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Exam 1: Accounting in Business

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Question 21

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

A) True
B) False

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Question 22

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

A) True
B) False

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Question 23

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

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:

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

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

The accounts of Mason Company at the end of the past year report the following amounts: $\begin{array} { l r } \text { Accounts } & \text { Amount } \\\hline \text { Owner Withdrawals, G. Mason } \ldots \ldots & \$ 15,500 \\\text { Revenues } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 97,000 \\\text { Expenses } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 43,800 \\\text { Owner investments } \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 2,000\end{array}$ If the beginning equity for the year was $173,000, calculate the ending equity for Mason Company.

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?

A corporation is:

The revenue recognition principle:

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. $\begin{array} {| c | l | l | l |} \hline\text { a. } & \begin{array} { l } \text { L. Chester invested \$100,000 in a sole } \\\text { proprietor ship }\end{array} & + \text { A } & + \mathrm { E } \\\hline \text { b. } & \begin{array} { l } \text { Land was purchased for \$50,000. } \\\text { A down payment of \$15,000 cash was } \\\text { made and a note was signed for the } \\\text { balance. }\end{array} & & \\\hline \text { c. } & \begin{array} { l } \text { Services were rendered to customers for } \\\text { cash } \end{array} & & \\\hline \text { d. } & \text { A building was purchased for cash } & & \\\hline \text { e. } & \text { Supplies were purchased for cash } & & \\\hline \text { f. } & \text { Paid the offee secretary's salary. } & & \\\hline \text { g. } & \begin{array} { l } \text { The amount owed on the land from Part } \\\text { b) was paid. }\end{array} & & \\\hline\end{array}$

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

Describe the three important guidelines for revenue recognition.

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

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

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?

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?

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

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. 1. In August, a check for $500 was written to Community Sports. This amount represents soccer camp for his daughter Cassie. 2. 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. 3. Buddy received a shipment of tools from Ontario, Canada. The invoice was stated in Canadian dollars. 4. 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.

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