Chapter 1 Introduction to Accounting and Business OBJECTIVES
Obj 1 Obj 2 Obj 3 Obj 4 Obj !
Descri Describe be the the nature nature of of a busin business ess and the the role role of of ethic ethicss and acco account unting ing in in busine business. ss. Summar Summarize ize the the develo developme pment nt of accou accounti nting ng princ principl iples es and and relate relate them them to to practi practice. ce. State State the the accou accounti nting ng equat equation ion and define define each each eleme element nt of of the the equat equation ion.. Descri Describe be and and illus illustra trate te ho ho bus busine iness ss tran transac sacti tions ons can can be record recorded ed in in terms terms of the the resulting change in the basic elements of the accounting equation. Descri Describe be the the financ financial ial statem statement entss of a propr propriet ietors orship hip and e"pl e"plain ain ho ho the# the# interrelate.
QUESTION GRI
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Chapter
1/Introduction to Accounting and Business
3atching No$ No$ O% O%&e &ect cti' i'ee i(( i((ic icu# u#t) t) No$ No$ 1 * + , . /
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O%&e O% &ect cti' i'ee
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Chapter 1/Introduction to Accounting and Business
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12
11. 1/ 10 1 *2
Chapter 17Introduction to Accounting and Business TRUE!"A8SE
1. )he main main objecti objective ve of a not%for not%for%profi %profitt business business is not not to to ma*e a profit. profit. D,+- &oderate O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 2. n e"ampl e"amplee of a busines businesss sta*eho sta*eholde lderr is the fede federal ral gover governme nment. nt. D,+- &oderate O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 3. corporation corporation is is a business business that that is legall# legall# separate separate and disti distinct nct from from its oners. oners. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 4. bout $5 of the business businesses es in the the 6nited 6nited States States are organize organized d as corporat corporations. ions. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# !. rimar rimar# # users users of accoun accounti ting ng inform informati ation on are accou accounta ntants nts.. D,+- &oderate O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 7. ccounting ccounting is thought thought to be be the 8language 8language of busine business8 ss8 because because business business inform information ation is communicated to sta*eholders. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
3
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1/Introduction to Accounting and Business
9.
)he role role of accountin accounting g is to provide provide man# man# different different users ith financi financial al informat information ion to ma*e economic decisions. D,+- &oderate O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement :. roprietors roprietorships hips are are oned oned b# one one oner oner and provide provide onl# services services to their their customers customers.. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# .
;arge ;arge corporations corporations such as
eneral &otors= and the an* of merica can be organized as corporations. D,+- &oderate O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 11. business sta*eholder is is a person or entit# that that has an economic economic interest in the compan#. compan#. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 12. Senior e"ecutive e"ecutivess cannot be criminall# criminall# prosecuted prosecuted for the rong rong doings the# commit commit on behalf of the companies here the# or*. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S 'thics ,( ,( %;egal 13. )he primar# primar# role of accounti accounting ng is to determine determine the amount amount of ta"es a business business ill ill be required to pa# to ta"ing entities. D,+- &oderate O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 14. Sta*eholder Sta*eholderss use onl# accounting accounting reports as the source source of information information to base all of their their business decisions. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1!. ccounting ccounting reports reports are designed ith ith the information information needs of the sta*eholde sta*eholders rs in mind. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 17. ublic ublic accountants accountants are normall# normall# hired b# companies companies and the ,nternal ?evenue ?evenue Service. Service. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr#
Chapter 1/Introduction to Accounting and Business
5
19. &anagerial &anagerial accounting accounting information information is used b# e"ternal and internal internal users equall# equall#.. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1:. +inancial accounting provides information to all of the business sta*eholders= hile the main focus for managerial accounting is to provide information to the management. D,+- &oderate O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1. roper ethical ethical conduct conduct implies implies that #ou onl# consider consider hat@s in #our best best interest. interest. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S 'thics ,( ,( %;egal 2$. Some of the major fraudulen fraudulentt acts b# senior e"ecutives e"ecutives started started as hat the# the# considered considered to be small ethical lapses hich gre out of control. D,+- &oderate O/- $1%$1 ANS9 ) 0) 0)- (S 'thics ,( ,( %;egal 21. (& is is an acron#m that stands for (ertified (ertified &anufactur &anufacturing ing ccountant ccountant.. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 22. ,ndividuals ho ish ish to practice public accounting as a ( ( must meet the requirements of the state in hich the# reside. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 23. business is an organization that that provides goods or services to to their customers customers in e"change for mone# or other items of value. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 24. rofits rofits are the differenc differencee beteen the amounts amounts received received from customers customers and the amounts paid to provide the goods or services. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2!. )he main main objec objecti tive ve for for a## businesses is to ma"imize profits. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 27. &anufacturi &anufacturing ng and merchandis merchandising ing companies companies are similar because because the# purchase products products from other companies to sell to their customers. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr#
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29. &anagerial &anagerial accounting accounting is primaril# primaril# concerned concerned ith the recording recording and reporting reporting of economic economic data and activities of an entit# for use u se b# oners= creditors= governmental agencies= and the public. D,+- 'as# O/- $1%$1 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 2:. )he +inancial +inancial ccounting ccounting Standards Standards oard A+SB A+SB is the authoritati authoritative ve bod# that has primar# responsibilit# for developing accounting principles. D,+- 'as# O/- $1%$1 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2. )he cost concept concept is the basis for entering entering the e"change e"change price into the accounting accounting records. records. D,+- &oderate O/- $1%$2 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 3$. stands stands for >eneral >eneral ccept ccepted ed ccounting ccounting rotocol rotocols. s. D,+- 'as# O/- $1%$2 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 34. >enerall# >enerall# accepted accepted accounting principle principless regulate ho and hat financial financial information information is reported b# businesses. D,+- 'as# O/- $1%$2 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 3!. )he accounting equation can be e"pressed as ssets % ;iabilities Stoc*holders@ 'quit#. 'quit#. D,+- 'as# O/- $1%$3 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 37. )he rights or claims to the the assets of a business ma# ma# be subdivided into into rights of creditors and rights of stoc*holders. D,+- Difficult O/- $1%$3 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
Chapter 1/Introduction to Accounting and Business
7
39. )he stoc*holdersE rights to the the assets ran* ahead of the creditors@ rights to the assets. assets. D,+- 'as# O/- $1%$3 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 3:. ,f the liabilities liabilities oed b# a business total total C!$$=$$$ and stoc*holdersE equit# is equal to C!$$=$$$= then the assets also total C!$$=$$$. D,+- &oderate O/- $1%$3 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 3. ,f total assets assets decreased decreased b# C4$=$$$ during during a specific period period and stoc*holders@ stoc*holders@ equit# equit# decreased b# C4!=$$$ during the same period= the period@s change in total liabilities as an C:!=$$$ increase. D,+- &oderate O/- $1%$3 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4$. ,f the assets assets oned b# a business total total C!$$=$$$= and stoc*holde stoc*holders@ rs@ equit# equit# totals C4$$=$$$= C4$$=$$$= liabilities total C1$$=$$$. D,+- &oderate O/- $1%$3 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 41. ,f the assets assets oned b# a business total total C1$$=$$$ and liabilit liabilities ies total C!$=$$$= C!$=$$$= the total for stoc*holders@ equit# is C1!$=$$$. D,+- &oderate O/- $1%$3 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 42. ,f total assets assets increased increased b# C19!=$$$ during during a specific specific period and liabiliti liabilities es decreased decreased b# C1$=$$$ during the same period= the period@s change in total stoc*holders@ equit# as a C1:!=$$$ increase. D,+- &oderate O/- $1%$3 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 43. ,f net income income for a corporation corporation as C2!=$$$= C2!=$$$= the the dividends dividends paid in cash of C1$=$$$= C1$=$$$= and the stoc*holdersE invested C!=$$$ in cash= the stoc*holdersE equit# increased b# C2$=$$$. C2$=$$ $. D,+- Difficult O/- $1%$4 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 44. ,f net income income for a corporation corporation as C19!=$$$= C19!=$$$= dividend dividendss ere C4$=$$$ C4$=$$$ in cash= and the stoc*holders made no additional investment= the stoc*holdersE equit# increased C21!=$$$. D,+- &oderate O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4!. n account receivab receivable le is a claim against against a customer customer arising arising from a sale on account. account. D,+- 'as# O/- $1%$4 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
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Chapter
1/Introduction to Accounting and Business
47. a#ing an account account pa#able pa#able increases increases liabiliti liabilities es and decreases decreases assets. assets. D,+- &oderate O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 49. ?eceiving pa#ments on an account receivable receivable increases both stoc*holdersE equit# and assets. assets. D,+- Difficult O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4:. (ash investment investmentss b# stoc*holder stoc*holderss increase both stoc*holde stoc*holdersE rsE equit# equit# and assets. assets. D,+- &oderate O/- $1%$4 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4. (ash dividends dividends decrease decrease assets and increase increase stoc*holdersE stoc*holdersE equit#. equit#. D,+- &oderate O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !$. urchasing supplies on account increases increases liabilities liabilities and decreases stoc*holdersE equit#. equit#. D,+- &oderate O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !1. )he dividends dividends paid to stoc*hold stoc*holders ers are from from the profits profits made b# the corporati corporation. on. D,+- 'as# O/- $1%$4 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !2. ?eceiving ?eceiving a bill or otheris otherisee being notified notified that that an amount is oed is is not recorded until the amount is paid. D,+- &oderate O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !3. ?evenue is earned earned onl# onl# hen hen mone# mone# is receiv received. ed. D,+- &oderate O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !4. '"penses '"penses are are e"pired e"pired costs costs of doing business. business. D,+- 'as# O/- $1%$4 ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !!. )he e"cess of revenue revenue over the e"penses e"penses incurred incurred in earning the revenue revenue is called capital. capital. D,+- 'as# O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !7. '"penses '"penses increase increase stoc*holder stoc*holdersE sE equit# equit#. D,+- 'as# O/- $1%$4 ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
Chapter 1/Introduction to Accounting and Business
9
!9. )he e"cess e"cess of e"penses e"penses over revenues revenues is is called called net income. income. D,+- 'as# O/- $1%$! ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !:. )he principal principal financial financial statements statements of a corporation corporation are the income statement statement== statement of retained earnings= statement of cash flos= and the balance sheet. D,+- 'as# O/- $1%$! ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !. balance sheet is a list list of the assets= liabilities= and stoc*holdersE equit# of a business for a period of time. D,+- 'as# O/- $1%$! ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 7$. n income statemen statementt is a summar# summar# of the revenues revenues and e"penses e"penses of a business business as of a specific date. D,+- 'as# O/- $1%$! ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 71. statement of retained retained earnings reports the changes in the the retained earnings account for a period of time. D,+- 'as# O/- $1%$! ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 72. )he statement statement of cash flos flos consists consists of an operating section= section= an income section= section= and a stoc*holdersE equit# section. D,+- 'as# O/- $1%$! ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 73. )he financial statements of a corporation should include the the stoc*holdersE personal assets assets and liabilities. D,+- &oderate O/- $1%$! ANS9 + 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 74. )he alance alance Sheet Sheet represent representss the accounti accounting ng equation. equation. D,+- 'as# O/- $1%$! ANS9 ) 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
10
Chapter
1/Introduction to Accounting and Business
3ATC:ING
Match the following following transactions transactions with their their affects affects to the accounting accounting equation. equation. a. ,ncrease ,ncrease assets= assets= increase increase liabili liabilities ties b. ,ncrease liabilities= decrease stoc*holdersE equit# c. ,ncrease ,ncrease assets= assets= increase increase stoc*holdersE stoc*holdersE equit# d. 0o affe affect ct e. Decrease Decrease assets= assets= decrease decrease liabili liabilities ties f. Decrease Decrease assets= assets= decreas decreasee stoc*holder stoc*holdersE sE equit#
1. 2. 3. 4. !. 7. 9. :. . 1$. 1$.
?ece ?eceiv ived ed cas cash h for for ser servi vices ces prov provid ided ed ?eceiv ?eceived ed utili utilit# t# invo invoice ice to be be paid paid ne"t ne"t mon month th ,nve ,nvest stme ment nt of of lan land d b# stoc stoc*h *hol olde der r aid aid par partt of an an amou amount nt oed oed to a cre credi dito tor r aid aid cash cash for the purc purchas hasee of a one one #ear #ear insur insurance ance poli polic# c# ?eceived ?eceived pa#ment pa#ment from from a customer customer for for an an invoice invoice that that as as billed billed last month Dividends pa paid rov rovid ided ed a ser servi vice ce to to a custo custome merr on accou account nt urc urcha hase sed d supp suppli lies es on on cred credit it aid aid age agess
1. ANS9 ( D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2. ANS9 D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 3. ANS9 ( D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4. ANS9 ' D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !. ANS9 D D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 7. ANS9 D D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 9. ANS9 + D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement :. ANS9 ( D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement . ANS9 D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1$. ANS9 + D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
Chapter 1/Introduction 1/Introduction to Accounting and Business
Match the following following accounts to the financial financial statement statement where where they can be found. a. ala alanc ncee Sheet Sheet b. ,ncome Statement c. Statem Statement ent of of (ash (ash +los +los d. Statement Statement of ?etained ?etained 'arning 'arningss
11. 12. 12. 13. 13. 14. 1!. 1!. 17. 19. 1:. 1:. 1. 1. 2$.
Divi Divide dend ndss ?eve ?evenu nues es Supp Suppllies ies ;and cco ccount untss a#a a#abl blee ccount ccountss ?eceiv ?eceivabl ablee Operat Operating ing ctivi ctivitie tiess
11. ANS9 D D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 12. ANS9 D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 13. ANS9 D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 14. ANS9 D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1!. ANS9 D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 17. ANS9 D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 19. ANS9 ( D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1:. ANS9 D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1. ANS9 D D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2$. ANS9 D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
11
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3U8TI58E 3U8TI58E C:OICE C: OICE
1.
rof rofit it is the the dif differe ference nce bet betee een n a. assets assets and liab liabili ilitie tiess b. the incoming cash and outgoing cash c. the assets assets purchased ith ith cash contributed contributed b# the oner and the cash spent to operate operate the business d. the assets assets received for goods goods and services services and the amounts used to provide provide the goods and services D,+- 'as# O/- $1%$1 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2.
&ost bus &ost busin ines esse sess in the the 6nit 6nited ed Stat States es are are a. sole sole propr propriet ietors orship hipss b. partnerships c. corp corpor orat atio ions ns d. separa separate te entiti entities es D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 3.
n entit# entit# that is organize organized d according according to state state or federal federal statutes statutes and in hich hich onership onership is is divided into shares of stoc* is a a. prop propri riet etor orsh ship ip b. corporation c. part partne ners rshi hip p d. governm government ental al unit unit D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# !.
+ina +inanc ncia iall repo report rtss are are used used b# b# a. mana manage geme ment nt b. creditors c. inve invest stor orss d. all all are are corr correc ectt D,+- 'as# O/- $1%$1 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr#
Chapter 1/Introduction 1/Introduction to Accounting and Business
13
7.
)he to to most comm common on specia specializ lized ed fields fields of accou accounti nting ng in pract practice ice are are a. forensic forensic accountin accounting g and financi financial al accounting accounting b. managerial accounting and financial accounting c. managerial managerial accounti accounting ng and environment environmental al accounting accounting d. financial financial accountin accounting g and ta" accounting accounting s#stem s#stemss D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# .
ubl ublic ic accou account ntant antss are are norm normal all# l# a. (erti (ertifie fied d ublic ublic ccoun ccountan tants ts b. +orensic accountants c. (erti (ertifie fied d ,ntern ,nternal al udito uditors rs d. (ertified (ertified &anageme &anagement nt ccountants ccountants D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 1$.
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Chapter
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11. ap b. >ap= mazon= 0,G' c. >ameSt >ameStop= op= Son# Son#== Dell Dell d. >ameSt >ameStop= op= est est u#= u#= >ap D,+- 'as# O/- $1%$1 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 13. roo >roome mers rs b. ?estaurant c. Hideo ideo ?en ?enta tals ls d. St#l St#lin ing g Sal Salon on D,+- &oderate O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 14. Select the t#pe of business that is most li*el# to obtain large amounts of resources b# issuing stoc*. a. art artne ners rshi hip p b. (orporation c. rop ropri riet etor orsh ship ip d. 0one 0one are are corre correct ct.. D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 1!.
Chapter 1/Introduction 1/Introduction to Accounting and Business
15
17. (apital (apital mar*et sta*ehol sta*eholders ders have an interest interest in the compan# compan# because because a. the# provide provide incentives incentives for the the compan# to mar*et mar*et their their products. products. b. the# are part of the &ar*eting Department that is responsible for promoting promoting the products or services to increase the business profits. c. the# help mar*et mar*et their products products to customers customers or find vendors vendors to suppl# needed needed inputs. d. the# provide provide major major financing financing for the the business. business. D,+- &oderate O/- $1%$1 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# product or service service market market stakeholders stakeholders . 19. IIII are conside considered red to to be product a. 'mp 'mplo# lo#ees ees and and custo customer merss b. (ustomers and vendors c. Oners Oners and manage managers rs d. >overnm >overnment ent and ban*s ban*s D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr#
1:. )he folloing folloing are e"amples e"amples of interna internall sta*eholders sta*eholders e"cepte"cepta. &ana &anage gerrs b. Oners c. 'm 'mpl plo# o#ee eess d. all all of the the abov abovee D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 1. Due to various fraudulent fraudulent business business practices practices and accounting accounting coverups in the earl# 2$$$Es= 2$$$Es= (ongress enacted the Sarbanes%O"le# ct of 2$$2. )he act as responsible for establishing a ne oversight board for public accountants called the a. >enerall# >enerall# ccepted ccepted ccounti ccounting ng ractices for ublic ccount ccountants ants oard. b. ublic (ompan# ccounting Oversight oard. c. (ongression (ongressional al ccounting ccounting Oversight Oversight oard. oard. d. 0one 0one are are corre correct ct.. D,+- 'as# O/- $1%$1 ANS9 0) 0)- (S 'thics ,( ,( %;egal
16
Chapter
1/Introduction to Accounting and Business
2$.
Chapter 1/Introduction 1/Introduction to Accounting and Business
17
D,+- &oderate O/- $1%$1 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 2!. > stand stand for for a. >enera >enerall ccount ccounting ing rocedur rocedures es b. >enerall# ccepted lans c. >enerall# >enerall# ccepted ccepted ccount ccounting ing rinciple rincipless d. >enerall# >enerall# ccepte ccepted d ccounting ccounting ractice racticess D,+- &oderate O/- $1%$2 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2:. resentl# resentl#== the dominant bod# in the development development of accounting accounting principl principles es is the a. merican merican ,nstitute ,nstitute of (ertified (ertified ublic ublic ccountants ccountants A,(B A,(B b. merican ccounting ssociation AB c. +inancial +inancial ccounting ccounting Standards Standards oard oard A+SB A+SB d. ,nstitute ,nstitute of &anagement &anagement ccountants ccountants A,&B A,&B D,+- 'as# O/- $1%$2 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2. )he busines businesss entit# entit# concept concept means that a. the oner oner is part of the the business business entit entit# # b. an entit# is organized according to state or federal statutes c. an entit# entit# is organized organized according according to the rules rules set b# the +S +S d. the entit# entit# is an individual individual economic unit for hich hich data are recorded= recorded= anal#zed= anal#zed= and reported D,+- 'as# O/- $1%$2 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
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Chapter
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3$. +or accounting accounting purposes= purposes= the business business entit# entit# should be considered considered separate separate from its oners oners if the entit# is a. a corp corpor orat atio ion n b. a proprietorship c. a part partne ners rshi hip p d. all all of the the abov abovee D,+- &oderate O/- $1%$2 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( %,ndustr# %,ndustr# 31. Smith Smith (ompan# purchased purchased C1$!=$$$ of computer computer equipment equipment from ron ron (ompan#. (ompan#. Smith (ompan# paid for the equipment using cash that had been obtained from the initial investment b# (onnie Smith. )he transaction involving the computer co mputer equipment should be recorded on the accounting records of hich of the folloing entitiesF a. Smith (ompan# and and (onnie (onnie Smith@s Smith@s personal personal records records b. ron (ompan# and (onnie Smith@s personal records c. ron ron (omp (ompan an# # d. Smith (ompan# and ron (ompan# (ompan# D,+- Difficult O/- $1%$2 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 32. )he objecti objectivit# vit# princi principle ple require requiress that that a. business business transacti transactions ons must be consistent consistent ith the objective objectivess of the entit# b. the +inancial ccounting Standards oard must be fair fair and unbiased in its deliberations over ne accounting standards c. accounting accounting principles principles must meet meet the objectives objectives of the Securit# Securit# and '"change (ommission d. amounts recorded in in the financial financial statements statements must be based on independentl# verifiable verifiable evidence D,+- &oderate O/- $1%$2 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 33. )he ?e#nolds ?e#nolds (ompan# (ompan# estimated estimated that the the value of its land land had increased increased from C1$=$$$ C1$=$$$ to C17=$$$ and therefore rote up the land account to C17=$$$.
Chapter 1/Introduction 1/Introduction to Accounting and Business
a. b. c. d. ANS9 0) 0)-
19
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3!. 'quipment 'quipment ith an estimated estimated mar*et mar*et value of C4!=$$$ is offered offered for sale sale at C7!=$$$. )he equipment is acquired for C1$=$$$ in cash and a note pa#able of C4$=$$$ due in 3$ da#s. )he amount used in the bu#er@s accounting a ccounting records to record this acquisition is a. C!$= !$=$$$ b. C7!=$$$ c. C1$= 1$=$$$ d. C4!= C4!=$$ $$$ $ D,+- Difficult O/- $1%$2 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 37. IIII is the authoritative authoritative bod# having the primar# primar# responsibili responsibilit# t# for developing accounting accounting principles. a. +S b. ,?S c. S'( d. ,( ,( D,+- 'as# O/- $1%$2 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 39.
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Chapter
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3. B. b. +olloing > allos sta*eholders sta*eholders to compare one compan# to another. c. ne accountin accounting g principle principle can be adopted adopted ith stoc*holders stoc*holders approval. approval. d. )he +inancial ccounting Standards oard A+SB A+SB has primar# primar# responsibilit# for developing accounting principles. e. ccounting ccounting principles principles develop from research= research= accepted accepted accounting practices practices== and pronouncements of authoritative bodies. D,+- &oderate O/- $1%$2 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4$. Oned resourc resources es of a business business are referred referred to as as a. assets b. liabilities c. equi equitties ies d. reve revenu nues es D,+- 'as# O/- $1%$3 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 41. 41. sse ssets ts are are a. ala#s greater greater than than liabil liabilitie ities. s. b. either cash or accounts receivables c. the same as as e"penses e"penses because because the# are acquire acquired d ith cash cash d. financed financed b# the compan# andJor andJor creditors creditors D,+- 'as# O/- $1%$3 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 42. Debts oed b# a business business are are referr referred ed to as as a. account accountss receiv receivabl ables es b. equities c. stoc*ho stoc*holde ldersE rsE equit# equit# d. liab liabil ilit itie iess D,+- 'as# O/- $1%$3 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 43. )he accounti accounting ng equation equation ma# be e"pressed e"pressed as a. ssets ssets 'quities 'quities % ;iabili ;iabilities ties b. ssets K ;iabilities Stoc*holdersE Stoc*holdersE 'quit# c. ssets ssets ?evenues ?evenues less less ;iabil ;iabilitie itiess d. ssets ssets % ;iabilities ;iabilities Stoc*holdersE Stoc*holdersE 'quit# 'quit# D,+- &oderate O/- $1%$3 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
Chapter 1/Introduction 1/Introduction to Accounting and Business
44.
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Chapter
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4. business business paid paid C=$$$ to a creditor creditor in pa#ment pa#ment of an amount oed. oed. )he effect effect of the transaction on the accounting equation as to a. increase increase one asset= asset= decrease decrease another another asset b. increase an asset= increase a liabilit# c. decrease decrease an asset= asset= decrease decrease a liabil liabilit# it# d. increase increase an asset= asset= increase increase stoc*holders@ stoc*holders@ equit# equit# D,+- &oderate O/- $1%$4 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !$. !$. 'arn 'arnin ing g reve revenu nuee a. increases increases assets= assets= increases stoc*holde stoc*holdersE rsE equit# equit#.. b. increases assets= decreases stoc*holders@ equit# c. increases increases one asset= asset= decreases decreases another another asset asset d. decreases decreases assets= assets= increas increases es liabilit liabilities ies D,+- &oderate O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !1. )he monetar# monetar# value charged charged to customers customers for the performance performance of services services sold is called called aAnB a. asset b. net income c. capit pital d. reve revenu nuee D,+- 'as# O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !2. ?evenue ?evenuess are are repor reported ted hen hen a. a contr contract act is signed signed b. cash is received from the customer c. or* or* is is begun begun on the the job job d. or* or* is compl complete eted d on the job job D,+- &oderate O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !3. '"pens '"penses es are are record recorded ed hen hen a. cash is paid paid for for service servicess rendered rendered b. a bill is received in advance of services rendered c. servic services es are render rendered ed d. non nonee are are corr correc ectt D,+- &oderate O/- $1%$4 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
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23
!4. >oods purchased purchased on account for future future use in the business= business= such as supplies supplies== are called a. prepai prepaid d liab liabili ilitie tiess b. revenues c. prep prepai aid d e"pen e"pense sess d. liab liabil ilit itie iess D,+- 'as# O/- $1%$4 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !!. )he asset asset created created b# a business business hen it it ma*es a sale sale on account account is termed termed a. accou account ntss pa#a pa#abl blee b. prepaid e"pense c. unear unearne ned d reve revenue nue d. account accountss rece receiva ivable ble D,+- 'as# O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !7. )he debt created created b# a business business hen it ma*es ma*es a purchase on account account is referred referred to as an a. accou account nt pa#ab pa#able le b. account receivable c. asset d. e"pen e"pense se pa#a pa#abl blee D,+- 'as# O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !9. ,f total assets assets decreased decreased b# C49=$$$ during during a period of time and stoc*holders stoc*holders@@ equit# increased b# C24=$$$ during the same period= then the amount and direction Aincrease or decreaseB of the period@s change in total liabilities is a. C23 C23=$ =$$$ $$ inc incre reas asee b. C49=$$$ decrease c. C91 C91=$ =$$$ $$ dec decre reas asee d. C91 C91=$ =$$$ $$ incre increas asee D,+- &oderate O/- $1%$4 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !:. )he pa#men pa#mentt of divide dividends nds a. incr increa ease se e"pens e"penses es b. decrease e"penses c. incr increa ease se cash cash d. decrease decrease stoc*holder stoc*holders@ s@ equit# equit# D,+- 'as# O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
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Chapter
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!. Stoc*holders Stoc*holders@@ 'quit# is increas increased ed b# hich of the folloi folloing ng accountsF accountsF a. cash b. revenue c. account accountss receiv receivabl ablee d. all all are are corr correc ectt D,+- 'as# O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 7$. Lo does the purchase purchase of supplies supplies on account account affect affect the accountin accounting g equationF a. assets assets increaseM increaseM stoc*hold stoc*holders@ ers@ equit# equit# decreases decreases b. assets increaseM liabilities liabilities increase c. assets assets increase increaseMM liabilit liabilities ies decreas decreasee d. liabilitie liabilitiess increaseM increaseM stoc*holders@ stoc*holders@ equit# equit# decreases D,+- &oderate O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 71. Lo does the renderi rendering ng of services services on account affect affect the accounting accounting equation equationFF a. assets assets increaseM increaseM stoc*holders stoc*holdersEE equit# equit# increases increases b. assets decreaseM stoc*holders@ equit# decrease c. assets assets increaseM increaseM stoc*hold stoc*holders@ ers@ equit# equit# decreases decreases d. liabilitie liabilitiess increaseM increaseM stoc*holders@ stoc*holders@ equit# equit# decreases D,+- &oderate O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 72. Lo does pa#ing pa#ing a liabilit# liabilit# in cash affect affect the accountin accounting g equationF equationF a. assets assets increase increaseMM liabilit liabilities ies decreas decreasee b. assets increaseM liabilities liabilities increase c. assets assets decreaseM decreaseM liabilitie liabilitiess decrease decrease d. liabilitie liabilitiess decreaseM stoc*hold stoc*holders@ ers@ equit# equit# increases D,+- &oderate O/- $1%$4 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 73. Lo does the pa#ment pa#ment of dividends dividends affect affect the accountin accounting g equationF equationF a. assets assets decreaseM decreaseM stoc*hol stoc*holders@ ders@ equit# equit# decreases decreases b. assets decreaseM stoc*holders@ equit# increases c. assets assets increase increaseMM liabilit liabilities ies decreas decreasee d. no effect effect on the assets= liabili liabilities= ties= or stoc*holde stoc*holders@ rs@ equit# equit# D,+- &oderate O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
Chapter 1/Introduction 1/Introduction to Accounting and Business
25
74. Lo does receiving receiving a bill to be paid ne"t month for services services rendered rendered affect affect the accounting accounting equationF a. assets assets decreaseM decreaseM stoc*hol stoc*holders@ ders@ equit# equit# decreases decreases b. assets increaseM liabilities liabilities increase c. liabilitie liabilitiess increaseM increaseM stoc*holders stoc*holders@@ equit# increases increases d. liabilitie liabilitiess increaseM increaseM stoc*holders@ stoc*holders@ equit# equit# decreases D,+- &oderate O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 7!. Lo does the collecti collection on of cash from a customer customer ho ho as previousl# previousl# put on account account affect affect the accounting equationF a. assets assets decreaseM decreaseM stoc*hol stoc*holders@ ders@ equit# equit# decreases decreases b. assets increaseM stoc*holders@ equit# increases c. assets assets increas increaseM eM assets assets decrease decrease d. assets assets increaseM increaseM liabili liabilities ties increas increasee D,+- &oderate O/- $1%$4 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 77. Lo does the purchase purchase of equipment equipment b# signing signing a note affect affect the accounting accounting equation equationFF a. assets assets increas increaseM eM assets assets decrease decrease b. assets increaseM liabilities liabilities decrease c. assets assets increase increaseMM liabilit liabilities ies increas increasee d. assets assets increaseM increaseM stoc*holders stoc*holders@@ equit# increases increases D,+- &oderate O/- $1%$4 ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 79. ;and= originall originall# # purchased purchased for C2$=$$$= is sold for C9!=$$$ C9!=$$$ in cash.
26
Chapter
1/Introduction to Accounting and Business
7:. )he Genned# (ompan# (ompan# sold sold land for C7$=$$$ C7$=$$$ in cash. )he )he land as originall originall# # purchased for for C4$=$$$= and at the time of the sale= C1!=$$$ as still oed to +irst 0ational an* on that purchase. fter fter the sale= )he Genned# (ompan# paid off the loan to +irst 0ational an*.
eginning of #ear 'nd of #ear
ssets C 2 ! =$ $ $ 3! ! =$$ $
;iabilities C1$=$$$ 22$=$$$
Chapter 1/Introduction 1/Introduction to Accounting and Business
27
)he amount of net income for the #ear as a. C:!= :!=$$$ b. C4$=$$$ c. C13! C13!=$ =$$$ $$ d. C4!= C4!=$$ $$$ $ D,+- Difficult O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 92. ,f stoc*holder stoc*holdersEequ sEequit# it# at the beginning beginning of the period as C7!=$$$= C7!=$$$= ending balance balance is C43=$$$= and the dividends ere paid in the amount of C17=$$$= the amount of net income or net loss as a. net income income of C39=$$$ C39=$$$ b. net income of C:=$$$ c. net net loss loss o off C22=$ C22=$$$ $$ d. net net loss loss o off C7=$$ C7=$$$ $ D,+- Difficult O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 93. )ransact )ransactions ions affecti affecting ng stoc*holders@ stoc*holders@ equit# equit# include include a. stoc*holder stoc*holdersE sE investments investments and pa#ment pa#ment of liabilitie liabilitiess b. stoc*holdersE investments and dividends= revenues= and e"penses c. stoc*holdersE investments= revenues= revenues= e"penses= and collection collection of accounts receivable d. dividends= dividends= revenues= revenues= e"penses= e"penses= and purchase purchase of supplies on account account D,+- 'as# O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 94. ?ud# ?iver is starting his computer repair business business and has deposited deposited in initial initial investment of C1$=$$$ into the business cash account in e"change for capital stoc*. ,dentif# ho the accounting equation ill be affected. a. ,ncrease ,ncrease ssets ssets A(ashB A(ashB and increase ;iabiliti ;iabilities es Accounts a#ableB a#ableB b. ,ncrease ssets ssets A(ashB and increase ssets Accounts ?eceivableB c. ,ncrease ,ncrease ssets ssets Accounts Accounts ?eceivableB ?eceivableB and decrease decrease ;iabilities ;iabilities Accounts Accounts a#ableB d. ,ncrease ssets A(ashB A(ashB and increase Stoc*holdersE Stoc*holdersE 'quit# A(apital Stoc*B D,+- &oderate O/- $1%$4 ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
28
Chapter
1/Introduction to Accounting and Business
9!. ?ivers ?ivers (omputer &a*eover &a*eover (ompan# (ompan# purchased purchased C1!=$$$ of (omputer (omputer and Office Office 'quipment. )he compan# paid C3=$$$ in cash at the time of the purchase and signed a promissor# note for the remainder to be paid in si" monthl# installments. installments. Lo ill this transaction affect the accounting equationF a. ,ncrease ,ncrease ssets ssets A(omputer A(omputer and Office Office 'quipment 'quipment C1!=$$$B and decrease decrease ;iabilities ;iabilities Accounts a#able C1!=$$$B b. ,ncrease )otal )otal ssets ssets b# a net amount of C12=$$$ Aincrease (omputer and Office 'quipment C1!=$$$ and decrease (ash C3=$$$B and increase ;iabilities A0otes a#able C12=$$$B c. ,ncrease ,ncrease )otal )otal ssets ssets b# a net amount of C1!=$$$ Aincrease Aincrease (omputer and Office Office 'quipment C12=$$$ and increase (ash C3=$$$B and decrease ;iabilities Accounts a#able C1!=$$$B d. ,ncrease ssets A(omputer A(omputer and Office Office 'quipment C12=$$$B and increase increase ;iabilities Accounts a#able C12=$$$B D,+- Difficult O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 97. ?ivers ?ivers (omputer &a*eover &a*eover (ompan# (ompan# purchased purchased various computer computer supplies supplies on account to be used for repairing their customersE computers. Lo ill this business transaction affect the accounting equationF a. ,ncrease ,ncrease ssets ssets ASupplie ASuppliesB sB and decrease decrease ssets ssets A(ashB A(ashB b. ,ncrease ssets ssets ASuppliesB and ,ncrease ;iabilities ;iabilities Accounts a#ableB c. ,ncrease ssets ASuppliesB ASuppliesB and decrease Stoc*holdersE 'quit# ASupplies '"penseB d. ,ncrease Stoc*holdersE 'quit# ASupplies '"penseB and increase increase ;iabilities Accounts a#ableB D,+- &oderate O/- $1%$4 ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 99. )here are four transactions that affect stoc*holdersE stoc*holdersE equit#. equit#.
Chapter 1/Introduction 1/Introduction to Accounting and Business
29
9. ?ivers ?ivers (omputer &a*eover &a*eover (ompan# (ompan# has received received C3=!$$ in cash for services services rendered. rendered.
30
Chapter
1/Introduction to Accounting and Business
:3.
Chapter 1/Introduction 1/Introduction to Accounting and Business
31
::. ;iabil ;iabilit ities ies are are reporte reported d on the a. inco income me stat statem ement ent b. statement of retained earnings c. statem statement ent of of cash cash flo floss d. bala balanc ncee she sheet et D,+- 'as# O/- $1%$! ANS9 D 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement :. (ash investment investmentss made b# the stoc*holders stoc*holders of the business business are reported reported on the statement statement of cash flos in the a. financ financing ing activi activitie tiess section section b. investing activities section c. operati operating ng activit activities ies secti section on d. sup supple plemen mental tal statem statement ent D,+- 'as# O/- $1%$! ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement $. )he #ear%end #ear%end balance balance of the retaine retained d earnings earnings account appears appears in in a. both the statemen statementt of retained retained earnings earnings and the income income statement statement b. onl# the statement of retained earnings c. both the statem statement ent of retained retained earnings earnings and and the balance balance sheet d. both the statement statement of retained retained earnings earnings and the statement statement of cash flos D,+- 'as# O/- $1%$! ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 1. financia financiall statement statement user ould determin determinee if a compan# compan# as profitable profitable or not during a specific period of time b# revieing a. the ,ncome ,ncome Statem Statement ent.. b. the alance Sheet. c. the State Statemen mentt of (ash (ash +los. +los. d. cannot cannot be be determ determine ined. d. D,+- 'as# O/- $1%$! ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2. ,f the president president of the the compan# anted anted to *no ho mone# mone# floed into into and out of the compan#= hat financial statement ould she useF a. ,nco ,ncome me Stat Statem emen entt b. Statement of (ash +los c. ala alanc ncee Sheet Sheet d. 0one 0one are are corre correct ct.. D,+- 'as# O/- $1%$! ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
32
Chapter
1/Introduction to Accounting and Business
3. )he asset asset section section of the alance alance Sheet normall# normall# presents presents assets assets in a. alphab alphabeti etical cal order order.. b. order of largest to smallest smallest dollar amounts. c. in the order order hat hat ill ill be converted converted into into cash. cash. d. no orde orderr. D,+- 'as# O/- $1%$! ANS9 ( 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4. )he statement statement of cash flos flos is separatel# separatel# in three major major sections. sections. )he# are as follosfollosa. Operating= Operating= ,nvesting= ,nvesting= and +inancing +inancing b. ?evenues= '"penses= and 0et ,ncome c. ssets= ssets= ;iabilities ;iabilities== and Stoc*holdersE Stoc*holdersE 'quit# 'quit# d. ,nvestments ,nvestments== Dividends Dividends== and ,ncome D,+- 'as# O/- $1%$! ANS9 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !.
1.
>ive the the major major disadvantag disadvantagee of disregar disregarding ding the the cost concept concept and and constantl# constantl# revalui revaluing ng assets assets based on appraisals and opinions. ANS9 ccounting reports ould become unstable and unreliable. D,+- 'as# O/- $1%$1 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2.
On /une 9= 9= ?oller ?oller S*ates S*ates (ompan# (ompan# offered offered to to pa# C9!=$$$ C9!=$$$ for land that that had a selli selling ng price price of C$=$$$. On /une 1!= ?oller S*ates accepted a counteroffer of C:3=$$$. On /ul# != the land as assessed at a value of C1$$=$$$ C1$$ =$$$ for propert# ta" purposes. On December 1$= ?oller S*ates (ompan# as offered C12!=$$$ for the land b# another compan#. t hat value should the land be recorded in ?oller S*ates (ompan#Es recordsF ANS9 C:3=$$$ D,+- 'as# O/- $1%$2 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement )O- '"ample '"ercise 1%1
Chapter 1/Introduction 1/Introduction to Accounting and Business
3.
33
Dan aron is the presi president dent and operat operator or of ?each ?each ,t asebal aseballl atting atting (ages. (ages. t the end of its its accounting period= December 31= 2$$9= ?each ,t has assets of C7!$=$$$ and liabilities of C22!=$$$. 6sing the accounting equation= determine the folloing amountsAaB AaB Stoc* Stoc*ho hold lder ersE sE 'q 'qui uit# t# as as of Dece Decemb mber er 31= 31= 2$$9 2$$9.. AbB Stoc*h Stoc*hold olders ersEE 'qui 'quit# t# as of Decem December ber 31= 31= 2$$:= 2$$:= assumi assuming ng that that assets assets incre increase ased d b# C:!=$$$ and liabilities increased b# C1!=$$$ during 2$$:.
ANS9 AaB C7!$ C7!$=$ =$$$ $$ C22! C22!=$ =$$$ $$ K <,*-=222 AbB AbB AC7! AC7!$= $=$$$ $$$ K C:!= C:!=$$ $$$B $B AC2 AC22!= 2!=$$ $$$ $ K C1!=$ C1!=$$$ $$BB K <,-=222
D,+- &oderate O/- $1%$3 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement )O- '"ample '"ercise 1%2 4. Sara )homson )homson is the the president president and operates operates the )homson )homson (ompan# (ompan#. )he follo folloing ing selected selected transactions ere completed b# )homson (ompan# during ugust1. 2. 3. 4. !. 7.
?eceiv ?eceived ed cash cash from from the stoc stoc*hol *holder der as as additi additional onal inve investm stment ent C1!=$$ C1!=$$$. $. aid aid cred credit itor orss on on acco accoun untt C3=$ C3=$$$ $$.. illed illed custom customers ers for servic services es on account account== C9=77 C9=77!. !. ?ece ?eceiv ived ed cash cash fro from m cust custom omer erss on accou account ntss C!=7 C!=74! 4!.. aid aid cash cash divi divide dend nds= s= C3=! C3=!$$ $$.. ?ece ?eceiv ived ed elect electri ricc bill bill C7$= C7$= to be be paid paid ne"t ne"t mont month. h.
,ndicate the effect of each transaction on the accounting equation1B # ccount t#pe % ABassets ABassets== A;Bliabi A;Bliabiliti lities= es= AS'BSto AS'BStoc*hold c*holdersE ersE 'quit# 'quit#= A?Brevenue= and A'Be"pense 2B 0ame 0ame of cco ccoun untt for for the the ent entr# r# 3B )h )hee amou amount nt b# b# of the the tra trans nsac acti tion on.. 4B ,ndicate ,ndicate the the specifi specificc item item ithin ithin the account account equation equation element element that that is is affect affected. ed. 0ote- 'ach transaction has to entries. 'ntr# cct 0ame of mount ,ncrease or )#pe cct Decrease A1B A2B A3B A4B 1 2 3 4 ! 7
cct 0ame )#pe of cct A1B A2B
'ntr# mount A3B
,ncrease or Decrease A4B
34
Chapter
1/Introduction to Accounting and Business
ANS9
1
'ntr# cct 0ame of mount ,ncrease or )#pe cct Decrease A1B A2B A3B A4B (ash 1!=$$$ ,ncr
2 3
!.
)he assets assets and liabil liabilities ities of ?obinson ?obinson )ree )ree Services Services at at &a# 31= 2$$:= the the end of the the current current #ear= and its revenue and e"penses for the #ear are listed belo. )he stoc*holdersE equit# equit# as C1$=$$$ at /une 1= 2$$9= the beginning of the current #ear.
cct )#pe A1B S'
'ntr# mount
0ame of ,ncrease or cct Decrease A2B A3B A4B (apital 1!=$$$ ,ncr stoc* ;iab 3=$$$ De D ecr +ees 9=77! ,ncr 'arned cct ?ec !=74! Decr Dividends 3=!$$ ,ncr 6til '"p 7$ ,ncr
(ash 3=$$$ De D ecr ; cct 9=77! ,ncr ? ?ec 4 (ash !=74! ,ncr ! (ash 3=!$$ Decr S' 7 ; cct 7$ ,ncr ' a# D,+- Difficult O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement )O- '"ample '"ercise 1%3
ccounts a#able ccounts ?eceivable (ash +ees 'arned ;and uilding
C1=2$$ C12=34$ C32=$ C9:=3!$ C7!=$$$ C143=79$
&iscellaneous '"pense Office '"pense Supplies
C 22 $ C! 7 $ C1=79$ C27=99$ C3=$$$
repare an income statement for the current #ear ended &a# 31= 2$$:. ANS9 ?obinson )ree Services ,ncome Statement +or the Near Near 'nded &a# 31= 2$$: +ees 'arned '"penses-
C9: =3!$
0et ,ncome
C27=99$ !7 $ 22 $ 2 9 =!! $ C!$=:$$
D,+- &oderate O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement )O- '"ample '"ercise 1%4
Chapter 1/Introduction 1/Introduction to Accounting and Business
7.
35
)he assets assets and liabil liabilities ities of ?obinson ?obinson )ree )ree Services Services at at &a# 31= 2$$:= the the end of the the current current #ear= and its revenue and e"penses for the #ear are listed belo. )he capital stoc* as C1$$=$$$ at /une 1= 2$$9= the beginning of the current #ear. &r. &r. ?obinson invested an additional C1!=$$$ in the business in e"change for capital stoc* during the #ear. ccounts a#able ccounts ?eceivable (ash +ees 'arned ;and uilding
C1=2$$ C12=34$ C32=$ C9:=3!$ C7!=$$$ C143=79$
&iscellaneous '"pense Office '"pense Supplies
C 22 $ C! 7 $ C1=79$ C27=99$ C3=$$$ C$=$$$
repare a statement of retained earnings for the current #ear ended &a# 31= 2$$:. ANS9 ?obinson )ree Services Statement of ?etained 'arnings +or the Near Near 'nded &a# 31= 2$$: ?etained earnings= /une 1= 2$$9 0et ,ncome for the #ear
C$=$$$ !$=:$$ C14$=:$$ 3=$$$ C139=:$$
;ess dividends ?etained earnings= &a# 31= 2$$:
D,+- &oderate O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement )O- '"ample '"ercise 1%! 9.
)he assets assets and liabil liabilities ities of ?obinson ?obinson )ree )ree Services Services at at &a# 31= 2$$:= the the end of the the current current #ear= and its revenue and e"penses for the #ear are listed belo. )he capital stoc* account as C1$$=$$$ at /une 1= 2$$9= the beginning beg inning of the current cu rrent #ear. dditional information- &r. ?obinson made an additional investment of C1!=$$$ in e"change for capital stoc* during the #ear. ccounts a#able ccounts ?eceivable (ash +ees 'arned ;and ?etained earnings
C1=2$$ C12=34$ C32=$ C9:=3!$ C7!=$$$ C$=$$$
&iscellaneous '"pense Office '"pense uilding
C2 2$ C! 7$ C143=79$ C27=99$ C3=$$$
36
Chapter
1/Introduction to Accounting and Business
repare a balance sheet for the current #ear ended &a# 31= 2$$:. ANS9 ?obinson )ree Services alance Sheet &a# 31= 2$$: Assets
(ash ccounts ?eceivable ;and uilding
)otal ssets
8ia%i#ities C32=$ ccounts a#able 12=34$ 7!=$$$ Stoc>ho#ders? E@uit) 143=79$ (apital stoc* 11!=$$$ ?etained 'arnings 139=:$$ )otal Stoc*holdersE 'quit# C2!4=$$$ )otal liab and Stoc*holderEs 'quit#
C 1=2$$
2!2=:$$ C2!4=$$$
D,+- &oderate O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement )O- '"ample '"ercise 1%7 :.
summar# summar# of cash cash flos flos for ?obinson ?obinson )ree )ree Services Services for for the #ear #ear ended ended &a# 31= 2$$:= is shon belo. (ash receipts(ash received from customers (ash received from additional investment b# stoc*holder
C: 2 = $ 1! =$$$
(ash pa#ments(ash paid for e"penses (ash paid for land (ash paid for supplies Di Dividends
C27=$$$ 7!=$$$ 4 3$ 3=$$$
)he cash balance as of /une 1= 2$$9
C2=34$
Chapter 1/Introduction 1/Introduction to Accounting and Business
37
repare a statement of cash flos for ?obinson )ree Services for the #ear ended &a# 31= 2$$:. ANS9 ?obinson )ree Services Statement of (ash +los +or the Near Near 'nded &a# 31= 2$$: (ash flos from operating activities(ash received from customers Deduct cash pa#ments for e"pensesJsupplies 0et cash flos from operating e"penses
C:2=$ 27=43$ C!7=!7$
(ash flos from investing activities(ash paid for land and building
A7!=$$$B
(ash from financing activities(ash received from stoc*holder as investment Deduct cash dividends paid 0et cash flos from financing activities 0et increase in cash during #ear (ash as of /une 1= 2$$9 (ash as of &a# 31= 2$$:
1!=$$$ 3=$$$ 12=$$$ C 3=!7$ 2=34$ C32=$$
D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement )O- '"ample '"ercise 1%9 .
38
Chapter
1/Introduction to Accounting and Business
5ROB8E3
1.
+or each each of the follo folloing ing companies companies== identif# identif# hether hether the# the# are a service= service= merchandi merchandising= sing= or manufacturing business. A$ B. C. D. E. F. G. H. I.
i##ards Ti6e arner Ca%#e e%a)$co6 B#oc>%uster App#e%ee?s S)#'ania Circuit Cit) Banana Repu%#ic : R B#oc>
ANS9 A. B. C. D.
E. F. G. H. I.
3erchandising Ser'ice Ser'ice Ser'ice Ser'ice ! 3anu(acturing 3anu(acturing 3erchandising 3erchandising Ser'ice
D,+- &oderate O/- $1%$1 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2.
overnment Sta*eholders= or ,nternal Sta*eholders. A$ B. C. D. E. F. G. H.
5a)r 5a)ro# o### 3ana 3anage gerr Ban> 5resident?s Secretar) Interna# Re'enue Ser'ice Ra 3ateria# Vendors Oner Socia# Securit) Ad6inistration :ea#th Insurance 5ro'ider
Chapter 1/Introduction 1/Introduction to Accounting and Business
39
ANS9 A$ B. C. D. E. F. G. H.
Inter Interna na## Sta>eh Sta>eho#d o#der er Capita# 6ar>et sta>eho#der Interna# Sta>eho#der Go'ern6ent Sta>eho#der 5roduct or ser'ice 6ar>et sta>eho#der Capita# 6ar>et sta>eho#der Go'ern6ent Sta>eho#der 5roduct or ser'ice 6ar>et sta>eho#der
D,+- &oderate O/- $1%$1 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 3.
Determ Determine ine the the missi missing ng amount amount for each of the the foll folloi oingngssets Aa A aB C!$=$$$ C3!=$$$
;iabilities C1:=$$$ AbB C 9=$$$
Stoc*holders@ 'quit# C11=$$$ C2:=$$$ AcB
ANS9 AaB C2=$$$ AbB C22=$$$ AcB C2:=$$$
D,+- 'as# O/- $1%$2 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 4.
,ndicate ,ndicate hether hether each of the the folloing folloing represe represents nts an asset= asset= liabilit liabilit# #= or stoc*holder stoc*holders@ s@ equit#equit#AaB AbB AcB AdB AdB AeB AfB
accounts nts pa# pa#able ages e"pense nse capital acco accoun unts ts rece receiv ivab able le dividends land
ANS9 AaB liabilit# AbB AbB stoc stoc*h *hol olde ders rsEE equi equit# t# AcB AcB stoc stoc*h *hol olde ders rsEE equi equit# t# AdB asset AeB AeB stoc stoc*h *hol olde ders rsEE equi equit# t# AfB asset
40
Chapter
1/Introduction to Accounting and Business
D,+- 'as# O/- $1%$2 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement !.
,dentif# ,dentif# each each of the follo folloing ing as an A1B increas increasee in stoc*hold stoc*holders@ ers@ equit# equit#== or a A2B decrease decrease in stoc*holders@ equit#. equit#. AaB AbB AcB AdB AeB AfB
+ees 'a 'arned
ANS9 AaB 1 AbB 2 AcB 2 AdB 1 AeB 1 AfB 2
D,+- 'as# O/- $1%$3 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
Chapter 1/Introduction 1/Introduction to Accounting and Business
7.
Selected Selected transacti transactions ons completed completed b# a corporation corporation are are described described belo belo.. ,ndicate ,ndicate the eff effects ects of each transaction on assets= liabilities= and stoc*holders@ equit# b# inserting 8K8 for increase and 8%8 for decrease in the appropriate columns at the right. ,f appropriate= #ou ma# insert more than one s#mbol in a column. ,f there is no change in the column= leave it blan*. IIIII
AaB
?eceiv ?eceived ed cash cash from from stoc*ho stoc*holde lderr as an addi additi tional onal investment AbB urchased supplies on account II I I I AcB aid rent for the current month II II I AdB ?eceived cash for services sold to customers I III I AeB ?eturned some defective supplies purchased in AbB IIIII AfB aid insurance premiums in advance I III I AgB aid cash to creditor for purchases in AbB I III I AhB (harged customers for services sold on account I III I AiB AiB aid aid cas cash h to a cust custom omer er as as a ref refun und d for for an an IIIII overcharge AjB ?eceived cash on account from customers III I I A*B Dividends paid I III I AlB ?ecorded the cost of supplies used during the #ear IIIII AmB ?eceived invoice for electricit# used II II I AnB aid ages II II I AoB urchased a truc* for cash II II I
ANS9
AaB AbB AcB AdB AeB AfB AgB AhB AiB AjB A*B AlB AmB AnB AoB
41
K K % K % K=% % K % K=% % %
; K
% K % % K %
K % K=%
S' K
% % % %
D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
; IIIII
S' IIIII
II II I I III I I III I II II I III I I II II I II II I IIIII
III I I I III I II II I I III I III I I I II I I III I I IIIII
I III I II II I III I I II II I II II I I II I I
I III I I II I I I III I III I I III I I I III I
42
9.
Chapter
1/Introduction to Accounting and Business
Lenr#Es Lenr#Es )a"es= )a"es= a ta" ta" preparation preparation business business had had the folloin folloing g transactio transactions ns during during the month month of pril Example: Example: Received Received cash the stockholde stockholderr, !",###. 1. ?eceived cash for providing accounting services= services= C:=$$$. 2. illed customers on account for providing providing services= C4=$$$. 3. aid advertising advertising e"pense= C4$$. 4. ?eceived cash from from customers on account= C3=!$$. !. Dividends ere paid to stoc*holders= stoc*holders= C1=$$$. 7. ?eceived telephone telephone bill= bill= C1$$. 9. aid telephone bill= bill= C1$$. Re@uired9 1B ,n the table belo= belo= state the accounts affected affected b# each transaction. 2B ,ndicate the effect effect on the accounting equation of each transaction. transaction. Assets
D 8ia%i#ities
Ex $ash %!",### 1. 2. 3. 4. !. 7. 9.
Stoc>ho#ders? E@uit) %!",###
ANS9
'" 1. 2. 3. 4. !. 7. 9.
Assets (ash K1!=$$$ (ash K :=$$$ J? K 4=$$$ (ash %4$$ (ash K 3=!$$ J? %3=!$$ (ash %1=$$$
(ash %1$$
D 8ia%i#ities
J K 1$$ J %1$$
D,+- &oderate O/- $1%$4 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
Stoc>ho#ders? E @uit) K1!=$$$ ?evenues K :=$$$ ?evenues K 4=$$$ '"penses % 4$$
Dividends %1=$$$ '"penses %1$$
Chapter 1/Introduction 1/Introduction to Accounting and Business
:.
43
+rom the the folloing folloing list list of accounts accounts ta*en from from Danson@s Danson@s accounting accounting records= records= identi identif# f# those those that ould appear on the ,ncome Statement. AaB AbB AcB AdB AeB AfB AgB
?ent '"pense ;a nd (apital +ees 'arned Dividends
ANS9 AaB= AdB= AfB D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
.
,denti ,dentif# f# hich hich of the the folloi folloing ng account accountss appear appear on a balance balance shee sheet. t. AaB AbB AcB AdB AeB AfB AgB
(ash +ees 'arned (apital St Stoc*
ANS9 AaB= AcB= AdB= AfB= AgB D,+- 'as# O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
1$. ,ndicate ,ndicate hether each each of the folloing folloing activities activities ould be reported reported on the Statement Statement of (ash +los as an Operating ctivit#= ctivit#= an ,nvesting ctivit#= ctivit#= a +inancing ctivit#= ctivit#= or does not appear on the (ash +lo Statement. AaB AaB AbB AbB AcB AcB AdB AdB AeB AfB AfB AgB AgB
(ash (ash paid paid for for buil buildi ding ng (ash (ash paid paid to supp suppli lier erss (ash (ash paid paid for for divi divide dend ndss (ash (ash rece receiv ived ed from from custo custome mers rs (ash (ash recei received ved from from the sale sale of capita capitall stoc* stoc*.. (ash (ash rec recei eive ved d from from the the sale sale of of a bui build ldin ing g orr orro oed ed cash cash from from a ban ban* *
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Chapter
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ANS9 AaB ,nvesting AbB Operating AcB +inancing AdB Operating AeB +inancing AfB ,nvesting AgB +inancing
D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 11. +or each of the folloi folloing= ng= determine determine the amount amount of net income income or net loss for the the #ear. #ear. AaB
AbB AcB
AdB
?evenu ?evenues es for the the #ear total totaled ed C$=!$$ C$=!$$ and e"pen e"penses ses total totaled ed C44=!$$ C44=!$$.. )he stoc*holder made an additional investment of C1!=$$$ in e"change for capital stoc* during the #ear # ear.. ?evenues ?evenues for the #ear #ear totaled totaled C9!=!$$ C9!=!$$ and and e"penses e"penses totale totaled d C11$=!$$. C11$=!$$. Dividends Dividends ere paid in the amount of o f C2$=$$$ during the #ear. ?evenues ?evenues for for the the #ear #ear totale totaled d C1:=$$$ C1:=$$$ and e"pense e"pensess totale totaled d C:!=$$$. C:!=$$$. )he stoc*holder invested an additional C2$=$$$ in e"change for capital stoc* and dividends of C1!=$$$ per paid during the #ear. ?evenues ?evenues for Smith (o. totale totaled d C293=!$$ C293=!$$ and and e"penses e"penses totaled totaled C273=:$$. C273=:$$. (ash (ash dividends of C3$=$$$ ere paid during the #ear.
ANS9 AaB AaB C47=$ C47=$$$ $$ net net inc incom omee AC$ AC$=! =!$$ $$ % C44 C44=! =!$$B $$B AbB AbB C3!=$ C3!=$$$ $$ net net loss loss AC9 AC9!=! !=!$$ $$ % C1 C11$=!$ 1$=!$$B $B AcB AcB C113 C113=$ =$$$ $$ net net inco income me AC1 AC1:=$ :=$$$ $$ % C:!=$ C:!=$$$ $$BB AdB AdB C=9$ C=9$$ $ net net inco income me AC29 AC293= 3=!$$ !$$ % C27 C273= 3=:$$ :$$BB
D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 12. )he total assets assets and total liabili liabilities ties of &iss#@s &iss#@s Draperies= Draperies= ,nc. at the beginning beginning and at the end of the current fiscal #ear are as follos-
)otal assets )otal liabilities
/an. 1 Dec. 31 C 2 ! $ =$ $ $ C 4 3 $ = $ $ $ 2$ $ =$$ $ 14 $ =$ $$
Chapter 1/Introduction 1/Introduction to Accounting and Business
AaB
Determine Determine the the amount amount of net income income earned earned during during the #ear #ear. )he stoc*holder stoc*holderss did not invest an# additional assets in the business during the #ear and made no dividends ere paid. AbB Determine Determine the the amount amount of net income during during the #ear. #ear. )he assets assets and liabili liabilities ties at the beginning and at the end of the #ear are unchanged from the amounts presented above. Loever= dividends of C32=$$$ ere paid in cash during the #ear Ano additional investmentsB. AcB Determine Determine the amount amount of net net income income earned earned during during the #ear #ear.. )he )he assets assets and and liabilities at the beginning and at the end of the #ear are unchanged from the amounts presented above. Loever= the stoc*holder invested an additional C4$=$$$ in e"change for capital stoc* in the business in /une of the current fiscal #ear Ano dividendsB. AdB Determine Determine the the amount amount of net income income earned earned during during the #ear #ear. )he assets assets and liabilities at the beginning and at the end of the #ear are unchanged from the amounts presented above. Loever= the stoc*holder invested an additional C1$=$$$ in e"change for capital stoc* in ugust of the current fiscal #ear and dividends of C32=$$$ ere paid during the #ear. ANS9 AaB Stoc*holders@ 'quit# at end of #ear Stoc*holders@ 'quit# at beginning of #ear 0et income
C2$=$$$ !$=$$$ C24$=$$$
AbB
,ncrease in Stoc*holders@ 'quit# as in AaB dd dividends 0et income
C24$=$$$ 32=$$$ C292=$$$
AcB
,ncrease in Stoc*holders@ 'quit# as in AaB Deduct additional investment 0et income
C24$=$$$ 4$=$$$ C2$$=$$$
AdB
,ncrease in Stoc*holders@ 'quit# as in AaB dd dividends
C24$=$$$ 37=$$$ C297=$$$ 1$=$$$ C277=$$$
Deduct additional investment 0et income D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
45
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Chapter
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13. Selected Selected transaction transaction data of a business for /une /une are summarized summarized belo. belo. Determine Determine the folloing amounts for /une- AaB total revenue= AbB total e"penses= AcB net income. Service sales charged to customers on account during /une (ash received from cash customers for services performed in /une (ash received from customers on account during /uneServices performed and charged to customers prior to /une Services performed and charged to customers during /une '"penses incurred prior to /une and paid during /une '"penses incurred and paid in /une '"penses incurred in /une but not paid in /une '"penses for supplies used and insurance Anot included aboveB applicable to /une
C3!=$$$ 3$=$$$ 1!=$$$ 2$=$$$ :=2!$ 3:=!$$ 9=$$$ 1=$$$
ANS9 AaB AaB C7!= C7!=$$ $$$ $ AC3 AC3!= !=$$ $$$ $ K C3$ C3$=$ =$$$ $$BB AbB AbB C47=! C47=!$$ $$ AC3 AC3:=! :=!$$ $$ K C9=$ C9=$$$ $$ K C1=$$ C1=$$$B $B AcB AcB C1:= C1:=!$ !$$ $ AC7! AC7!=$ =$$$ $$ % C47= C47=!$ !$$B $B
D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 14. On &a# 1= 2$$9= ethE ethEss Services Services (ompan# had account account balances balances as follosfollosccounts pa#able ccounts receivable (ash +ees earned ,nsurance e"pense ;and &iscellaneous e"pense repaid insurance ?ent e"pense Salar# e"pense Dividends Supplies Supplies e"pense 6tilities e"pense (apital stoc* ?etained earnings
C :=$$ 2!=!$ 11=3$ 9$=:$$ 1=49! 94=4$$ 1=!1$ 2=$$$ :=$$$ 3!=3$$ 1!=1$$ !$ : 2! 3=:$$ :1=$$$ 2$=$$$
Chapter 1/Introduction 1/Introduction to Accounting and Business
47
resent= in good form= AaB an income statement for &a#= &a#= AbB a statement of retained earnings for &a#= &a#= and AcB a balance sheet as of &a# 31. ANS9 AaB ethEs ethEs Services (ompan# ,ncome Statement +or the &onth 'nded &a# 31= 2$$9 +ees earned C9$=:$$ Operating e"pensesSalar# e"pense C3!=3$$ ?ent e"pense :=$$$ 6tilities e"pense 3=:$$ Supplies e"pense : 2! ,nsurance e"pense 1=49! &iscellaneous e"pense 1=!1$ )otal operating e"penses !$=1$ 0et income C1=:$ AbB ethEs ethEs Services (ompan# Statement of ?etained 'arnings +or the &onth 'nded &a# 31= 2$$9 ?etained 'arnings &a# 1= 2$$9 0et income for the month Subtotal ;ess dividends ?etained 'arnings= &a# 31= 2$$9 AcB ethEs ethEs Services (ompan# alance Sheet &a# 31= 2$$9 ssets ;iabilities (ash C 11=3$ ccounts pa#able ccounts receivable 2!=!$ repaid insurance 2=$$$ Stoc*holders@ 'quit# Supplies ! $ (apital Stoc* :1=$$$ ;and 94=4$$ ?etained 'arnings 24=9$ )otal St Stoc*holdersE 'quit# )otal liabilities and )otal assets C114=7$ Stoc*holders@ 'quit# D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
C2$=$$$ 1=:$ 3=:$ 1!=1$$ C24=9$
C
:=$$
1$!=9$ C114=7$
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Chapter
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1!. Goger (onsulta (onsultants nts began operati operations ons on /une 1= 2$$9 b# ma*ing ma*ing an investment investment of C3$=$$$ C3$=$$$ in return for capital stoc*. )he financial statements for Goger (onsultants are shon belo for the month ended /une 3$= 2$$9 Athe first month of operationsB. Determine the missing amounts for letters AaB through ApB. Goger (onsultants ,ncome Statement +or the &onth 'nded /une 3$= 2$$9 +ees earned Operating e"penses
C22=$$$ C 9 =2 ! $ AaB 1 =7 $ $ $$ 1 =! !$ C
Goger (onsultants Statement of ?etained 'quit# +or the &onth 'nded /une 3$= 2$$9 ?etained earnings= /une 1= 2$$9 0et income for /une 3$= 2$$9 ;ess dividends ?etained earnings= /une 3$= 2$$9
AbB AcB
$ AdB C AeB 4 =$ $ $ AfB
Goger (onsultants alance Sheet /une 3$= 2$$9 ssets (ash Supplies ;and
C
AgB 1=1$$ AhB
)otal assets
C4!=$$
;iabilities ccounts pa#able Stoc*holders@ 'quit# (apital stoc* ?etained earnings )otal liabilities and Stoc*holders@ 'quit#
C AiB AjB A*B CAlB
Chapter 1/Introduction 1/Introduction to Accounting and Business
Goger (onsultants Statement of (ash +los +or the &onth 'nded /une 3$= 2$$9 (ash flos from operating activities(ash received from customers C2 2 =$$ $ Deduct cash pa#ments for for e"penses and pa#ments to 3=2$$ creditors 0et cash flo from operating activities (ash flos from investing activities(ash pa#ments for acquisition of land (ash flos from financing activities(ash received as oner@s investment C AmB Deduct cash dividends paid AnB 0et cash flo from financing activities 0et cash flo and Dec. 31= 2$$9 cash balance
49
C 1:=:$$ A2$=$$$B
C
AoB ApB
lace #our ansers in the space provided belo. Lint- 6se the interrelationships interrelationships among the financial statements to solve this problem. AaB AbB AcB AdB AeB AfB AgB AhB AiB AjB A*B AlB AmB AnB AoB ApB
IIIIIIIIII IIIIIIIIII IIIIIIIIII IIIIIIIIII IIIIIIIIII III I III II I IIIIIIIIII IIIIIIIIII I III II III I I III II III I IIIIIIIIII I III II III I IIIIII IIIIIII IIIIIIIIII IIIIIIIIII IIIIIIIIII
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Chapter
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ANS9 AaB C4=7$$ AbB C1!=$$ AcB C7=1$$ AdB C7=1$$ AeB C7=1$$ AfB C2=1$$ AgB C24=:$$ AhB C2$=$$$ AiB C13=:$$ AjB C3$=$$$ A*B C2=1$$ AlB C4!=$$ AmB C3$=$$$ AnB C 4=$$$ AoB C27=$$$ ApB C24=:$$
D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 17. #le (omputer (omputer ?epairs= ?epairs= ,nc. as organized organized on /anuar# /anuar# 1= 2$$9= as a corporation corporation.. ;ist the errors that #ou find in the folloing financial statements and prepare the corrected statements for the three months ended &arch 31= 2$$9. #le (omputer ?epairs= ,nc. ,ncome Statement +or the )hree &onths 'nded &arch 31= 2$$9 +ees earned Operating e"pensesSalar# e"pense ?ent e"pense
C4$=$$$ C 9 =93 ! 3 =2 $$ 1 =! $ 1 =2 2 ! 2 =$$ $ ! !$ 2 =$ $ $ 2=$$$ C11=$$$
Chapter 1/Introduction 1/Introduction to Accounting and Business
/a# #le= ( Statement of ?etained 'arnings &arch 31= 2$$9 ?etained 'arnings /anuar#= 1= 2$$9 0et income for the 3 months ;ess dividends ,ncrease in ?etained 'arnings ?etained 'arnings= &arch 31= 2$$9.
ssets ;and (ash ccounts pa#able Supplies )otal assets
C
$
11=$$$ 11=$$$ ! =$ $ $
alance Sheet +or the )hree &onths 'nded &arch 31= 2$$9 Stoc*holders@ 'quit# C1$=$$$ (apital stoc* 1!=:7$ ;iabilities 2=79$ ccounts receivable 2! )o )otal liabilities and C4:=12! Stoc*holders@ 'quit#
7=$$$ C7=$$$
C37=$$$ 12=22! 4:=12!
ANS9 'rrors in the /a# #le= (= (= financial statements include the folloing-
A1B
51
&iscellane &iscellaneous ous e"pense e"pense is incorre incorrectl# ctl# liste listed d after utilities utilities e"pense in in the income income statement. &iscellaneous e"pense should be listed as the last e"p ense= regardless of the amount. A2B )he operati operating ng e"penses e"penses are are incorrectl incorrectl# # added. added. ,nstead ,nstead of C2=$$$= C2=$$$= the total total should should be C1:=77$. A3B ecause ecause operating operating e"pense e"pensess are incorrectl incorrectl# # added= added= the net net income income is incorrect. incorrect. ,t should be listed as C21=34$. A4B )he stateme statement nt of retain retained ed earnings earnings should should be be for a period period of time time instea instead d of a specific date. )hat is= the statement of retained earnings should be reported 8+or the )hree &onths 'nded &arch 31= 2$$9.8 A!B )he amount amount of the stoc*ho stoc*holders ldersEE equit# equit# is incorre incorrect. ct. ,t ,t should should be C37=34$. C37=34$. A7B )he name name of the the compan# compan# is miss missing ing from from the the balance balance sheet sheet headi heading. ng. A9B )he balance balance sheet sheet should should be as of 8&arch 31= 2$$9=8 2$$9=8 not 8+or the the )hree )hree &onths &onths 'nded &arch 31= 2$$9.8 A:B (ash= not ;and= ;and= should should be the the first first asset listed listed in the balance balance sheet. sheet. AB ccounts ccounts a#able a#able is incorrec incorrectl# tl# listed listed as an asset asset in the the balance balance sheet. sheet. ccount ccountss a#able should be listed as a liabilit#. A1$B ;iabilities should should be listed listed in the balance sheet ahead of stoc*holders@ stoc*holders@ equit#. equit#. A11B A11B ccounts ccounts ?eceivable ?eceivable is incorrectl# incorrectl# listed listed as a liabilit# liabilit# in the balance sheet. sheet. ccounts ?eceivable should be listed as an asset. A12B )he total total assets assets and the total total liabilit liabilities ies do not foot. foot.
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Chapter
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(orrectl# prepared financial statements for /a# #le= (= are shon belo. /a# #le= ( ,ncome Statement +or the )hree &onths 'nded &arch 31= 2$$9 +ees earned Operating e"pensesSalar# e"pense ?ent e"pense
C4$=$$$ C9=93! 3=2$$ 1=!$ 1=22! !!$ 2=$$$ 2=$$$ 1:=77$ C21=34$
/a# #le= ( Statement of Stoc*holders@ 'quit# +or the )hree &onths 'nded &arch 31= 2$$9 ?etained earnings= /anuar#= 1= 2$$9 0et income for three months 21=34$ C21=34$ ;ess dividends !=$$$ ?etained earnings= &arch 31= 2$$9
C
$
C17=34$
/a# #le= ( alance Sheet &arch 31= 2$$9 ssets (ash ccounts receivable Supplies
;and )otal assets
C1!=:7$ 12=22! 2!
1$=$$$ C3=$1$
;iabilities ccounts pa#able Stoc*holders@ 'quit# (apital stoc* 2$=$$$ ?etained earnings 17=34$ )otal Stoc*holdersE 'quit# )otal liabilities and Stoc*holders@ 'quit#
D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
C 2=79$
37=34$ C3=$1$
Chapter 1/Introduction 1/Introduction to Accounting and Business
)elephone '"pense (ash ccounts a#able Dividends +ees 'arned ?ent '"pense Supplies ccounts ?eceivable (omputer 'quipment (apital Stoc*
53
C9 !$ C3=1!$ C7 4$ C3$ $ C1$=9$$ C1=$$$ C23 $ C1=:$$ C1!=$$$ C13=$:$ C3=7$$ C3! $ C2=$$$ C 24$
19. 6sing the above accounts accounts and their their amounts= amounts= prepare in good format format an ,ncome Statement Statement for ( )utoring )utoring (ompan#= month ended /ul# 31= 2$$9ANS9 ( )utoring (ompan# ,ncome Statement +or &onth 'nded /ul# 31= 2$$9 +ees 'arned '"penses
C1$=9$$ C3=7$$ 1=$$$ 9! $ 3! $ 24 $
D,+- &oderate O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
!=4$ C4=97$
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Chapter
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1:. 6sing the above accounts accounts and their their amounts= amounts= prepare in good format format a Statement of ?etained ?etained 'arnings for ( )utoring )utoring (ompan#= month ended /ul# 31= 2$$9ANS9 ( )utoring (ompan# Statement of ?etained 'arnings +or &onth 'nded /ul# 31= 2$$9 ?etained 'arnings 0et ,ncome
C $ 4=97$ C 4 =97 $ 3$$ C 4 =47 $
Subtotal ;ess- Dividends ?etained 'arnings /ul# 31= 2$$9 D,+- &oderate O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
1. 6sing the the above accounts accounts and their amounts= amounts= prepare prepare in good format format a alance alance Sheet for ( )utoring (ompan#= (ompan#= month ended /ul# 31= 2$$9ANS9 ( )utoring (ompan# alance Sheet /ul# 31= 2$$9 ssets (ash ccounts ?eceivable Supplies (omputer 'quipment )otal ssets )otal ;iabilities and Stoc*holdersE 'quit# ;iabilitiesccounts a#able 0otes a#able )otal ;iabilities (apital Stoc* 13=$:$ ?etained 'arnings 4=47$ )otal Stoc*holdersE 'quit# )otal ;iabilities and Stoc*holdersE 'quit#
C 3=1!$ 1=:$$ 23 $ 1!=$$$ C 2$=1:$
C
74 $ 2=$$$ C 2=74$
19=!4$ C2$=1:$
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D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement 2$. )he account balances balances of ;ovelad# ;ovelad# )ravel )ravel Services Services at December 31= 2$$9 are listed listed belobeloccounts a#able C12=$$$ (apital Stoc* C1$=$$$ ccounts ?eceivable 7=$$$ Supplies 2=$$$ (ash 17=$$$ )a"es '"pense 3 $$ (omputer 'quip 13=$$$ 6tilities '"pense 4=$$$ +ees 'arned 49=$$$
C 49 =$$$
C 21=$$$ 7=$$$ 4=$$$ 9$ $ 3$ $ C 3 2 =$ $ $ C1!=$$$
0et ,ncome ;ovelad# )ravel Services Statement of ?etained 'arnings +or the Near Near 'nded December 31= 2$$9 ?etained earnings 1J1J$9 0et ,ncome for the #ear ?etained earnings= 12J31J$9
C$ 1!=$$$ C1!=$$$
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Chapter
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;ovelad# )ravel Services alance Sheet December 31= 2$$9 Assets
(ash ccounts ?eceivable (omputer 'quipment Supplies
8ia%i#ities
C17=$$$ 7=$$$ 13=$$$ 2=$$$
ccounts a#able
C12=$$$
Stoc>ho#ders? E@uit) (apital Stoc* 1$=$$$ ?etained 'arnings 1!=$$$ )otal Stoc*holdersE 'quit#
2!=$$$ )otal ssets
C39=$$$
)otal ;iabilities and Stoc*holdersE 'quit#
D,+- Difficult O/- $1%$! 0) 0)- (S nal#tic nal#tic ,( ,( +0%&easurement +0%&easurement
C39=$$$
