Deck 1: Accounting: the Language of Business

Question 1

Which of the following statements is true?

A)Owners' equities are economic sacrifices after deducting liabilities.
B)Assets are expected to benefit no one.
C)Liabilities are future cash inflows.
D)Assets are always the sum of liabilities and owners' equities.
E)Owners' equities have priority over liabilities for assets upon liquidation.

Answer 1

D

Question 2

Which of the following describes a liability?

A)Future economic benefit
B)Economic obligations to creditors
C)Paid-in capital
D)Investment by owners
E)Present value of customer future payments

Answer 2

B

Question 3

The annual report is a document prepared by the board of directors and distributed to current and potential investors.

Answer 3

False

Question 4

Which of the following individuals are most interested in management accounting information for Dotty Industries?

A)Bankers who loan money to Dotty Industries
B)The IRS,who Dotty Industries pays taxes to
C)Stockholders who buy stock in Dotty Industries
D)Management who work for Dotty Industries
E)Suppliers who sell goods to Dotty Industries

Question 5

Footnotes are

A)included in the audit report.
B)an integral part of financial statement information.
C)an appendix to the letter from corporate management.
D)at the bottom of the report of the independent auditors.
E)explanatory information in the statement of management's responsibility for preparation of financial statements.

Question 6

Because officials in federal,state,and local governments are not in the business of making a profit,they do not need an understanding of accounting.

Question 7

Financial accounting serves external decision makers,such as suppliers,banks,government agencies,and stockholders.

Question 8

It is against SEC regulations to promote the corporation in the annual report.

Question 9

The governmental agency that regulates the stock market and the financial reporting of firms that trade in the market is the

A)Financial Accounting Standards Board.
B)Internal Revenue Service.
C)Public Company Accounting Oversight Board.
D)Securities and Exchange Commission.
E)Generally Accepted Accounting Board.

Question 10

Annual reports include all,but which of the following?

A)A letter from corporate management
B)Footnotes that explain many elements of the financial statements in more detail
C)The report of the independent registered public accounting firm (auditors)
D)Statements by both management and auditors on the company's internal controls
E)The company's handbook for new employees

Question 11

The primary purpose of financial accounting is to

A)supply information for external users' decision making.
B)provide data for internal users' decision making.
C)produce data for income taxes.
D)create an audit report.
E)organize the data for management.

Question 12

Describe the differences between financial accounting and management accounting.

Question 13

Accountants analyze and record

A)economic events.
B)costs.
C)revenues.
D)financial statements.
E)creditor statements.

Question 14

The accounting equation can be stated as which of the following?

A)Assets - liabilities = owners' equity
B)Assets + liabilities = owners' equity
C)Liabilities + assets = owners' equity
D)Owners' equity + assets = liabilities
E)Liabilities - owners' equity = assets

Question 15

Management accounting serves internal decision makers,such as top executives and department heads.

Question 16

A liability that results from a purchase of goods or services on open account is referred to as a(n)

A)accounts receivable.
B)notes payable.
C)accounts payable.
D)notes receivable.
E)capital stock.

Question 17

The accountant at Forgum Corporation is asked to prepare the financial statements for the month of July.Which financial statement will he NOT prepare?

A)Balance sheet
B)Income statement
C)Statement of earnings and taxation
D)Statement of cash flows
E)Statement of stockholders' equity

Question 18

Managerial accounting serves external users while financial accounting serves internal users.

Question 19

Accounting does not provide information that is useful in making decisions that have economic consequences.

Question 20

Which of the following would be classified as external users of financial statements?

A)Creditors of the organization and the Internal Revenue Service
B)Stockholders and the CFO of the organization
C)Management of the organization and the audit firm
D)Management of the organization and SEC
E)Stockholders and middle managers of the organization

Question 21

Owners' equity is the residual interest in the organization's assets after deducting liabilities.

Question 22

Income taxes owed to the federal government would be classified as a(n)

A)liability on the balance sheet.
B)asset on the balance sheet.
C)liability on the statement of cash flows.
D)equity on the balance sheet.
E)They would not appear on a financial statement.

Question 23

Statement of financial position is another name for the balance sheet.

Question 24

Which of the following statements is false?

A)If you increase an asset account,you may increase a liability account.
B)If you increase an asset account,you may decrease an asset account.
C)If you decrease an asset account,you may increase an owners' equity account.
D)If you decrease an asset account,you may decrease an owners' equity account.
E)If you increase an asset account,you may increase an owners' equity account.

Question 25

Inventory is goods held by a company for the purpose of sale to customers,and is considered a liability on the balance sheet.

Question 26

Assets amount to $35,000 at the beginning of the period and $40,000 at the end of the period.Liabilities amount to $10,000 at the beginning of the period and $20,000 at the end of the period.What is the amount of the change and the direction of the change in owners' equity for the period?

A)Increase of $15,000
B)Decrease of $10,000
C)Increase of $5,000
D)Increase of $10,000
E)Decrease of $5,000

Question 27

Liabilities are economic obligations of the organization to outsiders,or claims against its assets by outsiders.

Question 28

A transaction

A)affects the financial position of an entity.
B)maintains the equality of the balance sheet equation.
C)affects the cash position of an entity.
D)will always change values on the income statement.
E)both A and B

Question 29

An entity

A)is a separate economic unit.
B)allows a section of an organization to be a separate economic unit.
C)helps accountants relate events to a defined area of accounting.
D)All of the above
E)None of the above

Question 30

Accountants use the terms notes payable or notes receivable to describe the existence of promissory notes.

Question 31

Mexland Company,acquired land costing $25,000.Mexland Company paid $10,000 in cash and issued a short-term note for the balance.The effect of this transaction on Mexland Company,would be to

A)increase the land account by $25,000,decrease the cash account by $10,000,and decrease the balance in the notes payable account by $15,000.
B)increase the land account by $25,000,decrease the cash account by $10,000,and decrease the balance in the notes receivable account by $15,000.
C)increase the land account by $25,000,decrease the cash account by $10,000,and increase the balance in the notes receivable account by $15,000.
D)increase the land account by $10,000 and decrease the cash account by $10,000.
E)increase the land account by $25,000,decrease the cash account by $10,000,and increase the balance in the notes payable account by $15,000.

Question 32

A balance sheet is dated for a period of time,such as "for the year ended December 31,20X2."

Question 33

What is the purpose of a balance sheet?

Question 34

Assets and owners' equity are presented on the right side of the balance sheet.

Question 35

Notes Payable are classified as

A)equity.
B)assets.
C)owner investments.
D)liabilities.
E)expenses.

Question 36

Surround Sound,LLC owned land originally costing $33,000.A real estate agent appraised the land and stated that it is now worth $38,000.Surround Sound,LLC should

A)increase the land account by $5,000 and increase the capital stock account by $5,000.
B)increase the land account by $5,000 and increase the cash account by $5,000.
C)increase the land account by $5,000 and increase the paid-in capital in excess of par account by $5,000.
D)There is no effect from the increase in the value of the land on the accounts of Surround Sound,LLC.
E)increase the land account and the investment account.

Question 37

If liabilities increase by $10,000 during a given period and stockholders' equity decreases by $6,000 during the same period,assets must have

A)increased by $16,000.
B)increased by $4,000.
C)decreased by $4,000.
D)decreased by $16,000.
E)This cannot be determined with the given information.

Question 38

Examples of assets include cash,inventory,and capital stock.

Question 39

An example of stockholders' equity is

A)accounts payable.
B)accounts receivable.
C)capital stock.
D)marketable securities.
E)cash and cash equivalents.

Question 40

The balance sheet equation is assets = liabilities - owner's equity.

Question 41

A transaction does not require counterbalancing entries so that the total assets are equal to the total liabilities plus owner's equity.

Question 42

A loan from a financial institution will increase assets and increase liabilities.

Question 43

A transaction affects the financial position of an entity and can be reliably recorded in terms of money.

Question 44

Buying on credit creates an account receivable.

Question 45

The purchase of inventory on credit will increase liabilities and equity.

Question 46

Mailers Manufacturing,acquired equipment for $19,000.Mailers Manufacturing,paid $6,000 in cash,with the balance due on a note.The effect of this transaction on Mailers Manufacturing,would be to

A)increase the equipment account by $19,000,decrease the cash account by $6,000 and increase the notes payable account by $13,000.
B)increase the equipment account by $19,000,decrease the cash account by $6,000,and decrease the notes receivable by $13,000.
C)increase the equipment account by $6,000,and decrease the cash account by $6,000.
D)increase the equipment account by $6,000,decrease the cash account by $6,000,and increase the notes payable account by $13,000.
E)increase the equipment account by $19,000,and increase the notes payable account by $6,000.

Question 47

Kitty Clips acquired $2,800 worth of merchandise inventory on account.Upon inspection,the company discovered that $400 worth of the merchandise inventory was defective.Kitty Clips returned the defective merchandise inventory and received full credit.The effect of the return transaction on Kitty Clips would be to

A)decrease the merchandise inventory account by $400 and increase the accounts payable account by $400.
B)decrease the merchandise inventory account by $400 and decrease the accounts payable account by $400.
C)decrease the merchandise inventory account by $400 and increase the accounts receivable account by $400.
D)decrease the merchandise inventory account by $400 and decrease the accounts receivable account by $400.
E)Because the merchandise inventory was never used,Kitty Clips would not record the return of the merchandise inventory.

Question 48

Manziel Inc.is a sole proprietorship owned by Chris Herold.Chris acquired $9,000 worth of equipment for use in his store.He will pay for the equipment in 30 days.The effect of this transaction on Manziel would be to

A)increase the equipment account by $9,000 and increase the accounts payable account by $9,000.
B)increase the equipment account by $9,000 and decrease the accounts payable account by $9,000.
C)increase the equipment account by $9,000 and increase the capital account by $9,000.
D)This would not change any account because the equipment has not been paid for.
E)This would not change any account because this transaction does not affect Manziel Inc.

Question 49

Smith's Medical Supplies sold unused land at cost,which was $15,000.The buyer paid $6,000 in cash,with the balance to be paid on a note due in 6 months.The effect on Smith's Medical Supplies is to

A)decrease the land account by $15,000,increase the cash account by $6,000,and increase the balance in the notes payable account by $9,000.
B)decrease the land account by $15,000,increase the cash account by $6,000,and increase the balance in the notes receivable account by $9,000.
C)decrease the land account by $15,000,increase the cash account by $6,000,and decrease the balance in the notes receivable by $9,000.
D)decrease the land account by $6,000 and increase the cash account by $6,000.
E)decrease the land account by $15,000,increase the cash account by $6,000,and decrease the balance in the notes payable account by $9,000.

Question 50

Jakey Technologies has 1,000 folders in inventory that cost $2.00 each.The company's supplier announced that,effective immediately,all future folders will cost $2.20 each.Jakey Technologies should

A)increase the inventory account by $200 and increase the capital account by $200.
B)increase the inventory account by $200 and decrease the capital account by $200.
C)increase the inventory account by $200 and increase the accounts payable account by $200.
D)increase the inventory account by $200 and decrease the accounts payable account by $200.
E)There is no effect from the price change on the accounts of Jakey Technologies.

Question 51

Sounds Good Entertainment acquired office equipment valued at $4,000 and office supplies valued at $600 by paying cash of $1,300 with the balance on account.The effect of this transaction on Sounds Good Entertainment would be to

A)increase the cash account by $1,300,increase the accounts payable account by $3,300,and increase the office equipment account by $4,600.
B)increase the office equipment account by $4,600,decrease the cash account by $1,300,and decrease the accounts payable account by $3,300.
C)decrease the cash account by $1,300,increase the accounts payable account by $3,300,increase the office equipment account by $4,000,and increase the office supplies by $600.
D)increase the cash account by $1,300,increase the capital account by $3,300,decrease the equipment account by $4,000,and increase the office supplies account by $600.
E)increase the office supplies account by $600,decrease the office equipment account by $4,000,increase the accounts payable account by $4,000,and decrease the cash account by $600.

Question 52

Stockholders' equity at the beginning and end of the period amounts to $16,000 and $19,000,respectively.Assets at the beginning and end of the period amount to $26,000 and $21,000,respectively.Liabilities at the beginning of the period were $10,000.Liabilities at the end of the period amount to

A)$8,000.
B)$6,000.
C)$2,000.
D)$5,000.
E)$3,000.

Question 53

Zeus Greek Foods purchased a $21,000 van for use in the business.The company made a $15,000 cash down payment,and signed a note for the balance.The effect of this transaction on Zeus Greek Foods would be to

A)increase the van account by $21,000,decrease the cash account by $15,000,and decrease the notes receivable account by $6,000.
B)increase the van account by $21,000,decrease the cash account by $15,000,and decrease the notes payable account by $6,000.
C)increase the van account by $15,000 and decrease the cash account by $15,000.
D)increase the van account by $21,000,decrease the cash account by $15,000,and increase the notes payable account by $6,000.
E)decrease the van account by $15,000 and increase the cash account by $15,000.

Question 54

Iacofano Pizza Place acquired equipment costing $11,000 on account.The effect of this transaction on Iacofano Pizza Place would be to

A)increase equipment by $11,000 and decrease capital by $11,000.
B)increase equipment by $11,000 and increase capital by $11,000.
C)increase equipment by $11,000 and increase accounts payable by $11,000.
D)increase equipment by $11,000 and decrease accounts payable by $11,000.
E)No transaction is recorded since no cash has been paid.

Question 55

Payton Corporation,acquired some office equipment,including a desk costing $900.The owner of the business next door said that he had been searching for a desk just like that one,so Payton Corporation,sold the desk to its business neighbor at cost,receiving $400 in cash,with the remainder to be paid in 30 days.The effect of this transaction on Payton Corporation,would be to

A)increase the cash account by $400,increase the capital account by $500,and decrease the equipment account by $900.
B)increase the cash account by $400,increase the accounts payable account by $500,and decrease the equipment account by $900.
C)increase the cash account by $400,decrease the accounts payable account by $500,and decrease the equipment account by $900.
D)increase the cash account by $400,increase the accounts receivable account by $500,and decrease the equipment account by $900.
E)increase the cash account by $400,decrease the accounts receivable account by $500,and decrease the equipment account by $900.

Question 56

An account is a summary record of the changes in a particular asset,liability,or owners' equity.

Question 57

What accounts are affected by an initial investment of cash by an owner into his business?

A)Cash and Owner payable
B)Cash and Long-term debt payable
C)Owner payable and Accounts payable
D)Cash and Capital
E)Cash and Retained earnings

Question 58

What effect does the purchase of store equipment on account have on the balance sheet equation?

A)Assets increase and liabilities decrease
B)Assets increase and liabilities increase
C)Assets decrease and liabilities decrease
D)Assets decrease and liabilities increase
E)There is no effect on the accounting equation.

Question 59

An owner's investment into a business will increase assets and decrease liabilities.

Question 60

Home Theater Advantage sells audio equipment.Home Theater Advantage acquired 50 speakers from a manufacturer at a cost of $200 per speaker and purchased the speakers on account.The effect of this transaction on Home Theater Advantage would be to

A)increase inventory by $10,000 and increase capital by $10,000.
B)increase inventory by $10,000 and decrease capital by $10,000.
C)increase inventory by $10,000 and decrease cash by $10,000.
D)increase inventory by $10,000 and increase accounts payable by $10,000.
E)increase inventory by $10,000 and decrease accounts payable by $10,000.

Question 61

A sole proprietorship is an accounting entity,even though it has only a single owner.

Question 62

Following is an alphabetical list of the assets,liabilities,and stock owners' equity accounts of Apex Marketing Solutions.Prepare a balance sheet dated December 31,20X9.

Question 63

The accountant for Tibbo Industries is required to prepare monthly financial statements.Upon opening the file with the previous month's balance sheets,the accountant notices that they have been prepared incorrectly.Prepare a corrected November balance sheet based on the information below.
Balance Sheet for
Tibbo Industries
Prepared on
November 29,2009

Question 64

Presented below are the balances,listed in alphabetical order,of Ferb Products,at December 1,
20X9:
Following are the transactions for Ferb Products for the month of December 20X9:
a.Borrowed an additional $1,300 in notes payable.
b.Collected $1,900 from credit customers.
c.Paid $2,600 of the amount owed on account.
d.The owners contributed $12,000 cash in exchange for capital.
Required:
1.Prepare an analysis of the transactions on the balance sheet equation.
2.Prepare a balance sheet as of December 31,20X9,considering the beginning balances and incorporating the effects of the December,20X9 transactions.

Question 65

A corporation is an organization

A)with owners assuming personal liability for business losses.
B)that joins two or more people together as co-owners.
C)that is an "artificial being" created by individual state laws.
D)that gives stockholders control of everyday management decisions.
E)that does not sell stock to raise capital.

Question 66

Which of the following statements is false?

A)Corporations are business organizations created under federal law.
B)One of the most notable characteristics of a corporation is the limited liability of the owners.
C)An advantage of corporations over other business entities is the ease of transfer of ownership.
D)The laws governing corporations vary from state to state.
E)Individuals can sell stock to each other without corporate involvement.

Question 67

A payment to a creditor will decrease assets and increase liabilities.

Question 68

Which of the following statements is false?

A)Most states require stock certificates to have some dollar amount printed on them.
B)Additional paid-in capital is part of total liabilities on the balance sheet.
C)The ultimate responsibility for management of a company is delegated by stockholders to professional managers.
D)Typically,stock is sold for an amount above par value.
E)An advantage of the corporate form of organization is the separation of ownership and management.

Question 69

Analyze the following transactions in the balance sheet equation using the following worksheet.
1.Initial investment of $300,000 by the owner
2.Acquire equipment for $25,000 cash
3.Acquire inventory for $6,000 on credit
4.Obtain loan of $15,000 from the bank
5.Returned $600 of inventory to supplier
6.Payment to creditor for amount of inventory purchase less amount returned

Question 70

A creditor is one to whom money is owed.

Question 71

Twinkle Toes Dance Company December 31,20X9
What is the name of the financial statement above?

A)Income Statement
B)Balance Sheet
C)Statement of Cash Flows
D)Statement of Changes in Shareholders Equity
E)Statement of Retained Earnings

Question 72

Use the following balance sheet equation format to show the effect of the following transactions.Write the signs (+,-)for increases and decreases in components of the equation for each transaction.
A.The owner invests cash in the company.
B.The company borrows money from a bank,issuing a promissory note payable.
C.The company acquires equipment by paying cash for the total amount.
D.The company acquires inventory from the manufacturer on credit.
E.The company returns part of the inventory purchased in part D.
F.The company sells equipment acquired in part C to a competitor on open account at cost.
G.The company pays the amount due on the inventory purchase in part D.

Question 73

Which of the following forms of business organizations protect the personal assets of the owners from creditors of the business?

A)Partnerships
B)Corporations
C)Proprietorships
D)Partnerships and corporations
E)Partnerships and proprietorships

Question 74

The form of organization that has limited liability for the owners is a(n)

A)corporation.
B)partnership.
C)proprietorship.
D)cartel.
E)Sarbanes group.

Question 75

Which is a disadvantage of a corporation?

A)Limited liability for owners
B)Easy transfer of ownership
C)Ease in raising ownership capital from potential stockholders
D)Management's consumption of perquisites
E)Continuity of existence

Question 76

Given below are the daily balances in the accounts of Travel Tips,Inc..Assuming only one transaction occurred each day,explain the nature of each transaction from June 1 to June 10.

Question 77

Which of the following statements is false?

A)If a sole proprietorship fails,the creditors can obtain repayment from the personal assets of the single owner.
B)If a partnership fails,the creditors can obtain repayment from the personal assets of the partners.
C)If a corporation fails,the creditors can obtain repayment from the personal assets of the stockholders.
D)A change in ownership among the partners results in the termination of the partnership.
E)Income taxes are not levied against sole proprietorships and partnerships.

Question 78

If assets increase $80,000 during a period and liabilities decrease $40,000,then owners' equity must have decreased $40,000.

Question 79

Abigail and Amanda started the ACL Partnership on September 1,20X9.Given the following transactions,prepare a balance sheet for the partnership as of September 10,20X9.
Required:
1.Prepare an analysis of the transactions on the balance sheet equation.
2.Prepare a balance sheet as of September 10,20X9 for ACL Partnership.

Question 80

Shelly Wagner began a sole proprietorship named Wagner Company on June 1,20X9.Following are the transactions,which occurred during the first 10 days of June,20X9.
Required:
1.Prepare an analysis of the transactions on the balance sheet equation.
2.Prepare a balance sheet for Wagner Company as of June 10,20X9.