Accounting Test 1 example #10116

Financial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users.

Internal users include lenders, shareholders, brokers and managers.

The balance sheet shows a company's net income or loss due to earnings activities over a period of time.

As a general rule, revenues should not be recognized in the accounting records when earned, but rather when cash is received.

The Securities and Exchange Commission (SEC) is a government agency that has legal authority to establish GAAP.

Revenues are increases in equity from a company's sales of products and services to customers.

Liabilities are the owner's claim on assets.

Common stock is an increase in equity from a company's earnings activities.

Every business transaction leaves the accounting equation in balance.

Stockholders' equity is increased when cash is received from customers in payment of previously recorded accounts receivable.

If cash is received in advance from a customer liabilities will increase

The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets.

The business entity assumption means that a business is accounted for separately from other business entities, including its owner or owners.

The going concern assumption means that the business will continue operating instead of being closed or sold.

The monetary unit assumption expresses transactions and events in monetary, or money, units.

According to the cost principle, it is necessary for managers to report an approximation of an asset's market value upon purchase.

Cost Principle is a principle that states that acquired assets and services should be recorded at their actual cost.

A customer's promise to pay on credit is classified as an account payable by the seller.

A customer's promise to pay on credit is classified as an accounts receivable

When a company provides services for which cash will not be received until some future date, the company should record the amount charged as accounts receivable.

A transaction that decreases a liability and increases an asset must also affect one or more other accounts.

Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet.

Internal users include officers, managers, internal auditors, sales staff, budget officer, controllers

External users include lenders, shareholders, governments, consumer groups, external auditors, customers.

A balance sheet reports a company's assets, liabilities and shareholders' equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure.

Revenues should be recognized in accounting records when earned, not when cash is received

Liabilities are an account in which the company maintains all its records like such as debts, obligations, payable income taxes, customer deposits, wages payable, expenses occurred.

Common stock is a term used to describe the total amount paid in by stockholders for the shares they purchase.

Accounting is an information and measurement system that does all of the following except: A. Identifies business activities. B. Records business activities. C. Communicates business activities. D. Eliminates the need for interpreting financial data. E. Helps people make better decisions.

The primary objective of financial accounting is to: A. Serve the decision-making needs of internal users. B. Provide accounting information that serves external users. C. Monitor and control company activities. D. Provide information on both the costs and benefits of looking after products and services. E. Know what, when, and how much product to produce.

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is: A. Business entity assumption. B. Revenue recognition principle. C. Going-concern assumption. D. Time-period assumption. E. Objectivity principle

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the: A. APB. B. FASB. C. AAA. D. AICPA. E. SEC.

The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the: A. Going-concern assumption. B. Cost principle. C. Revenue recognition principle. D. Objectivity principle. E. Business entity assumption.

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000? A. Monetary unit assumption. B. Going-concern assumption. C. Cost principle. D. Business entity assumption. E. Revenue recognition principle.

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received? A. Monetary unit assumption. B. Going-concern assumption. C. Cost principle. D. Business entity assumption. E. Revenue recognition principle.

f a company purchases equipment costing $5,500 on credit, the effect on the accounting equation would be: A. Assets increase $5,500 and liabilities decrease $5,500. B. Equity decreases $5,500 and liabilities increase $5,500. C. Liabilities decrease $5,500 and assets increase $5,500. D. Equity increases $5,500 and liabilities decrease $5,500. E. Assets increase $5,500 and liabilities increase $5,500.

If a company receives $12,000 from the stockholders to establish a corporation, the effect on the accounting equation would be: A. Assets decrease $12,000 and equity decreases $12,000. B. Assets increase $12,000 and liabilities decrease $12,000. C. Assets increase $12,000 and liabilities increase $12,000. D. Liabilities increase $12,000 and equity decreases $12,000. E. Assets increase $12,000 and equity increases $12,000.

If assets are $300,000 and liabilities are $192,000, then equity equals: A. $108,000. B. $192,000. C. $300,000. D. $492,000. E. $792,000.

Creditors' claims on the assets of a company are called: A. Net losses. B. Expenses. C. Revenues. D. Equity. E. Liabilities.

On August 31 of the current year, the assets and liabilities of Gladstone, Inc. are as follows: Cash $30,000; Supplies, $600; Equipment, $10,000; Accounts Payable, $8,500. What is the amount of stockholders' equity as of August 31 of the current year? A. $49,100 B. $32,100 C. $12,100 D. $10,900 E. $30,900

On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9,300. What is the amount of stockholders' equity as of May 31 of the current year? A. $8,300 B. $13,050 C. $20,500 D. $31,100 E. $40,400

Saddleback Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation? A. Assets, $30,000 increase; equity, $30,000 increase. B. Assets, $30,000 decrease; liabilities, $30,000 decrease. C. Assets, $30,000 decrease; liabilities, $30,000 increase. D. Liabilities, $30,000 decrease; equity, $30,000 increase. E. Assets, $30,000 decrease; equity $30,000 decrease.

Contessa Company collected $42,000 cash on its accounts receivable. The effects of this transaction as reflected in the accounting equation are: A. Total assets decrease and equity increases. B. Both total assets and total liabilities decrease. C. Neither assets, total liabilities, nor equity are changed. D. Both total assets and equity are unchanged and liabilities increase. E. Total assets increase and equity decreases.

If a company paid $38,000 of its accounts payable in cash, what was the effect on the accounting equation? A. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would decrease $38,000. B. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would increase $38,000. C. Assets would decrease $38,000 and liabilities would decrease $38,000. D. There would be no effect on the accounts because the accounts are affected by the same amount. E. Assets would increase $38,000 and liabilities would decrease $38,000.

Speedy has net income of $18,955, and assets at the beginning of the year of $200,000. Assets at the end of the year total $246,000. Compute its return on assets. A. 7.7%. B. 8.5%. C. 9.5%. D. 11.8%. E. 13.0%.

The basic financial statements include all of the following except: A. Balance Sheet. B. Income Statement. C. Statement of Retained Earnings. D. Statement of Cash Flows. E. Statement of Changes in Assets.

Accounts payable appear on which of the following statements? A. Balance sheet. B. Income statement. C. Statement of retained earnings. D. Statement of cash flows. E. Transaction statement.

The income statement reports all of the following except: A. Revenues earned by a business. B. Expenses incurred by a business. C. Assets owned by a business. D. Net income or loss earned by a business. E. The time period over which the earnings occurred

Use the following information as of December 31 to determine equity. Cash........................ 57,000 Buildings........................ 175,000 Equipment................. 206,000 Liabilities.................. $141,000 A. $57,000. B. $141,000. C. $297,000. D. $438,000. E. $579,000.

Determine the net income of a company for which the following information is available for the month of July. Employee salaries expense.... $180,000 Interest expense.................... 10,000 Rent expense........................ 20,000 Consulting revenue............... 400,000 A. $190,000. B. $210,000. C. $230,000. D. $400,000. E. $610,000.

A company acquires equipment for $75,000 cash. This represents a(n): A. Operating activity. B. Investing activity. C. Financing activity. D. Revenue activity. E. Expense activity.

Zippy had cash inflows from operations $60,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was: A. $38,500 increase. B. $38,500 decrease. C. $132,500 decrease. D. $132,000 increase. E. $11,500 decrease.

Cragmont has beginning equity of $277,000, net income of $63,000, dividends of $25,000 and no additional investments by stockholders during the period. Its ending equity is: A. $365,000. B. $239,000. C. $189,000. D. $315,000. E. $277,000.

A company's balance sheet shows: cash $22,000, accounts receivable $16,000, office equipment $50,000, and accounts payable $17,000. What is the amount of stockholders' equity? A. $17,000. B. $29,000. C. $71,000. D. $88,000. E. $105,000.

A company reported total equity of $145,000 at the beginning of the year. The company reported $210,000 in revenues and $165,000 in expenses for the year. Liabilities at the end of the year totaled $92,000. What are the total assets of the company at the end of the year? A. $45,000. B. $92,000. C. $98,000. D. $210,000. E. $282,000.

If a company has excess space in its building that it rents to another company for $700, what is the effect on the accounting equation when the first rent payment is collected? A. Assets would decrease $700 and liabilities would decrease $700. B. Assets would decrease $700 and equity would increase $700. C. Assets would increase $700 and equity would decrease $700. D. Assets would increase $700 and equity would increase $700. E. Liabilities would decrease $700 and equity would increase $700.

Grandmark Printing pays $2,000 rent to the landlord of the building where its facilities are located. How does this transaction affect the accounting equation for Grandmark? A. Assets would decrease $2,000 and liabilities would decrease $2,000. B. Assets would decrease $2,000 and equity would decrease $2,000. C. Assets would increase $2,000 and equity would increase $2,000. D. Assets would increase $2,000 and liabilities would increase $2,000. E. Liabilities would decrease $2,000 and equity would increase $2,000.

Atkins Company collected $1,750 as payment for the amount owed by a customer from services provided the prior month on credit. How does this transaction affect the accounting equation for Atkins? A. Assets would decrease $1,750 and liabilities would decrease $1,750. B. One asset would increase $1,750 and a different asset would decrease $1,750, causing no effect. C. Assets would increase $1,750 and equity would increase $1,750. D. Assets would increase $1,750 and liabilities would increase $1,750. E. Liabilities would decrease $1,750 and equity would increase $1,750.

The accounting equation for Ying Company shows a decrease in its assets and a decrease in its equity. Which of the following transactions could have caused that effect? A. Cash was received from providing services to a customer. B. The company paid an amount due on credit. C. Equipment was purchased for cash. D. A utility bill was received for the current month, to be paid in the following month. E. Advertising expense for the month was paid in cash.

The accounting equation for Long Company shows an increase in its assets and an increase in its liabilities. Which of the following transactions could have caused that effect? A. Cash was received from providing services to a customer. B. Cash was received in exchange for common stock. C. Equipment was purchased on credit. D. Supplies were purchased for cash. E. Advertising expense for the month was paid in cash.

Identify the statement below that is correct. A. When a future expense is paid in advance, the payment is normally recorded in a liability account called Prepaid Expense. B. Promises of future payment by the customer are called accounts receivable. C. Increases and decreases in cash are always recorded in the common stock account. D. An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business. E. Accrued liabilities include accounts receivable.

On January 1 of the current year, Jimmy's Sandwich Company, Inc. reported stockholders' equity totaling $122,500. During the current year, total revenues were $96,000 while total expenses were $85,500. Also, during the current year the business paid $20,000 to the stockholders. No other changes in equity occurred during the year. If, on December 31 of the current year, total assets are $196,000, the change in stockholders' equity during the year was: A. A decrease of $9,500. B. An increase of $9,500. C. An increase of $30,500. D. A decrease of $30,500 E. An increase of 73,500.

At the beginning of the current year, Trenton Company Inc.'s total assets were $248,000 and its total liabilities were $175,000. During the year, the company reported total revenues of $93,000, total expenses of $76,000 and dividends of $5,000. There were no other changes in stockholders' equity during the year and total assets at the end of the year were $260,000. Trenton Company's debt ratio at the end of the current year is: A. 70.6%. B. 67.3%. C. 32.7%. D. 48.6%. E. 1.42%.