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Chapter 1 Test Bank Docx Accounting In Business Wild

Chapter 01 Accounting in Business

MULTIPLE CHOICE QUESTIONS

Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities.

True

1. False

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Recordkeeping, or bookkeeping, is the recording of transactions and events, either manually or electronically. This is just one part of accounting.

True

1. False

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

An accounting system captures relevant data about transactions and then classifies, records, and reports data.

True

1. False

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Financial accounting is the area of accounting aimed at serving external users by providing them with general-purpose financial statements.

True

1. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Internal operating activities include research and development, distribution, and human resources.

1. True
2. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The primary objective of managerial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.

True

1. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.

True

1. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

External users include lenders, shareholders, customers, and regulators.

1. True
2. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Regulators often have legal authority over certain activities of organizations.

1. True
2. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

Internal users include lenders, shareholders, brokers and nonexecutive employees.

1. True
2. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Opportunities in accounting include auditing, consulting, market research, and tax planning.

1. True
2. False

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Identifying the proper ethical path is usually easy.

1. True
2. False

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand

AACSB: Ethics

AICPA: BB Industry; FN Decision Making

The Sarbanes-Oxley Act (SOX) requires each issuer of securities to disclose whether it has adopted a code of ethics for its senior financial officers and the contents of that code.

True

1. False

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Remember

AACSB: Ethics

AICPA: FN Reporting; BB Legal

The fraud triangle asserts that the three factors that must exist for a person to commit fraud are opportunity, pressure, and rationalization.

True

1. False

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand

AACSB: Ethics

AICPA: BB Industry; FN Decision Making; BB Legal

The Sarbanes-Oxley Act (SOX) does not require public companies to apply both accounting oversight and stringent internal controls.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Ethics

AICPA: FN Reporting; BB Legal

A partnership is a business owned by two or more people.

1. True
2. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

Owners of a corporation are called shareholders or stockholders.

1. True
2. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

In the partnership form of business, the owners are called stockholders.

1. True
2. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

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

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

The Financial Accounting Standards Board is the governmental agency that sets both broad and specific accounting principles.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication AICPA: FN Reporting; BB Legal

The business entity principle means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for preparing financial statements.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

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

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

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

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry

Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

General accounting principles stem from long-used accounting practices.

1. True
2. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

A sole proprietorship is a business owned by one or more persons.

1. True
2. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

1. True
2. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Legal

Understanding generally accepted accounting principles is not necessary to effectively use and interpret financial statements.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

The International Accounting Standards board (IASB) has the authority to impose its standards on companies around the world.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Reporting; BB Global

Objectivity means that financial information is supported by independent, unbiased evidence; it demands more than a person's opinion.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

The idea that a business will continue to operate instead of being closed or sold underlies the going-concern assumption.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

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

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry

The monetary unit assumption means that all companies doing business in the United States must express transactions and events in U.S. dollars.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Global

The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Global

A limited liability company offers the limited liability of a partnership or proprietorship and the tax treatment of a corporation.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

A limited liability company offers the limited liability of a corporation and the tax treatment of a partnership or proprietorship.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

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

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication AICPA: FN Reporting; BB Legal

The three common forms of business ownership include sole proprietorship, partnership, and non-profit.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

The three common forms of business ownership include sole proprietorship, partnership, and corporation.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

The three major types of business activities are operating, financing, and investing.

1. True
2. False

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Planning is a part of each business activity (Operating, investing, and financing), and gives each activity meaning and focus.

True

1. False

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Critical Thinking

Financing activities provide the means organizations use to pay for resources such as land, buildings, and equipment.

True

1. False

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making; BB Critical Thinking

Investing activities are the means an organization uses to pay for resources like land, buildings, and equipment to carry out its plans.

True

1. False

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Understand

AACSB: Communication

AICPA: FN Decision Making; BB Critical Thinking

Investing activities are the acquiring and disposing of resources that an organization uses to acquire and sell its products or services.

True

1. False

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Owner financing refers to resources contributed by creditors or lenders.

1. True
2. False

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Revenues are increases in equity (via net income) from a company's sales of products and services to customers.

True

1. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

A net loss occurs when revenues exceed expenses.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; FN Reporting; BB Critical Thinking

Net income occurs when revenues exceed expenses.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; FN Reporting; BB Critical Thinking

Liabilities are the owner's claim on assets.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Assets are the resources a company owns or controls that are expected to yield future benefits.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Owner withdrawals are subtracted in the calculation of net income, as expenses.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry

The accounting equation can be restated as: Assets - Equity = Liabilities.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The accounting equation implies that: Assets + Liabilities = Equity.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Owner's investments are increases in equity from a company's earnings activities.

1. True
2. False

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Critical Thinking

Every business transaction leaves the accounting equation in balance.

1. True
2. False

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

An external transaction is an exchange within an entity that may or may not affect the accounting equation.

True

1. False

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; FN Decision Making

From an accounting perspective, an event is a happening that affects the accounting equation, but cannot be measured.

True

1. False

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry; FN Decision Making

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

True

1. False

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Critical Thinking

An owner's investment increases equity via net income.

1. True
2. False

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Critical Thinking

Return on assets is often stated in ratio form as the amount of average total assets divided by income.

True

1. False

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Return on assets is also known as return on investment.

1. True
2. False

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Resource Management; FN Decision Making

Return on assets is useful in evaluating management, analyzing and forecasting profits, and planning activities.

True

1. False

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand

AACSB: Communication

AICPA: BB Resource Management; FN Decision Making

Arrow's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36%.

True

1. False

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Return on assets reflects a company's ability to generate profit through productive use of its assets.

1. True
2. False

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Risk is the uncertainty about the return we will earn.

1. True
2. False

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Remember

AACSB: Reflective Thinking

AICPA: BB Industry; FN Risk Analysis

Generally, the lower the risk, the higher the return that can be expected.

1. True
2. False

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Understand

AACSB: Reflective Thinking

AICPA: BB Industry; FN Risk Analysis

U.S. Government Treasury bonds provide low return and low risk to investors.

1. True
2. False

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Understand

AACSB: Reflective Thinking

AICPA: BB Industry; BB Critical Thinking; FN Risk Analysis

The four basic financial statements include the balance sheet, income statement, statement of owner's equity, and statement of cash flows.

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

An income statement reports on investing and financing activities.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

A balance sheet covers activities over a period of time such as a month or year.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

The income statement describes revenues earned and expenses incurred along with the resulting net income or loss over a specified period of time, due to earnings activities.

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

The income statement shows the financial position of a business on a specific date.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

The first section of the income statement reports cash flows from operating activities.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

The balance sheet is based on the accounting equation.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Operating activities include long-term borrowing and repaying cash from lenders, and cash investments or withdrawals by the owner.

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

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

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

The income statement reports on operating activities at a point in time.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

The statement of cash flows identifies cash flows separated into operating, investing, and financing activities over a period of time.

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Ending capital reported on the statement of owner's equity is calculated by adding owner investments and net losses and subtracting net income and withdrawals.

True

1. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Industry; FN Reporting; BB Critical Thinking

The materiality constraint looks at both the importance and relative size of an amount.

1. True
2. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The cost-benefit constraint prescribes that only information with benefits of disclosure less than the costs of providing it, need be disclosed.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The cost-benefit constraint prescribes that only information with benefits of disclosure greater than the costs of providing it need be disclosed.

True

1. False

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

Net income is sometimes called earnings or profit.

1. True
2. False

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Accounting is an information and measurement system that does all of the following except:

1. Records business activities.
2. Helps people make better decisions.
3. Communicates business activities.
4. Eliminates the need for interpreting financial data.
5. Identifies business activities.

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Decision Making

Technology:

1. Reduces the time, effort and cost of recordkeeping.
2. In accounting is only available to large corporations.
3. Has not improved the clerical accuracy of accounting.
4. Has replaced accounting.
5. In accounting has replaced the need for decision makers.

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Understand

AACSB: Technology

AICPA: BB Industry; FN Leveraging Technology

The primary objective of financial accounting is to:

1. Provide accounting information that serves external users.
2. Serve the decision-making needs of internal users.
3. Monitor and control company activities.
4. Provide information on both the costs and benefits of looking after products and services.
5. Know what, when, and how much product to produce.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

The area of accounting aimed at serving the decision making needs of internal users is:

1. Financial accounting.
2. SEC reporting.
3. External auditing.
4. Managerial accounting.
5. Bookkeeping.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

External users of accounting information include all of the following except:

1. Government regulators.
2. Customers.
3. Purchasing managers.
4. Shareholders.
5. Creditors.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

All of the following regarding a Certified Public Accountant are true except:

1. Must meet education and experience requirements.
2. Must pass an examination.
3. May also be a Certified Management Accountant.
4. Must exhibit ethical character.
5. Cannot hold any certificate other than a CPA.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Ethical behavior requires that:

1. Auditors invest in businesses they audit.
2. Auditors' pay depends on the success of the client's business.
3. Auditors' pay not depend on the success of the client's business.
4. Analysts report information favorable to their companies.
5. Managers use accounting information to benefit themselves.

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand

AACSB: Ethics

AICPA: FN Reporting; BB Legal

The conceptual framework that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are attempting to converge and enhance includes the following broad areas to guide standard setting except:

Uniformity

1. Recognition and measurement
2. Objectives
3. Qualitative characteristics
4. Elements

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

All of the following are true regarding ethics except:

1. Ethics can be difficult to apply.
2. Ethics are beliefs that distinguish right from wrong.
3. Are critical in accounting.
4. Ethics rules are often set for CPAs.
5. Ethics do not affect the operations or outcome of a company.

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand

AACSB: Ethics

AICPA: BB Industry; FN Decision Making

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is:

Revenue recognition principle.

1. Time-period assumption.
2. Objectivity principle.
3. Going-concern assumption.
4. Business entity assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

A corporation is:

1. A business legally separate from its owners.
2. The same as a limited liability partnership.
3. Controlled by the FASB.
4. Not subject to double taxation.
5. Not responsible for its own acts and own debts.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Decision Making; BB Legal

The independent group that is attempting to harmonize accounting practices of different countries is the:

CAP. B) IASB. C) SEC. D) AICPA. E) FASB.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Global

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the:

SEC. B) AAA. C) AICPA. D) APB. E) FASB.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting; BB Legal

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Time-period assumption.

1. Revenue recognition principle.
2. Measurement (Cost) principle.
3. Business entity assumption.
4. Going-concern assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting; BB Legal

The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:

Objectivity principle.

1. Monetary unit assumption.
2. Business entity assumption.
3. Going-concern assumption.
4. Measurement (Cost) Principle.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting; BB Legal

If a company is considering the purchase of a parcel of land that was acquired by the seller for

$85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:

A) $140,000. B) $137,000. C) $150,000. D) $138,500. E) $95,000.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Apply

AACSB: Communication; Analytical Thinking AICPA: FN Measurement; BB Industry

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:

Going-concern assumption.

1. Business entity assumption.
2. Objectivity principle.
3. Revenue recognition principle.
4. Monetary unit assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting; BB Legal

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

Going-concern assumption.

1. Measurement (Cost) principle.
2. Business entity assumption.
3. Accounting equation.
4. Realization principle.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; FN Reporting; BB Legal

The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:

Measurement (Cost) principle.

1. Objectivity principle.
2. Business entity assumption.
3. Going-concern assumption.
4. Revenue recognition principle.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; FN Reporting; BB Legal

The question of when revenue should be recognized on the income statement according to GAAP is addressed by the:

Business entity assumption.

1. Objectivity principle.
2. Going-concern assumption.
3. Revenue recognition principle.
4. Measurement (Cost) principle.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; FN Reporting; BB Legal

The International Accounting Standards Board (IASB):

1. Only applies to companies that are members of the European Union.
2. Is the only source of generally accepted accounting principles (GAAP).
3. Has the authority to impose its standards on companies around the world.
4. Hopes to create harmony among accounting practices of different countries to improve comparability.
5. Is the government group that establishes reporting requirements for companies that issue stock to the investing public.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Reporting; BB Global

The Superior Company acquired a building for $500,000. The building was appraised at a value of

$575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Business entity assumption.

1. Revenue recognition principle.
2. Monetary unit assumption.
3. Measurement (Cost) principle.
4. Going-concern assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Apply

AACSB: Communication; Analytical Thinking AICPA: FN Measurement; BB Industry; BB Legal

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

Going-concern assumption.

1. Monetary unit assumption.
2. Measurement (Cost) principle.
3. Business entity assumption.
4. Revenue recognition principle.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Apply

AACSB: Communication

AICPA: FN Measurement; BB Legal

Marsha Bogswell is the owner of Bogswell Legal Services. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services?

Expense recognition (Matching) principle.

1. Going-concern assumption.
2. Monetary unit assumption.
3. Measurement (Cost) principle.
4. Business entity assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Apply

AACSB: Communication AICPA: FN Reporting; BB Legal

A limited partnership:

1. Is subject to double taxation.
2. Includes a general partner with unlimited liability.
3. May only have two partners.
4. Is the same as a corporation.
5. Has owners called stockholders.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication AICPA: FN Reporting; BB Legal

A partnership:

1. Is also called a sole proprietorship.
2. Has to have a written agreement in order to be legal.
3. Has unlimited liability for its partners.
4. Is a legal organization separate from its owners.
5. Has owners called shareholders.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication AICPA: FN Reporting; BB Legal

Which of the following accounting principles require that all goods and services purchased be recorded at actual cost?

Expense recognition (Matching) principle..

1. Measurement (Cost) principle.
2. Consideration assumption.
3. Going-concern assumption.
4. Business entity assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Legal

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Expense recognition (Matching) principle.

1. Going-concern assumption.
2. Measurement (Cost) principle.
3. Consideration assumption.
4. Business entity assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Legal

Revenue is properly recognized:

1. Only if the transaction creates an account receivable.
2. At the end of the accounting period.
3. When the customer makes an order.
4. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.

When cash from a sale is received.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry

Which of the following purposes would financial statements serve for external users?

1. To determine purchasing needs.
2. To fulfill regulatory requirements for companies whose stock is sold to the public.
3. To assess employee performance and compensation.
4. To find information about projected costs and revenues of proposed products.
5. To assist in monitoring consumer needs and price concerns.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

In a business decision where there are ethical concerns, the preferred course of action should be one that:

Results in maintaining operations at the current level.

1. Is agreed upon by the most managers.
2. Avoids casting doubt on the decision maker and upholds trust.
3. Maximizes the company's profits.
4. Costs the least to implement.

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand

AACSB: Communication; Ethics

AICPA: BB Industry; FN Decision Making

If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

Assets decrease $1,300 and equity decreases $1,300.

1. Assets increase $1,300 and liabilities decrease $1,300.
2. Assets increase $1,300 and liabilities increase $1,300.
3. One asset increases $1,300 and another asset decreases $1,300, causing no effect.
4. Assets decrease $1,300 and equity increases $1,300.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If a company receives $12,000 from the owner to establish a proprietorship, the effect on the accounting equation would be:

Liabilities increase $12,000 and equity decreases $12,000.

1. Assets increase $12,000 and liabilities increase $12,000.
2. Assets decrease $12,000 and equity decreases $12,000.
3. Assets increase $12,000 and equity increases $12,000.
4. Assets increase $12,000 and liabilities decrease $12,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Assets increase $4,500 and liabilities decrease $4,500.

1. Assets increase $4,500 and liabilities increase $4,500.
2. Equity decreases $4,500 and liabilities increase $4,500.
3. Equity increases $4,500 and liabilities decrease $4,500.
4. Liabilities decrease $4,500 and assets increase $4,500.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

An example of a financing activity is:

1. Buying office supplies.
2. Buying land.
3. Obtaining a long-term loan.
4. Buying office equipment.
5. Selling inventory.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

An example of an operating activity is:

1. Purchasing office equipment.
2. Selling stock.
3. Paying wages.
4. Paying off a loan.
5. Borrowing money from a bank.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: FN Reporting; BB Legal

Operating activities:

1. Are also called strategic management.
2. Are the means organizations use to pay for resources like land, buildings and equipment.
3. Are also called asset management.
4. Involve acquiring and disposing of resources that a business uses to acquire and sell its products or services.
5. Involve using resources to research, develop, purchase, produce, distribute and market products and services.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.; 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Decision Making

An example of an investing activity is:

1. Selling inventory.
2. Paying wages of employees.
3. Withdrawals by the owner.
4. Contribution from owner.
5. Purchase of land.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Net Income:

1. Decreases equity.
2. Represents owners' claims against assets.
3. Equals assets minus liabilities.
4. Is the excess of revenues over expenses.
5. Represents the amount of assets owners put into a business.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

If equity is $300,000 and liabilities are $192,000, then assets equal:

A) $300,000. B) $792,000. C) $192,000. D) $492,000. E) $108,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If assets are $300,000 and liabilities are $192,000, then equity equals:

A) $492,000. B) $792,000. C) $108,000. D) $300,000. E) $192,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Resources a company owns or controls that are expected to yield future benefits are:

1. Revenues.
2. Liabilities.
3. Owner's Equity.
4. Expenses.
5. Assets.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Increases in equity from a company's sales of products or services are:

1. Revenues.
2. Owner's Equity.
3. Assets.
4. Expenses.
5. Liabilities.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

The difference between a company's assets and its liabilities, or net assets is:

1. Expense.
2. Net loss.
3. Equity.
4. Net income.
5. Revenue.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Creditors' claims on the assets of a company are called:

1. Net losses. B) Liabilities. C) Expenses. D) Revenues. E) Equity.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Decreases in equity that represent costs of providing products or services to customers, used to earn revenues are called:

Liabilities.

1. Withdrawals.
2. Equity.
3. Owner's Investment.
4. Expenses.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

The description of the relation between a company's assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the:

Return on equity ratio.

1. Accounting equation.
2. Net income.
3. Business equation.
4. Income statement equation.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Revenues are:

1. The excess of expenses over assets.
2. Resources owned or controlled by a company.
3. The same as net income.
4. The increase in equity from a company's sales of products and services.
5. The costs of assets or services used.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

If assets are $99,000 and liabilities are $32,000, then equity equals:

A) $131,000. B) $32,000. C) $198,000. D) $67,000. E) $99,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Critical Thinking

Another name for equity is:

1. Expenses.
2. Net assets.
3. Net loss.
4. Net income.
5. Revenue.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Communication

AICPA: FN Measurement; BB Industry

When expenses exceed revenues, the resulting change in equity is called:

1. Net assets.
2. Net loss.
3. Net income.
4. Negative equity.
5. A liability.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

A resource that the owner takes from the company is called a(n):

1. Investment.
2. Liability.
3. Contribution.
4. Withdrawal.
5. Expense.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

Distributions of cash or other resources by a business to its owners are called:

1. Expenses.
2. Withdrawals.
3. Assets.
4. Net Income.
5. Retained earnings.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

The assets of a company total $700,000; the liabilities, $200,000. What are the net assets? A) $500,000.

B) $900,000. C) $200,000.

It is impossible to determine unless the amount of this owners' investment is known. E) $700,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

On May 31 of the current year, the assets and liabilities of Riser, Inc. are as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9,300. What is the amount of owner's equity as of May 31 of the current year?

A) $13,050. B) $49,700. C) $40,400. D) $31,100. E) $20,500.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

On August 31 of the current year, the assets and liabilities of Gladstone, Inc. are as follows: Cash

$30,000; Supplies, $600; Equipment, $10,000; Accounts Payable, $8,500. What is the amount of owner's equity as of August 31 of the current year?

A) $12,100. B) $49,100. C) $30,900. D) $10,900. E) $32,100.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Assets created by selling goods and services on credit are:

1. Equity.
2. Accounts payable.
3. Expenses.
4. Liabilities.
5. Accounts receivable.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry

An exchange of value between two entities that yields a change in the accounting equation is called:

An external transaction.

1. The accounting equation.
2. Net Income.
3. Recordkeeping or bookkeeping.
4. An asset.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Saddleback Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?

Assets, $30,000 decrease; liabilities, $30,000 increase.

1. Assets, $30,000 decrease; equity $30,000 decrease.
2. Assets, $30,000 increase; equity, $30,000 increase.
3. Liabilities, $30,000 decrease; equity, $30,000 increase.
4. Assets, $30,000 decrease; liabilities, $30,000 decrease.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If Houston Company billed a client for $10,000 of consulting work completed, the accounts receivable asset increases by $10,000 and:

Accounts payable increases $10,000.

1. Revenue decreases $10,000
2. Accounts payable decreases $10,000.
3. Cash increases $10,000.
4. Revenue increases $10,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Alpha Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?

Assets increase by $75,000 and liabilities increase by $75,000.

1. Liabilities increase by $75,000 and expenses decrease by $75,000.
2. Assets increase by $75,000 and expenses decrease by $75,000.
3. Assets increase by $75,000 and expenses increase by $75,000.
4. Assets decrease by $75,000 and expenses decrease by $75,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Contessa Company collected $42,000 cash on its accounts receivable. The effects of this transaction as reflected in the accounting equation are:

Total assets increase and equity decreases.

1. Total assets decrease and equity increases.
2. Total assets, total liabilities, and total equity are unchanged.
3. Both total assets and equity are unchanged and liabilities increase.
4. Both total assets and total liabilities decrease.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If the liabilities of a business increased $75,000 during a period of time and the owner's equity in the business decreased $30,000 during the same period, the assets of the business must have:

Decreased $105,000.

1. Decreased $45,000.
2. Increased $105,000.
3. Increased $45,000.
4. Increased $30,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If the assets of a business increased $89,000 during a period of time and its liabilities increased

$67,000 during the same period, equity in the business must have:

Decreased $156,000.

1. Increased $89,000.
2. Decreased $22,000.
3. Increased $22,000.
4. Increased $156,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If the liabilities of a company increased $74,000 during a period of time and equity in the company decreased $19,000 during the same period, what was the effect on the assets?

None of the above.

1. Assets would have decreased $19,000.
2. Assets would have increased $55,000.
3. Assets would have decreased $55,000.
4. Assets would have increased $19,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If a company paid $38,000 of its accounts payable in cash, what was the effect on the accounting equation?
1. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would increase $38,000.
2. Assets would decrease $38,000, liabilities would decrease $38,000, and equity remains unchanged.

Assets would increase $38,000 and liabilities would decrease $38,000.

1. There would be no effect on the accounts because the accounts are affected by the same amount.
2. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would decrease $38,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If assets are $365,000 and equity is $120,000, then liabilities are:

A) $365,000. B) $245,000. C) $610,000. D) $120,000. E) $485,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Rushing had income of $150 million and average invested assets of $1,800 million. Its return on assets is:

A) 120%. B) 83.3%. C) 16.7%. D) 8.3%. E) 12%.

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Cage Company had income of $350 million and average invested assets of $2,000 million. Its return on assets (ROA) is:

A) 3.5%. B) 17.5%. C) 35%. D) 1.8%. E) 5.7%.

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Speedy has net income of $18,955, and assets at the beginning of the year of $200,000. Assets at the end of the year total $246,000. Compute its return on assets.

A) 7.7%. B) 13.0%. C) 8.5%. D) 9.5%. E) 11.8%.

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Chou Co. has a net income of $43,000, assets at the beginning of the year are $250,000 and assets at the end of the year are $300,000. Compute its return on assets.

A) 8.4%. B) 1.5%. C) 17.2%. D) 14.3%. E) 15.6%.

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

U.S. government bonds are:

1. Low-risk and high-return investments.
2. High-risk and high-return investments.
3. Low-risk and low-return investments.
4. High risk and no-return investments.
5. High-risk and low-return investments.

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Understand

AACSB: Analytical Thinking

AICPA: BB Industry; FN Risk Analysis

Risk is:

1. Derived from the idea of getting something back from an investment.
2. The reward for investment.
3. The uncertainty about the return expected to be earned.
4. Unrelated to return expected.
5. Net income divided by average total assets.

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

The statement of cash flows reports all of the following except:

1. Cash flows from investing activities.
2. Cash flows from operating activities.
3. The net increase or decrease in assets for the period reported.
4. Cash flows from financing activities.
5. The net increase or decrease in cash for the period reported.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

The basic financial statements include all of the following except:

1. Income Statement.
2. Statement of Owner's Equity.
3. Statement of Cash Flows.
4. Statement of Changes in Assets.
5. Balance Sheet.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The statement of owner's equity:

1. Reports how equity changes over a period of time.
2. Reports on cash flows for operating, financing, and investing activities at a point in time.
3. Reports on cash flows for operating, financing, and investing activities over a period of time.
4. Reports on amounts for assets, liabilities, and equity at a point in time.
5. Reports how equity changes at a point in time.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the:

Statement of cash flows.

1. Statement of financial position.
2. Balance sheet.
3. Income statement.
4. Statement of owner's equity.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

A balance sheet lists:

1. The inflows and outflows of cash during the period.
2. The types and amounts of assets, liabilities, and equity of a business as of a specific date.
3. Only the information about what happened to equity during a time period.
4. The assets and liabilities of a company but not the owner's equity.
5. The types and amounts of the revenues and expenses of a business.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as of a specific date, is called a(n):

Statement of owner's equity.

1. Financial Status Statement.
2. Balance sheet.
3. Income statement.
4. Statement of cash flows.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The financial statement that identifies a company's cash receipts and cash payments over a period of time is the:

Balance sheet.

1. Statement of cash flows.
2. Statement of financial position.
3. Statement of changes in owner's equity.
4. Income statement.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The financial statement that shows the beginning balance of owner's equity; the changes in equity that resulted from new investments by the owner, net income (or net loss); withdrawals; and the ending balance, is the:

Statement of financial position.

1. Statement of cash flows.
2. Balance sheet.
3. Statement of owner's equity.
4. Income statement.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Cash investments by owners are listed on which of the following statements?

1. Statement of owner's equity only.
2. Statement of cash flows only.
3. Balance sheet.
4. Income statement.
5. Statement of owner's equity and statement of cash flows.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

Accounts payable appear on which of the following statements?

1. Balance sheet.
2. Statement of cash flows.
3. Transaction statement.
4. Statement of owner's equity.
5. Income statement.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The income statement reports all of the following except:

1. Net income or loss earned by a business.
2. The time period over which the earnings occurred.
3. Expenses incurred by a business.
4. Revenues earned by a business.
5. Assets owned by a business.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Use the following information as of December 31 to determine equity.

Cash	$ 57,000
Buildings	175,000
Equipment	206,000
Liabilities	141,000

A) $141,000. B) $579,000. C) $297,000. D) $438,000. E) $57,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Use the following information for Meeker Corp. to determine the amount of equity to report.

Cash	$ 70,000
Buildings	125,000
Land	205,000
Liabilities	130,000

A) $530,000. B) $140,000. C) $20,000. D) $270,000. E) $390,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Determine the net income of a company for which the following information is available for the month of July.

Employee salaries expense	$180,000
Interest expense	10,000
Rent expense	20,000
Consulting revenue	400,000

A) $400,000. B) $230,000. C) $210,000. D) $610,000. E) $190,000.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Determine the net income of a company for which the following information is available for the month of September.

Service revenue	$300,000
Rent expense	48,000
Utilities expense	3,200
Salaries expense	81,000

A) $171,000. B) $252,000. C) $167,800. D) $263,800. E) $432,200.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

A company acquires equipment for $75,000 cash. This represents a(n):

1. Financing activity.
2. Revenue activity.
3. Expense activity.
4. Operating activity.
5. Investing activity.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

A company borrows $125,000 from the Northern Bank and receives the loan proceeds in cash. This represents a(n):

Operating activity.

1. Financing activity.
2. Investing activity.
3. Revenue activity.
4. Expense activity.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Zippy had cash inflows from operations $60,500; cash outflows from investing activities of

$47,000; and cash inflows from financing of $25,000. The net change in cash was:

$132,000 increase.

1. $132,500 decrease.
2. $38,500 decrease.
3. $11,500 decrease.
4. $38,500 increase.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Zapper has beginning equity of $257,000, net income of $51,000, withdrawals of $40,000 and investments by owners of $6,000. Its ending equity is:

A) $274,000. B) $208,000. C) $223,000. D) $268,000. E) $240,000.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Cragmont has beginning equity of $277,000, net income of $63,000, withdrawals of $25,000 and no additional investments by owners during the period. Its ending equity is:

A) $189,000. B) $315,000. C) $365,000. D) $239,000. E) $277,000.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Rent expense appears on which of the following statements?

1. Statement of owner's equity.
2. Balance sheet.
3. Statement of periodic expenses.
4. Income statement.
5. Statement of cash flows only.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

A company's balance sheet shows: cash $22,000, accounts receivable $16,000, office equipment

$50,000, and accounts payable $17,000. What is the amount of owner's equity?

A) $17,000. B) $71,000. C) $105,000. D) $88,000. E) $29,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

A company reported total equity of $145,000 at the beginning of the year. The company reported

$210,000 in revenues and $165,000 in expenses for the year. Liabilities at the end of the year totaled $92,000. What are the total assets of the company at the end of the year?

A) $92,000. B) $45,000. C) $282,000. D) $98,000. E) $210,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Flitter reported net income of $17,500 for the past year. At the beginning of the year the company had $200,000 in assets and $50,000 in liabilities. By the end of the year, assets had increased to

$300,000 and liabilities were $75,000. Calculate its return on assets:

A) 23.3%. B) 35.0%. C) 8.8%. D) 7.0%. E) 5.8%.

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Dawson Electronic Services had revenues of $80,000 and expenses of $50,000 for the year. Its assets at the beginning of the year were $400,000. At the end of the year assets were worth

$450,000. Calculate its return on assets.

A) 20.0%. B) 6.7%. C) 7.1%. D) 18.8%. E) 7.5%.

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: BB Resource Management; FN Measurement

Rico's Taqueria had cash inflows from operating activities of $27,000; cash outflows from investing activities of $22,000, and cash outflows from financing activities of $12,000. Calculate the net increase or decrease in cash.

$37,000 increase.

1. $34,000 decrease.
2. $61,000 increase.
3. $7,000 increase.
4. $7,000 decrease.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Charlie's Chocolates' owner made investments of $50,000 and withdrawals of $20,000. The company has revenues of $83,000 and expenses of $64,000. Calculate its net income.

A) $49,000. B) $64,000. C) $19,000. D) $30,000. E) $83,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Savvy Sightseeing had beginning equity of $72,000; revenues of $90,000, expenses of $65,000, and withdrawals by owners of $9,000. Calculate the ending equity.

A) $97,000. B) $38,000. C) $88,000. D) $47,000. E) $25,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

Doc's Ribhouse had beginning equity of $52,000; net income of $35,000, and withdrawals by the owner of $12,000. The owner made no investments during the year. Calculate the ending equity. A) $29,000. B) $(5,000). C) $75,000. D) $5,000. E) $99,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

A company's balance sheet shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?

A) $176,000. B) $68,000. C) $32,000. D) $76,000. E) $104,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking AICPA: BB Industry; FN Reporting

If a company has excess space in its building that it rents to another company for $700, what is the effect on the accounting equation during the first month?

Liabilities would decrease $700 and equity would increase $700.

1. Assets would increase $700 and equity would increase $700.
2. Assets would decrease $700 and equity would increase $700.
3. Assets would increase $700 and equity would decrease $700.
4. Assets would decrease $700 and liabilities would decrease $700.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

All of the following are classified as assets except:

1. Accounts Payable.
2. Land.
3. Equipment.
4. Accounts Receivable.
5. Supplies.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Which of the following accounts is not included in the calculation of a company's ending owner's equity?

Cash.

1. Revenues.
2. Expenses.
3. Owner investments.
4. Withdrawals.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

All of the following are classified as liabilities except:

1. Wages Payable.
2. Accounts Payable.
3. Taxes Payable.
4. Notes Payable.
5. Accounts Receivable.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Billington Corp. borrows $80,000 cash from Second National Bank. How does this transaction affect the accounting equation for Billington?

Assets would increase $80,000 and equity would decrease $80,000.

1. Assets would decrease $80,000 and equity would increase $80,000.
2. Assets would decrease $80,000 and liabilities would decrease $80,000.
3. Liabilities would decrease $80,000 and equity would increase $80,000.
4. Assets would increase $80,000 and liabilities would increase $80,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

If the assets of a company increase by $55,000 during the year and its liabilities increase by

$25,000 during the same year, then the change in equity of the company during the year must have been:

A decrease of $80,000.

1. An increase of $25,000.
2. An increase of $30,000.
3. A decrease of $30,000.
4. An increase of $80,000.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

All of the following are classified as assets except:

1. Prepaid Insurance.
2. Accounts Receivable.
3. Supplies.
4. Accounts Payable.
5. Cash.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Grandmark Printing pays $2,000 rent to the landlord of the building where its facilities are located. How does this transaction affect the accounting equation for Grandmark?

Assets would increase $2,000 and equity would increase $2,000.

1. Liabilities would decrease $2,000 and equity would increase $2,000.
2. Assets would decrease $2,000 and equity would decrease $2,000.
3. Assets would increase $2,000 and liabilities would increase $2,000.
4. Assets would decrease $2,000 and liabilities would decrease $2,000.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

Atkins Company collected $1,750 as payment for the amount owed by a customer from services provided the prior month on credit. How does this transaction affect the accounting equation for Atkins?

Assets would increase $1,750 and equity would increase $1,750.

1. Liabilities would decrease $1,750 and equity would increase $1,750.
2. One asset would increase $1,750 and a different asset would decrease $1,750, causing no net change in the accounting equation.

Assets would decrease $1,750 and liabilities would decrease $1,750.

1. Assets would increase $1,750 and liabilities would increase $1,750.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The accounting equation for Ying Company shows a decrease in its assets and a decrease in its equity. Which of the following transactions could have caused that effect?

Cash was received from providing services to a customer.

1. A utility bill was received for the current month, to be paid in the following month.
2. The company paid an amount due on credit.
3. Equipment was purchased for cash.
4. Advertising expense for the month was paid in cash.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The accounting equation for Long Company shows an increase in its assets and an increase in its liabilities. Which of the following transactions could have caused that effect?

Supplies were purchased for cash.

1. Cash was received from providing services to a customer.
2. Cash was received as an owner investment.
3. Equipment was purchased on credit.
4. Advertising expense for the month was paid in cash.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytical Thinking

AICPA: FN Measurement; BB Industry

The expense recognition principle, also called the matching principle:

1. Provides guidance on when a company must recognize revenue.
2. Prescribes that a company report the details behind financial statements that would impact users' decisions.

Prescribes that accounting information is based on actual cost.

1. Prescribes that a company record the expenses it incurred to generate the revenue reported.
2. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The measurement principle, also called the cost principle:

1. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Prescribes that a company record the expenses it incurred to generate the revenue reported.

1. Prescribes that a company report the details behind financial statements that would impact users' decisions.

Provides guidance on when a company must recognize revenue.

1. Prescribes that accounting information is based on actual cost.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The revenue recognition principle:

1. Provides guidance on when a company must recognize revenue.
2. Prescribes that a company record the expenses it incurred to generate the revenue reported.
3. Prescribes that a company report the details behind financial statements that would impact users' decisions.

Prescribes that accounting information is based on actual cost.

1. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The full disclosure principle:

1. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Prescribes that a company record the expenses it incurred to generate the revenue reported.

1. Prescribes that a company report the details behind financial statements that would impact users' decisions.

Prescribes that accounting information is based on actual cost.

1. Provides guidance on when a company must recognize revenue.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The materiality constraint:

1. Prescribes that only information that would influence the decisions of a reasonable person need be disclosed.
2. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Provides guidance on when a company must recognize revenue.

1. Prescribes that accounting information is based on actual cost.
2. Prescribes that a company record the expenses it incurred to generate the revenue reported.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The going concern assumption:

1. Means that we can express transactions and events in monetary, or money, units.
2. Means that a business is accounted for separately from other business entities, including its owner.
3. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

Prescribes that a company record the expenses it incurred to generate the revenue reported.

1. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The monetary assumption:

1. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.
2. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

Means that we can express transactions and events in monetary, or money, units.

1. Prescribes that a company record the expenses it incurred to generate the revenue reported.
2. Means that a business is accounted for separately from other business entities, including its owner.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The time period assumption:

1. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.
2. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Means that we can express transactions and events in monetary, or money, units.

1. Means that a business is accounted for separately from other business entities, including its owner.

Prescribes that a company record the expenses it incurred to generate the revenue reported.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

The business entity assumption:

1. Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

Means that we can express transactions and events in monetary, or money, units.

1. Means that a business is accounted for separately from other business entities, including its owner.

Prescribes that a company record the expenses it incurred to generate the revenue reported.

1. Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: FN Measurement; BB Industry; BB Legal

Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (or Dodd-Frank) to:

Protect the taxpayer by ending bailouts.

1. Promote accountability and transparency in the financial system.
2. All of the above.
3. Put an end to the notion of "too big to fail."
4. Protect consumers from abusive financial services.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Ethics

AICPA: FN Reporting; BB Legal

Which of the following accounts is not included in the asset section of the balance sheet?

1. Services revenue.
2. Accounts receivable.
3. Supplies.
4. Cash.
5. Land.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Which of the following accounts is not included in the asset section of the balance sheet?

1. Wages expense.
2. Land.
3. Buildings.
4. Furniture.
5. Supplies.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Which of the following accounts is not included in the liability section of the balance sheet?

1. Accounts receivable.
2. Notes payable.
3. Wages payable.
4. Accounts payable.
5. Taxes payable.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Which of the following accounts is not included in the calculation of net income?

1. Rent expense.
2. Cash.
3. Rent revenue.
4. Services revenue.
5. Wages expense.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Which of the following combinations results in a net loss reported on the income statement?

1. Total revenues of $70,000 and total expenses of $74,000.
2. Total revenues of $80,000 and total expenses of $74,000.
3. Total revenues of $40,000 and total expenses of $31,000.
4. Total revenues of $20,000 and total expenses of $16,000.
5. Total revenues of $60,000 and total expenses of $52,000.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication; Reflective Thinking AICPA: BB Industry; FN Reporting

Which of the following combinations results does not result in the same amount of net income reported on the income statement?

Total revenues of $70,000 and total expenses of $60,000.

1. Total revenues of $40,000 and total expenses of $20,000.
2. Total revenues of $80,000 and total expenses of $60,000.
3. Total revenues of $60,000 and total expenses of $40,000.
4. Total revenues of $170,000 and total expenses of $150,000.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

SHORT ANSWER QUESTIONS

Match the following terms with the appropriate definition.
Financial accounting
Ethics
Recordkeeping
Internal users
Accounting
Certified Public Accountant (CPA)
Fraud triangle
Managerial accounting
External users

1. An information and measurement system that identifies, records and communicates relevant reliable and comparable information about an organization's business activities.

____ 2. The part of accounting that involves recording transactions and events, either electronically or manually.

____ 3. Persons using accounting information who are not directly involved in running the organization.

____ 4. Persons using accounting information who are directly involved in managing and operating the organization.

5. The area of accounting that serves the decision-making needs of internal users.

____ 6. The area of accounting aimed at serving external users by providing them with

general-purpose financial statements.

7. Accounting specialists that have met educational and experience requirements, passed an examination and exhibit ethical characteristics to achieve a professional certification.

____ 8. Beliefs that distinguish right from wrong, considered accepted standards of good and bad behavior.

____ 9. A model that asserts the factors that must exist for a person to commit fraud.

Learning Objective: 01-C1 Explain the purpose and importance of accounting.; 01-C2 Identify users and uses of, and opportunities in, accounting.; 01-C3 Explain why ethics are crucial to accounting.

Bloom's: Remember

AACSB: Communication; Ethics

AICPA: BB Industry; BB Legal; FN Reporting

Match each of the following terms with the most appropriate definition.
Return on assets
Assets
Expenses
Risk
Liabilities
Owner withdrawals
Accounting equation
Owner capital

1. The uncertainty about the return to be earned.

____ 2. Resources such as cash that an owner puts into the company.

____ 3. A financial ratio stated as income divided by assets invested.

____ 4. Creditor's claims on a company's assets.

____ 5. Decreases in equity from costs of providing products or services to customers.

____ 6. Resources such as cash that an owner takes from the company for personal use.

____ 7.Resources a company owns or controls that are expected to yield future benefit.

8. Expresses the relation of assets, liabilities and equity in a company, comparing the resources the company owns to the sources of funds to acquire the resources.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components.; 01-A2 Compute and interpret return on assets.; 01-A3 Appendix 1A-Explain the relation between return and risk.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting; FN Risk Analysis

The following is a list of selected users of accounting information. Match the appropriate user to the following decisions they make with accounting information.
Suppliers
Lenders
Shareholders
Purchasing Managers
Regulators

____ 1. Know what, when, and how much to purchase.

____ 2. Judge the soundness of a customer before making sales on credit.

3. Assess whether a company has paid all required taxes and complied with securities rules.

____ 4. Assess whether an organization is likely to repay its loans with interest.

____ 5. Decide whether to buy, hold, or sell a company's stock.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting; FN Risk Analysis

Match the following definitions with terms 1 through 8. Place the letter that identifies the best definition in the blank space next to the term.

_ _ 1. Generally accepted accounting principles

____ 2. Time period assumption

____ 3. Statement of owner's equity.

____ 4. Balance sheet

____ 5. Objectivity principle

____ 6. Measurement (Cost) principle

____ 7. Securities and Exchange Commission

____ 8. IASB

____ 9. Full disclosure principle

10. Statement of cash flows

Prescribes that assets and services to be recorded initially on a cash or equal-to-cash basis.
A principle that requires the information in financial statements to be supported by independent unbiased evidence.
An independent group consisting of individuals from many countries that identify preferred accounting practices.
Presumes that the life of a company can be divided into periods for reporting purposes.
The concepts and rules that govern financial accounting.
A financial statement that reports the changes in equity over the reporting period; including increases such as owner investment and net income and for decreases such as owner withdrawals or net loss.
A report that identifies cash receipts and cash payments over a period of time.
Prescribes that a company report the details behind financial statements that would impact user decisions.
The governmental agency that has the legal authority to establish accounting rules.
A report that describes a company's financial position at a point in time.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Remember AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting; FN Measurement

Match the following definitions with the terms 1 through 9. Place the letter that identifies the best definition in the blank space next to the term.

1. Statement of cash flows

____ 2. Events

3. Monetary unit principle

____ 4. Business entity principle

____ 5. Revenue recognition principle

____ 6. Accounting equation

7. Income statement

____ 8. Expenses

9. Liabilities

The relation between a company's assets, liabilities, and equity.
Happenings, such as changes in market value, that effect the accounting equation and are reliably measured.
The principle that assumes transactions and events can be expressed in money units.
Describes a company's revenues and expenses along with the resulting net income or loss over a period of time.
A financial statement that lists cash inflows (receipts) and cash outflows (payments); the cash flows are arranged by operating, investing, and financing activities.
Creditor's claims on assets.
The cost of assets or services used to earn revenue.
The principle that requires a business to be accounted for separately from its owners.
The principle that revenue is recorded when earned through providing goods or services.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.;

01-C5 Appendix 1B-Identify and describe the three major activities of organizations.; 01-A1 Define and interpret the accounting equation and each of its components.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; BB Legal; FN Reporting; FN Measurement

Identify each of the following business activities 1 through 6 into the appropriate category a, b, and c.
Operating
Investing
Financing

____ 1. Paid utilities expenses.

____ 2. Withdrawal of funds by owners.

____ 3. Purchase of land.

____ 4. Sale of used equipment.

5. Borrowed money from a bank on a long-term note.

6. Paid employee wages.

____ 7. Received investment from owner.

____ 8. Paid an amount due on a long-term bank loan.

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Reporting

Match each of the following items 1 through 8 with the financial statement a through d in which each item would most likely appear. An item may appear on more than one statement.
Income statement
Statement of owner's equity
Balance sheet
Statement of cash flows

_____1. Assets.

_____2. Withdrawals.

_____3. Revenues.

_____4. Cash from investing activities.

_____5. Expenses.

_____6. Liabilities.

7. Cash from operating activities.

8. Cash from financing activities.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Reporting

Classify the following activities according to the appropriate section of the statement of cash flows.
Operating activity
Investing activity
Financing activity

1. Cash received from a one-time sale of used office equipment.

____ 2. Cash paid for withdrawals by owners.

____ 3. Cash received from customers.

____ 4. Cash received from owner contributions.

____ 5. Cash paid for utilities.

____ 6. Cash paid for a delivery van to be used in the business.

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply

AACSB: Communication

AICPA: BB Industry; FN Reporting

ESSAY QUESTIONS

Explain the role of accounting in the information age.

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Understand

AACSB: Communication; Technology AICPA: BB Industry; FN Reporting

What is the balance sheet? What is its purpose?

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

Identify the users and uses of accounting information.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Identify several opportunities in accounting and distinguish between private accounting and public accounting.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Decision Making

Explain why ethics are an integral part of accounting.

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Understand

AACSB: Communication; Ethics

AICPA: BB Industry; FN Decision Making

Describe the three important guidelines for revenue recognition.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

Identify the three basic forms of business organizations and their key attributes.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication AICPA: BB Industry; FN Legal

How does the objectivity principle support ethical behavior?

Learning Objective: 01-C3 Explain why ethics are crucial to accounting.; 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles.

Bloom's: Understand

AACSB: Communication; Ethics

AICPA: BB Industry; FN Decision Making

Identify and describe the two main groups involved in establishing generally accepted accounting principles.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication AICPA: BB Legal; FN Reporting

How does the going-concern principle affect reporting asset values of a business?

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

Describe the income statement and the relation between revenues, expenses, and net income or loss.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.; 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Understand AACSB: Communication

AICPA: BB Industry; FN Measurement

Explain the accounting equation and define its terms.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

What distinguishes liabilities from equity?

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Measurement

What is the purpose of return on assets as an analytical tool?

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; BB Resource Management; FN Measurement

Define risk and return and discuss the relation between them.

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Understand

AACSB: Communication; Reflective Thinking AICPA: BB Critical Thinking; FN Risk Analysis

Describe the three types of activities reported on the statement of cash flows.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

118

Identify and describe the four basic financial statements:

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

The characteristics below apply to at least one of the forms of business organization.
Is a separate legal entity.
Is allowed to be owned by one person only.
Owner or owners are personally liable for debts of the business.
Is a separately taxable entity.
Is a business entity.
May have a contract specifying the division of profits among the owners.
Has an unlimited life

Use the following format to indicate (with a "yes" or "no") whether or not a characteristic applies to each type of business organization.

	Proprietorship	Partnership	Corporation
a.
b.
c.
d.
e.
f.
g.

	Proprietorship	Partnership	Corporation
a.	no	no	yes
b.	yes	no	yes
c.	yes	yes	no
d.	no	no	yes
e.	yes	yes 119	yes

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Communication

AICPA: BB Legal; FN Decision Making

A parcel of land is offered for sale at $600,000, is assessed for tax purposes at $500,000, is recognized by its purchasers as easily being worth $575,000, and is sold for $570,000. At what amount should the land be recorded in the purchaser's books? What accounting principle supports your answer?

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Understand

AACSB: Analytic

AICPA: BB Industry; FN Measurement

You are reviewing the accounting records of Buddy's Foreign Automotive, owned by Bruce Jones. You have uncovered the following situations. List the appropriate accounting principle related to each independent scenario and suggest a correct action for each.
In August, a check for $500 was written to Community Sports. This amount represents soccer camp for his daughter Cassie.
Bruce plans a Going Out of Business Sale for June, since he will be closing the business for a month-long vacation in July. He plans to reopen August 1 and will continue operating Buddy's Foreign Automotive indefinitely.
Buddy received a shipment of tools from Ontario, Canada. The invoice was stated in Canadian dollars.
Sandy Lane paid $1,500 for a major repair services. The amount was recorded as revenue. The parts for the repair must be ordered from overseas and the service won't be complete until the following month.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; BB Legal; FN Measurement

SHORT ANSWER QUESTIONS

At the beginning of the year, a company had $120,000 worth of liabilities. During the year, assets increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000 during the year. Calculate the beginning and ending values of equity.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate.; 01-A1 Define and interpret the accounting equation and each of its components.

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

At the beginning of the period, a company had $350,000 worth of assets, $110,000 worth of liabilities, and $240,000 worth of equity. Assume the only change during the period was a $30,000 purchase of equipment by issuing a note payable. Show the accounting equation with the appropriate amounts at the end of the period.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

The accounts of Odie Company with the increases or decreases that occurred during the past year are as follows:

Account

Increase

Decrease

Cash

Accounts receivable

$25,000

$(5,000)

Accounts payable Notes payable

16,000

(11,000)

Except for net income, an investment of $3,000 by the owner, and a withdrawal of $11,000 by the owner, no other items affected owner's equity. Using the balance sheet equation, compute net income for the past year.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

The accounts of Mason Company at the end of the past year report the following amounts:

Accounts	Amount
Owner Withdrawals, G. Mason…….	$15,500
Revenues……………………………	$97,000
Expenses……………………………	$43,800
Owner investments…………………	2,000

If the beginning equity for the year was $173,000, calculate the ending equity for Mason Company.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

Cornelia's Closet has the following account balances for the dates given:

October 1 October 31

Cash……………………………………… $40,000 60,000

Accounts Receivable……………………… 40,000 38,000 Accounts payable………………………… 6,000 ?

Also, its net income, for October 1 through October 31 was $20,000 and there were no investments or withdrawals by the owner. Determine the equity at both October 1 and October 31.

October 1	October 31
Cash.....................................$40,000	60,000
Accounts Receivable .............40,000	38,000
Total assets..........................$80,000	$98,000

At October 1: Assets = Liabilities + Equity $80,000 = $6,000 + Equity Equity = $74,000
At October 31: Equity, September 1	$74,000
Plus September net income	20,000
Equity, September 30	$94,000

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

If the liabilities of a company increased $92,000 during a period of time and equity in the business decreased $30,000 during the same period, did the assets of the company increase or decrease? By what amount?

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

ESSAY QUESTIONS

125

Soo Lin began an Internet Consulting practice and completed these transactions during April of the current year:

April.	1	Invested $100,000 of her personal savings into a checking
		account opened in the name of the business.
	2	Rented office space and paid $1,200 cash for the month of
		September.
	3	Purchased office equipment for $30,000, paying $8,000 cash
		and agreeing to pay the balance in one year.
	4	Purchased office supplies for $750 cash.
	8	Completed work for a client and immediately collected $2,700
		cash for the services.
	15	Completed $3,600 services for a client on credit.
	20	Received $3,600 from a client for the work completed on
		September 15.
	30	Paid the office secretary's monthly salary, $3,000 cash.
	30	Lin withdrew $2,000 for personal use.

Show the effects of the above transactions on the accounting equation of Soo Lin, Consultant. Use the following format for your answers. The first item is shown as an example.

Increase = I Decrease = D No effect = N

Date	Assets	Liabilities	Equity
Example:
April 1	I	N	I

Date	Assets	Liabilities	Equity
April 1	I	N	I
April 2	D	N	D
April 3	I,D	I	N
April 4	I,D	N	N
April 8	I	N	I
April 15	I	N	I
April 20	I,D	N	N
April 30	D	12N6	D

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

For each of the following transactions, identify the effects as reflected in the accounting equation. Use "+" to indicate an increase and "-" to indicate a decrease. Use "A", "L", and "E" to indicate assets, liabilities, and equity, respectively. Part A has been completed as an example.

a.	L. Chester invested $100,000 in a sole proprietorship	+A	+E
b.	Land was purchased for $50,000. A down payment of $15,000 cash was made and a note was signed for the balance.
c.	Services were rendered to customers for cash.
d.	A building was purchased for cash.
e.	Supplies were purchased for cash.
f.	Paid the office secretary’s salary.
g.	The amount owed on the land from Part (b) was paid.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

The following schedule reflects shows the first month's transactions of the Green Construction Company, owned by Jennifer Green:

Accounts Accounts

Cash + Receivable + Supplies + Equipment = Payable + 1. +20,000

2. -5,000 +5,000

3. +$1,500 +1,500

4. +3,000

5. +1,000 +1,500

6. -750 -750

7. +500 -500

8. -400

9. -2,000

Provide descriptions for each transaction.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply

AACSB: Analytic

AICPA: BB Industry; FN Measurement

The accountant of Action Adventure Games prepared a balance sheet after every 10 day period. The only resources invested by the owner were at the start of the company on June 1. During June, the first month of operation, the following balance sheets were prepared:

ACTION ADVENTURE GAMES

Balance Sheet June 10

Assets

Equity

Cash……………………..

$60,000

Owner, Capital……………..

$60,000

Total assets………………

$60,000

Total liabilities

and equity…………………

…..

$60,000

ACTION ADVENTURE GAMES

Balance Sheet June 20

Assets		Liabilities
Cash…………………….	$48,000	Notes payable…….	$18,000
Land…………………….	10,000	Equity
Building…………………	20,000	Owner, Capital…..	60,000
Total assets…………..	$78,000	Total liabilities and equity……………..	$78,000

ACTION ADVENTURE GAMES

Balance Sheet June 30

Assets		Liabilities
Cash…………………….	$51,000	Accounts payable….	$2,000
Office supplies…………	2,000	Notes payable…….	18,000
Land…………………….	10,000	Equity
Building…………………	20,000	Owner, Capital…..	63,000
Total assets…………..	$83,000	Total liabilities and equity……………..	$83,000

Required: Describe the nature of each of the four transactions that took place between the balance sheet dates shown. Assume only one transaction affected each account.

June

Learning Objective: 01-P1 Analyze business transactions using the accounting equation.; 01-P2 Identify and prepare basic financial statements and explain how they interrelate.

Bloom's: Apply AACSB: Analytic

AICPA: BB Industry; FN Measurement

Identify the risk and the return in each of the following examples.
Investing $500 in a certificate of deposit at 4.5% interest.
Placing a $100 bet on an NBA game.
Investing $10,000 in Microsoft stock.
Borrowing $20,000 in student loans.

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Apply

AACSB: Reflective Thinking

AICPA: BB Industry; BB Critical Thinking; FN Risk Analysis

Prepare a April 30 balance sheet in proper form for Two Rivers Vending Service from the following alphabetical list of the accounts at April 30:

Accounts receivable……………………….	$10,000
Accounts payable…………………………..	18,000
Building……………………………………....	28,000
Cash………………………….……………....	10,000
Notes payable……………………………….	47,000
Office equipment……………...……………..	12,000
K. Fields, Capital…………………………….	?
Trucks………………………………………..	55,000

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Create

AACSB: Analytic

AICPA: BB Industry; FN Reporting

Prepare a December 31 balance sheet in proper form for Smokey River Supplies from the following list of the accounts:

Cash………………………….…………….........	$10,000
Accounts receivable……………………………..	8,000
Supplies………………………………………….	12,000
Equipment……………………………………..	35,000
Land……………………………………..............	18,000
Accounts payable……………………………..	13,000
Notes payable……………………………….….	41,000
L. Marks, Capital………………………….…..	29,000

Assets		Liabilities
Cash……………………..	$10,000	Accounts payable………	$13,000
Accounts receivable……	8,000	Notes payable…………..	41,000
Supplies………………....	12,000	Total liabilities……………	$54,000
Equipment……………….	35,000
Land……………………..	18,000	Equity
		L. Marks, Capital……..	29,000
Total assets…………….	$83,000	Total liabilities and equity…………………….	$83,000
		Total liabilities and equity…………………….	$83,000

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Create

AACSB: Analytic

AICPA: BB Industry; FN Reporting

Prepare a December 31 balance sheet in proper form for Cane Property Management using the following accounts and amounts:

Commissions earned……............	$40,000
Accounts payable………………	3,500
Accounts receivable……………	5,000
M. Bruno, Capital………………	104,500
Office equipment……………….	10,000
Advertising expense…………. …	3,200
Cash…………………………….	7,500
Land...............................................	35,000
	132

Note payable.................................	50,000
Office supplies..............................	1,500
Salaries expense...........................	12,000
Salaries payable...........................	1,000
Building.........................................	100,000

Assets		Liabilities
Cash……………………..	$ 7,500	Accounts payable………..	$ 3,500
Accounts receivable……	5,000	Salaries payable…………..	1,000
Office supplies………….	1,500	Note payable………………	50,000
Land……………………..	35,000	Total liabilities……………..	$ 54,500
Building………………….	100,000	Equity
Office equipment……….	10,000	M. Bruno, Capital…………	104,500
Total assets…………….	__________ $159,000	Total liabilities and Equity……………………..	$159,000
		Total liabilities and Equity……………………..	$159,000

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Create

AACSB: Analytic

AICPA: BB Industry; FN Reporting

From the information given below, prepare a November income statement, a November statement of owner's equity, and a November 30 balance sheet. On November 1 of the current year, Victoria Garza began Garza Décor with an initial investment of $50,000 cash. On November 30, her records showed the following (alphabetically arranged) items and amounts.

Accounts payable…………….	$12,000	Office furnishings………..	$40,000
Accounts receivable……….	19,000	Owner’s withdrawals…….	6,000
Cash………………………	21,200	Rent expense……………	9,600
Fees earned……………….	34,000	Salaries expense……….	4,200
Notes payable…………………	4,250	Telephone expense…….	250

Revenue:
Fees earned………………………..		$34,000
Operating expenses: 133

V. Garza, Capital, November 1………………………..		$ 0
Plus: Investments by owner…………………………….	$50,000
Net income……………………………….	19,950	69,950
		69,950
Less withdrawals by owner…………………….		(6,000)
V. Garza, Capital, November 30……………….		$63,950

Assets		Liabilities
Cash……………………..	$21,200	Accounts payable……	$12,000
Accounts receivable……	19,000	Notes payable………	4,250
Office furnishings………..	40,000	Total liabilities………	$16,250
		Equity
		V, Garza, capital……	63,950
Total assets…………….	$80,200	Total liabilities and equity…………………	$80,200
		Total liabilities and equity…………………

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Create

AACSB: Analytic

AICPA: BB Industry; FN Reporting

134

Data for Kennedy Realty are as follows:

Total assets at January 1	$100,000
Total liabilities at January 1	35,000
Total revenues for the year	79,000
Total expenses for the year	47,000

The owner, Finn Kennedy, withdrew a total of $30,000 for personal use during the year. Using the above data, prepare Kennedy Realty's Statement of Owner's Equity for the year ended December 31.

Finn Kennedy, Capital, January 1*	$ 65,000	*
Plus Net income	32,000
	$ 97,000
Less Withdrawals by owner	(30,000	)
Finn Kennedy, Capital, December 31	$ 67,000

*Total assets at January 1	$100,000
Less total liabilities at January 1	35,000
Total owner’s equity at January 1	$ 65,000
Total owner’s equity at January 1

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Create

AACSB: Analytic

AICPA: BB Industry; FN Reporting

Jet Styling has the following beginning cash balance and cash transactions for the month of January. Using this information prepare a statement of cash flows.

a.	Beginning cash balance……………..	$ 3,200
b.	Cash investment by owner…………..	15,000
c.	Cash payment toward long-term loan	1,000
d.	Cash payment of rent………………..	1,800
e.	Purchased equipment for cash……..	7,500
f.	Purchased store supplies for cash…	1,500
g.	Cash collected from customers…….	7,750
h.	Cash withdrawal by owner…………..	2,000
i.	Cash payment of wages……………. 135	4,000

i. Cash payment of wages……………. 4,000

Cash flows from operating activities:
Cash collected from customers…………………	$ 7,750
Cash paid for supplies……………………………	(1,500)
Cash paid for rent…………………………………	(1,800)
Cash paid for wages……………………………..	(4,000)
Cash flows from operating activities…………………		$ 450
Cash flows from investing activities:
Purchase of equipment………………………….		(7,500)
Cash flows from financing activities:
Investment by owner…………………………….	15,000
Withdrawal by owner……………………………	(2,000)
Payment of loan…………………………………	(1,000)
Cash flows from financing activities………………..		12,000
Net increase in cash…………………………………		$ 4,950

Beginning cash balance…………………………….		3,200
Ending cash balance………………………………..		$ 8,150

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Create

AACSB: Analytic

AICPA: BB Industry; FN Reporting

The records of Roadmaster Auto Rentals show the following information as of December 31. The owner, Rob Fletcher withdrew $52,000 during the year for personal expenses. Prepare a December income statement, a December statement of owner's equity, and a December 30 balance sheet.

Accounts payable	$36,000	Wages expense	$75,000
Insurance expense	2,000	Advertising expense	22,000
Accounts receivable	24,000	Cash	11,000
R Fletcher, Capital,
January 1	150,000	Office Furniture	15,000
Airplanes	150,000	Maintenance expense	39,000
Notes payable	47,000	Revenues	217,000
Hangar	60,000

Revenues		$ 217,000
Expenses:
Insurance expense	$ 2,000
Wages expense	75,000
Advertising expense	22,000
Maintenance expense	39,000
Total expenses		$ 138,000
Net income		$ 79,000

Assets		Liabilities
Cash	$ 11,000	Accounts payable	$ 36,000
Accounts receivable	24,000	Notes payable	47,000
Airplanes	150,000	Total liabilities	$ 83,000
Hangar	60,000	Equity
Office furniture	15,000	R. Fletcher, Capital	177,000
	_______	Total liabilities and
Total assets	$260,000	equity	$260,000

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Create

AACSB: Analytic

AICPA: BB Industry; FN Reporting

Verity Siding Company, owned by S. Verity, began operations in May and completed the following transactions during that first month of operations. Show the effects of the transactions on the accounts of the accounting equation by recording increases and decreases in the appropriate columns in the table below. Do not determine new account balances after each transaction. Determine the final total for each account and verify that the equation is in balance.

May	1	S. Verity invested $90,000 cash in the company.
	2	The company purchased $25,000 in office equipment. It paid $10,000 in cash and signed a note payable promising to pay the $15,000 over the next three years.
	2	The company rented office space and paid $3,000 for the May rent.
	6	The company installed new vinyl siding for a customer and immediately collected $5,000.
	7	The company paid a supplier $2,000 for siding materials used on the May 6 job.
	8	The company purchased a $2,500 copy machine for office use on credit.
	9	The company completed work for additional customers on credit in the amount of $16,000.
	15	The company paid its employees' salaries $2,300 for the first half of the month.
	17	The company installed new siding for a customer and immediately collected $2,400.
	20	The company received $10,000 in payments from the customers billed on May 9
	28	The company paid $1,500 on the copy machine purchased on May 8. It will pay the remaining balance in June.
	31	The company paid its employees' salaries $2,400 for the second half of the month.
	31	The company paid a supplier $5,300 for siding materials used on the remaining jobs completed during May.
	31	The company paid $450 for this month's utility bill.

Learning Objective: 01-P1 Analyze business transactions using the accounting equation. Bloom's: Apply; Analyze

AACSB: Analytic

AICPA: BB Industry; FN Reporting

SHORT ANSWER QUESTIONS

________ is an information and measurement system that identifies, records and communicates relevant, reliable and comparable information about an organization's economic activities.

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

A ________ is a business that is owned by only one person.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

________ users of accounting information are not directly involved in running the organization.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

________ is the area of accounting aimed at serving external users by providing them with general-purpose financial statements.

Learning Objective: 01-C2 Identify users and uses of, and opportunities in, accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Congress passed the ________ to help curb financial abuses at companies that issue their stock to the public.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication; Ethics AICPA: BB Legal; FN Reporting

________ are beliefs that separate right from wrong and are considered accepted standards of good and bad behavior.

Learning Objective: 01-C3 Explain why ethics are crucial to accounting. Bloom's: Remember

AACSB: Communication; Ethics

AICPA: BB Industry; FN Decision Making

The assumption that requires that a business be accounted for separately from its owners is the

________ assumption.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The ________ principle requires that financial information is supported by independent, unbiased evidence.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

The ________ assumption assumes that a business will continue operating indefinitely instead of being closed or sold.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

The ________ assumption states that transactions and events are expressed in money units.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

In accounting, the rule that requires that assets, services, and liabilities be recorded initially at the cash or cash-equivalent value of what was given up or of the item received is called the ________.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Measurement

A disadvantage of a sole proprietorship is the fact that the owner has ________.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

There are at least three types of partnerships that limit the partners' liability. They are 1)________, 2) ________, and 3)________.

Learning Objective: 01-C4 Explain generally accepted accounting principles and define and apply several accounting principles. Bloom's: Remember

AACSB: Communication

AICPA: BB Legal; FN Decision Making

There are three major types of business activities. ________ activities are the means organizations use to pay for resources such as land, building, and equipment to carry out plans.

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

There are three major types of business activities. ________ activities involve the acquisition and disposal of resources that an organization uses to acquire and sell its products or services.

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

There are three major types of business activities. ________ activities involve using resources to research, develop, purchase, produce, distribute, and market products and services and receiving amounts from selling products and services.

Learning Objective: 01-C5 Appendix 1B-Identify and describe the three major activities of organizations. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Resources such as cash removed from the business by the business owner for personal use are called ________.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

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

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

A common characteristic of ________ is their ability to yield expected future benefits to a business.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Creditors' claims on assets that reflect company obligations to provide assets, products, or services to others are called ________.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The owner's claim on assets, also known as net assets, is called ________.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The accounting equation is ________.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The term ________ refers to a liability that promises a future outflow of resources.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Using the accounting equation, equity is equal to ________.

Learning Objective: 01-A1 Define and interpret the accounting equation and each of its components. Bloom's: Understand

AACSB: Communication

AICPA: BB Industry; FN Reporting

________, which is one part of accounting, is the recording of transactions and events, either manually or electronically.

Learning Objective: 01-C1 Explain the purpose and importance of accounting. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

________ is net income divided by average total assets.

Learning Objective: 01-A2 Compute and interpret return on assets. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

Risk is the ________ about the return an investor expects to earn.

Learning Objective: 01-A3 Appendix 1A-Explain the relation between return and risk. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Risk Analysis

________ explains changes in the owner's claim on the business's assets from net income or loss, owner investments, and owner withdrawals over a period of time.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

The ________ describes a company's revenues and expenses along with the resulting net income or net loss over a period of time due to earnings activities.

Learning Objective: 01-P2 Identify and prepare basic financial statements and explain how they interrelate. Bloom's: Remember

AACSB: Communication

AICPA: BB Industry; FN Reporting

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Created Date:

Aug 21, 2025

Chapter Name:

Chapter 1 Accounting In Business

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John J. Wild

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