ANSWER: 120. All of the following statements regarding the ratio of liabilities to stockholders' equity are true except b C Chapter 01-Introduction to Accounting and Business a. a ratio of 1 indicates that liabilities equal stockholders' equity b. sole proprietorships can use this ratio but substitute total owner's equity for total stockholders' equity c. the higher this ratio, the better able a business is to withstand poor business conditions and pay creditors d. the lower this ratio, the better able a business is to withstand poor business conditions and pay creditors ANSWER: 121. Given the following data: C Dec. 31, Year 2 Dec. 31, Year 1 Total liabilities $128,250 $120,000 Total stockholders' equity 95,000 80,000 Compute the ratio of liabilities to stockholders' equity for each year. Round to two decimal places. a. 1.50 and 1.07, respectively b. 1.35 and 1.50, respectively c. 1.07 and 1.19, respectively d. 1.19 and 1.35, respectively ANSWER: Match the following business types with each business listed below. Each may be used more than once. a. Service business b. Manufacturing business с. Retail business 122. A tax preparation firm ANSWER: 123. A law firm ANSWER: 124. A health club and spa ANSWER: 125. An automobile dealer b a a a ANSWER: C 126. A book publisher ANSWER: b 127. A hospital ANSWER: a 128. A supermarket ANSWER: C 129. A modular homebuilder ANSWER: b 130. A men's clothing store Chapter 01-Introduction to Accounting and Business ANSWER: C 131. A dressmaking company ANSWER: b Match the following characteristics with the form of business entity that best describes it. Each may be used more than once. a. Proprietorship b. Partnership c. Corporation d. Limited liability company (LLC) 132. Comprises 70% of business entities in the United States ANSWER: a 133. Generates 90% of business revenues ANSWER: C 134. Owned by two or more individuals ANSWER: b 135. Organized as a separate legal taxable entity ANSWER: C 136. Easy and cheap to organize ANSWER: a 137. Often used as an alternative to a partnership ANSWER: d 138. Used by large businesses ANSWER: C 139. Has the ability to obtain large amounts of resources ANSWER: C 140. Offers tax and legal liability advantages for owners ANSWER: d Match each transaction with its effect on the accounting equation. Each letter may be used more than once, a. Increase assets, increase liabilities b. Increase liabilities, decrease stockholders' equity с. Increase assets, increase stockholders' equity d. No effect c. Decrease assets, decrease liabilities f. Decrease assets, decrease stockholders' equity