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1.
A
corporation is a business that is legally separate and distinct from its
owners.
a. True
b. False
2. The role of accounting is to
provide many different users with financial information to make economic
decisions.
a. True
b. False
3. Accounting information users
need reports about the economic activities and condition of businesses.
a. True
b. False
4.
Managerial
accounting information is used by external and internal users equally.
a. True
b. False
5. Senior executives cannot be
criminally prosecuted for the wrong doings they commit on behalf of the
companies where they work.
a.
True
b. False
6. Financial accounting provides
information to all users, while the main focus for managerial accounting is to
provide information to the management.
a.
True
b. False
7.
Proper
ethical conduct implies that you only consider what's in your best interest.
a. True
b. False
8. Some of the major fraudulent
acts by senior executives started as what they considered to be small ethical
lapses which grew out of control.
a.
True
b. False
9. A business is an organization in
which basic resources or inputs, like materials and labor, are assembled and processed to provide outputs in the form of
goods or services to customers.
a.
True
b. False
10.
Two
factors that typically lead to ethical violations are relevance and timeliness
of accounting information.
a. True
b. False
11. An example of a general-purpose
financial statement would be a report about projected price increases related
to transportation costs.
a.
True
b. False
12. The Sarbanes-Oxley Act
established standards for corporate responsibility and disclosure.
a. True
b. False
13.
The
main objective for all business is to maximize unrealized profits.
a. True
b. False
14. The primary role of accounting
is to determine the amount of taxes a business will be required to pay to
taxing entities.
a.
True
b. False
15. The basic difference between
manufacturing and merchandising companies is the completion level of the
products they purchase for resale to
customers.
a.
True
b. False
16.
Proprietorships
are owned by one owner and provide only services to their customers.
a. True
b. False
17. About 90% of the businesses in
the United States are organized as corporations.
a. True
b. False
18. An example of an external user
of accounting information is the federal government.
a. True
b. False
19. The Financial Accounting
Standards Board (FASB) is the authoritative body that has primary
responsibility for developing
accounting principles.
a.
True
b. False
20. The cost concept is the basis
for entering the purchase price into the accounting records.
a. True
b. False
21. The unit of measurement concept
requires that economic data be recorded in dollars.
a. True
b. False
22. If a building is appraised for
$85,000, offered for sale at $90,000, and the buyer pays $80,000 cash for it,
the buyer would record the building at
$85,000.
a.
True
b. False
23. The financial statements of a
proprietorship should include the owner's personal assets and liabilities.
a. True
b. False
24. No significant differences exist
between the accounting standards issued by the FASB and the IASB.
a. True
b. False
25.
Generally
accepted accounting principles regulate how and what financial information is
reported by businesses.
a. True
b. False
26. The accounting equation can be
expressed as Assets – Liabilities = Owner's Equity.
a. True
b. False
27. The rights or claims to the
assets of a business may be subdivided into rights of creditors and rights of
owners.
a. True
b. False
28.
The
owner’s rights to the assets rank ahead of the creditors' rights to the assets.
a. True
b. False
29. If the liabilities owed by a
business total $300,000 and owner's equity is equal to $300,000, then the assets
also total $300,000.
a. True
b. False
30. If total assets decreased by
$30,000 during a specific period and owner's equity decreased by $35,000 during
the same period, the period's change
in total liabilities was a $65,000 increase.
a.
True
b. False
31. If total assets increased by
$190,000 during a specific period and liabilities decreased by $10,000 during
the same period, the period's change
in total owner's equity was a $200,000 increase.
a.
True
b. False
32. If net income for a
proprietorship was $50,000, the owner withdrew $20,000 in cash and the owner
invested $10,000 in cash, the capital of the owner increased by $40,000.
a. True
b. False
33. An account receivable is
typically classified as revenue.
a. True
b. False
34.
An
account receivable is a claim against a customer resulting from a sale on
account.
a. True
b. False
35. Paying an account payable
increases liabilities and decreases assets.
a. True
b. False
36.
Receiving
payments on an account receivable increases both equity and assets.
a. True
b. False
37.
Cash
withdrawals by owners decrease assets and increase equity.
a. True
b. False
38. Purchasing supplies on account
increases liabilities and decreases equity.
a. True
b. False
39.
Receiving
a bill or otherwise being notified that an amount is owed is not recorded
until the amount is paid.
a. True
b. False
40.
Revenue
is earned only when money is received.
a. True
b. False
41. Assets that are used up during
the process of earning revenue are called expenses.
a. True
b. False
42.
The
excess of revenue over the expenses incurred in earning the revenue is called
capital.
a. True
b. False
43. The primary financial statements
of a proprietorship are the income statement, statement of owner's equity, and
the balance sheet.
a.
True
b. False
44. An income statement is a summary
of the revenues and expenses of a business as of a specific date.
a. True
b. False
45. A statement of owner's equity
reports the changes in the owner's equity for a period of time.
a. True
b. False
46. The statement of cash flows
consists of three sections: cash flows from operating activities, cash flows
from income activities, and cash flows
from equity activities.
a.
True
b. False
47.
The
balance sheet represents the accounting equation.
a. True
b. False
48.
Net
income and net profit do not mean the same thing.
a. True
b. False
49.
Profit
is the difference between
a. assets and liabilities
b. the incoming cash and outgoing
cash
c. the assets purchased with cash
contributed by the owner and the cash spent to operate the business
d. the amounts received from
customers for goods or services and the amounts paid for the inputs used to provide the goods or services
50. Two common areas of accounting
that respectively provide information to internal and external users are
a. forensic accounting and
financial accounting
b. managerial accounting and
financial accounting
c. managerial accounting and
environmental accounting
d. financial accounting and tax
accounting systems
51.
Which
of the following best describes accounting?
a. Records economic data but does
not communicate the data to users according to any specific rules.
b. Is an information system that
provides reports to users regarding economic activities and condition of a business.
c. Is of no use by individuals
outside of the business.
d. Is used only for filling out tax
returns and for financial statements for various type of governmental reporting requirements.
52. Which type of accountant typically
practices as an individual or as a member of a public accounting firm?
a. Certified Public Accountant
b. Certified Payroll Professional
c. Certified Internal Auditor
d. Certified Management Accountant
53. Financial reports are used by
a. management
b. creditors
c. investors
d. all are correct
54.
All
of the following are general-purpose financial statements except
a. balance sheet
b. income statement
c. statement of owner’s equity
d. cash budget
55. Which of the following is a
manufacturing business?
a. General Motors
b. Facebook
c. American Airlines
d. Target
56. Which of the following
is a service business?
a.
Microsoft
b.
Dell Computers
c. Facebook
d.
Walmart
57. Which of the following groups of
companies are all examples of a merchandising business?
a. Delta Airlines, Marriott, Gap
b. Gap, Amazon, NIKE
c. GameStop, Sony, Dell
d. GameStop, Best Buy, Gap
58.
Which
of the following groups are considered to be internal users of accounting
information?
a. employees and customers
b. customers and vendors
c. employees and managers
d. government entities and banks
59.
The
following are examples of external users of accounting information except
a. government entities
b. customers
c. creditors
d. managers
60.
Which
of the following is the best description
of accounting’s role in business?
a. Accounting provides stockholders
with information regarding the market value of the company’s stocks.
b. Accounting provides information
to managers to operate the business and to other users to make decisions regarding the economic condition of the
company.
c. Accounting helps in decreasing
the credit risk of the company.
d. Accounting is not responsible
for providing any form of information to users.
That is the role of the Information
Systems Department.
61.
Managerial
accountants would be responsible for providing information regarding
a. tax reports to government
agencies
b. profit reports to owners and
management
c. expansion of a product line
report to management
d. consumer reports to customers
62.
Which
of the following is not a certification for accountants?
a. CIA
b. CMA
c. CISA
d. IRS
63.
Which
of the following is not a role of accounting in business?
a. to provide reports to users
about the economic activities and conditions of a business
b. to personally guarantee loans of
the business
c. to provide information to
external users to determine the economic performance and condition of the business
d. to assess the various
informational needs of users and design its accounting system to meet those
needs
64.
Which
of the following are guidelines for behaving ethically?
I.
Identify
the consequences of a decision and its effect on others.
II.
Consider
your obligations and responsibilities to those affected by the decision.
III.
Identify
your decision based on personal standards of honesty and fairness.
a. I and II.
b. II and III.
c. I and III.
d. I, II, and III.
65.
Which
of the following would not normally operate as a service
business?
a. pet groomer
b. grocer
c. lawn care company
d. styling salon
66.
Most
businesses in the United States are
a. proprietorships
b. partnerships
c. corporations
d. cooperatives
67.
Which
of the items below is not a business entity?
a. entrepreneurship
b. proprietorship
c. partnership
d. corporation
68. An entity that is organized
according to state or federal statutes and in which ownership is divided into
shares of stock is a
a. proprietorship
b. corporation
c. partnership
d. governmental unit
69.
Which
of the following is true in regards to a limited liability company?
a. Makes up 10% of business
organizations in the United States.
b. Combines the attributes of a
partnership and a corporation.
c. Provides tax and liability
advantages to the owners.
d. All are correct.
70. On May 20, White Repair Service
extended an offer of $108,000 for land that had been priced for sale at
$140,000. On May 30, White Repair
Service accepted the seller’s counteroffer of $115,000. On June 20, the land
was assessed at a value of $95,000 for
property tax purposes. On July 4, White Repair Service was offered $150,000 for the land by a national retail chain. At
what value should the land be recorded in White Repair Service’s records?
a. $108,000
b. $95,000
c. $140,000
d. $115,000
71.
Select
the type of business that is most likely to obtain large amounts of resources
by issuing stock.
a. partnership
b. corporation
c. proprietorship
d. government entity
72.
Which
of the following is not a characteristic of a corporation?
a. Corporations are organized as a
separate legal taxable entity.
b. Ownership is divided into shares
of stock.
c. Corporations experience an ease
in obtaining large amounts of resources by issuing stock.
d. A corporation’s resources are
limited to its individual owners’ resources.
73. The initials GAAP stand for
a. General Accounting Procedures
b. Generally Accepted Plans
c. Generally Accepted Accounting
Principles
d. Generally Accepted Accounting
Practices
74.
Within
the United States, the dominant body in the primary development of accounting principles
is the
a. American Institute of Certified
Public Accountants (AICPA)
b. American Accounting Association
(AAA)
c. Financial Accounting Standards
Board (FASB)
d. Institute of Management
Accountants (IMA)
75. The business entity concept
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
76. For accounting purposes, the
business entity should be considered separate from its owners if the entity is
a. a corporation
b. a proprietorship
c. a partnership
d. any of these
77.
The
objectivity concept requires that
a.
business
transactions be consistent with the objectives of the entity
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
78. 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
79. Equipment with an estimated
market value of $30,000 is offered for sale at $45,000. The equipment is
acquired for $15,000 in cash and a note payable of $20,000 due in 30 days. The
amount used in the buyer's accounting records
to record this acquisition is
a. $30,000
b. $35,000
c. $15,000
d. $45,000
80. 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
81. Which of the following concepts
relates to separating the reporting of business and personal economic
transactions?
a.
cost
concept
b.
unit
of measure concept
c.
business
entity concept
d.
objectivity
concept
82. 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 concept, at
what amount should the land be recorded in the accounting records of Focus Company?
a. $177,000
b. $212,000
c. $220,000
d. $232,000
83.
Many
countries outside the United States use financial accounting standards issued
by the
a. AICPA
b. SEC
c. IASB
d. FASB
The
unit of measure concept
e. is only used in the financial
statements of manufacturing companies
f.
is
not important when applying the cost concept
g. requires that different units be
used for assets and liabilities
h. requires that economic data be
reported in yen in Japan or dollars in the United States
84.
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. The Financial Accounting
Standards Board (FASB) has primary responsibility for developing accounting principles.
85.
Assets
are
a. always lower than liabilities
b. equal to liabilities less
owner’s equity
c. the same as expenses because
they are acquired with cash
d. financed by the owner and/or
creditors
86. Debts owed by a business are
referred to as
a. accounts receivables
b. expenses
c. owner’s equity
d. liabilities
87.
The
accounting equation may be expressed as
a. Assets = Equities − Liabilities
b. Assets + Liabilities = Owner's
Equity
c. Assets = Revenues − Liabilities
d. Assets − Liabilities = Owner's
Equity
88.
Which
of the following is not an asset?
a. investments
b. cash
c. inventory
d. owner’s equity
89. The assets and liabilities of
the company are $128,000 and $84,000, respectively. Owner’s equity should equal
a. $212,000
b. $44,000
c. $128,000
d. $84,000
90. If total liabilities decreased
by $46,000 during a period of time and owner's 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. $106,000 increase
b. $14,000 increase
c. $14,000 decrease
d. $106,000 decrease
91.
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
92. A business paid $7,000 to a
creditor in payment of an amount owed. The effect of the transaction on the
accounting equation was to
a. increase one asset, decrease
another asset
b. decrease an asset, decrease a
liability
c. increase an asset, increase a
liability
d. increase an asset, increase
owner's equity
93. Earning revenue
a. increases assets, increases
owner’s equity
b. increases assets, decreases
owner's equity
c. increases one asset, decreases
another asset
d. decreases assets, increases
liabilities
94.
The
monetary value charged to customers for the performance of services sold is
called a(n)
a. asset
b. net income
c. capital
d. revenue
95. Revenues are reported when
a. a contract is signed
b. cash is received from the
customer
c. work is begun on the job
d. work is completed on the job
96. Expenses are recorded when
a. cash is paid for services
rendered
b. a bill is received in advance of
services rendered
c. assets are used in the process
of earning revenue
d. assets are purchased
97.
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
98. The asset created by a business
when it makes a sale on account is termed
a. accounts payable
b. prepaid expense
c. unearned revenue
d. accounts receivable
99.
The
debt created by a business when it makes a purchase on account is referred to
as an
a. account payable
b. account receivable
c. asset
d. expense payable
100. If total assets decreased by
$88,000 during a period of time and owner's equity increased by $71,000 during
the same period, then the amount and
direction (increase or decrease) of the period's change in total liabilities is
a. $17,000 increase
b. $88,000 decrease
c. $159,000 increase
d. $159,000 decrease
101. Owner's withdrawals
a. increase expenses
b. decrease expenses
c. increase cash
d. decrease owner's equity
102. How does paying a liability in
cash affect the accounting equation?
a. assets increase; liabilities
decrease
b. assets increase; liabilities
increase
c. assets decrease; liabilities
decrease
d. liabilities decrease; owner's
equity increases
103.
How
does receiving a bill to be paid next month for services received affect the accounting
equation?
a. assets decrease; owner's equity
decreases
b. assets increase; liabilities
increase
c. liabilities increase; owner's
equity increases
d. liabilities increase; owner's
equity decreases
104. How does the purchase of
equipment by signing a note affect the accounting equation?
a. assets increase; assets decrease
b. assets increase; liabilities
decrease
c. assets increase; liabilities
increase
d. assets increase; owner's equity
increases
105. 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 $62,000; owner's
equity increases $62,000
b. assets increase $32,000; owner's
equity increases $32,000
c. assets increase $62,000;
liabilities decrease $30,000; owner's equity increases $32,000
d. assets increase $30,000; no
change for liabilities; owner's equity increases $62,000
106.
Which of
the following is
a liability?
e.
Accounts payable
f.
Accounts receivable
g.
Wages expense
h.
Service revenue
107. Abbie Marson is the sole owner
and operator of Great Plains Company. 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, Marson invested an additional $73,000 and
withdrew $33,000 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
c. $106,000
d. $370,000
108. Which of the following
asset accounts is increased when a receivable
is collected?
a. Accounts
receivable
b. Supplies
c. Accounts
payable
d. Cash
109. Transactions affecting owner's
equity include
a. owner's investments and payment
of liabilities
b. owner's investments, owner's
withdrawals, earning of revenues, and incurrence of expenses
c. owner's investments, earning of
revenues, incurrence of expenses, and collection of accounts receivable
d. owner's withdrawals, earning of
revenues, incurrence of expenses, and purchase of supplies on account
110. Michael Anderson is starting his
computer programming business and has deposited in initial investment of
$15,000 into the business cash
account. Identify how the accounting
equation will be affected.
a. Increase Assets (Cash) and
increase Liabilities (Accounts Payable)
b. Increase Assets (Cash) and
increase Owner’s Equity (Michael Anderson, Capital)
c. Increase Assets (Accounts
Receivable) and decrease Liabilities (Accounts Payable)
d. Increase Assets (Cash) and
increase Assets (Accounts Receivable)
111. Gomez Service Company paid its
first installment on a note payable in the amount of $2,000. How will this transaction affect the accounting equation?
a. Increase Liabilities (Notes
Payable) and decrease Assets (Cash)
b. Decrease Assets (Cash) and
decrease Owner’s Equity (Note Payable Expense)
c. Decrease Assets (Cash) and
decrease Assets (Notes Receivable)
d. Decrease Assets (Cash) and
decrease Liabilities (Notes Payable)
112. Ramon Ramos has withdrawn $750
from Ramos Repair Company’s cash account to deposit in his personal account.
How does this transaction affect Ramos Repair Company’s accounting
equation?
a. Increase Assets (Accounts
Receivable) and decrease Assets (Cash)
b. Decrease Assets (Cash) and
decrease Owner’s Equity (Owner’s Withdrawal)
c. Decrease Assets (Cash) and
decrease Liabilities (Accounts Payable)
d. Increase Assets (Cash) and
decrease Owner’s Equity (Owner’s Withdrawal)
113.
Which
of the following is not a business transaction?
a. Erin deposits $15,000 in a bank
account in the name of Erin’s Lawn Service.
b. Erin provided services to
customers earning fees of $600.
c. Erin purchased hedge trimmers
for her lawn service agreeing to pay the supplier next month.
d. Erin pays her monthly personal
credit card bill.
114. Which of the following
is a business transaction?
e. purchase
inventory on account
f. plan advertising for upcoming sale
g. give employees
a raise beginning
next month
h. submit estimate
for construction project
115. 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 owner's equity
c. income statement
d. balance sheet
116. Which of the following financial
statements reports information as of a specific date?
a. income statement
b. statement of owner's equity
c. statement of cash flows
d. balance sheet
117. Four financial statements are
usually prepared for a business. The
statement of cash flows is usually prepared last. The statement of owner's equity (OE), the
balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed
for the next statement. In what order
are these three statements prepared?
a. I,OE, B
b. B, I, OE
c. OE, I, B
d. B,OE, I
118.
Liabilities
are reported on the
a. income statement
b. statement of owner's equity
c. statement of cash flows
d. balance sheet
119.
Cash
investments made by the owner to the business are reported on the statement of
cash flows in the
a. financing activities section
b. investing activities section
c. operating activities section
d. supplemental statement
120.
The
year-end balance of the owner's capital account appears in
a. both the statement of owner's
equity and the income statement
b. only the statement of owner's
equity
c. both the statement of owner's
equity and the balance sheet
d. both the statement of owner's
equity and the statement of cash flows
121. 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 retained earnings
122. If an owner wanted to know how
money flowed into and out of the company, which financial statement would the owner use?
a. income statement
b. statement of cash flows
c. balance sheet
d. statement of retained earnings
123.
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
124.
All
of the following statements regarding the ratio of liabilities to owner’s
equity are true except
a. A ratio of 1 indicates that
liabilities equal owner’s equity.
b. Corporations can use this ratio
but substitute total stockholders’ equity for total owner’s 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.
125. Given the following data:
Dec.
31, Year 2 Dec. 31, Year
1 Total liabilities $128,250 $120,000
Total owner’s equity 95,000 80,000
Compute the ratio of liabilities to owner’s 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
126. Discuss internal and external
users of accounting information. What
areas of accounting provide them with information? Give an example of the type of report each
type of user might use.
127. Companies like Enron, WorldCom,
and Tyco International, Ltd. have been caught in the midst of ethical lapses
that led to fines, firings, and
criminal and/or civil prosecution. List and briefly describe three factors that
are responsible for what went wrong in
these companies.
List
the five steps in the process by which accounting provides information to
users.
128. For each of the following
companies, identify whether they are a service, merchandising, or manufacturing business.
A.
|
Dillard’s
|
B.
|
Time Warner Cable
|
C.
|
General Motors
|
D.
|
Blockbuster
|
E.
|
Applebee’s
|
F.
|
Sony
|
G.
|
Best Buy
|
H.
|
Banana Republic
|
I.
|
H&R Block
|
Identify
each of the following as either internal or external users of accounting
information.
A.
|
Payroll Manager
|
B.
|
Bank
|
C.
|
President’s Secretary
|
D.
|
Internal Revenue
Service
|
E.
|
Raw Material
Vendors
|
F.
|
Social Security
Administration
|
G.
|
Health Insurance
Provider
|
H.
|
Managerial
Accountant
|
129. What is the major difference
between the objective of financial accounting and the objective of managerial accounting?
130. Give the major disadvantage of
disregarding the cost concept and constantly revaluing assets based on
appraisals and opinions.
ccounting reports would become
unstable and unreliable.
131. On May 7, Carpet Barn Company
offered to pay $83,000 for land that had a selling price of $105,000. On May 15, Carpet
Barn accepted a counteroffer of $95,000.
On June 5, the land was assessed at a value of $115,000 for property tax purposes. On December 10, Carpet Barn Company was
offered $135,000 for the land by another company. At what value should the land be recorded in
Carpet Barn Company’s records?
132. Donner Company is selling a
piece of land adjacent to its business.
An appraisal reported the market value of the land to be $120,000. The
Focus Company initially offered to buy the land for $107,000. The companies settled on a purchase price of $115,000. On the same day, another piece of land on the
same block sold for $122,000. Under the cost concept, what is the amount that
will be used to record this transaction in the accounting records?
133.
Explain
the meaning of the business entity concept.
134. Darnell Company purchased
$88,000 of computer equipment from Joseph Company. Darnell Company paid for the equipment using cash that had been obtained
from the initial investment by Donnie Darnell.
Which entity or entities (Darnell Company, Joseph Company,
Donnie Darnell) should record the transaction
involving the computer equipment on their accounting records?
arnell Company and Joseph
Company
135. Bob Johnson is the sole owner of
Johnson’s Carpet Cleaning Service. Bob
purchased a personal automobile for $10,000 cash plus he took out a loan for
$20,000 in his name. Describe how this transaction is related to the business entity concept.
136.
Discuss
the characteristics of a limited liability company (LLC).
137. Explain the meaning of:
(a) the objectivity concept
(b) the unit of measure concept
138. Dave Ryan is the owner and
operator of Ryan's Arcade. At the end of its accounting period, December 31,
Ryan’s $450,000 and liabilities of $125,000.
Using the accounting equation, determine the following amounts:
(a)
owner’s
equity as of December 31 of the current year
(b)owner’s equity as of December 31
at the end of the next year, assuming that assets increased by $65,000 and
liabilities increased by $35,000 during the year
139.
Krammer
Company has liabilities equal to one fourth of the total assets. Krammer’s owner’s equity is $45,000. Using the accounting equation, what is the
amount of liabilities for Krammer?
ssets = Liabilities + Owner’s
Equity
4x =
x + $45,000
3x =
$45,000
x = $15,000
in liabilities
140. Determine the missing amount for
each of the following:
Assets
|
Liabilities
|
Owner's Equity
|
(a)
|
$38,000
|
$45,000
|
$30,000
|
(b)
|
$22,000
|
$53,000
|
$32,000
|
(c)
|
141. Determine the missing amount “X”
for each of the following:
Assets
|
Liabilities
|
Owner’s Equity
|
(a) $78,500
|
$37,600
|
X
|
(b) X
|
$53,280
|
$145,000
|
(c) $49,500
|
X
|
$34,000
|
142.
Use
the accounting equation to answer each of the independent questions below.
a. At the beginning of the year,
Norton Company's assets were $75,000 and its owner’s equity was $38,000. During
the year, assets increased by $18,000 and liabilities increased by $4,000. What was the owner’s equity at the end of the
year?
b.
At
the beginning of the year, Turpin Industries had liabilities of $44,000 and
owner’s equity of $66,000. If assets increased by $10,000 and liabilities
decreased by $5,000, what was the owner’s equity at the end of the year?
. $75,000 − $38,000 = $37,000 beginning
of year liabilities ($75,000 + $18,000) − ($37,000 + $4,000) = $52,000
end of year owner’s equity
b. $44,000 + $66,000 = $110,000 beginning of
year assets ($110,000 + $10,000) − ($44,000 − $5,000) = $81,000 end of year owner’s
equity
ACCT.WARD.16.01-04
- 01-04
143. On July 1 of the current year,
the assets and liabilities of John Wong, DVM, are as follows: Cash, $27,000; Accounts Receivable, $12,300; Supplies,
$3,100; Land, $35,000; Accounts Payable, $13,900. What is the amount of owner's equity (John Wong’s capital) as of
July 1 of the current year?
144. Ting Hsu is the owner of Hsu’s
Financial Services. At the end of its
accounting period, December 31, of Year 1, Hsu’s
has assets of $575,000 and owner’s equity of $335,000. Using the accounting equation and considering
each case independently, determine the
following amounts.
a. Hsu’s liabilities as of December
31 of Year 1.
b.
Hsu’s
liabilities as of December 31 of Year 2, assuming that assets increased by
$56,000 and owner’s equity decreased
by $32,000.
c. Net income or net loss during Year 2, assuming that as of December
31, Year 2, assets were $592,000, liabilities
were $450,000, and there were no additional investments or withdrawals.
. $575,000 − $335,000 = $240,000
b. ($575,000 + $56,000) − ($335,000
− $32,000) = $328,000
c. $592,000 − $450,000
= $142,000 owner's equity Year 2 $335,000 −
$142,000 = $193,000 net loss
ACCT.WARD.16.01-04
- 01-04
145. Indicate whether each of the
following represents an asset, liability, or owner's equity:
(a)
accounts
payable
(b)
wages
expense
(c)
capital
(d)
accounts
receivable
(e)
withdrawal
(f)
land
146. Martin Blair is the owner and
operator of Martin Consultants. At
December 31 of the current year, Martin Consultants
has assets of $430,000 and liabilities of $205,000. Using the accounting equation and considering
each case independently, determine the
following:
a. Martin Blair, capital, as of
December 31.
b. Martin Blair, capital, as of
December 31 of the next year, assuming that assets increased by $12,000 and liabilities increased by $15,000.
c.
Martin
Blair, capital, as of December 31 of the next year, assuming that assets decreased
by $8,000 and liabilities increased by
$14,000.
. $430,000 − $205,000 = $225,000
b. ($430,000 + $12,000) − ($205,000
+ $15,000) = $222,000
c. ($430,000 − $8,000) − ($205,000
+ $14,000) = $203,000
ACCT.WARD.16.01-04
- 01-04
147. Determine the total assets at
the end of the current year for Scott Industries.
148.
Determine
the total liabilities at the end of the current year for Scott Industries.
149. Based on this information, is
Scott Industries profitable? Explain
your answer.
150. Daniels Company is owned and
operated by Thomas Daniels. The
following selected transactions were completed
by Daniels Company during May:
1.
Received
cash from owner as additional investment, $55,000.
2.
Paid
creditors on account, $7,000.
3.
Billed
customers for services on account, $2,565.
4.
Received
cash from customers on account, $8,450.
5.
Paid
cash to owner for personal use, $2,500.
6.
Received
the utility bill, $160, to be paid next month.
Indicate the effect of each transaction on the accounting
equation by:
1)
Account
type (A)assets, (L)liabilities, (OE)owner’s equity, (R)revenue, and
(E)expense
2)
Name
of account
3)
The
amount by of the transaction
4)
The
direction of change (increase or decrease) in the account affected Note:
Each transaction has two entries.
Entry
|
Entry
|
|||||||
Account Type
|
Name of Account
|
Amount
|
Increase or Decrease
|
Account Type
|
Name of Account
|
Amount
|
Increase or Decrease
|
|
(1)
|
(2)
|
(3)
|
(4)
|
(1)
|
(2)
|
(3)
|
(4)
|
|
1
|
||||||||
2
|
||||||||
3
|
||||||||
4
|
||||||||
5
|
||||||||
6
|
||||||||
151. Collins Landscape Company
purchased various landscaping supplies on account to be used for landscape
designs for its customers. How will this business transaction affect the
accounting equation?
152. Shiny Kar Company had the
following transactions. For each
transaction, show the effect on the accounting
equation by putting the amount and direction (plus, minus, or NC for no
change) in each box of the table below.
Assets
|
Liabilities
|
Owner’s
Equity
|
|
a. Shiny Kar withdrew $500 cash for food.
|
|||
b. Shiny Kar Company sold 2 cars for a total
of $55,000 on account.
|
|||
c. The cost of the cars sold in (b) above was
$40,000.
|
|||
d. Shiny Kar received $35,000 payment for a
car previously sold on account.
|
|||
e. Shiny Kar paid $450 for advertising.
|
|||
f. Shiny Kar purchased $150 of cleaning supplies
on account.
|
153. Ramierez Company received its
first electric bill in the amount of $60 which will be paid next month. How will this transaction affect the accounting equation?
154. Simpson Auto Body Repair
purchased $20,000 of machinery. The company
paid $8,000 in cash at the time of the purchase
and signed a promissory note for the remainder to be paid in four monthly
installments.
(a) How will the purchase affect the
accounting equation?
(b) How will the payment of the
first monthly installment affect the accounting equation (ignore interest)?
155. Indicate how the following
transactions affect the accounting equation.
(a) The purchase of supplies on
account.
(b) The purchase of supplies for
cash.
(c) A withdrawal by the owner to pay
personal expenses.
(d) Revenues received in cash.
(e) Sale made on account.
156.
a. A vacant lot acquired for $83,000 cash is
sold for $127,000 in cash. What is the
effect of the sale on the total amount of the seller’s (1) assets, (2)
liabilities, and (3) owner’s equity?
b.
Assume
that the seller owes $52,000 on a loan for the land. After receiving the $127,000 cash in (a), the
seller pays the $52,000 owed. What is the effect of the payment on the total
amount of the seller’s (1) assets, liabilities,
and (3) owner’s equity?
.
(1)
Total
assets increased $44,000.
(2)
No
change in liabilities.
(3)
Owner’s equity increased $44,000.
b.
(1)
Total
assets decreased $52,000.
(2)
Total
liabilities decreased $52,000.
(3)
No change in owner’s equity.
157. The Austin Land Company sold
land for $85,000 in cash. The land was originally purchased for $65,000. At the time of the sale, $40,000 was still owed to
Regions Bank. After the sale, The Austin Land Company paid off the loan. Explain the effect of the sale and
the payoff of the loan on the accounting equation.
158. There are four transactions that
affect owner’s equity.
(a) What are the two types of
transactions that increase owner’s equity?
(b) What are the two types of
transactions that decrease owner’s equity?
159.
Identify
each of the following as an (1) increase to owner's equity, or a (2) decrease
to owner's equity.
(a)
Fees
Earned
(b)
Wages
Expense
(c)
Withdrawal
(d)
Lawn
Care Revenue
(e)
Investment
(f)
Supplies
Expense
160. Given the following:
Beginning
capital
|
$58,000
|
Ending capital
|
$30,000
|
Owner's withdrawals
|
$25,000
|
Calculate net income or net loss.
161. Selected transactions completed
by a proprietorship are described below.
Indicate the effects of each transaction on assets, liabilities, and owner's equity by inserting
"+" for increase and "−" for decrease in the appropriate
columns at the right. If appropriate, you may insert more than one
symbol in a column.
A
|
L
|
OE
|
||
(a)
|
Received cash from owner as an additional
investment
|
_____
|
_____
|
_____
|
(b)
|
Purchased supplies on account
|
_____
|
_____
|
_____
|
(c)
|
Paid rent for the current month
|
_____
|
_____
|
_____
|
(d)
|
Received cash for services sold to customers
|
_____
|
_____
|
_____
|
(e)
|
Returned some defective supplies purchased in (b)
|
_____
|
_____
|
_____
|
(f)
|
Paid insurance premiums in advance
|
_____
|
_____
|
_____
|
(g)
|
Paid cash to creditor for purchases in (b)
|
_____
|
_____
|
_____
|
(h)
|
Charged customers for services sold on account
|
_____
|
_____
|
_____
|
(i)
|
Paid cash to a customer as a refund for an
overcharge
|
_____
|
_____
|
_____
|
(j)
|
Received cash on account from customers
|
_____
|
_____
|
_____
|
(k)
|
Owner withdrew cash for personal use
|
_____
|
_____
|
_____
|
(l)
|
Recorded the cost of supplies used during the year
|
_____
|
_____
|
_____
|
(m)
|
Received invoice for electricity used
|
_____
|
_____
|
_____
|
(n)
|
Paid wages
|
_____
|
_____
|
_____
|
(o)
|
Purchased a truck for cash
|
_____
|
_____
|
_____
|
162.
The
accountant for Flagger Company prepared the following list of account balances
from the company’s records for the year ended December 31:
Fees
Earned
|
$165,000
|
Cash
|
$30,000
|
Accounts Receivable
|
14,000
|
Selling Expenses
|
44,000
|
Equipment
|
42,000
|
Flagger, Capital
|
36,000
|
Accounts Payable
|
12,000
|
Interest Income
|
3,000
|
Salaries & Wages Expense
|
40,000
|
Rent Expense
|
51,000
|
Income Taxes Payable
|
5,000
|
Prepaid Rent
|
2,000
|
Notes Payable
|
20,000
|
Income Taxes Expense
|
18,000
|
Prepare an income statement for Flagger Company in good
form.
163. Prepare an income statement for
the current year ended March 31.
167. Prepare a statement of owner’s equity for the current year ended
March 31.
168. Prepare a balance sheet for the
current year ended March 31.
169. A summary of cash flows for
Linda's Design Services for the year ended December 31 is shown below.
Cash receipts:
|
||
Cash received from customers
|
$83,990
|
|
Cash received from additional investment by owner
|
25,000
|
|
Cash payments:
|
||
Cash paid for expenses
|
$27,000
|
|
Cash paid for land
|
47,000
|
|
Cash paid for supplies
|
410
|
|
Drawing
|
5,000
|
|
The cash balance as of January 1
|
$40,600
|
|
Prepare a statement of cash flows for Linda's Design
Services for the year ended December 31.
170. What information does the income
statement give to business users?
171. What are the three sections of
the statement of cash flows?
172.
Match the following items to the
financial statement where they can be found. (Hint: Some of the items can be found on more than one financial
statement.)
A.
Balance
Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Owner’s Equity
#
|
Item
|
1.
|
Withdrawals
|
2.
|
Revenues
|
3.
|
Supplies
|
4.
|
Land
|
5.
|
Accounts
Payable
|
6.
|
Accounts
Receivable
|
7.
|
Operating
Activities
|
8.
|
Wages
Expense
|
9.
|
Net
Income
|
10.
|
Cash
|
173.
Name
and describe the four primary financial statements for a proprietorship.
174.
A
summary of cash flows for Evelyn's Event Planning for the year ended December
31 is shown below.
Cash receipts:
Cash received from customers $57,360
Cash received from bank loan 15,000
Cash payments:
Cash paid for operating expenses $12,120
Cash paid for equipment 18,070
Cash paid for party supplies 9,480
Drawing 12,000
The cash balance as of January 1 $15,580
Prepare a statement of cash flows for Evelyn's Event
Planning for the year ended December 31.
175. The assets and liabilities of
Rocky's Day Spa at December 31 and expenses for the year are listed below. The capital of the owner was $68,000 at January
1. The owner invested an additional $10,000 during the year. Net income for the year is $45,625.
Accounts
Payable
|
$ 4,375
|
Spa
Operating Expense
|
$23,760
|
Accounts
Receivable
|
8,490
|
Office
Expense
|
2,470
|
Cash
|
13,980
|
Spa
Supplies
|
9,230
|
Fees
Earned
|
???
|
Wages
Expense
|
26,580
|
Spa
Furniture & Equipment
|
56,000
|
Drawing
|
38,170
|
Computers
|
2,130
|
Prepare an income statement for the current year ended
December 31.
176. The assets and liabilities of
Rocky's Day Spa on December 31 and its revenue and expenses for the year are
listed below. The capital of the owner was $68,000 on
January 1. The owner invested an
additional $10,000 during the year.
Accounts
Payable
|
$ 4,375
|
Spa
Operating Expense
|
$23,760
|
Accounts
Receivable
|
8,490
|
Office
Expense
|
2,470
|
Cash
|
???
|
Spa
Supplies
|
9,230
|
Fees
Earned
|
98,435
|
Wages
Expense
|
26,580
|
Spa
Furniture & Equipment
|
56,000
|
Drawing
|
38,170
|
Computers
|
2,130
|
Prepare a balance sheet for the year ended December 31.
177. The assets and liabilities of
Rocky's Day Spa at December 31, and its revenue and expenses for the year are listed below.
The capital of the owner is $68,000 at January 1. The owner invested an additional $10,000
during the year.
Accounts
Payable
|
$ 4,375
|
Spa
Operating Expense
|
$23,760
|
Accounts
Receivable
|
8,490
|
Office
Expense
|
2,470
|
Cash
|
13,980
|
Spa
Supplies
|
9,230
|
Fees
Earned
|
98,435
|
Wages
Expense
|
26,580
|
Spa
Furniture & Equipment
|
56,000
|
Drawing
|
38,170
|
Computers
|
2,130
|
Prepare a statement of owner’s equity for the current year
ended December 31.
178. Explain the interrelationship
between the balance sheet and the statement of cash flows.
179.
From
the following list of items taken from Lamar’s accounting records, identify
those that would appear on the income statement.
(a)
Rent
Expense
(b)
Land
(c)
Capital
(d)
Fees
Earned
(e)
Withdrawal
(f)
Wages
Expense
(g)
Investment
180. Identify which of the following
accounts would appear on a balance sheet.
(a)
Cash
(b)
Fees
Earned
(c)
Joe
Brown, Capital
(d)
Wages
Payable
(e)
Rent
Expense
(f)
Prepaid
Advertising
(g)
Land
181. Indicate whether each of the
following activities would be reported on the statement of cash flows as an operating activity, an investing activity, a
financing activity, or does not appear on the cash flow statement.
(a)
Cash
paid for building
(b)
Cash
paid to suppliers
(c)
Cash
paid for owner's withdrawal
(d)
Cash
received from customers
(e)
Cash
received from the owner's investment
(f)
Cash
received from the sale of a building
(g)
Borrowed
cash from a bank
182.
For
each of the following, determine the amount of net income or net loss for the
year.
(a)
Revenues
for the year totaled $71,300 and expenses totaled $35,500. The owner made an additional investment of $15,000 during the
year.
(b)
Revenues
for the year totaled $220,500 and expenses totaled $175,000. The owner withdrew $40,000 during the year.
(c)
Revenues
for the year totaled $149,000 and expenses totaled $172,000. The owner invested an additional $12,000 and withdrew
$16,000 during the year.
(d)
Revenues
for the year totaled $198,150 and expenses totaled $174,200. The owner withdrew $35,000 during the year.
183. The total assets and total
liabilities of Paul’s Pools, a proprietorship, at the beginning and at the end
of the current fiscal year are as follows:
Jan.
1
|
Dec. 31
|
|
Total assets
|
$280,000
|
$475,000
|
Total liabilities
|
205,000
|
130,000
|
(a)
Determine
the amount of net income earned during the year. The owner did not invest any additional assets in the business
during the year and made no withdrawals.
(b)
Determine
the amount of net income during the year.
The assets and liabilities at the beginning
and at the end of the year are unchanged from the amounts presented above.
However, the owner withdrew $53,000 in cash during the year (no
additional investments).
(c)
Determine
the amount of net income earned during the year. The assets and liabilities at the beginning and at the end of the year
are unchanged from the amounts presented above. However, the owner invested an additional
$35,000 in cash in the business in June
of the current fiscal year (no withdrawals).
(d)
Determine
the amount of net income earned during the year. The assets and liabilities at the beginning and at the end of the year
are unchanged from the amounts presented above. However, the owner invested an additional
$12,000 in cash in August of the current
fiscal year and made twelve monthly cash withdrawals of $1,500 each during the year.
184. Selected transaction data of a
business for September are summarized below.
Determine the following amounts for
September: (a) total revenue, (b) total
expenses, (c) net income.
Service
sales charged to customers on account during September
|
$33,000
|
Cash
received from cash customers for services performed in September
|
28,000
|
Cash
received from customers on account during September:
|
|
Services
performed and charged to customers prior to September
|
13,000
|
Services
performed and charged to customers during September
|
18,000
|
Expenses
incurred prior to September and paid during September
|
6,500
|
Expenses
incurred and paid in September
|
36,250
|
Expenses
incurred in September but not paid in September
|
5,000
|
Expenses for supplies used and
insurance (not included above) applicable
to September
|
2,000
|
185. On March 1, the amount of
Richard Cook's capital in Richard’s Catering Company was $150,000. During
March, he withdrew $31,000 from the
business. The amounts of the various
assets, liabilities, revenues, and expenses are as follows:
Accounts
payable
|
$10,250
|
Accounts receivable
|
45,950
|
Cash
|
23,840
|
Fees earned
|
64,950
|
Insurance expense
|
1,275
|
Land
|
85,400
|
Miscellaneous expense
|
1,210
|
Prepaid insurance
|
3,000
|
Rent expense
|
9,000
|
Salary expense
|
20,300
|
Supplies
|
900
|
Supplies expense
|
525
|
Utilities expense
|
2,800
|
Present, in good form, (a) an income statement for March,
(b) a statement of owner's equity for March, and (c) a balance sheet as of March 31.
186. Harris Designers began
operations on April 1. The financial
statements for Harris Designers are shown below for t month ended April 30, (the first month of operations). Determine the missing amounts for letters (a)
through (o).
Harris
Designers Income Statement
For the Month Ended April 30
Fees
earned $27,000
Operating expenses:
Wages
expense $5,250
Rent
expense (a)
Supplies expense 4,600
Utilities
expense 400
Miscellaneous
expense
1,250
Total
operating expenses (b)
Net
income $ (c)
Harris Designers Statement of Owner's Equity For the Month Ended April 30
Lori
Harris, capital, April 1 $ 0
Investment on April 1 $35,000
Net income for April (d)
$ (e)
Less withdrawals
6,000
Increase
in owner's equity (f)
Lori
Harris, capital, April 30 $38,100
Harris Designers Balance Sheet April 30
Assets
|
Liabilities
|
|||
Cash
|
$ (g)
|
Accounts payable $(i)
|
||
Supplies
|
8,100
|
Owner's Equity
|
||
Land
|
(h)
|
Lori Harris, capital
|
(j)
|
|
Total liabilities and
|
||||
Total assets
|
$55,900
|
owner's equity
|
$(k)
|
|
Harris Designers Statement of Cash Flows
|
For the
Month Ended April 30 Cash flows from operating
activities:
Cash flows from financing activities:
Cash received as owner's
investment $
(l)
Deduct cash withdrawal by owner (m)
Net cash flow from
financing activities (n)
Net cash flow
and April 30 cash balance $
(o)
Place your answers in the space provided below. Hint: Use the interrelationships among the
financial statements to solve this
problem.
(a)
|
___________
|
(b)
|
___________
|
(c)
|
___________
|
(d)
|
___________
|
(e)
|
___________
|
(f)
|
___________
|
(g)
|
___________
|
(h)
|
___________
|
(i)
|
___________
|
(j)
|
___________
|
(k)
|
___________
|
(l)
|
___________
|
(m)
|
___________
|
(n)
|
___________
|
(o)
|
___________
|
187. Using the following accounts and
their amounts, prepare in good format an income statement for Heavenly Futures Company for the month ended August 31.
Telephone
Expense
|
$ 1,150
|
|
Cash
|
3,000
|
|
Accounts
Payable
|
1,540
|
|
Jason
Heaven, Drawing
|
800
|
|
Fees
Earned
|
15,700
|
|
Rent
Expense
|
1,400
|
|
Supplies
|
140
|
|
Accounts
Receivable
|
1,500
|
|
Computer
Equipment
|
20,000
|
|
Jason
Heaven, Capital (August 1)
|
14,320
|
|
Wages
Expense
|
4,800
|
|
Utilities
Expense
|
750
|
|
Notes
Payable
|
2,400
|
|
Office
Expense
|
420
|
188.
Using
the following accounts and their amounts, prepare in good format a statement of
owner’s equity for Bright Futures Company for the month ended August 31.
Telephone
Expense
|
$
1,150
|
||
Cash
|
3,000
|
||
Accounts Payable
|
1,540
|
||
Jason Bright, Drawing
|
800
|
||
Fees Earned
|
15,700
|
||
Rent Expense
|
1,400
|
||
Supplies
|
140
|
||
Accounts Receivable
|
1,500
|
||
Computer Equipment
|
20,000
|
||
Jason Bright, Capital (August 1)
|
14,320
|
||
Wages Expense
|
4,800
|
||
Utilities Expense
|
750
|
||
Notes Payable
|
2,400
|
||
Office Expense
|
420
|
||
189. Eric Wood, CPA, was organized on
January 1 as a proprietorship. List the
errors that you find in the following financial
statements and prepare the corrected statements for the three months ended
March 31.
Eric Wood, CPA
Income Statement
For
the Three Months Ended March 31
|
||
Fees earned
|
$42,000
|
|
Operating expenses:
|
||
Salary expense
|
$9,735
|
|
Rent expense
|
5,200
|
|
Advertising expense
|
3,950
|
|
Utilities expense
|
3,225
|
|
Miscellaneous expense
|
4,000
|
|
Answering service expense
|
2,550
|
|
Supplies expense
|
4,000
|
|
Total operating expenses
|
28,000
|
|
Net income
|
$14,000
|
|
Eric Wood, CPA
Statement of Owner’s Equity
March
31
|
||||
Eric Wood, capital, January, 1, 2011
|
$ 0
|
|||
Investment on January 1, 2011
|
$20,000
|
|||
Net income for the 3 months
|
14,000
|
|||
36,000
|
||||
Less withdrawals
|
5,000
|
|||
Increase in owner’s equity
|
31,000
|
|||
Eric Wood, capital, March 31
|
$31,000
|
|||
Balance Sheet
For
the Three Months Ended March 31
|
||||
Assets
|
Owner’s Equity
|
|||
Land
|
$13,000
|
Eric Wood, Capital
|
$31,000
|
|
Cash
|
10,860
|
Liabilities
|
||
Accounts payable
|
2,670
|
Accounts receivable
|
2,225
|
|
Supplies
|
925
|
Total liabilities and
|
||
Total assets
|
$33,225
|
owner’s
equity
|
$33,225
|
|
190. Using the following accounts and
their amounts, prepare in good format a balance sheet for Bright Futures Company for the month ended August 31.
Telephone Expense $ 1,150
Cash 3,000
Accounts Payable 1,540
Jason Bright, Drawing 800
Fees Earned 15,700
Rent Expense
1,400
Supplies 140
Accounts Receivable 1,500
Computer Equipment 20,000
Jason Bright, Capital (August 1) 14,320
Wages Expense 4,800
Utilities Expense 750
Notes Payable 2,400
Office Expense 420
191. The account balances of Awesome
Travel Services at December 31 are listed below. There were no additional investments or withdrawals by J.
Trendsetter during the year.
Accounts
Payable
|
$12,000
|
J.
Trendsetter, Capital (Jan. 1)
|
$10,000
|
Accounts
Receivable
|
14,000
|
Supplies
|
1,000
|
Cash
|
18,000
|
Taxes
Expense
|
1,300
|
Computer
Equipment
|
21,000
|
Utilities
Expense
|
8,000
|
Fees
Earned
|
78,000
|
Wages
Expense
|
25,000
|
Rent
Expense
|
10,000
|
Supplies
Expense
|
1,700
|
Prepare an income statement, statement of owner’s equity,
and a balance sheet as of December 31.
192. Schultz Tax Services, a tax
preparation business, had the following transactions during the month of June:
1. Received cash for providing
accounting services, $3,000.
2.
Billed
customers on account for providing services, $7,000.
3.
Paid
advertising expense, $800.
4.
Received
cash from customers on account, $3,800.
5.
Owner
made a withdrawal, $1,500.
6.
Received
telephone bill, $220.
7.
Paid
telephone bill, $220.
Based on the information given above, calculate the balance
of Cash at June 30. (Hint: Use the
following reconciliation.)
Cash,
June $25,000
Plus:
cash receipts for June ____________
Minus:
cash payments for June ____________
Cash,
June 30 ____________
193.
Given
the following data:
Dec. 31, Year 2 Dec. 31, Year 1 Total liabilities $128,250 $120,000 Total owner’s equity 95,000 80,000
a. Compute the ratio of liabilities
to owner’s equity for each year.
b.
Has
the creditors’ risk increased or decreased from December 31, Year 1, to
December 31, Year 2?
194. Company G has a ratio of
liabilities to stockholders’ equity of 0.12 and 0.28 for Year 1 and Year 2,
respectively. In contrast, Company M
has a ratio of liabilities to stockholders’ equity of 1.13 and 1.29 for the
same period.
REQUIRED:
Based on this information, which company's creditors are
more at risk and why? Should the creditors of either company fear the risk of nonpayment?
ompany M’s
creditors are more at risk than are Company G’s creditors. The lower the ratio of liabilities to owner’s
equity, the better able the company is to withstand
poor business conditions and pay its obligations to creditors. Without additional information, it appears that the
creditors of either company are well protected
against the risk of nonpayment, because the ratios are relatively low for both.
However, the fact that both ratios are increasing over the period should
be monitored for downturns in business
conditions.
Bloom's: Analysis
195.
The
following data were taken from Miller Company’s balance sheet:
Dec. 31, Year 2
|
Dec. 31, Year 1
|
|
Total liabilities
|
$150,000
|
$105,000
|
Total
owner’s equity
|
75,000
|
60,000
|
a. Compute the ratio of liabilities
to owner’s equity.
b. Has the creditors’ risk
increased or decreased from December 31, Year 1, to December 31, Year 2?
.
12/31/Year 2: $150,000 / $75,000 = 2.0 12/31/Year
1: $105,000 / $60,000 = 1.75
b. Increased
Bloom's: Analysis
Match the following
business types with each business listed below. Each may be used more than
once.
a. Service firm
b. Manufacturing firm
c. Merchandising firm
196. A tax preparation firm
197. A law firm
198. A health club and spa
199. An automobile dealer
200. A book publisher
201. A hospital
202. A supermarket
203. A modular homebuilder
204. A men’s clothing store
205. A dressmaking company
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)
206. Comprises 70% of business
entities in the United States
207. Generates 90% of business
revenues
208. Owned by two or more individuals
209. Organized as a separate legal
taxable entity
210. Easy and cheap to organize
211. Often used as an alternative to
a partnership
212. Used by large business
213. Has the ability to obtain large
amounts of resources
214. Offers tax and legal liability
advantages for owners
Match each
transactions with its effect on the accounting equation. Each letter may be
used more than once.
a. Increase assets, increase
liabilities
b. Increase liabilities, decrease
owner’s equity
c. Increase assets, increase
owner’s equity
d. No effect
e. Decrease assets, decrease
liabilities
f.
Decrease
assets, decrease owner’s equity
215. Received cash for services
provided
216. Received utility bill to be paid
next month
217. Investment of land by owner
218. Paid part of an amount owed to a
creditor
219.
Paid
cash for the purchase of a one year insurance policy
220. Received payment from a customer
on account
221. Cash withdrawal by owner
222. Provided a service to a customer
on account
223. Purchased supplies on credit
224. Paid wages
225. Cash investment by owner
226. Borrowed money from a bank
227. Purchased equipment for cash
228. Received cash for providing
services to customers
229. Used up supplies that were
already on hand
Match the following
characteristics with the financial statement it describes it. Each may be used
more than once.
a. Income Statement
b. Balance Sheet
c. Statement of Owner’s Equity
d. Statement of Cash Flows
230. Reports as of a specific date
231. The first statement prepared
232. Has three sections: operating,
investing and financing
233. Reports only revenues and
expenses
234. The second statement prepared
235. A formal presentation of the
accounting equation
236. The connecting link between the
income statement and balance sheet
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