Exam 1: Accounting and the Business Environment

For each of the following characteristics of a business organization,state whether it applies to a sole proprietorship (SP),partnership (P)or a corporation (C).There may be more than one correct answer for a characteristic. Business organization Entity(ies) to which the characteristic characteristic applies - SP, P, C Separate legal entity Owner(s) are personally liable for the business's debts Separate taxable entity One owner

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Question 1

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$\begin{array}{|l|l|}\hline\text { Business organization } & \text { Entity(ies) to which the } \\\text { characteristic } & \text { characteristic applies - } \\& \text { SP, P, C } \\ \hline\text { Separate legal entity } &\text {C} \\\hline \text { Owner(s) are personally } & \\\text { liable for the business's debts } &\text { SP, P} \\\hline \text { Separate taxable entity } &\text {C} \\\hline \text { One owner } &\text { SP, C}\\\hline\end{array}$

List the four financial statements and briefly explain how each is prepared. Financial statement How it is prepared 1. 2. 3. 4.

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Question 2

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$\begin{array} { | l | l | } \hline \text { Financial statement } & \text { How it is prepared } \\\hline \text { 1. Income statement } & \begin{array} { l } \text { Revenues -Expenses = Net Income } \\\text { or Net Loss }\end{array} \\\hline \text { 2. Statement of owner's equity } & \begin{array} { l } \text { Owner, Capital, Beginning } \\\text { +Owner contributions } \\\text { +Net income for the period } \\\text { or - Net Loss for the period } \\\text { - Owner withdrawals for the period } \\\text { EOwner, Capital, Ending }\end{array} \\\hline \text { 3. Balance sheet } & \begin{array} { l } \text { Assets = Liabilities + Owner's } \\\text { Equity }\end{array} \\\hline \text { 4. Statement of cash flows } & \begin{array} { l } \text { Cash flows from operating activities } \\\text { Cash flows from investing activities } \\\text { Cash flows from financing activities }\end{array} \\\hline\end{array}$

Economic resources and debts of the company are shown on the balance sheet.

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(True/False)

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Question 3

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A debt that a business owes is called ________.

(Multiple Choice)

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Question 4

The equity of Alliance Company is $100,000 and the total liabilities are $10,000.The total assets are ________.

(Multiple Choice)

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Question 5

A statement of cash flows always represents a period of time.

(True/False)

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Question 6

What is the primary objective of financial reporting?

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Question 7

Managerial accounting focuses on providing information for external decision makers.

(True/False)

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Question 8

In a statement of owner's equity,decreases in Owner,Capital result from ________.

(Multiple Choice)

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Question 9

A business purchases a building for $250,000.The current market value is $375,000.The tax assessment value is $325,000.At what value should the building be recorded,and which accounting principle supports your answer?

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Question 10

The owner's capital account increases with each capital contribution made by the owner.

(True/False)

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Question 11

Provide the definition of each of the following accounting assumptions. Assumption Definition Monetary Unit Economic Entity

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Question 12

Marcus has decided to open an auto-detailing business.He will pick up an automobile from the client,take it to his parents' garage,detail it,and return it to the client.If he does all of the work himself and takes no legal steps to form a special organization,which type of business organization,in effect,has he chosen?

(Multiple Choice)

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Question 13

Precision Camera Services started the year with total assets of $120,000 and total liabilities of $40,000.The company is a sole proprietorship.The revenues and the expenses for the year amounted to $140,000 and $50,000,respectively.During the year,there were no new capital contributions and the owner withdrew $45,000.What is the amount of owner's equity at the end of the year?

(Multiple Choice)

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Question 14

The field of accounting that focuses on providing information for external decision makers is ________.

(Multiple Choice)

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Question 15

McCoy Company provides plumbing services.The company is a sole proprietorship.Transactions during the first year of operations are provided below. a)The owner,Sharon McCoy,contributed $10,000 cash in exchange for capital. b)Paid $1,100 cash for equipment to be used for plumbing repairs. c)Borrowed $12,000 from a local bank and deposited the money in the checking account. d)Paid $300 rent for the year. e)Purchased $200 of office supplies by cash. f)Completed a plumbing repair project for a local lawyer and received $3,200 cash. Calculate the amount of total liabilities at the end of the first year.

(Multiple Choice)

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Question 16

The balance sheet reports on the assets,liabilities,and owner's equity of the business as of a specific date.

(True/False)

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Question 17

Thirty years ago,Citywide Grocery Company purchased a building for its grocery store for $30,000.Based on inflation estimates,the amount of the building has been adjusted in the accounting records.The building is now reported at $75,000 in Citywide's financial statements.Which of the following concepts or principles of accounting is being violated?

(Multiple Choice)

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Question 18

Mulberry Company collected $7,000 from one of its customers,the amount owed from the previous month.How does this affect the accounting equation for Mulberry?

(Multiple Choice)

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Question 19

An owner's withdrawal increases owner's equity.

(True/False)

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Question 20

Exam 1: Accounting and the Business Environment

List the four financial statements and briefly explain how each is prepared. Financial statement How it is prepared 1. 2. 3. 4.

Economic resources and debts of the company are shown on the balance sheet.

A debt that a business owes is called ________.

The equity of Alliance Company is $100,000 and the total liabilities are $10,000.The total assets are ________.

A statement of cash flows always represents a period of time.

What is the primary objective of financial reporting?

Managerial accounting focuses on providing information for external decision makers.

In a statement of owner's equity,decreases in Owner,Capital result from ________.

A business purchases a building for $250,000.The current market value is $375,000.The tax assessment value is $325,000.At what value should the building be recorded,and which accounting principle supports your answer?

The owner's capital account increases with each capital contribution made by the owner.

Provide the definition of each of the following accounting assumptions. Assumption Definition Monetary Unit Economic Entity

The field of accounting that focuses on providing information for external decision makers is ________.

The balance sheet reports on the assets,liabilities,and owner's equity of the business as of a specific date.

Mulberry Company collected $7,000 from one of its customers,the amount owed from the previous month.How does this affect the accounting equation for Mulberry?

An owner's withdrawal increases owner's equity.

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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