Question 1

Spring Company has assets and equity that amount to $220,000 and $20,000, respectively. Liabilities total ________.

Accepted Answer

A)   $20,000
B)   $200,000
C)   $220,000
D)   $240,000 B

Question 2

Which of the following financial statements reports that total assets are equal to total liabilities plus total stockholders' equity?

Accepted Answer

A)   Statement of retained earnings
B)   Statement of cash flows
C)   Income statement
D)   Balance sheet D

Question 3

Which of the following is the correct accounting equation?

Accepted Answer

A)   Assets + Liabilities = Equity
B)   Assets = Liabilities + Equity
C)   Assets + Revenues = Equity
D)   Assets + Revenues = Liabilities + Expenses B

Question 4

Which of the following financial statements is used to report cash receipts for services provided?

Accepted Answer

A)   income statement
B)   balance sheet
C)   statement of retained earnings
D)   statement of cash flows

Question 5

The assets of Star Company are $120,000 and the total liabilities are $10,000. The equity is ________.

Accepted Answer

A)   $120,000
B)   $130,000
C)   $10,000
D)   $110,000

Question 6

A business can be organized as a sole proprietorship, partnership, corporation, or limited-liability company (LLC).

Accepted Answer

A) True 
 B)False

Question 7

Indicate the effects on the accounting equation of the following business transactions of ABC Service Corporation for b) to d) below. Use proper account titles. Transaction a) is answered as a guide.
a) Received cash from Mary Johnson; issued common stock to her.
b) 	Purchased equipment; signed a note payable.

c) 	Performed services for a customer on account.

d) 	At the end of the first month, paid office rent.

Accepted Answer

The answer of Indicate the effects on the accounting equation...

Question 8

The balance sheet shows whether or not a business is profitable.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following will be categorized as an operating activity on the statement of cash flows?

Accepted Answer

A)   Cash received by selling old equipment
B)   Cash paid for purchase of new machinery
C)   Cash paid to employees
D)   Cash received from issuance of shares of common stock

Question 10

What are Generally Accepted Accounting Principles (GAAP)? Which entity is currently responsible for determining GAAP?

Accepted Answer

The answer of What are Generally Accepted Accounting Principles (GAAP)?...

Question 11

Which of the following statements best defines financial statements?

Accepted Answer

A)   Financial statements are the information systems that record monetary and nonmonetary business transactions.
B)   Financial statements are the verbal statements made to business news organizations by chief financial officers.
C)   Financial statements are business documents that report on a business in monetary terms, providing information to help users make informed business decisions.
D)   Financial statements are plans and forecasts for future time periods based on information from past financial periods.

Question 12

Prepare an income statement and a statement of retained earnings for the month of May. Also, prepare a balance sheet as of May 31, 2019, for McGuire Corporation. The financial transactions of McGuire Corporation for the month of May, their first month of operations, are as follows:
• On May 1, 2019, McGuire Corporation issued common stock in exchange for $20,000 cash from a stockholder, Deborah Merchant.
• On May 3, the corporation borrowed $5,000 from a creditor and executed a note payable with the principal and interest to be due in one year.
• On May 7, the corporation purchased $15,000 of equipment for cash.
• On May 8, McGuire Corporation rendered service to a client and received $3,000 in cash.
• On May 12, the corporation incurred a repair expense of $1,800 and promised to pay the repair contractor the following month.
• On May 18, the corporation rendered service to a new client in the amount of $8,000 on account, as the client promised to pay the following month.
• At the end of May, McGuire Corporation distributed cash dividends of $1,500.

Accepted Answer

The answer of Prepare an income statement and a statement...

Question 13

Montgomery Equipment Rental Company received $1,000 cash from a customer; the amount was owed to the business from the previous month. What is the effect of this transaction on the accounting equation?

Accepted Answer

A)   Accounts Receivable increases and Service Revenue increases.
B)   Cash increases and Accounts Receivable decreases.
C)   Cash increases and Service Revenue increases.
D)   Cash increases and Accounts Payable decreases.

Question 14

The left side of the accounting equation measures the amount that the business owes to creditors and to the stockholders.

Accepted Answer

A) True 
 B)False

Question 15

List the steps, in the correct order, that are used when analyzing transactions.

Accepted Answer

The answer of List the steps, in the correct order,...

Question 16

Define assets. Provide three examples of assets.

Accepted Answer

The answer of Define assets. Provide three examples of assets....

Question 17

Corporations pay their own income tax on corporate income. Stockholders pay personal income tax on the dividends received from corporations. This is an example of ________.

Accepted Answer

A)   double taxation
B)   continuous life
C)   mutual agency
D)   a limited liability company

Question 18

Regarding a business organized as a partnership, which of the following is an incorrect statement?

Accepted Answer

A)   Partners pay tax on their share of the partnership earnings.
B)   Partners are personally liable for the debts of the business.
C)   A partnership's life is not dependent on a specific individual's ownership.
D)   Mutual agency is present in a partnership.

Question 19

Which of the following statements is true of a corporation?

Accepted Answer

A)   Corporations pay the same variety of taxes as partnerships.
B)   Although a corporation is a separate legal entity, it cannot be sued.
C)   Any stockholder of a corporation can commit the corporation to a binding contract.
D)   The owners of a corporation are called stockholders.

Question 20

By looking at a statement of retained earnings, the effect of dividends on the ending balance of retained earnings can be determined.

Accepted Answer

A) True 
 B)False

Exam 1: Accounting and the Business Environment

Spring Company has assets and equity that amount to $220,000 and $20,000, respectively. Liabilities total ________.

Which of the following financial statements reports that total assets are equal to total liabilities plus total stockholders' equity?

Which of the following is the correct accounting equation?

Which of the following financial statements is used to report cash receipts for services provided?

The assets of Star Company are $120,000 and the total liabilities are $10,000. The equity is ________.

A business can be organized as a sole proprietorship, partnership, corporation, or limited-liability company (LLC).

The balance sheet shows whether or not a business is profitable.

Which of the following will be categorized as an operating activity on the statement of cash flows?

What are Generally Accepted Accounting Principles (GAAP)? Which entity is currently responsible for determining GAAP?

Which of the following statements best defines financial statements?

Montgomery Equipment Rental Company received $1,000 cash from a customer; the amount was owed to the business from the previous month. What is the effect of this transaction on the accounting equation?

The left side of the accounting equation measures the amount that the business owes to creditors and to the stockholders.

List the steps, in the correct order, that are used when analyzing transactions.

Define assets. Provide three examples of assets.

Corporations pay their own income tax on corporate income. Stockholders pay personal income tax on the dividends received from corporations. This is an example of ________.

Regarding a business organized as a partnership, which of the following is an incorrect statement?

Which of the following statements is true of a corporation?

By looking at a statement of retained earnings, the effect of dividends on the ending balance of retained earnings can be determined.