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APPENDIX B: PROBLEM MATERIAL 1)

Explain what is meant by the "time value of money." Provide examples.

Explain how compound interest applies to the time value of money.

3) Required: Use Table PV–1 and Table FA–1 to determine the answers to the following. (A) How much must be invested now for 5 periods at 6% to amount to $15,000? (B) How much is $3,000 invested now at 8% in 8 periods worth? (C) How much is $25,000 compounded semi-annually at 12% for 4 years?

4) Joan is 60 years old and wishes to retire. She needs to have $48,000 a year plus her social security to live in the style she is accustomed to. She would like to have enough money in her retirement account, which earns 5% compounded annually, to support her for the next 20 years. Required: How much must be in the fund if she takes the first payment at year-end?

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5) Powers Company wishes to issue $2,000,000 of 8%, 10-year bonds that pay interest semi-annually. The current market rate is 12%. Required: What amount should the bonds sell for?

6) Sam Rivers has $3,000 to invest. He must decide whether to invest this money for five years at 10% compounded semi-annually or at 12% compounded annually. Required: Which option should he select?

7) Barbara wants to purchase a car. Required: How long will it take Barbara to accumulate $23,265 to buy a car if she invests $15,000 at 5%?

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8) On January 1, Year 1, Paul Corporation purchases equipment. As full payment for this equipment, Paul issues a $90,000 installment note payable, due in three annual installments of $30,000, beginning on December 31, Year 1. This note makes no mention of interest charges. Assume that a realistic interest annual rate for financing equipment over a three-year period currently is 10%. Required: (A) Compute the present value of the installment note. (B) Complete the amortization table shown below to allocate the amount of each installment payment between interest expense and reduction in the principal amount of this obligation. (Round your calculations to whole numbers.) Payment Date

Annual Payment

Interest Expense

Reduction in Unpaid Balance

Unpaid Balance

Issuance December 31, Year 1 December 31, Year 2 December 31, Year 3

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9) On January 1, Year 1, Assembly Line Manufacturing uses a capital/Type A lease to finance the transfer of a large piece of machinery to Sansa Company. The terms of the lease calls for Sansa to make six annual payments of $100,000 beginning December 31, Year 1. The lease payments include an interest charge of 10% per year. At the end of the 6-year lease, title to the machinery will pass to Sansa at no additional cost. Required: (A) Compute the present value of the lease payments. (B) What is the amount of the sales revenue that will be recognized by Assembly Line Manufacturing on January 1, Year 1? (C) What is the amount of interest revenue that will be recognized by Assembly Line Manufacturing on December 31, Year 1? (D) What is the cost of the building that is recorded by Sansa Company on January 1, Year 1? (E) What is the amount of the liability that will be recorded by Sansa Company on January 1, Year 1? (F) What is the amount of interest expense that will be recognized by Sansa Company on December 31, Year 1?

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Answer Key Test name: Appendix B - Problem material

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Student name:__________ 1) If you invested $21,000 at 5% on your 20th birthday how much would you have on your 40th birthday? A) $55,713.00 B) $64,131.90 C) $69,438.50 D) $53,065.95

2) If you invested $10,000 at 6% on your 20 th birthday how much would you have on your 40 th birthday? A) $32,070.00 B) $31,180.00 C) $36,785.59 D) $12,158.12

3) If I invest $42,000 today for 8 years and it grows to $90,048, what rate of interest have I received? A) 8% B) 16% C) 10% D) 20%

4) If I invest $50,000 today for 5 years and it grows to $80,550, what rate of interest have I received?

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A) 5% B) 6% C) 10% D) 12%

5) How much must I invest today in order to have $18,000 in 2 years assuming 15% interest compounded annually? A) $13,608.00 B) $2,400.00 C) $21,226.42 D) $15,264.00

6) How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually? A) $14,175.00 B) $15,888.00 C) $18,681.50 D) $17.624.00

7) Your wealthy aunt wishes to give you a trip to Paris when you graduate from college in two years. She estimates the trip will cost $3,100. How much must she invest now at 5.0% to accumulate enough for you to take this trip? A) $3,417.80 B) $2,811.80 C) $5,623.60 D) $3,100.00

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8) Your wealthy aunt wishes to give you a trip to Paris when you graduate from college in three years. She estimates the trip will cost $4,000. How much must she invest now at 5% to accumulate enough for you to take this trip? A) $3,287.72 B) $3,456.00 C) $4,499.44 D) $3,161.24

9) A scholarship fund has $75,000 to invest now to provide scholarships to high school students. They want to have at least $150,000 in 9 years. What rate of interest must they invest this money at to reach their goal? A) 7% B) 8% C) 10% D) 11%

10) If I invest $525 at the end of each year for five years at 15%, how much will I have at the end of the five years? A) $1,079.40 B) $3,539.55 C) $5,397.00 D) $1,721.57

11) If I invest $100 at the end of each year for four years at 6% how much will I have at the end of the fourth year?

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A) $421.24 B) $437.50 C) $563.71 D) $432.95

12) The difference between the present value and the future value of a sum of money depends upon: A) The rate of interest. B) The length of time. C) The rate of interest and the length of time. D) Neither the rate of interest nor the length of time.

13)

The future value of an annuity is: A) Always more than the present value. B) Always less than the present value. C) Equal to the present value. D) Double the present value.

14)

The present value of an investment is:

A) The amount an investor would pay today to receive a certain amount in the future. B) The amount an investor would pay today plus the interest the investor would expect to receive a certain amount in the future. C) The amount an investor would pay today less the interest the investor requires. D) 90% of the future value of an investment.

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15) Judy Bright has just won the lottery. She can elect to receive her winnings in equal payments of $200,000 a year for the next ten years on December 31 or to receive $2,000,000 immediately. If the current interest rate is 6%, which choice will provide the highest amount? A) Receiving $2,000,000 immediately. B) Taking equal payments for 10 years. C) It does not matter since either choice provides the same amount. D) Refusing to accept the winnings since it is not enough.

16) To determine the present value of a single amount to be received or paid at a future time you need to know all of the following except: A) The interest rate or discount rate. B) The number of periods. C) The future value. D) The time between periods.

17) To determine the amount to be deposited in a bank today to grow to $5,000 three years from now at 7%, which table should be used? A) Present value of $1. B) Future value of $1. C) Present value of an annuity of $1. D) No table is required; just multiply $5,000 by 1.07 (or 1 + 7%).

18) Anthony Driver wants to buy a new car in 4 years. He knows that he can earn 10% interest compounded semi-annually. How much must he deposit now in order to have $26,000 at the end of 4 years?

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A) $21,390.20 B) $17,602.00 C) $38,413.96 D) $31.603.26

19)

Compound interest: A) Is interest only on the principal amount for several years. B) Is interest on the principal and previously earned interest. C) Is interest only on previous interest excluding the principal. D) Is equal to simple interest received for several years.

20)

Financial instruments do not include: A) Contracts that call for receipts or payment of cash. B) Equity investment in another business. C) Cash. D) Tangible assets.

21)

Financial instruments are recorded at: A) Future values. B) Present values plus interest. C) Present values less interest. D) Present values.

22)

A note that does not include an interest rate should be recorded at:

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A) Its face amount if the difference between face and present value is material. B) Its present value if the difference between face and present value is material. C) Its face amount at all times. D) Its present value at all times.

23) Joe Notsosmart invested $10,000 at 8% simple interest for 5 years. How much more would he have received if he had received compound interest annually at the same rate? A) $4,000 B) $4,693 C) $690 D) $400

24)

The present value of a cash amount: A) Is always less than the future value. B) Is always more than the future value. C) Is the same as the future value. D) Has no relationship to the future value because of inherent uncertainties.

25) If you receive $12,000 as a gift and invest it at 30% compounded semi-annually, how much will you have at the end of two years? A) $15,276.00 B) $20,988.00 C) $12,000.00 D) $6,861.06

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26) If you receive $20,000 as a gift and invest it at 12% compounded semi-annually, how much will you have at the end of three years? A) $32,020.60 B) $28,380.00 C) $22,497.20 D) $14,027.60

27)

The time value of money is based on the idea that: A) The value of money in the future equals the interest received in the present. B) The value of money in the future will be greater than an amount available today. C) The value of money at present over some length of time will be reduced by inflation. D) The future value of money will become the current value as time passes.

28) Belle invests $200 at the end of each year in a savings account that pays 5% annually. How much will Belle have at the end of 5 years? A) $1,000.00 B) $1,105.20 C) $1,077.50 D) $1,082.37

29) A future amount is the dollar amount to which a present value will ______________ over time.

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A) diminish B) accumulate C) disappear D) maintain

30) Future value is the amount that must be invested today at a specific interest rate to receive a particular amount at some future date. ⊚ ⊚

true false

31) The present value of an ordinary annuity is the amount that equal payments made at the end of successive equal periods is worth today. ⊚ ⊚

32)

The future value of an investment gradually increases toward the present amount. ⊚ ⊚

33)

true false

Compounding interest assumes the interest on an investment is reinvested. ⊚ ⊚

true false

34) Discounting a future amount of a cash receipt will determine the present value of that receipt.

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⊚ ⊚

true false

35) The lower the discount rate of an investment, the lower the present value of the investment. ⊚ ⊚

true false

36) An annuity may provide equal amounts to an investor at fixed periods of time over the life of an investment. ⊚ ⊚

37)

true false

The market price of a bond is equal to its present value. ⊚ ⊚

true false

38) An ordinary annuity of $1 is a series of payments of $1 made at the beginning of each of a specified number of periods. ⊚ ⊚

39)

true false

A rate of interest can be expressed as an annual rate. ⊚ ⊚

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true false

40) The difference between a present value and a related future amount depends on (1) the interest rate and (2) the period of time over which the present value accumulates. ⊚ ⊚

true false

41) The obligation for deferred income taxes is the only long-term liability that is not reported at its present value. ⊚ ⊚

true false

42) As the discount rate required by an investor increases, the present value of an investment decreases. ⊚ ⊚

true false

43) The present value of a single amount can only be calculated through the application of complex calculations. ⊚ ⊚

true false

44) To find the future amount of a present value greater than $1, simply multiply the present value by the factor obtained from the table. ⊚ ⊚

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true false

45) The future amount of an ordinary annuity of payments greater than $1 is calculated by multiplying the periodic payment by the related factor from the future value of an ordinary annuity table. ⊚ ⊚

true false

46) The present value of a single amount is calculated by multiplying the future amount by the related factor from the present value of $1 table. ⊚ ⊚

true false

47) The present value of an annuity is calculated by multiplying the periodic cash flows by the related factor from the future value of an ordinary annuity table. ⊚ ⊚

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true false

Answer Key Test name: Appendix B 1) A 2) A 3) C 4) C 5) A 6) A 7) B 8) B 9) B 10) B 11) B 12) C 13) A 14) A 15) A 16) D 17) A 18) B 19) B 20) D 21) D 22) B 23) C 24) A 25) B 26) B Version 1

27) B 28) B 29) B 30) FALSE 31) TRUE 32) FALSE 33) TRUE 34) TRUE 35) FALSE 36) TRUE 37) TRUE 38) FALSE 39) TRUE 40) TRUE 41) TRUE 42) TRUE 43) FALSE 44) TRUE 45) TRUE 46) TRUE 47) FALSE

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APPENDIX C: PROBLEM MATERIAL 1) A and B are partners. A has $50,000 in his capital account and B has $75,000 at the beginning of the year. A receives a salary of $15,000 and B receives $12,000. Each partner receives 5% of the beginning balance of their capital accounts. The remainder is split 45% to A and 55% to B. Net income for the year was $125,000. Required: What is the amount of each capital account at year-end?

2) C, D, and E are partners. C has $25,000 in her capital account. D has $35,000 in hers, and E has $45,000. Each gets a salary allowance of $15,000. C gets 10% interest on the beginning balance in the capital account, D gets 12%, and E gets 14%. The remainder is divided 20% to C, 35% to E, and 45% to E. Required: What is the balance in the capital account at the end of the year if net income was $80,000?

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3) Grey, Dailey, and Sanders have formed a partnership. Net income for the first year amounted to $50,400. The partnership agreement states that Grey will receive a salary of $10,000, Dailey will receive $15,000, and Sanders will receive $20,000. They each have capital accounts of $30,000, $40,000, and $50,000 respectively. The contract calls for interest of 12% of the beginning capital balances for each partner. Any profit or loss will be split equally. Required: How much income will each partner receive?

4) The retained earnings account of Company XYZ has a balance of $350,000 at the end of Year 1. At the end of Year 2, the following information is available: Cash Dividends Declared Common Stock Net Income Dividends Payable

$ 37,000 45,000 200,000 175,000 45,000

Required: What is the amount of retained earnings at the end of Year 2?

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5) Listed below are several accounting terms introduced in this section. Sole proprietorship Firm Mutual agency Limited partnership Paid-in-capital Corporation The New York Stock Exchange The SEC Closely held corporation Publicly traded corporation Required: Each of the following statements may (or may not) describe one of these accounting terms. In the space provided, indicate the term described, or enter "none" if the statement does not correctly describe any of the terms. _________(A) An unincorporated business owned by one person. _________(B) An example of an organized securities market. _________(C) The right of each partner to negotiate binding contracts. _________(D) The total earnings of a corporation less dividends paid out. _________(E) Investments by the owners of a corporation. _________(F) A partnership where one or more partners are not personally liable for the debts of the partnership. _________(G) An organization that serves the professional needs of a CPA. _________(H) A business that is responsible for its own debts and which pays income taxes on its earnings. _________(I) An unincorporated business owned by two or more people. _________(J) A corporation whose shares are not publicly traded.

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6) X Corporation had a net income of $375,000 in Year 2. The Board of Directors declared a dividend of $0.25 a share on the 150,000 shares outstanding on December 13 to be paid on December 23, Year 2. Retained earnings were $630,000 on January 01, Year 2. Required: (A) Prepare the journal entries for the declaration of the dividends and for the payment of these dividends. (B) Prepare a Statement of Retained Earnings for the year ending December 31, Year 2.

7) Stewart and Brooke form a partnership. Stewart invests $80,000 and Brooke invests $120,000. If there are any profits or losses they will share them as follows: ● They will each receive a salary of $25,000. ● Any remaining amount will be allocated ¾ to Brooke and ¼ to Stewart. Required: (1) If the partnership income for the year is $115,000, what amount will be allocated to Brooke? (2) If the partnership income for the year is $125,000, what amount will be allocated to Stewart? (3) If the partnership income for the year is $45,000, what amount will be allocated to Stewart and what amount to Brooke?

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8) On January 1, Year 1, Sue and Al form a partnership named Alliance Partners. Sue invests $20,000 and Al invests $25,000. In the first year, the partnership earns $60,000. Sue withdraws $7,500 and Al withdraws $12,000. Each receives a salary of $15,000 and the remainder is divided 60% to Al and 40% to Sue. Required: Prepare a statement of partners’ equity for the year ending December 31, Year 1.

Michael’s Taxi Service issues 1,000 share of capital stock in exchange for $20,000 cash.

Required: Prepare the journal entry for the issuance of the capital stock.

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Answer Key Test name: Appendix C - Problem material

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Student name:__________ 1) The net income of a sole proprietorship should compensate the owner for all of the following except: A) Personal service. B) The income taxes paid by the owner. C) Capital invested by the owner. D) The risk taken by the owner.

Which of the following is a characteristic of a corporation? A) Mutual agency B) Stockholder liability for business debts C) Indefinite existence D) Taxable at individual rates

3) The adjusting entry to recognize income taxes due on a profit of $100,000 and a tax rate of 40% is: Account Title (A)

Income Tax Expense

Debit 40,000

Income Tax Payable (B)

Income Tax Payable

40,000 40,000

Income Tax Expense (C)

Net Income

40,000 40,000

Taxable Income (D)

Credit

40,000

Only when taxes are paid is an entry required

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A) A Above. B) B Above. C) C Above. D) D Above.

Retained Earnings represents:

A) The profits of the company. B) The investments of the owners. C) The profits of the company plus the investments of the owners. D) The earnings that have been retained in the corporation to be used for various purposes that benefit the stockholders.

The journal entry when a dividend is declared for $150,000 would be: Account Title

(A)

Retained Earnings

Debit 150,000

Dividends Payable (B)

Dividends

150,000 150,000

Cash (C)

Dividends

150,000 150,000

Dividends Payable (D)

Retained Earnings Dividends

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Credit

150,000 150,000 150,000

A) A Above. B) B Above. C) C Above. D) D Above.

"Double taxation" means: A) A corporation must pay double the amount of tax that an unincorporated business

pays. B) A corporation pays taxes to the federal government and to the state government. C) The corporation pays tax on its income and the stockholders pay tax on their dividends. D) The corporation pays tax on its income and the officers of the corporation pay tax on their salaries.

In a sole proprietorship the balance in the Income Summary account is closed to: A) Retained earnings. B) Capital. C) Drawing. D) Net Income.

Assets contributed to a partnership by a partner would be recorded at: A) Historical cost. B) Fair market value. C) Cost less depreciation. D) Potential value.

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Payments to a partner for services provided to the partnership: A) Are not recorded. B) Are recorded as salaries expense. C) Are recorded directly in the partner’s capital account. D) Are recorded in the partner’s drawing account.

10)

Which of the following is a characteristic of a corporation? A) Declaration of a dividend by the stockholders B) Appointment of officers by the stockholders C) Transferability of shares of stock D) Unlimited liability

11)

Net income in a partnership may not be distributed to the partners: A) As a salary allowance. B) As interest on beginning capital. C) In a fixed ratio. D) In the form of dividends.

12)

In order to form a corporation, the corporation must obtain a charter from: A) The federal government. B) A state government. C) The Securities and Exchange Commission. D) The stockholders of the corporation.

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13)

The Board of Directors of a corporation: A) Is not responsible for hiring other professional managers. B) Does not decide whether profits will be distributed to stockholders. C) Makes major policy decisions. D) Is made up of members of a government agency.

14)

Paid-in Capital refers to: A) The lifetime earnings of the corporation. B) The amount invested by stockholders. C) Net income less dividends. D) The amount in excess of the par value of the stock.

15)

In terms of the tax status of a partnership:

A) Income is taxable to the partnership. B) The partnership must file an information return indicating the amount of partnership income passed through to the general partner. C) The partnership must file an information return indicating the amount of partnership income passed through to each partner. D) Income taxes are not an obligation of each partner since a partnership does not pay tax.

16) When deciding the form of organization of a new business the factors to consider would be all of the following except:

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A) The need to raise large amounts of capital. B) The need for continuity in business operations. C) The potential profits of the organization. D) The personal liabilities of the owners.

17)

When a corporation declares a dividend: A) Assets decrease, liabilities increase. B) Retained earnings increase, liabilities increase. C) Liabilities increase, retained earnings decrease. D) Retained earnings decrease, assets increase.

18) Sally Smythe enters into a partnership by contributing the following: Cash $14,000; Accounts Receivable $3,500; Machinery which cost $2,000 and has a fair market value of $1,125; and accounts payable of $2,200. What amount will be recorded in her capital account? A) $18,625 B) $16,425 C) $19,500 D) $17,300

19)

Sally Smythe enters into a partnership by contributing the following:

Cash $15,000; Accounts Receivable $4,500; Machinery which cost $3,000 and has a fair market value of $2,125; and accounts payable of $1,200. What amount will be recorded in her capital account?

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A) $21,625 B) $20,425 C) $22,500 D) $21,300

20) Partner A earns $64,000 from a partnership. Partner B earns $53,000 but withdraws only $45,000. How much must Partner B report in his income tax return as income? A) $45,000 B) $53,000 C) $117,000 D) $109,000

21) Partner A earns $68,000 from a partnership. Partner B earns $57,000 but withdraws only $49,000. How much must Partner B report in his income tax return as income? A) $49,000 B) $57,000 C) $125,000 D) $117,000

22) on:

When evaluating the liquidity of a proprietorship, creditors will likely base their decision

A) The business's ability to generate a profit. B) Previous debts of the business. C) The financial strength of the owner. D) The total assets owned by the business.

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23)

When evaluating the liquidity of a partnership, creditors will likely base their decision on: A) The business's ability to generate a profit. B) Previous debts of the business. C) The total assets owned by the business. D) The financial strength of the owners.

24) John's Metalworks Incorporated recently issued 10,000 shares of stock in exchange for $100,000. Metalworks' journal entry to record this transaction included: A) A debit to Capital Stock for $10,000. B) A debit to Cash for $100,000. C) A credit to Capital Stock for $10,000. D) A credit to Cash for $100,000.

25)

An S corporation may have a maximum of __________ stockholders. A) 25 B) 65 C) 100 D) 75

26)

Limited personal liability is a characteristic of a sole proprietorship. ⊚ ⊚

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true false

27) The ability of a sole proprietorship to pay its debts may be determined by the financial strength of the owner. ⊚ ⊚

true false

28) The assets of a partnership belong jointly to all the partners while the assets of a sole proprietorship belong to the proprietorship. ⊚ ⊚

29)

A partnership has a limited life and each partner has unlimited personal liability. ⊚ ⊚

30) will.

true false

Mutual agency refers to the ability of each partner to withdraw cash and other assets at

⊚ ⊚

true false

31) In a limited liability partnership, a partner has unlimited liability for his own actions and limited liability for the actions of his partners. ⊚ ⊚

true false

32) The salaries paid to partners are shown as an expense on the income statement while the salary taken by a sole proprietor is debited to a drawing account.

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⊚ ⊚

true false

33) A corporation is a legal entity that may enter into contracts, may sue or be sued, and is responsible for its own debts. ⊚ ⊚

true false

34) Every stockholder in a corporation will have a drawing account that will be closed to retained earnings during the closing process. ⊚ ⊚

true false

35) A corporation, like a partnership, must file a corporate income tax return and pay tax on its earnings. ⊚ ⊚

true false

36) Stockholders of an S corporation pay taxes on their share of the corporate net income whether they receive it or not. ⊚ ⊚

37)

true false

Retained earnings are a fund of cash the business has earned from profitable operations. ⊚ ⊚

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true false

38) The adjusting entry to record income taxes in an unprofitable period would debit Income Tax Payable and credit Income Tax Expense. ⊚ ⊚

true false

39) When a corporation receives cash or other assets from its owners in a sale of capital stock, it records these investment transactions by increasing Retained Earnings. ⊚ ⊚

true false

40) The entry to record the issuance of 100 shares of capital stock in exchange for $1,000 cash includes a debit to Capital Stock. ⊚ ⊚

true false

41) When closing Income Summary, assuming the corporation had net income for the accounting period, the account Retained Earnings is credited. ⊚ ⊚

true false

42) Closely held corporations have the same ability to qualify for credit sources as publicly traded corporations. ⊚ ⊚

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true false

43)

Shareholders report and pay income tax on dividends received from a corporation. ⊚ ⊚

true false

44) Personal liability of the owners for any business debts is an important consideration when selecting an appropriate form of business organization. ⊚ ⊚

45) cost.

true false

When a sole proprietorship incorporates, the assets of the new business are recorded at ⊚ ⊚

true false

46) Regardless of whether partners in a partnership work in the company, each partner is allocated an equal share of profits. ⊚ ⊚

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true false

Answer Key Test name: Appendix C 1) B 2) C 3) A 4) D 5) C 6) C 7) B 8) B 9) D 10) C 11) D 12) B 13) C 14) B 15) C 16) C 17) C 18) B 19) B 20) B 21) B 22) C 23) D 24) B 25) D 26) FALSE Version 1

27) TRUE 28) FALSE 29) TRUE 30) FALSE 31) TRUE 32) FALSE 33) TRUE 34) FALSE 35) FALSE 36) TRUE 37) FALSE 38) TRUE 39) FALSE 40) FALSE 41) TRUE 42) FALSE 43) TRUE 44) TRUE 45) FALSE 46) FALSE

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CHAPTER 1: PROBLEM MATERIAL ESSAY. Write your answer in the space provided or on a separate sheet of paper. 1) Listed below are nine accounting terms introduced in this chapter:AuditReturn of investmentReturn on investmentGenerally acceptedaccounting principlesBalance sheetIncome statementInternal control structureManagement accountingStatement of cash flowsEach of the following statements may (or may not) describe one of these terms. In the space provided below each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. More than one statement may describe a single term.(A) The repayment to an investor of the amount originally invested in an enterprise.(B) An independent examination of financial statements designed to determine their fairness in relation to generally accepted accounting principles.(C) The accounting standards and concepts used in the preparation of financial statements.(D) A system of measures designed to assure management that all aspects of the business are operating according to plan.(E) A listing of assets, liabilities, and stockholders' equity as of a specific date.(F) The payment of an amount for using another's money.(G) An activity statement that shows the details of the company's activities involving cash during a period of time.

2) Listed below are eight accounting terms.Management AccountingAccounting SystemFinancial AccountingInternal ControlsFinancial PositionFinancial StatementsResults of OperationsFinancial ReportingEach of the following statements may (or may not) describe one of these terms. In the space provided, indicate the accounting term described or answer "None" if the statement does not accurately describe any of the terms. (A) Information describing the financial resources, obligations, and activities of an economic entity. (B) An entity's financial resources and obligations at a point in time.(C) Accounting information intended specifically to assist company's management.(D) The personnel, procedures, and technology used by an organization to develop accounting information and to communicate this information to decision makers.(E) An entity's financial activities over a period of time.(F) Measures used by an organization to guard against errors, waste, and fraud and to assure the reliability of accounting information.(G) A plan of financial operations for some future period.(H) A written assertion identifying, measuring, and communicating financial information about an economic entity.

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3) Listed below are seven accounting organizations introduced in this chapter:Financial Accounting Standards BoardPublic Company Accounting Oversight BoardInternal Revenue ServiceAmerican Accounting AssociationInstitute of Internal AuditorsSecurities and Exchange CommissionInstitute of Management AccountantsEach of the following statements may (or may not) describe one of these organizations. In the space provided, indicate the organization described or answer "None" if the statement does not accurately describe any of the organizations.(A) Private organization most directly involved in the development and issuance of accounting standards(B) Government agency that regulates financial reporting by publicly-held companies(C) Organization dedicated to the advancement of accounting education and research(D) International organization dedicated to the advancement of internal auditing(E) Organization that develops formal standards for auditing in the United States(F) Organization most involved with the ethical conduct of the accountants working within a company(G) A governmental agency that handles income tax returns of individuals and businesses and performs an audit function to verify the data presented

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4) Listed below are seven accounting organizations introduced in this chapter:American Accounting AssociationAmerican Institute of CPAsInternal Revenue ServiceFinancial Accounting Standards BoardSecurities and Exchange CommissionInstitute of Internal AuditorsInstitute of Management AccountantsInternational Accounting Standards BoardEach of the following statements may (or may not) describe one of these organizations. In the space provided, indicate the accounting organization described, or answer "None" if the statement does not correctly describe any of the organizations.(A) Private sector organization that establishes accounting standards.(B) A professional organization that establishes standards for the conduct of professional services other than audits.(C) A government organization that establishes financial reporting requirements for publicly-held companies in the United States.(D) A federal government agency that audits many other agencies of the federal government and reports its findings to Congress.(E) A professional organization dedicated to the improvement of accounting education, research, and practice.(F) A professional organization that influences the concepts and ethical practice of management accounting.(G) A professional organization that establishes global accounting standards.

List seven groups that would typically use financial information.

Briefly describe the balance sheet, the income statement, and the statement of cash flows.

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7) List and briefly describe the objectives of financial reporting beginning with the most general and ending with the most specific.

8) Explain one way in which the characteristics of financial and management accounting information differ.

What are the two things that make up a company’s cash flow prospects?

10) List the three financial statements that are used to communicate financial accounting information to interested external parties.

11) Provide a brief example to illustrate that externally reported financial accounting information must be based in part on estimates, judgments, and assumptions.

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12) (A) What is meant by the phrase "generally accepted accounting principles"?(B) Give the names of three organizations that currently play an active role in the development of accounting principles in the United States.

13) Briefly explain how generally accepted accounting principles (GAAP) enhance the integrity of financial accounting information.

14) List and describe the six articles of the AICPA Code of Professional Conduct that guide members in performing their professional responsibilities.

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Answer Key Test name: Chapter 01 Test Bank (Problem Material) 1) (A) Return of investment(B) Audit(C) Generally accepted accounting principles(D) Internal control structure(E) Balance sheet(F) Return on investment(G) Statement of cash flows 2) (A) Financial Accounting(B) Financial Position(C) Management Accounting(D) Accounting System(E) Results of Operations(F) Internal Controls(G) None(H) Financial Statements 3) (A) Financial Accounting Standards Board(B) Security and Exchange Commission(C) American Accounting Association(D) Institute of Internal Auditors(E) Public Company Accounting Oversight Board(F) Institute of Management Accountants(G) Internal Revenue Service 4) (A) Financial Accounting Standards Board(B) American Institute of CPAs(C) Securities and Exchange Commission(D) None (The statement describes the Government Accountability Office)(E) American Accounting Association(F) Institute of Management Accountants(G) International Accounting Standards Board 5) 1. Investors;2. Creditors;3. Managers;4. Owners;5. Customers;6. Employees;7. Regulators. 6) Balance sheet (statement of financial position) - A position statement that shows where the company stands in financial terms at a specific date.Income statement - An activity statement that shows details and results of a company's profit-related activities for a period of time.Statement of cash flows - An activity statement that shows the details of the company's activities involving cash during a period of time.

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7) (1) Provide information useful in making investment and credit decisions.(2) Provide information useful in assessing the amount, timing, and uncertainty of future cash flows.(3) Provide information about economic resources, claims to economic resources, and changes in resources and claims. 8) Financial accounting information is primarily historical in nature, while management accounting information is future-oriented.Financial accounting information is general-purpose information designed to serve the needs of a variety of external parties.Management accounting information is customized to the needs of a particular internal decisionmaker.The timeliness of management accounting information is critical. For financial accounting, information, completeness, and verifiability are more important than timeliness.Financial accounting information is prepared in accordance with generally accepted accounting principles while the nature and content of management accounting information is dictated by the nature of the decision it is intended to support. 9) Cash flow prospects are the likelihood that an enterprise will be able to provide an investor with (1) a return on the investor’s investment and (2) the return of that investment. 10) Balance sheet (Statement of financial position)Income statementStatement of cash flows 11) To account for the use of long-lived equipment, estimates must be made of the lifetime and scrap value of that equipment. 12) (A) Generally accepted accounting principles provide the framework for determining what information is to be included in the financial statements and how that information is to be presented.(B) Financial Accounting Standards Board; Securities and Exchange Commission; American Institute of CPAs; American Accounting Association.

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13) Integrity refers to the qualities of completeness, honestly, and sincerity. GAAP provides the general framework for determining what information is included in financial statements and how this information is to be prepared and presented. This ensures that financial statements are prepared in accordance with standards that are understood by both preparers and users of the information. 14) (I) Responsibilities - members should exercise sensitive professional and moral judgments in all their activities.(II) The Public Interest members should act in a way that will serve the public interest.(III) Integrity - members should perform all professional responsibilities with the highest sense of integrity.(IV) Objectivity and Independence members should maintain objectivity and be free of conflicts of interest.(V) Due Care - members should observe the profession's technical and ethical standards.(VI) Scope and Nature of Services members should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.

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CHAPTER 1 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) Managerial accounting information is designed primarily to assist investors and creditors in deciding how to allocate scarce resources. ⊚ ⊚

true false

2) Information provided to decision makers in an organization is comprised only of the accounting information generated by the organization’s information system. ⊚ ⊚

true false

All internal control systems need to be monitored. ⊚ ⊚

true false

4) A data analytics system is the integrated management of core business processes that an organization can use to collect, store, manage, and interpret data across a wide range of business activities. ⊚ ⊚

true false

5) Management accounting information is oriented toward the future while financial accounting information is historical in nature. ⊚ ⊚

true false

Return on investment is the same as return of investment. ⊚ ⊚

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true false

The IRS tax return is one of the primary financial statements. ⊚ ⊚

true false

8) External users of accounting information have a financial interest in an entity but are not involved with the day-to-day operations of the enterprise. ⊚ ⊚

true false

9) The tailoring of an accounting report to meet the needs of a specific decision maker is more characteristic of financial accounting reports than of management accounting reports. ⊚ ⊚

true false

10) The annual financial statements of large corporations such as Microsoft or PepsiCo need not be audited by independent certified public accountants, since these companies maintain large accounting departments as part of their organizations. ⊚ ⊚

11)

true false

The statement of financial position and the income statement are one and the same. ⊚ ⊚

true false

12) Investors are individuals and other enterprises that have provided equity to the reporting enterprise. ⊚ ⊚

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true false

13) A statement of cash flows depicts the way profits have changed during a designated period. ⊚ ⊚

true false

14) Management accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers outside the business organization. ⊚ ⊚

true false

15) The content of management accounting reports needs to be presented in conformity with generally accepted accounting principles. ⊚ ⊚

true false

16) One purpose of generally accepted accounting principles is to make accounting information prepared by different companies more comparable. ⊚ ⊚

true false

17) An accounting practice can become a "generally accepted accounting principle" through widespread use, even if the practice is not mentioned in the official pronouncements of the accounting standard-setting organizations. ⊚ ⊚

true false

18) The Public Company Accounting Oversight Board is responsible for creating and promoting International Financial Reporting Standards.

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⊚ ⊚

true false

19) Today, the most authoritative source of generally accepted accounting principles is the American Accounting Association. ⊚ ⊚

true false

20) The American Institute of Certified Public Accountants has the legal authority over publicly held corporations to enforce compliance with generally accepted accounting principles. ⊚ ⊚

true false

21) The Securities and Exchange Commission is instrumental in the development of financial accounting standards. ⊚ ⊚

true false

22) Financial accounting standards issued by the FASBare considered generally accepted accounting principles. ⊚ ⊚

true false

23) Generally accepted accounting principles were established by the American Accounting Association in 1934 and are updated annually by Congress. ⊚ ⊚

true false

24) The CPA examination is administered by the General Accounting Office of the U.S.Government. Version 1

⊚ ⊚

true false

25) The Sarbanes-Oxley Act places responsibility on CEOsand CFOs of companies to certify the fairness of a company's financial statements. The Act also created the Public Company Accounting Oversight Board, which oversees the public accounting profession. ⊚ ⊚

true false

26) The Code of Ethics of the AICPA calls for a commitment to ethical behavior but not at the sacrifice of personal advantage. ⊚ ⊚

true false

27) The Code of Ethics of the AICPA calls for a member in public practice to be independent in fact and appearance when providing auditing services. ⊚ ⊚

true false

28) Public accounting is the segment of the profession where professionals offer audit, tax, and consulting services to clients. ⊚ ⊚

true false

29) Career opportunities in accounting exist in public accounting, management accounting, governmental accounting, and accounting education. ⊚ ⊚

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true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 30) Financial accounting information is: A) B) C) D)

31)

Which of the following does not describe accounting? A) B) C) D)

32)

Recording the financial transactions of an economic entity. Developing information in conformity with generally accepted accounting The art of interpreting, measuring, and describing economic activity. Developing the information required for the preparation of income tax returns.

The basic purpose of bookkeeping is to: A) B) C) D)

34)

It is commonly referred to as the language of business. It is an end rather than a means to an end. It is useful for decision-making. It is used by businesses, governments, non-profit organizations, and individuals.

The field of accounting may best be described as:

A) B) principles. C) D)

33)

Designed to assist investors and creditors. Submitted to the IRSin lieu of a tax form. Called "special-purpose" accounting information. Not applicable to individuals.

Provide financial information about an economic entity. Develop the types of information best-suited to specific managerial decisions. Record the financial transactions of an economic entity. Determine the taxable income of individuals and business entities.

Which of the following is not characteristic of financial accounting?

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A) Information used in financial statements is prepared in conformity with generally accepted accounting principles. B) The information is confidential and is intended for use only by company management. C) The information is used in a wide variety of business decisions. D) The information is developed primarily by "private accountants" that is, accountants employed by business organizations.

35)

The information systems of most business organizations:

A) Are tailored to meet the organization's needs for accounting information and the resources available for operating the system. B) Are similar in design to the journals, ledgers, and worksheets illustrated in this text. C) Utilize data bases, rather than ledger accounts. D) Are designed by the CPA firm that performs the annual financial audit.

36)

The NYSErequires all listed companies to:

A) Register with the PCAOB (Public Company Accounting Oversight Board). B) Send financial statements directly to investors, creditors, and other users of financial information. C) Maintain an internal audit function. D) Use IFRS (International Financial Reporting Standards) for financial statement reporting purposes.

37)

Which of the following is not a basic function of an information system?

A) To interpret and record the effects of business transactions. B) To classify the effects of similar transactions in a manner that permits determination of various totals and subtotals useful to management. C) To ensure that a business organization will be managed profitably. D) To summarize and communicate information to decision makers.

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38)

Information is cost-effective when: A) The information aids management in controlling costs. B) The information is based upon historical costs, rather than upon estimated market

values. C) The value of the information exceeds the cost of producing it. D) The information is generated by a computer-based accounting system.

39) Which of the following events is not a transaction that would be recorded in a company's accounting records? A) B) C) D)

40)

A strong internal control structure:

A) reports. B) C) D)

41)

The purchase of equipment for cash. The purchase of equipment on account. The investment of additional cash in the business by the owner. The death of a key executive.

Provides reasonable assurance that the organization produces reliable financial Will prevent a business from operating at a loss. Ensures a business will remain solvent. Will prevent fraud, theft, and embezzlement.

The best definition of an information system is:

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A) Journals, ledgers, and worksheets. B) Manual or computer-based records used in developing information about an entity for use by managers and also persons outside the organization. C) The personnel, procedures, technology, and records used by an entity to develop information and communicate this information to decision makers. D) The concepts, principles, and standards specifying the information which should be included in financial statements, and how that information should be presented.

42)

The objectives of an accounting system include all of the following, except: A) B) C) D)

Interpret and record the effects of business transactions. Classify the effects of transactions to facilitate the preparation of reports. Summarize and communicate information to decision makers. Dictate the specific types of business transactions the enterprise may pursue.

43) Suppose a number of your friends have organized a company to develop and sell a new software product. They have asked you to loan them $3,000 to help get the company started, and they have promised to repay your $3,000 plus 8% interest in one year. Of the following, which amount may be described as the return on your investment? A) B) C) D)

$3,240 $240 $2,760 $3,000

44) Suppose a number of your friends have organized a company to develop and sell a new software product. They have asked you to loan them $8,000 to help get the company started, and they have promised to repay your $8,000 plus 10% interest in one year. Of the following, which amount may be described as the return on your investment?

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A) B) C) D)

$8,000 $800 $8,800 $7,200

45) Which of the following is generally not considered one of the general-purpose financial statements issued by a corporation? A) B) C) D)

46)

Which of the following is considered a return "on" investment? A) B) C) D)

47)

Dividends. Repayment of a loan. Purchase of an asset. Securing a loan.

The financial statements of a business entity: A) B) C) D)

48)

Income statement forecast for the coming year. Balance sheet. Statement of financial position. Statement of cash flows.

Include the balance sheet, income statement, and income tax return. Provide information about the cash flow prospects of the company. Are the first step in the accounting process. Are prepared for a fee by the Financial Accounting Standards Board.

Which of the following are notconsidered "external" users of financial statements?

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A) B) C) D)

49)

Owners. Creditors. Labor unions. Managers.

Financial statements are designed primarily to:

A) Provide managers with detailed information tailored to the managers' specific information needs. B) Provide people outside the business organization with information about the company's financial position and operating results. C) Report to the Internal Revenue Service the company's taxable income. D) Indicate to investors in a particular company the current market values of their investments.

50) The principal difference between management accounting and financial accounting is that financial accounting information is: A) Prepared by managers. B) Intended primarily for use by decision makers outside the business organization. C) Prepared in accordance with a set of accounting principles developed by the Institute of Certified Management Accountants. D) Oriented toward measuring solvency rather than profitability.

51)

Which financial statement is prepared as of a specific date?

A) The balance sheet B) The income statement C) The statement of cash flows D) The balance sheet, income statement, and statement of cash flows are all for a period of time rather than at a specific date.

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52) In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a management accounting report is more likely to: A) B) C) D)

Be used by decision makers outside of the business organization. Focus upon the operation results of the most recently completed accounting period. View the entire organization as the reporting entity. Be tailored to the specific needs of an individual decision maker.

53) Which of the following decision makers is least likely to be among the users of management accounting reports developed by a large organization that operates retail stores that sell to consumers? A) The chief executive officer of the organization. B) The manager of a department in one of the stores owned by the organization. C) The manager of a mutual fund considering investing in the organization’s common stock. D) Internal auditors within the organization.

54) Which financial statement is primarily concerned with reporting the financial position of a business at a particular time? A) B) C) D)

55)

The balance sheet. The income statement. The statement of cash flows. Consolidated statement of stockholders' equity.

Financial statements are prepared:

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A) B) C) D)

Only for publicly owned business organizations. For corporations, but not for sole proprietorships or partnerships. Primarily for the benefit of persons outside of the business organization. In either monetary or nonmonetary terms, depending upon the need of the decision

maker.

56)

Financial statements may be prepared for which time period? A) B) C) D)

One year. Less than one year. More than one year. Any time period.

57) Which of the following is generally not considered an external user of accounting information? A) B) C) D)

Stockholders of a corporation. Bank lending officers. Financial analysts. Factory managers.

58) Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the informational needs of: A) B) C) D)

59)

Investors and creditors. Government agencies such as the Internal Revenue Service. Customers. Trade associations and labor unions.

Investors may be described as:

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A) B) C) D)

Individuals and enterprises that have provided credit to a reporting entity. Individuals and enterprises that have ownership interest in a reporting entity. Anyone with an interest in the results of the operations of the reporting entity. Those whose primary economic activity consists of buying and selling stocks and

bonds.

60)

Of the following objectives of financial reporting, which is the most specific?

A) Provide information useful in assessing amount, timing, and uncertainty of future cash flows. B) Provide general information useful in making investment and credit decisions. C) Provide specific information about economic resources, claims to resources, and changes in resources and claims. D) Provide information useful to help the enterprise achieve its goals, objectives, and mission.

61) Investors and creditors are interested in the probability that their original investment or loan will eventually be returned, and that they will receive a reasonable return while their funds are invested or borrowed. These expectations are collectively referred to as: A) B) C) D)

Expected profitability. The objectives of financial reporting. Cash flow prospects. Financial position.

62) A complete set of financial statements for Citywide Company, at December 31, Year 1, would include each of the following, except:

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A) Balance sheet as of December 31, Year 1. B) Income statement for the year ended December 31, Year 1. C) Statement of projected cash flows for Year 2. D) Notes containing additional information that is useful in interpreting the financial statements.

63) The general-purpose financial statements prepared annually by a corporation would not include the: A) B) C) D)

64)

Balance sheet. Income tax return. Income statement. Statement of cash flows.

Which of the following is a characteristic of financial accounting information? A) B) C) D)

Its preparation requires judgment. It is more about the future than it is about the past. None of it is based on estimates, assumptions, and judgments. Notes and explanations from management are not included.

65) Which of the following statements is considered a "snapshot" of the business in financial or dollar terms? A) B) C) D)

Statement of financial position. Statement of cash flows. Income statement. The federal income tax return.

66) Objectives of financial reporting to external investors and creditors include preparing information about all of the following except: Version 1

A) Information used to determine which products to produce. B) Information about economic resources, claims to those resources, and changes in both resources and claims. C) Information that is useful in assessing the amount, timing, and uncertainty of future cash flows. D) Information that is useful in making investment and credit decisions.

67)

Financial accounting information is characterized by all of the following except: A) B) C) D)

68)

It is the function of management accounting to perform the following activities, except: A) B) C) D)

69)

It is historical in nature. It results from inexact and approximate measures. It is factual, so it does not require judgment to prepare. It is enhanced by management's explanation.

Create financial forecasts. Perform cost accounting. Complete internal audits. Audit financial statements.

All of the following are characteristics of management accounting, except: A) Reports are used primarily by insiders rather than by persons outside of the business

entity. B) Its purpose is to assist managers in planning and controlling business operations. C) Information must be developed in conformity with generally accepted accounting principles or with income tax regulations. D) Information may be tailored to assist in specific managerial decisions.

70)

Internal users of financial accounting information include all of the following except:

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A) B) C) D)

71)

Which of the following is not a user of internal accounting information? A) B) C) D)

72)

Investors. Managers. Chief Financial Officer. Chief Executive Officer.

Store manager Chief executive officer Creditor Chief financial officer

Characteristics of internal accounting information include all of the following except: A) B) C) D)

It is audited by a CPA. It must be timely. It is generally oriented toward the future. It measures efficiency and effectiveness.

73) Which of the following is not an important factor in ensuring the integrity of accounting information? A) B) C) D)

74)

Institutional factors, such as standards for preparing information. Professional organizations, such as the American Institute of CPAs. Competence, judgment, and ethical behavior of individual accountants. The cost of preparing the financial information.

Generally accepted accounting principles:

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A) B) C) D)

75)

The Sarbanes-Oxley Act of 2002 created: A) B) C) D)

76)

The Security and Exchange Commission. The Financial Accounting Standards Board. The Public Company Accounting Oversight Board. The Income Tax Return Overview Board.

Publicly owned companies are those whose ownership shares are: A) B) C) D)

77)

Are based on official decrees only. Are based on tradition only. Are based on an accountant's experience only. May change over time.

Bought and sold through stock exchanges or over-the-counter markets. Bought and sold through the NYSE. Owned by other publicly owned companies. Owned by foreign corporations.

The FASB’sconceptual framework:

A) B) principles. C) D)

Explains and guides the future development of accounting standards. Sets forth the accounting standards referred to as generally accepted accounting Is not recognized by the SEC. Has been superseded by generally accepted accounting principles.

78) Overseeing a company's affairs to ensure that the company is managed with the best interest of shareholders in mind is called:

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A) B) C) D)

79)

Internal control. Financial integrity. Corporate governance. The audit function.

The basic purpose of an audit is to:

A) Assure outsiders that financial statements are prepared in conformity withgenerally accepted accounting principles (GAAP). B) Provide as much useful information to decision makers as possible, regardless of cost. C) Record changes in the financial position of an organization by applying the concepts of double entry accounting. D) Meet an organization's need for accounting information as efficiently as possible.

80)

Audits of financial statements are performed by: A) B) C) D)

The controller of the reporting company. The Financial Accounting Standards Board (FASB). The management of the reporting company. Independent certified public accountants (CPAs).

81) The auditor's report on the published financial statements of a large corporation should be viewed as: A) The opinion of independent experts as to the overall fairness of the statements. B) The opinion of the corporation's chief accountant as to the overall fairness of the statements. C) A guarantee by a firm of certified public accountants that the statements are accurate. D) A guarantee by the Financial Statements Insurance Board that the statements do not overstate assets or net income.

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82) The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States is termed: A) B) C) D)

83)

The conceptual framework. Generally accepted accounting principles. Statements of Financial Accounting Concepts. American standards for certified public accountants.

The basic purpose of generally accepted accounting principles is to:

A) Minimize the possibility of a business becoming insolvent. B) Provide a framework for financial reporting that is understood by both the preparers and the users of financial statements. C) Ensure that financial statements include the type of information that is best suited to every type of business decision. D) Eliminate the need for professional judgment in preparing financial statements.

84)

Establishing international accounting standards is the responsibility of: A) B) C) D)

AICPA. IASB. SEC. AAA.

85) Generally accepted accounting principles are intended to assist accountants in preparing financial statements that: A) B) C) D)

Are relevant, verifiable, comparable, and understandable. Show the business to be both solvent and profitable. Comply with all income tax rules and regulations. Are ideally suited to the specific needs of each user of the financial statements.

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86)

Which of the following is not an objective of generally accepted accounting principles?

A) To minimize the amount of income taxes owed. B) To ensure that both preparers and users of financial statements understand the concepts and assumptions used in presenting information within these statements. C) To enhance the relevance and verifiability of information contained in financial statements. D) To increase the comparability of financial statements prepared by different companies.

87) In the phrase "generally accepted accounting principles," the words accounting principlesrefers to: A) reporting. B) C) D) (FASB).

The standards, assumptions, and concepts that serve as "ground rules" for financial Ethical standards that prohibit fraudulent or misleading financial reporting. The steps in the accounting cycle. The accounting practices authorized by the Financial Accounting Standards Board

88) The accounting standards and concepts used in the preparation of financial statements are called: A) B) C) D)

89) of:

Certified principles of accounting (CPA). Generally accepted accounting principles (GAAP). Federal accounting standards and bylaws (FASB). Standards enforcing consistency (SEC).

Generally accepted accounting principles are the "ground rules" used in the preparation

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A) B) C) D)

90)

Income tax returns. All accounting reports. Reports to federal and state regulatory agencies. Financial statements.

The Financial Accounting Standards Board is:

A) Responsible for the review and audit of federal income tax returns. B) Primarily concerned with the preparation of the annual federal budget. C) A private group that conducts research and determines generally accepted accounting principles. D) A government agency with legal authority to approve or disapprove the financial statements of corporations that sell their securities to the public.

91)

The Accounting Standards Codification was developed by: A) B) C) D)

The Financial Accounting Standards Board. Certified public accountants. The Securities and Exchange Commission. The Internal Revenue Service.

92) The body created by the Sarbanes Oxley Act and charged with oversight of the accounting profession is the: A) B) C) D)

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Public Company Accounting Oversight Board. Auditing Standards Board. International Accounting Standards Board. Securities and Exchange Commission.

93) The measures used by an organization to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effective manner are collectively referred to as: A) B) C) D)

Generally accepted accounting principles. Financial accounting standards. Securities and exchange regulations. The internal control structure.

94) In 2012 the SEC issued an extensive report regarding the use of IFRS by U.S. public companies and listed which of the following as a major obstacle to adopting IASB standards? A) IASBstandards are generally viewed as low quality. B) IASBis dependent on funding from the major accounting firms. C) Cross-border financing is decreasing in popularity. D) The IASB is not a governmental agency, and therefore it is not positioned to develop accounting standards.

95)

The basic purpose of audited financial statements is to:

A) Provide the reporting company with assurance that all assets are protected from theft or embezzlement. B) Prepare financial statements for companies that do not have their own accounting departments. C) Provide users of the financial statements with assurance that the statements are verifiable and are presented in conformity with generally accepted accounting principles. D) Provide both the reporting company and the users of the statements with a written guarantee that the statements are error-free.

96)

The FASB takes on a responsibility to do the following, except:

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A) Set the objectives of financial reporting. B) Describe the elements of financial statements. C) Judge disputes between management and the CPA. D) Determine the criteria for deciding what information to include in financial statements.

97) Which of the following is not recognized as a source of generally accepted accounting principles? A) B) C) D)

Widespread and long-term use of a particular practice. The Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC). Statements of the Committee of Sponsoring Organizations (COSO).

98) In the phrase "generally accepted accounting principles," the words generally accepted mean that the principles: A) Have been adopted by Congress or approved by the voters in a general election. B) Are acceptable to the Internal Revenue Service. C) Are understood and observed by all the participants in the financial reporting process. D) Have been approved by a majority of the members of the Financial Accounting Standards Board.

99) Which of the following has the least impact upon the integrity of financial statements issued by publicly owned corporations? A) B) C) D)

Federal securities laws. Professional judgment of the accountants who prepare the financial statements. Audits of the financial statements by the Internal Revenue Service. Competence and integrity of the CPAs who perform audits.

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100)

Which of the following is true?

A) The existence of generally accepted accounting principles (GAAP) eliminates the need for professional judgment except in very unusual circumstances. B) Federal securities laws regarding the issuance of misleading financial statements apply not only to the independent auditors, but to management of the company as well. C) Attaining a passing score on the part of the Uniform CPA Examination that covers professional ethics is evidence of integrity and commitment to ethical conduct. D) A professional accountant should resign his position rather than become involved in the distribution of financial statements indicating insolvency.

101)

Which organization best serves the professional needs of a CPA? A) B) C) D)

FASB. AICPA. SEC. AAA.

102) An accounting principle must receive substantial authoritative support to qualify as generally accepted. Among the organizations and agencies that have been influential in the development of generally accepted accounting principles, which of the following has provided the most influential leadership? A) B) C) D)

Internal Revenue Service. Institute of Management Accountants. Financial Accounting Standards Board. NYSE.

103) The American Institute of Certified Public Accountants has a Code of Professional Conduct that expresses the accounting profession's recognition of its responsibilities to all of the following except:

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A) B) C) D)

104)

The work of accountants practicing in public accounting may best be described as: A) B) C) D)

105)

The public. The client. Colleagues. The IRS.

Providing various types of accounting services to a wide variety of clients. Preparing income tax returns for individuals and small businesses. Developing and interpreting information tailored to the needs of business managers. Helping governmental agencies carry out their various regulatory responsibilities.

The primary function of external auditors is to:

A) Express an opinion on the fairness of the company's financial statements. B) Determine the accuracy of the management reports. C) Evaluate the efficiency of operations and the degree of compliance with management's policies in all departments within a large organization. D) Determine that financial statements and all special reports to management are prepared in conformity with generally accepted accounting principles.

106)

Management accountants primarily are concerned with developing information: A) B) C) D)

107)

For use in income tax returns. Suited to the needs of stockholders, creditors, and other external decision makers. In conformity with generally accepted accounting principles. Suited to the needs of decision makers within the organization.

The designation of CPA is given by:

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A) B) C) D)

108)

Universities. States. The AICPA. The SEC.

One of the principal functions of CPAsis to: A) Audit income tax returns to determine if taxpayers have underpaid their income

taxes. B) Conduct audits to determine whether the employees of a business are performing their jobs honestly and efficiently. C) Advise individual investors on stock market investments. D) Perform audits to determine the fairness of a company's financial statements.

109) The SEC requires corporate officers to sign the Form 10-K, which is filed annually with the SEC. Which of the following officers is not among those required to sign? A) B) C) D)

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CEO (Chief Executive Officer). CAO (Chief Accounting Officer). CFO (Chief Financial Officer). COO (Chief Operating Officer).

Answer Key Test name: Chapter 01 Test Bank - Algorithmic and Static 1) FALSE 2) FALSE 3) TRUE 4) FALSE 5) TRUE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) FALSE 12) TRUE 13) FALSE 14) FALSE 15) FALSE 16) TRUE 17) TRUE 18) FALSE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) FALSE 24) FALSE 25) TRUE 26) FALSE Version 1

27) TRUE 28) TRUE 29) TRUE 30) A 31) B 32) C 33) C 34) B 35) A 36) C 37) C 38) C 39) D 40) A 41) C 42) D 43) B 44) B 45) A 46) A 47) B 48) D 49) B 50) B 51) A 52) D 53) C 54) A 55) C 56) D Version 1

57) D 58) A 59) B 60) C 61) C 62) C 63) B 64) A 65) A 66) A 67) C 68) D 69) C 70) A 71) C 72) A 73) D 74) D 75) C 76) A 77) A 78) C 79) A 80) D 81) A 82) B 83) B 84) B 85) A 86) A Version 1

87) A 88) B 89) D 90) C 91) A 92) A 93) D 94) B 95) C 96) C 97) D 98) C 99) C 100) B 101) B 102) C 103) D 104) A 105) A 106) D 107) B 108) D 109) D

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CHAPTER 2: PROBLEM MATERIAL ESSAY. Write your answer in the space provided or on a separate sheet of paper. 1) A set of financial statements includes three related accounting reports, or statements. List the names of three primary statements, and give a brief description of the accounting information contained in each.

2) (A) What is meant by the phrase "generally accepted accounting principles"?(B) Explain the concept of the business entity and how it relates to generally accepted accounting principles.

3) Under generally accepted accounting principles, the assets owned by a business are reported in the balance sheet at their historical cost. Identify and briefly explain two accounting principles other than the cost principle that support the valuation of assets at cost in the balance sheet.

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4) Listed below are nine technical accounting terms introduced in this chapter:AssetsBalance SheetCost principleAccounting equationLiabilitiesOwner's equityInflationGoing concern assumptionLiqudity Each of the following statements may (or may not) describe one of these technical terms. In the space provided below each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. Do not use a term more than once. (A) Having the financial ability to pay debts as they become due. (B) An assumption that a business will operate in the foreseeable future. (C) Economic resources owned by businesses that are expected to benefit future operations. (D) The debts or obligations of a business organization. (E) Assets = Liabilities + Owners' Equity (F) The principle which states that assets are valued in the balance sheet at their historical cost. (G) A residual amount equal to assets minus liabilities.

Answer each of the following questions:

(A) During the current year, the assets of Duffy Stationery increased by $650,000 and the liabilities decreased by $340,000. What was the change in owners' equity during the year?(B) The owners' equity of Graham Interiors appears on the balance sheet as $720,000 and is equal to one-fourth of total assets. Compute the amount of total liabilities.(C) At the end of the year, the owners' equity in Scott Manufacturing Company amounted to $845,000. During Year 1, the assets of the business increased by $515,000 and the liabilities increased by $205,000. The owners' equity at the beginning of Year 1 was how much?

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6) Some of the transactions carried out by Tudor Wholesale during the first month of the company's operations are listed below. Determine the effect of each transaction on the total assets, the total liabilities, and the owners' equity. Prepare your answer in columnar form, identifying each transaction by letter and using the symbols (+) for increase, (−) for decrease, and (NC) for no change. An answer is provided for the first transaction to serve as an example. Transactions A. Issued capital stock in exchange for cash B. Bought land and a building at a total price of $165,000. Made a down payment of $65,000 cash and signed a note payable for the balance. C. Bought adjoining lot for use as parking lot; paid cash in full D. Sold a portion of the land on credit at a price equal to its cost. E. Obtained a loan from a bank.

Total Assets +

Total Liabilities NC

Owners' Equity +

F. Purchased office equipment on credit. G. Paid a liability. H. Collected part of amount owned to the business from purchaser of land. I. Solid another portion of the land for cash at a price in excess of cost.

7) Some of the transactions carried out by Tsang Company during the first month of the company's operations are listed below. Determine the dollar effect of each transaction on the total assets, the total liabilities, and the owners' equity of Tsang Company. Use the symbols (+) for increase, (−) for decrease, and (NC) for no change. An answer is provided for the first transaction to serve as an example. Transaction

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Total Assets

Total Liabilities

Owners' Equity 3

A. Issued capital stock to Don Tsang in exchange for his investment of $200,000 in the business. B. Purchased a computer for the business for $5,500 cash. C. Borrowed $20,000 from the bank. D. Purchased office furnishings at a total price of $4,200, terms $600 cash and balance payable in two installments. E. Paid $1,800 of the balance due on the office furnishings. F. Sold an extra monitor that had cost $250 for $300 on credit. G. Collected $150 of accounts receivable from purchaser of the monitor. H. Bought a small truck to be used in the business for $29,000; paid cash in full.

+$ 200,000

+200,000

8) List the following accounts in the order that they would appear in a balance sheet: Capital Stock Equipment Accounts Receivable Retained Earnings Revenue Accounts Payable Cash Rent Expense

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9) Computation of assets, liabilities, and owners' equity after a series of transactions. On April 30, Year 1, the balance sheet of China Collectibles showed total assets of $700,000, total liabilities of $400,000, and owners' equity of $300,000. The following transactions occurred in May of Year 1: (1) Capital stock was issued in exchange for $165,000 cash. (2) The business purchased equipment for $360,000, paying $160,000 cash and issuing a note payable for $200,000. (3) The business paid $70,000 of its accounts payable. (4) The business collected $54,000 of its accounts receivable. Compute the following as of May 31, Year 1: A. Total assets B. Total liabilities C. Owners' equity

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10) Computation of assets, liabilities, and owners' equity after a series of transactions. The December 31, Year 1 balance sheet of Charles Realty reported total assets of $900,000, total liabilities of $350,000, and owners' equity of $550,000. The following transactions occurred in January of Year 2: (1) The business purchased land for $250,000, paying $100,000 cash and issuing a note payable for the balance. (2) The business collected accounts receivable totaling $45,000. (3) The business sold land costing $50,000 for $60,000 cash. (4) The business paid $50,000 of the note payable.

Compute the following at January 31, Year 1: A. Total assets B. Total liabilities C. Owners' equity

11) Prepare the balance sheet as of December 31, Year 1, for Gamma Company, from the following list of items, arranged in random order. You must compute the amount for accounts payable to complete the balance sheet. Accounts payable Office equipment Buildings Capital stock

12)

$ ? $ 41,600 $ 533,000 $ 494,000

Land Notes payable Accounts receivable Cash

$ 260,000 $ 377,000 $ 97,500 $ 19,760

The balance sheet was as follows for Custom Ceramics on February 1, Year 1:

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Cash

Custom Ceramics Balance Sheet February 1, Year 1 Liabilities & Owners' Equity $ 7,000 Liabilities:

Accounts receivable Office Equipment

5,200 30,000

Notes Payable Accounts Payable

$ 40,000 6,000

Buildings Land

50,000 80,000

Total Liabilities Owners' equity:

46,000

Capital Stock

100,000

Retained earnings

26,200

Total owners’ equity

126,200

Total Liabilities and Owners' Equity

$ 172,200

Assets

Total Assets

$ 172,200

During the first week of February, the following transactions occurred: (1) The business used cash to pay off $5,000 of its accounts payable. (No payment was made on the notes payable.) (2) Additional capital stock was issued to Joan Custom for $15,000 cash. (3) Equipment was purchased on credit for $1,800. (4) The business collected $4,000 cash from accounts receivable. Prepare a balance sheet for Custom Ceramics as of February 8, Year 1.

13) Use the following information to complete the balance sheet of Adelphi Construction as of December 31, Year 1.(1) The company was organized on January 1, Year 1.(2) Earnings were $275,000 and dividends of $70,000 were paid to stockholders during the year.(3) Cash and accounts receivable together amount to one and one-half times the amount of notes payable. Adelphi Construction Balance Sheet

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Assets Cash Accounts receivable Equipment Building Land

December 31, Year 1 Liabilities & Owners' Equity ? Liabilities: 85,000 96,000 250,000 184,000

Notes Payable Accounts Payable Income taxes payable Total liabilities

? ? 40,000 $ 215,000

Owners' equity:

Total Assets

Capital stock

Retained earnings

Total Liabilities and Owners' Equity

$ 620,000

14) Use the following information to complete the December 31, Year 1 balance sheet of Copper Supplies Company. (1) Owners' equity as of January 1, Year 1, totaled $175,000, which included capital stock of $150,000. (2) Additional capital stock was issued during Year 1 in exchange for $40,000 cash. (3) Net income for Year 1 amounted to $200,000; no dividends were paid during Year 1. (4) Cash and accounts receivable together amount to 3 times as much as accounts payable.

Assets Cash

Copper Supplies Company Balance Sheet December 31, Year 1 Liabilities & Owners' Equity $ 30,000 Liabilities:

Accounts receivable

Accounts Payable

Equipment

Notes payable

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$ 40,000 ?

Building Land

Total Assets

300,000 215,000

$835,000

Total liabilities Owners' equity:

Capital stock

Retained earnings

Total owners’ equity

Total Liabilities and Owners' Equity

15) Show the effect of each of the seven listed transactions on the balance sheet items of Distinctive Draperies. Indicate the new balances after the transaction of May 2 and each subsequent transaction. The effects of the May 1 transaction are already filled in to provide you with an example.

May 1 Issued capital stock for $75,000. May 2 Purchased a small office building at a price of $58,000 for the land and $65,000 for the building. Paid $43,000 cash and signed a

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note payable for the balance. May 8 Borrowed $15,000 from the bank. Signed a 60-day note payable for this amount. May 16 Purchased copying machines, computers , and other office equipment for $19,000. Paid $9,000 cash and signed a note payable for the balance. May 28 Sold an item of office equipment (computer ) to a stockhold er at its cost of $2,800. The stockhold

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er paid $800 cash and promised to pay the balance within 30 days. May 30 Paid $5,000 on the liability for the office equipment . May 31 Collected $500 from the stockhold er who had bought the computer. Assets

= Liabilite + Owners s ' Equity

Cash

May 1

+ Account + Lan + Buldin + Office = Notes + Capita Receivabl d g Equipmen Payable l e t Stock +$ 75,000 +$ 75,000

May 2 Balanc e May 8 Balanc e May 16

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Balanc e May 28 Balanc e May 30 Balanc e May 31 Balanc e

16) Show the effect of each of the six listed transactions on the balance sheet items of Renaissance Investment Services, Incorporated. Indicate the new balances after the transaction of November 2 and each subsequent transaction. The effects of the November 1 transaction are already filled in to provide you with an example. November Issued 1 capital stock for $200,000. November Purchased 2 a small office building at a price of $86,000 for the land and $74,000 for the building. Made a cash

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November 7

November 12

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payment of 20% of the total price and signed a note payable for the balance. Purchased telephone s, computers , and other office equipment for $58,000. Paid $23,000 cash and signed a note payable for the balance. Sold one of the computers to a stockhold er at its cost of $3,500. The stockhold er paid $500 cash and agreed to pay the balance within 10

November 22

November 30

days. Received $3,000 due from the stockhold er who had purchased the computer. Paid $17,500 on the note payable for the office equipment . Assets Cash

Novembe r 1 Novembe r 2 Balance

= Liabilit + Owners' es Equity

+ Account + Lan + Buldin + Office = Notes + Capital Receivab d g Equipme Payable Stock le nt +$200,0 00

Novembe r 7 Balance Novembe r 12 Balance Novembe r 22 Balance

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Novembe r 30 Balance

17) An inexperienced accounting intern at Tasso Company prepared the following income statement for the month of July Year 1: Tasso Company Income Statement Month of July Year 1 Revenues: Services provided to customers

$ 25,000

Capital stock

12,500

Loan from bank Expenses:

37,500

Payments to long-term creditors Expenses required to provide services to customers Purchase of equipment Net income

$ 75,000

$ 20,000 18,750 10,000

48,750 $ 26,250

Prepare a revised income statement in accordance with generally accepted accounting principles.

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18) From the following accounts and amounts prepare a balance sheet for the Swell Company for December 31, Year 1. (Hint: You must compute the amount for retained earnings to complete the balance sheet.). Accounts Payable Accounts Receivable Building Capital Stock Cash Equipment Insurance Expense Land Notes Payable Sales Revenue Salaries Expense

$ 61,250 $ 70,500 $ 50,000 $ 50,000 $ 64,000 $ 30,000 $ 5,000 $ 125,000 $ 175,000 $ 25,000 $ 20,000

19) State and describe the three most common forms of business organizations in the United States.

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Answer Key Test name: Chapter 02 Test Bank (Problem Material) 1) The order of these items may vary: Balance sheet. A report showing at a specific date the financial position of the company by reporting the assets (resources) that it owns, the liabilities (debts) that it owes, and the amount of the owners' equity in the business. Income statement. A report indicating the profitability (or net income) of the business over a specific time period. Statement of cash flows. A report summarizing the cash receipts and cash payments of the business over the same time period covered by the income statement. The cash flows from three activities are presented on the statement. In order of presentation, they include: (1) operating activities; (2) investing activities; and (3) financing activities. 2) (A) Generally accepted accounting principles are the concepts, standards, or rules used in the preparation of financial statements.(B) Generally accepted accounting principles require that financial statements describe the activities of a specific economic entity, which is an economic unit that engages in identifiable business activities.

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3) Going-concern assumption. An assumption by accountants that a business will operate in the foreseeable future unless specific evidence that this is not a reasonable assumption exists, such as impending bankruptcy. Since assets of the business were acquired for use and not for resale, estimated current market prices or appraisal values are of less importance than if these items were intended for sale.Objectivity principle. Accounting measurements should be based upon dollar amounts that are factual and subject to independent verification. Historical cost of assets is objective; estimated market values or appraisals change over time and are not factual or objective.Stable-dollar assumption. An assumption by accountants that the dollar is a stable unit of measure. This assumption permits reporting assets at cost, even though individual assets may have been acquired in different years. 4) (A) Liquidity(B) Going concern assumption(C) Assets(D) Liabilities(E) Accounting equation(F) Cost principle(G) Owners' equity 5) (A) $990,000 increase (B) $2,160,000 (C) $535,000 A. Change in owners' equity = $650,000 + $340,000 = $990,000 increase B. Total assets = 4 × $720,000 = $2,880,000 Total liabilities = $2,880,000 assets − $720,000 owners' equity = $2,160,000 C. Change in owners' equity = $515,000 − $205,000 = $310,000 increase Beginning owners' equity = $845,000 ending balance − $310,000 increase = $535,000 6) Transactions A. Issued capital stock in exchange

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Total Assets +

Total Liabilities NC

Owners' Equity +

for cash B. Bought land and a building at a total price of $165,000. Made a down payment of $65,000 cash and signed a note payable for the balance. C. Bought adjoining lot for use as parking lot; paid cash in full D. Sold a portion of the land on credit at a price equal to its cost. E. Obtained a loan from a bank. F. Purchased office equipment on credit. G. Paid a liability. H. Collected part of amount owned to the business from purchaser of land. I. Solid another portion of the land for cash at a price in excess of cost.

+ +

NC NC

− NC

NC NC

7) Transaction

Total Assets

A. Issued capital stock to +$ Don Tsang in exchange for 200,000 his investment of $ 200,000 in the business. B. Purchased a computer for NC the business for $ 5,500 cash. C. Borrowed $ 20,000 from +$ 20,000 the bank. D. Purchased office +$ 3,600 furnishings at a total price of $ 4,200, terms $ 600 cash and balance payable in two installments. E. Paid $ 1,800 of the −$ 1,800 balance due on the office furnishings. F. Sold an extra monitor +$ 50 that had cost $ 250 for $ 300 on credit. G. Collected $ 150 of NC

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Total Liabilities NC

Owners' Equity +200,000

+$ 200,000 +$ 3,600

−$ 1,800

+$ 50

accounts receivable from purchaser of the monitor. H. Bought a small truck to be used in the business for $ 29,000; paid cash in full.

8) Cash, Accounts Receivable, Equipment, Accounts Payable, Capital Stock, Retained Earnings The balance sheet lists assets, then liabilities, and then owners’ equity. Assets are ordinarily presented in their order of “permanence,” starting with cash. Next are other assets that are close to cash (e.g., receivables from customers), followed by more permanent assets like equipment, buildings, and land, which is considered the most permanent asset. Liabilities are usually presented in the order in which they become due. Revenue and Rent Expense do not appear in a balance sheet; both appear on the income statement. 9) A. Total assets = $995,000 B. Total liabilities = $530,000 C. Owners' equity = $465,000A. Total assets: $700,000 + $165,000 + $360,000 − $160,000 − $70,000 + $54,000 − $54,000 = $995,000 B. Total liabilities: $400,000 + $200,000 − $70,000 = $530,000 C. Owners' equity: $300,000 + $165,000 = $465,000 (or $995,000 − $530,000 = $465,000) 10) A.Total assets = $1,010,000 B.Total liabilities = $450,000 C.Owners' equity = $560,000A. Total assets: $900,000 + $250,000 − $100,000 + $45,000 − $45,000 − $50,000 + $60,000 − $50,000 = $1,010,000 B. Total liabilities: $350,000 + $150,000 − $50,000 = $450,000 C. Owners' equity: $550,000 + $10,000 = $560,000 (or $1,010,000 − $450,000 = $560,000) 11) Version 1

Cash

GAMMA Company Balance Sheet December 31, Year 1 Liabilities & Owners' Equity $ 19,760 Liabilities:

Accounts receivable Office Equipment Buildings Land

97,500 41,600 533,000 260,000

Assets

Total Assets

$ 951,860

Notes Payable Accounts Payable Total Liabilities Owners' equity

$ 377,000 80,860 $ 457,860

Capital Stock

494,000

Total Liabilities and Owners' Equity

$ 951,860

12) Custom Ceramics Balance Sheet February 1, Year 1 Assets Cash Accounts receivable Office Equipment Buildings Land

Liabilities & Owners' Equity $ 21,000 1,200

(a)

Liabilities:

(b)

Notes Payable

31,800

(c)

50,000

Accounts Payable Total Liabilities

80,000

Owners' equity: Capital Stock Retained earnings

Total Assets

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$ 184,000

Total Liabilities and Owners' Equity

$ 40,000 2,800

(d)

42,800

$ 115,000 26,200

141,200 $ 172,200

(e)

(a) $7,000 + $4,000 + $15,000 − $5,000 = $21,000(b) $5,200 − $4,000 collected = $1,200(c) $30,000 + $1,800 = $31,800(d) $6,000 + $1,800 (equipment purchase) − $5,000 paid = $2,800(e) $100,000 + $15,000 (additional investment) = $115,000 + $26,200 = $141,200 13)

Cash

Assets $ 5,000

Adelphi Construction Balance Sheet December 31, Year 1 Liabilities & Owners' Equity (b) Liabilities:

Accounts receivable Equipment

85,000

Notes Payable

96,000

Building

250,000

Land

184,000

Accounts Payable Income taxes payable Total liabilities Owners' equity: Capital stock Retained earnings

Total Assets

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$ 620,000

Total Liabilities and Owners' Equity

$ 60,000 115,000 $40,000 215,000

$ 200,000 205,000

(f) (e) 405,000 $ 620,000

(a.) Total assets must be $620,000 to agree with the total of liabilities plus owners' equity.(b.) Cash must be $5,000 to achieve a total asset figure of $620,000.(c.) Cash ($5,000) plus accounts receivable ($85,000) equals $90,000. This total is stated to be 1.5 times the amount of notes payable. Notes payable is computed as $90,000 divided by 1.5, or $60,000.(d.) Accounts payable must be $115,000 to achieve total liabilities figure of $215,000.(e.) Retained earnings at the end of the first accounting period must be earnings ($275,000) less dividends $(70,000), or $205,000.(f.) Capital stock must be $200,000 to achieve total liabilities and owners' equity figure of $620,000. 14) Copper Supplies Company Balance Sheet December 31, Year 1 Assets Liabilities & Owners' Equity Cash $ Liabilities: 30,000 Accounts 90,000 (b) Accounts $ receivable Payable 40,000 Equipment 200,000 Notes payable 380,000

(g)

Building

300,000

(f)

Land

215,000

Total Assets

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$ 835,000

(c)

Total liabilities Owners' equity:

420,000

Capital stock $190,000

(d)

Retained earnings

(e) 415,000

Total Liabilities and Owners' Equity

225,000

$ 835,000

(a)

(a) Total of liabilities & owners' equity must be $835,000 to agree with the amount of total assets. (b) Cash and accounts receivable together amount to 3 times accounts payable, or $120,000. Since cash is $30,000, accounts receivable equals $120,000 − $30,000, or $90,000. (c) Equipment must be $200,000 to achieve total assets of $835,000. (d) Beginning capital stock is $150,000 + stock issued of $40,000 = $190,000. (e) Beginning retained earnings (175,000 − 150,000) + net income of 200,000 = 225,000. (f) Total liabilities must be $420,000 to achieve the total of liabilities plus owners' equity of $835,000. (g) Since total liabilities are $420,000 and accounts payable are $40,000, notes payable must be $380,000. 15)

Cash

May 1

May 2

Balan ce May 8

Balan ce

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+$ 75,00 0 −$ 43,00 0 $ 32,00 0 +$ 15,00 0 $ 47,00 0

+ Account + Receivab le

Assets

= Liabilit + Owners es ' Equity

Land

+ Bulding + Office = Notes + Capita Equipme Payable l nt Stock +$ 75,00 0 +$ +$ 65,00 80,000 0 $ $ $ 65,00 80,000 75,00 0 0 +$ 15,000

+$ 58,00 0 $ 58,00 0

$ 58,00 0

$ 65,00 0

$ 95,000

$ 75,00 0 24

May 16

−$ 9,000

Balan ce

$ 38,00 0 +$ 800 $ 38,80 0 −$ 5,000 $ 33,80 0 +$ 500

May 28 Balan ce May 30 Balan ce May 31 Balan ce

$ 34,30 0

+$ 2,000 $ 2,000

$ 2,000

$ 58,00 0

$ 65,00 0

$ 58,00 0

$ 65,00 0

+$ 19,00 0 $ 19,00 0 −$ 2,800 $ 16,20 0

$ 58,00 0

$ 65,00 0

$ 16,20 0

$ 58,00 0

$ 65,00 0

$ 16,20 0

+$ 10,000 $ 105,000

$ 75,00 0

$ 105,000

$ 75,00 0

−$ 5,000 $ 100,000

$ 75,00 0

−$ 500 $ 1,500

$ 100,000

$ 75,50 0

16) Cash

Novem ber 1 Novem ber 2 Balan ce Novem ber 7 Balan ce Novem ber 12 Balan ce

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+$200, 000 −$32,0 00 $168,0 00 −$23,0 00 $145,0 00 +$500

$145,5 00

+ Account + Receivab le

Assets

= Liabili + Owners' tes Equity

Land

+ Bulding + Office = Notes + Capital Equipme Payable Stock nt +$200, 000 +$74, +$128, 000 000 $74,0 $128,0 $200,0 00 00 00 +$58, +$35,0 000 00 $74,0 $58,0 $163,0 $200,0 00 00 00 00 −$3,5 00

+$86, 000 $86,0 00

$86,0 00 +$3, 000 $3,0 00

$86,0 00

$74,0 00

$54,5 00

$163,0 00

$200,0 00

Novem ber 22 Balan ce Novem ber 30

+$3,00 0

Balan ce

$131,0 00

−$3, 000

$148,5 00 −$17,0 00 $3,0 00

$86,0 00

$74,0 00

$54,5 00

$163,0 00 −$17,5 00

$200,0 00

$86,0 00

$74,0 00

$54,5 00

$100,0 00

$200,0 00

17) Tasso Company Income Statement Month of July Year 1 Revenues: Services provided to customers Expenses:

$ 25,000

Expenses required to provide services to customers Net income

18,750 $ 6,250

18)

Assets Cash

Swell Company Balance Sheet December 31, Year 1 Liabilities & Owners' Equity $ 64,000 Liabilities

Accounts receivable

70,500

Notes Payable

Equipment Building Land

30,000 50,000 125,000

Accounts Payable Total Liabilities Owners' equity

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$ 175,000 61,250 236,250

Capital Stock

50,000

Retained Earnings

53,250

Total Owners' Equity

103,250

Total Assets

$ 339,500

Total Liabilities and Owners' Equity

$ 339,500

19) (1) Sole Proprietorship: One person, unlimited liability, and owner acts as manager.(2) Partnership: Two or more persons and owners are personally responsible for debts.(3) Corporation: Stockholders are owners, limited liability, ease of transfer of ownership, and separate entity under the law.

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CHAPTER 2 TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false. 1) The sale of additional shares of capital stock will cause retained earnings to increase. ⊚ ⊚

true false

2) A business entity is regarded as separate from the personal activities of its owners whether it is a sole proprietorship, a partnership, or a corporation. ⊚ ⊚

true false

3) Assets need not always have physical characteristics as do buildings, machinery, or inventory. ⊚ ⊚

true false

The going concern principle assumes that the business will continue indefinitely. ⊚ ⊚

true false

5) Notes payable and accounts payable both require a company to pay an amount owed by a certain date. Notes payable generally have interest, while accounts payable generally do not. ⊚ ⊚

true false

6) Any business event that might affect the future profitability of a business should be reported in its balance sheet. ⊚ ⊚

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true false

7) The practice of showing assets on the balance sheet at their cost, rather than at their current market value is explained, in part, by the fact that cost is supported by objective evidence that can be verified by independent experts. ⊚ ⊚

true false

8) Liabilities are usually listed in order of magnitude, from smallest dollar amount to largest dollar amount. ⊚ ⊚

true false

9) The entity principle states that the affairs of the owners are not part of the financial operations of a business entity and should be separated. ⊚ ⊚

10)

The accounting equation may be stated as "assets minus liabilities equals owners' equity." ⊚ ⊚

11)

true false

Total assets plus total liabilities must equal total owners' equity. ⊚ ⊚

true false

12) A transaction that causes an increase in an asset may also cause a decrease in another asset, an increase in a liability, or an increase in owners' equity. ⊚ ⊚

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true false

13)

The collection of an account receivable will cause total assets to decrease. ⊚ ⊚

14)

true false

The payment of a liability causes an increase in owners' equity. ⊚ ⊚

true false

15) When a business borrows money from a bank, the immediate effect is an increase in total assets and a decrease in liabilities or owners’ equity. ⊚ ⊚

true false

16) The purchase of an asset, such as office equipment, for cash will cause owners' equity to decrease. ⊚ ⊚

17)

Total assets must always equal total liabilities plus total owners' equity. ⊚ ⊚

18)

true false

If a company purchases equipment with cash, its total assets will increase. ⊚ ⊚

true false

19) If a company purchases equipment by issuing a note payable, its total assets will not change.

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⊚ ⊚

true false

20) The balance sheet shows assets, liabilities, and equity, as an extension of the accounting equation. ⊚ ⊚

21)

true false

A net profit results from having more revenues than liabilities. ⊚ ⊚

true false

22) A statement of cash flows reports revenue and expense activities for a specific time period such as one month or one year. ⊚ ⊚

true false

23) It is not unusual for an entity to report a significant increase in cash from operating activities, but a decrease in the total amount of cash. ⊚ ⊚

true false

24) The statement of cash flows provides a link between two balance sheets by showing how net income (or loss) has changed owners' equity from one balance sheet date to the next. ⊚ ⊚

true false

25) A company’s ability to meet its obligations as they arise, as well as earn a fair return for its owners, is dependent on its ability to generate net income.

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⊚ ⊚

true false

26) Articulation between the financial statements means that they relate closely to each other on the basis of the same underlying transaction information. ⊚ ⊚

true false

27) Limited liability means that owners of a business are only liable for the debts of the business up to the amounts they can afford. ⊚ ⊚

true false

28) In a business organized as a corporation, it is not necessary to list the equity of each stockholder on the balance sheet. ⊚ ⊚

true false

29) The owner of a sole proprietorship is personally liable for the debts of the business, whereas the stockholders of a corporation are not personally liable for the debts of the business. ⊚ ⊚

true false

30) Window dressing occurs when management attempts to make a company look financially stronger than it actually is. ⊚ ⊚

true false

31) Decision makers outside the organization base their credit decisions on weekly, or even daily, financial statements.

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⊚ ⊚

true false

32) The major outgrowth from business failures and allegations of fraudulent financial reporting during the 1990's was the passage of the Securities and Exchange Act. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question. 33) Which of the following is the primary objective of an income statement? A) Providing managers with detailed information about where the enterprise stands at a specific date. B) Providing users outside the business organization with information about the company's operating results for a period of time. C) Reporting to the Internal Revenue Service the company's taxable income. D) Indicating to investors in a particular company the current market values of their investments.

34)

Which of the following describes the proper form of a balance sheet?

A) Owners’ equity is always the first section listed because it is the most important to external users. B) Cash is always the first asset listed, followed by permanent assets (such as land and buildings), and finally by assets such as receivables and supplies. C) Liabilities are listed before owners' equity. D) A subtotal for total assets plus total liabilities is shown.

35)

A balance sheet is designed to show:

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A) B) C) D)

How much a business is worth. The profitability of the business during the current year. The assets, liabilities, and owners' equity of a business as of a particular date. The cost of replacing the assets and of paying off the liabilities at December 31.

36) Blue Wholesale Shirt Company sold shirts to Pink Retail Shoppe. The owner of Pink Retail said she would pay Blue at a later date, which Blue Wholesale agreed to. Blue Wholesale Shirt Company is considered to be a: A) B) C) D)

37)

borrower. liability. creditor. debtor.

Which of the following best defines an asset?

A) Something with physical form that is valued at cost in the accounting records. B) An economic resource owned by a business and expected to benefit future operations. C) An economic resource representing cash or the right to receive cash in the near future. D) Something owned by a business that has a ready market value.

38) From an accounting viewpoint, when is a business considered as an entity separate from its owner(s)? A) Only when organized as a sole proprietorship. B) Only when organized as a partnership. C) Only when organized as a corporation. D) A business is always considered as an accounting entity separate from the activities of the owner(s).

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39) The accounting principle that assumes that a company will operate in the foreseeable future is: A) B) C) D)

40)

Going concern. Objectivity. Liquidity. Disclosure.

The valuation of assets in the balance sheet is based primarily upon:

A) What it would cost to replace the assets. B) Cost, because cost is usually factual and verifiable. C) Current fair market value as established by independent appraisers. D) Cost, because in the event of liquidation, the assets would be sold at an amount equal to their original cost.

41) Which of the following is not a generally accepted accounting principle relating to the valuation of assets? A) The cost principle - in general, assets are valued at cost, rather than at estimated market values. B) The objectivity principle - accountants prefer to use objective, rather than subjective, information as the basis for accounting information. C) The safety principle - assets are valued at no more than the value for which they are insured. D) The going-concern assumption - one reason for valuing assets such as buildings and equipment at cost rather than at their current market values is the assumption that the business will use these assets rather than sell them.

42) Each year, the accountant for Southern Real Estate Company adjusts the recorded value of each asset to its market value. Using these market value figures on the balance sheet violates:

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A) B) C) D)

The accounting equation. The stable-dollar assumption. The business entity concept. The cost principle.

43) The owner of Westhampton Fish Eatery purchased a new car for his daughter who is away at college at a cost of $43,000 and reported this amount as Delivery Vehicle in the restaurant's balance sheet. The reporting of this item in this manner violated the: A) B) C) D)

Cost principle. Business entity concept. Objectivity principle. Going-concern assumption.

44) Eton Corporation purchased land in Year 1 for $190,000. In Year 10, it purchased a nearly identical parcel of land for $430,000. Eton valued these two parcels of land at a combined value of $860,000 in the balance sheet prepared at the end of Year 10. Reporting the land in this manner violated the: A) B) C) D)

Cost principle. Principle of the business entity. Objectivity principle. Going-concern assumption.

45) Bob Bertolucci, owner of Bob’s Bazaar, also owns a personal residence that costs $575,000. The market value of his residence is $725,000. During preparation of the financial statements for Bob’s Bazaar, the accounting principle most relevant to the presentation of Bob’s home is:

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A) B) C) D)

46)

Which of the following will not cause a change in the owners' equity of a business? A) B) C) D)

47)

The concept of the business entity. The cost principle. The going-concern assumption. The objectivity principle.

Purchase of land with cash. Withdrawal of cash by the owner. Sale of land at a profit. Losses from unprofitable operations.

Which of the following is correct when a corporation uses cash to pay for an expense? A) B) C) D)

Total assets will decrease. Retained earnings will increase. Owners' equity will increase. Liabilities will increase.

48) Deer Park Corporation recently borrowed $70,000 cash from its bank. Which of the following was unaffected by this transaction? A) B) C) D)

Assets. Liabilities. Owners' equity. Cash.

49) Which of the following transactions would cause an increase in both assets and owners' equity?

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A) B) C) D)

Investment of cash in the business by the owner. Sale of land for a price less than its cost. Borrowing money from a bank. Sale of land for cash at a price equal to its cost.

50) A transaction caused an increase in both assets and owners' equity. This transaction could have been resulted from the: A) B) C) D)

51)

The amount of owners' equity in a business is not affected by: A) B) C) D)

52)

The percentage of total assets held in cash. The investments made in the business by the owner. The profitability of the business. The amount of dividends paid to stockholders.

Decreases in owners' equity are caused by: A) B) C) D)

53)

Sale of services to a customer. Sale of land for a price less than its cost. Borrowing money from a bank. Sale of land for cash at a price equal to its cost.

Purchases of assets and payment of liabilities. Purchases of assets and incurrence of liabilities. Payment of liabilities and unprofitable operations. Distributions of assets to the owners and unprofitable operations.

Which of the following transactions would cause a change in owners' equity?

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A) B) C) D)

54)

Repayment of the principal on a bank loan. Purchase of a delivery truck on credit. Sale of land on credit for a price above cost. Borrowing money from a bank.

On the statement of financial position, how are assets and liabilities normally presented?

A) Assets are presented in order of liquidity; liabilities are presented in the order in which they become due. B) Assets are presented in the order in which they become due; liabilities are presented in their order of permanence. C) Assets are presented in order of profitability; liabilities are presented in order of liquidity. D) Assets are presented in order of liquidity; liabilities are presented in order of profitability.

55) Which of the following assets would most likely be listed last on a statement of financial position? A) B) C) D)

Land. Cash. Accounts receivable. Equipment.

56) Which of the following liabilities would most likely be listed last on a statement of financial position? A) B) C) D)

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Bonds payable, due in 20 years. Accounts payable. Note payable, due in 3 years. Income taxes payable.

57) If a transaction causes an asset account to decrease, which of the following related effects may occur? A) B) C) D)

58)

An increase of equal amount in an owners' equity account. An increase in a liability account. An increase of equal amount in another asset account. An increase in the combined total of liabilities and owners' equity.

A payment of a business debt not including interest: A) B) C) D)

Decreases total assets. Increases total liabilities. Increases the owners' equity in the business. Decreases the owners' equity in the business.

59) If total assets equal $262,000 and total liabilities equal $198,500, the total owners' equity must equal: A) B) C) D)

$63,500. Cannot be determined from the information given. $262,000. $460,500.

60) If total assets equal $270,000 and total liabilities equal $202,500, the total owners' equity must equal: A) B) C) D)

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$472,500. $67,500. $270,000. Cannot be determined from the information given.

61) If total assets equal $346,000 and total owners' equity equal $120,500, then total liabilities must equal: A) B) C) D)

$225,500. $466,500. Cannot be determined from the information given. $120,500.

62) If total assets equal $345,000 and total owners' equity equal $120,000, then total liabilities must equal: A) B) C) D)

63)

Owners’ equity in a business increases as a result of which of the following? A) B) C) D)

64)

$465,000. $225,000. $120,000. Cannot be determined from the information given.

Payments of cash to the owners. Losses from unprofitable operation of the business. Earnings from profitable operation of the business. Borrowing from a commercial bank.

Owners’ equity in a business decreases as a result of which of the following? A) B) C) D)

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Investments of cash by the owners. Profits from operating the business. Losses from unprofitable operation of the business. Repaying a loan to a commercial bank.

65)

To appear in a balance sheet of a business entity, an asset need not: A) B) C) D)

66)

Be an economic resource. Have a ready market value. Be expected to benefit future operations. Be owned by the business.

A balance sheet:

A) Provides owners, investors, and other interested parties with all the financial information they need to evaluate the financial strength, profitability, and future prospects of a given business entity. B) Shows the current market value of the owners' equity in the business at the balance sheet date. C) Assists creditors in evaluating the debt-paying ability of a business by showing the assets and liabilities of the business, plus the assets and liabilities of its owner (or owners). D) Shows the assets, liabilities, and owners' equity of a business entity, valued in conformity with generally accepted accounting principles.

67)

Which of the following is correct if a company purchases equipment for $70,000 cash? A) B) C) D)

68)

Total assets will increase by $70,000. Total assets will decrease by $70,000. Total assets will remain the same. Total owners' equity will decrease.

If a company purchases equipment for $65,000 by issuing a note payable: A) B) C) D)

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Total assets will increase by $65,000. Total assets will decrease by $65,000. Total assets will remain the same. Total owners' equity will decrease.

69)

If a company has a profit: A) B) C) D)

70)

Assets will be equal to liabilities plus owners' equity. Assets will be less than liabilities plus owners' equity. Assets will be greater than liabilities plus owners' equity. Owners' equity will be greater than its assets.

Capital stock represents:

A) The amount invested in the business by stockholders when shares of stock were initially issued by a corporation. B) The owners' equity for a business organized as a corporation. C) The owners' equity accumulated through profitable operations that have not been paid out as dividends. D) The price paid by the current owners to acquire shares of stock in the corporation, regardless of whether they bought the shares directly from the corporation or from another stockholder.

71) The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is: A) B) C) D)

72)

Accounts receivable. Cash. Capital stock. Retained earnings.

Retained earnings appears on:

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A) B) C) D)

The income statement. The balance sheet. The statement of cash flows. All three of the financial statements.

73) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 17,500 $ 243,000 ? $ 183,000 $ 163,000

Accounts Receivable Cash Equipment Notes Payable

$ 43,000 ? $ 123,000 $ 193,000

If Capital Stock is $263,000, what is the December 31, Year 1 cash balance? A) B) C) D)

$87,500. $95,500. $44,500. $636,500.

74) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 16,000 240,000 ? 180,000 160,000

Accounts Receivable Cash Equipment Notes Payable

$ 40,000 ? 120,000 190,000

If Capital Stock is $260,000, what is the December 31, Year 1 cash balance?

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A) B) C) D)

$86,000. $94,000. $46,000. $686,000.

75) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 11,000 $ 230,000 ? $ 170,000 $ 150,000

Accounts Receivable Cash Equipment Notes Payable

$ 30,000 ? $ 110,000 $ 180,000

If Capital Stock is $310,000, total assets of Braun Corporation at December 31, Year 1, amounts to: A) B) C) D)

$651,000. $881,000. $681,000. $91,000.

76) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 16,000 240,000 ? 180,000 160,000

Accounts Receivable Cash Equipment Notes Payable

$ 40,000 ? 120,000 190,000

If Capital Stock is $320,000, total assets of Braun Corporation at December 31, Year 1, amounts to:

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A) B) C) D)

$686,000. $926,000. $726,000. $106,000.

77) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 14,500 $ 237,000 ? $ 177,000 $ 157,000

Accounts Receivable Cash Equipment Notes Payable

$ 37,000 ? $ 117,000 $ 187,000

If Cash at December 31, Year 1, is $83,000, Capital Stock is: A) B) C) D)

$255,500. $292,500. $606,500. $165,000.

78) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 16,000 240,000 ? 180,000 160,000

Accounts Receivable Cash Equipment Notes Payable

$ 40,000 ? 120,000 190,000

If Cash at December 31, Year 1, is $86,000, Capital Stock is:

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A) B) C) D)

$260,000. $300,000. $620,000. $168,000.

79) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 17,500 $ 243,000 ? $ 183,000 $ 163,000

Accounts Receivable Cash Equipment Notes Payable

$ 43,000 ? $ 123,000 $ 193,000

If Cash at December 31, Year 1, is $29,000, total owners' equity is: A) B) C) D)

$163,000. $373,500. $621,000. $410,500.

80) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 16,000 240,000 ? 180,000 160,000

Accounts Receivable Cash Equipment Notes Payable

$ 40,000 ? 120,000 190,000

If Cash at December 31, Year 1, is $26,000, total owners' equity is:

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A) B) C) D)

$160,000. $366,000. $606,000. $400,000.

81) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 12,000 $ 232,000 ? $ 172,000 $ 152,000

Accounts Receivable Cash Equipment Notes Payable

$ 32,000 ? $ 112,000 $ 182,000

If Cash at December 31, Year 1, is $58,000, total assets amounts to: A) B) C) D)

$574,000. $758,000. $618,000. $606,000.

82) At December 31, Year 1, the accounting records of Braun Corporation contain the following items: Accounts Payable Land Capital Stock Building Retained Earnings

$ 16,000 240,000 ? 180,000 160,000

Accounts Receivable Cash Equipment Notes Payable

$ 40,000 ? 120,000 190,000

If Cash at December 31, Year 1, is $66,000, total assets amounts to:

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A) B) C) D)

$606,000. $806,000. $662,000. $646,000.

83) At December 31, Year 1, the accounting records of Hercules Manufacturing, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 12,000 90,000 250,000 135,000 ?

Accounts Receivable Cash Equipment Capital Stock

$ 30,000 7,000 ? 188,000

If total assets of Hercules Manufacturing, Incorporated are $556,000, Equipment is carried in Hercules Manufacturing accounting records at: A) B) C) D)

$377,000. $179,000. $150,000. $90,000.

84) At December 31, Year 1, the accounting records of Hercules Manufacturing, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 12,000 90,000 250,000 135,000 ?

Accounts Receivable Cash Equipment Capital Stock

$ 30,000 7,000 ? 188,000

If total assets of Hercules Manufacturing, Incorporated are $556,000, Retained Earnings at December 31, Year 1, must be:

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A) B) C) D)

$811,000. $180,000. $221,000. $335,000.

85) At December 31, Year 1, the accounting records of Hercules Manufacturing, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 12,000 90,000 250,000 135,000 ?

Accounts Receivable Cash Equipment Capital Stock

$ 30,000 7,000 ? 188,000

If Retained Earnings at December 31, Year 1, is $140,000, total assets amounts to: A) B) C) D)

$98,000. $377,000. $475,000. $188,000.

86) At December 31, Year 1, the accounting records of Hercules Manufacturing, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 12,000 90,000 250,000 135,000 ?

Accounts Receivable Cash Equipment Capital Stock

$ 30,000 7,000 ? 188,000

If Retained Earnings at December 31, Year 1, is $100,000, Equipment is carried in Hercules Manufacturing, Incorporated accounting records at:

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A) B) C) D)

$42,000. $58,000. $43,500. $345,000.

87) At December 31, Year 1, the accounting records of Hercules Manufacturing, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 12,000 90,000 250,000 135,000 ?

Accounts Receivable Cash Equipment Capital Stock

$ 30,000 7,000 ? 188,000

Assume that the Equipment shown above was acquired by the business five years ago and has a book value of $156,000, but has a current appraised value of $200,000. Hercules Manufacturing’s Retained Earnings at December 31, Year 1, amounts to: A) B) C) D)

$533,000. $345,000. $198,000. $356,000.

88) At December 31, Year 1 the accounting records of Gordon, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 2,500 30,000 31,250 ? 125,000

Accounts Receivable Cash Equipment Capital Stock

$ 18,750 ? 40,000 12,500

If the Notes Payable is $10,000, the December 31, Year 1 cash balance is:

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A) B) C) D)

$60,000. $160,000. $30,000. $20,000.

89) At December 31, Year 1 the accounting records of Gordon, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 2,500 30,000 31,250 ? 125,000

Accounts Receivable Cash Equipment Capital Stock

$ 18,750 ? 40,000 12,500

If the Notes Payable balance is $25,000, then the total assets of Gordon, Incorporated at December 31, Year 1 amount to: A) B) C) D)

$27,500. $152,500. $120,000. $165,000.

90) At December 31, Year 1 the accounting records of Gordon, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 2,500 30,000 31,250 ? 125,000

Accounts Receivable Cash Equipment Capital Stock

$ 18,750 ? 40,000 12,500

If the Cash balance at December 31, Year 1 is $67,500, the Notes Payable balance is:

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A) B) C) D)

$118,750. $47,500. $137,500. $140,000.

91) At December 31, Year 1 the accounting records of Gordon, Incorporated contain the following items: Accounts Payable Land Building Notes Payable Retained Earnings

$ 2,500 30,000 31,250 ? 125,000

Accounts Receivable Cash Equipment Capital Stock

$ 18,750 ? 40,000 12,500

If the Cash balance at December 31, Year 1 is $62,500 then Total Liabilities amounts to: A) B) C) D)

$42,500. $140,000. $45,000. $182,500.

92) Which of the following is correct if at the end of Crystal Imports’ first year of operations, Assets are $800,000 and Owners' Equity is $720,000? A) B) C) D)

The owner (s) must have invested $800,000 to start the business. The business must be operating profitably. Liabilities are $80,000. Liabilities are $1,520,000.

93) During the current year, the assets of Wheatley’s increased by $362,000, and the liabilities increased by $260,000. The owners' equity in the business must have:

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A) B) C) D)

Decreased by $102,000. Decreased by $622,000. Increased by $102,000. Increased by $622,000.

94) The total liabilities of Hogan’s Company on the balance sheet are $270,000; this amount is equal to three-fourths of the total assets. What is the amount of owners' equity? A) B) C) D)

$202,500. $90,000. $360,000. $630,000.

95) Twenty percent of the total assets of Shanahan Corporation have been financed through borrowing. The total liabilities of the company are $380,000. What is the amount of owners' equity? A) B) C) D)

$76,000. $1,900,000. $1,520,000. $2,280,000.

96) Thirty percent of the total assets of Shanahan Corporation have been financed through borrowing. The total liabilities of the company are $600,000. What is the amount of owners' equity? A) B) C) D)

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$180,000. $2,000,000. $1,400,000. $2,600,000.

97) A transaction caused a $60,000 increase in both total assets and total liabilities. This transaction could have been which of the following? A) Purchase for office equipment for $60,000 cash. B) Purchase of office equipment for $120,000, paying $60,000 cash and issuing a note payable for the balance. C) Repayment of a $60,000 bank loan. D) Investment of $60,000 cash in the business by the owner.

98) If $9,600 cash and a $31,000 note payable are given in exchange for some office machines to be used in a business: A) B) C) D)

Total assets are increased. Total liabilities are decreased. Total assets are decreased. The owners' equity is increased.

99) If during the current year, liabilities of Corbett's Store increased by $224,000 and owners' equity increased by $162,000, then: A) B) C) D)

Assets at the end of the year total $386,000. Assets at the end of the year total $62,000. Assets increased during the year by $386,000. Assets decreased during the year by $62,000.

100) If during the current year, liabilities of Corbett’s Store increased by $220,000 and owners' equity increased by $160,000, then: A) B) C) D)

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Assets at the end of the year total $380,000. Assets at the end of the year total $60,000. Assets increased during the year by $380,000. Assets decreased during the year by $60,000.

101) If during the current year, liabilities of Hayden Travel decreased by $50,000 and owners' equity increased by $75,000, then: A) B) C) D)

Assets at the end of the year total $125,000. Assets at the end of the year total $25,000. Assets increased during the year by $25,000. Assets decreased during the year by $125,000.

102) At the end of the current year, the owners' equity in Barclay Bakery is $236,000. During the year, the assets of the business had increased by $110,000 and the liabilities had increased by $67,000. Owners' equity at the beginning of the year must have been: A) B) C) D)

$193,000. $169,000. $279,000. $413,000.

103) At the end of the current year, the owners' equity in Barclay Bakery is $246,000. During the year, the assets of the business had increased by $120,000 and the liabilities had increased by $72,000. Owners' equity at the beginning of the year must have been: A) B) C) D)

$198,000. $174,000. $284,000. $438,000.

104) At the end of the current year, the owners' equity in Durante Company is $354,000. During the year, the assets of the business had increased by $62,000 and the liabilities had increased by $115,000. Owners' equity at the beginning of the year must have been:

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A) B) C) D)

$407,000. $301,000. $531,000. $177,000.

105) At the end of the current year, the owners' equity in Durante Company is $360,000. During the year, the assets of the business had increased by $68,000 and the liabilities had increased by $118,000. Owners' equity at the beginning of the year must have been: A) B) C) D)

$410,000. $310,000. $546,000. $174,000.

106) During the current year, the assets of Quality Stairs increased by $166,000 and the liabilities decreased by $6,000. If the owners' equity in the business is $466,000 at the end of the year, the owners' equity at the beginning of the year must have been: A) B) C) D)

$626,000. $294,000. $638,000. $306,000.

107) During the current year, the assets of Quality Stairs increased by $175,000 and the liabilities decreased by $15,000. If the owners' equity in the business is $475,000 at the end of the year, the owners' equity at the beginning of the year must have been: A) B) C) D)

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$335,000. $285,000. $665,000. $615,000.

108)

An expense is best defined as: A) B) C) D)

109)

Any payment of cash for the benefit of the company. Past, present, or future payments of cash required to generate revenues. Past payments of cash required to generate revenues. Future payments of cash required to generate revenues.

A revenue transaction may result in all of the following except: A) B) C) D)

An increase in assets. An increase in owners' equity. A positive cash flow in either the past, present, or future. An increase in liabilities.

110) Astoria Company had the following transactions during the month of August Year 1:(1) Cash received from bank loans was $27,000.(2) Dividends of $10,200 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $40,500(4) Expenses incurred and paid were $29,500.What amount of net income will be reported on an income statement for the month of August? A) B) C) D)

$27,000. $11,000. $0. $40,500.

111) Astoria Company had the following transactions during the month of August Year 1:(1) Cash received from bank loans was $20,000.(2) Dividends of $9,500 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $33,500.(4) Expenses incurred and paid were $26,000.What amount of net income will be reported on an income statement for the month of August?

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A) B) C) D)

$20,000. $7,500. $0. $33,500.

112) Astoria Company had the following transactions during the month of August Year 1:(1) Cash received from bank loans was $28,000.(2) Dividends of $10,300 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $41,500(4) Expenses incurred and paid were $30,000.At the beginning of August, Year 1, owners' equity in Astoria was $168,000. Given the transactions of August, what will be the owners' equity be at the end of the month? A) B) C) D)

$179,500. $157,700. $209,500. $169,200.

113) Astoria Company had the following transactions during the month of August Year 1:(1) Cash received from bank loans was $20,000.(2) Dividends of $9,500 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $33,500.(4) Expenses incurred and paid were $26,000.At the beginning of August, Year 1, owners' equity in Astoria was $160,000. Given the transactions of August, what will be the owners' equity be at the end of the month? A) B) C) D)

$167,500. $150,500. $193,500. $158,000.

114) Astoria Company had the following transactions during the month of August Year 1:(1) Cash received from bank loans was $25,000.(2) Dividends of $10,000 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $38,500(4) Expenses incurred and paid were $28,500.For the month of August, net cash flows from operating activities for Astoria were:

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A) B) C) D)

$38,500. $10,000. $25,000. $28,500.

115) Astoria Company had the following transactions during the month of August Year 1:(1) Cash received from bank loans was $20,000.(2) Dividends of $9,500 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $33,500.(4) Expenses incurred and paid were $26,000.For the month of August, net cash flows from operating activities for Astoria were: A) B) C) D)

$33,500. $7,500. $20,000. $26,000.

116) Waldorf Company had the following transactions during the month of October Year 1:(1) Cash received from bank loans was $60,000.(2) Dividends of $18,500 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $100,500.(4) Expenses incurred and paid were $78,000.What amount of net income will be reported on an income statement for the month of October? A) B) C) D)

$18,500. $22,500. $78,000. $100,500.

117) Waldorf Company had the following transactions during the month of October Year 1:(1) Cash received from bank loans was $60,000.(2) Dividends of $18,500 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $100,500.(4) Expenses incurred and paid were $78,000.At the beginning of October, owners' equity in Waldorf was $480,000. Given the transactions in October Year 1, what will be the owners' equity at the end of the month?

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A) B) C) D)

$480,000. $484,000. $502,500. $580,500.

118) Waldorf Company had the following transactions during the month of October Year 1:(1) Cash received from bank loans was $60,000.(2) Dividends of $18,500 were paid to stockholders in cash.(3) Revenues earned and received in cash amounted to $100,500.(4) Expenses incurred and paid were $78,000.For the month of October, net cash flows from operating activities for Waldorf were: A) B) C) D)

119)

Which of the following activities is not a category into which cash flows are classified? A) B) C) D)

120)

$18,500. $22,500. $78,000. $100,500.

Marketing activities. Operating activities. Financing activities. Investing activities.

A strong statement of cash flows indicates that significant cash is being generated by: A) B) C) D)

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Operating activities. Financing activities. Investing activities. Effective tax planning.

121) During the month of May, Henderson Company had the following transactions:(1) Revenues of $59,000 were earned and received in cash.(2) Bank loans of $8,250 were paid off.(3) Equipment of $19,000 was purchased.(4) Expenses of $36,300 were paid.(5) Stockholders purchased additional shares for $21,000 cash.A statement of cash flows for May would report net cash flows from operating activities of: A) B) C) D)

$59,000. $16,450. $22,700. $31,750.

122) During the month of May, Henderson Company had the following transactions:(1) Revenues of $60,000 were earned and received in cash.(2) Bank loans of $9,000 were paid off.(3) Equipment of $20,000 was purchased.(4) Expenses of $36,800 were paid.(5) Stockholders purchased additional shares for $22,000 cash.A statement of cash flows for May would report net cash flows from operating activities of: A) B) C) D)

$60,000. $16,200. $23,200. $20,000.

123) During the month of August, Boyce Company had the following transactions:(1) Revenues of $110,000 were earned and received in cash.(2) Bank loans of $10,500 were paid off.(3) Equipment of $30,000 was purchased with cash.(4) Expenses of $68,600 were paid.(5) Stockholders purchased additional shares for $34,000 cash.A statement of cash flows for August, would report net cash flows from operating activities of: A) B) C) D)

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$23,500. $34,900. $30,000. $41,400.

124) During the month of August, Boyce Company had the following transactions:(1) Revenues of $120,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) Equipment of $40,000 was purchased with cash.(4) Expenses of $73,600 were paid.(5) Stockholders purchased additional shares for $44,000 cash.A statement of cash flows for August, would report net cash flows from operating activities of: A) B) C) D)

$26,000. $32,400. $40,000. $46,400.

125) During the month of August, Boyce Company had the following transactions:(1) Revenues of $124,000 were earned and received in cash.(2) Bank loans of $21,000 were paid off.(3) Equipment of $44,000 was purchased with cash.(4) Expenses of $75,600 were paid.(5) Stockholders purchased additional shares for $48,000 cash.A statement of cash flows for August, would report net cash flows from financing activities of: A) B) C) D)

$31,400. $27,000. $44,000. $48,400.

126) During the month of August, Boyce Company had the following transactions:(1) Revenues of $120,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) Equipment of $40,000 was purchased with cash.(4) Expenses of $73,600 were paid.(5) Stockholders purchased additional shares for $44,000 cash.A statement of cash flows for August, would report net cash flows from financing activities of: A) B) C) D)

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$40,000. $26,000. $46,400. $32,400.

127) During the month of August, Boyce Company had the following transactions:(1) Revenues of $114,000 were earned and received in cash.(2) Bank loans of $13,500 were paid off.(3) Equipment of $34,000 was purchased with cash.(4) Expenses of $70,600 were paid.(5) Stockholders purchased additional shares for $38,000 cash.A statement of cash flows for August, would report net cash flows from investing activities of: A) B) C) D)

$24,500. $33,900. $34,000. $43,400.

128) During the month of August, Boyce Company had the following transactions:(1) Revenues of $120,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) Equipment of $40,000 was purchased with cash.(4) Expenses of $73,600 were paid.(5) Stockholders purchased additional shares for $44,000 cash.A statement of cash flows for August, would report net cash flows from investing activities of: A) B) C) D)

($26,000). $32,400. ($40,000). $46,400.

129) During the month of August, Boyce Company had the following transactions:(1) Revenues of $114,000 were earned and received in cash.(2) Bank loans of $13,500 were paid off.(3) Equipment of $34,000 was purchased with cash.(4) Expenses of $70,600 were paid.(5) Stockholders purchased additional shares for $38,000 cash.A statement of cash flows for August, would report an increase in cash of: A) B) C) D)

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$24,500. $33,900. $34,000. $43,400.

130) During the month of August, Boyce Company had the following transactions:(1) Revenues of $120,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) Equipment of $40,000 was purchased with cash.(4) Expenses of $73,600 were paid.(5) Stockholders purchased additional shares for $44,000 cash.A statement of cash flows for August, would report an increase in cash of: A) B) C) D)

$26,000. $32,400. $40,000. $46,400.

131) During the month of February, Farness Company had the following transactions:(1) Revenues of $225,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) New bank loans of $15,000 were incurred.(4) Equipment of $40,000 was purchased with cash.(5) Equipment was sold for its book value of $36,000. Cash was received.(6) Expenses of $171,400 were paid.(7) Stockholders purchased additional shares for $50,000 cash.A statement of cash flows for February, would report net cash flows from operating activities of: A) B) C) D)

$4,000. $35,600. $53,600. $96,600.

132) During the month of February, Farness Company had the following transactions:(1) Revenues of $225,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) New bank loans of $15,000 were incurred.(4) Equipment of $40,000 was purchased with cash.(5) Equipment was sold for its book value of $36,000. Cash was received.(6) Expenses of $171,400 were paid.(7) Stockholders purchased additional shares for $50,000 cash.A statement of cash flows for February, would report net cash flows from financing activities of: A) $4,000. B) $47,000. C) $83,000. D) $96,600.

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133) During the month of February, Farness Company had the following transactions:(1) Revenues of $225,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) New bank loans of $15,000 were incurred.(4) Equipment of $40,000 was purchased with cash.(5) Equipment was sold for its book value of $36,000. Cash was received.(6) Expenses of $171,400 were paid.(7) Stockholders purchased additional shares for $50,000 cash.A statement of cash flows for February, would report net cash flows from investing activities of: A) ($4,000). B) $47,000. C) $53,600. D) $76,000.

134) During the month of February, Farness Company had the following transactions:(1) Revenues of $225,000 were earned and received in cash.(2) Bank loans of $18,000 were paid off.(3) New bank loans of $15,000 were incurred.(4) Equipment of $40,000 was purchased with cash.(5) Equipment was sold for its book value of $36,000. Cash was received.(6) Expenses of $171,400 were paid.(7) Stockholders purchased additional shares for $50,000 cash.A statement of cash flows for February, would report an increase in cash of: A) ($4,000). B) $47,000. C) $53,600. D) $96,600.

135)

If cash flows from operating activities is a positive amount, then: A) B) C) D)

The amount will be shown on the statement of cash flows in parentheses. The company must have had a net profit for the year. The company must have paid off more debts than it earned during the year. The company may still have a decrease in the total amount of cash for the period.

136) The change in owners' equity due to only revenue and expense transactions is explained by the: Version 1

A) B) C) D)

Statement of cash flows. Statement of financial position. Income statement. Tax return.

137) Which one of the following is not considered as one of the three primary financial statements? A) B) C) D)

138)

The way in which financial statements relate is known as: A) B) C) D)

139)

Solvency. Objectivity. Articulation. Entity.

Which business organization is recognized as a separate legal entity under the law? A) B) C) D)

140)

Balance sheet. Income statement. Statement of cash flows. Statement of budgeting activities.

Corporation. Sole proprietorship. Partnership. Allbusiness organizations are separate legal entities.

Retained earnings is:

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A) B) C) D)

141)

Which of the following best describes liquidity? A) B) C) D)

142)

The ability to increase the value of retained earnings. The ability to pay the debts of the company as they become due. Being able to buy everything the company requires for cash. Purchasing everything the company requires on credit.

Profitability may be defined as: A) B) C) D)

143)

The positive cash flows of a company. The net worth of a company. The owners' equity that has accumulated as a result of profitable operations. Equal to the total assets of a company.

The ability to pay the debts of the company as they become due. The ability to increase retained earnings. Distributing dividends out of retained earnings. Having excess cash.

The principle of adequate disclosure means that a company should disclose:

A) Only the important monetary information. B) All confidential information regarding the company. C) Any financial facts that a reasonably informed person would consider necessary for the proper interpretation of the financial statements. D) Only subsequent events.

144)

Which of the following statements regarding liquidity and profitability is not true?

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A) B) C) D) profitably.

145)

If a business is unable to pay its debts as they come due, it is operating unprofitably. A business may be liquid, yet operate unprofitably for several years. A business may operate profitably, yet be unable to meet its obligations. In order to survive in the long run, a business must both remain liquid and operate

The concept of adequate disclosure means that:

A) The accounting department of a business must inform management of the accounting principles used in preparing the financial statements. B) The company must inform users of any significant facts necessary for proper interpretation of the financial statements, including events occurring after the financial statement date. C) The independent auditors must disclose in the financial statements any and all errors detected in the company's accounting records. D) The financial statements should include a comprehensive list of each transaction that occurred during the year.

146) According to the Sarbanes-Oxley Act, CEOsand CFOsmust certify to the accuracy of their company's financial statements: A) B) C) D) CPAsdo.

147)

Monthly and Quarterly. Quarterly and Annually. Monthly and Annually. CEOsand CFOsare not required to certify to the company's financial statement; only

A strong statement of financial position shows:

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A) B) C) D)

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Large amounts of liquid assets relative to the liabilities due in the near future. Large amounts of debt relative to stockholders’ equity. That cash is being generated by operations. That profits are being generated by operations.

Answer Key Test name: Chapter 02 Test Bank - Algorithmic and Static 1) FALSE 2) TRUE 3) TRUE 4) TRUE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) FALSE 15) FALSE 16) FALSE 17) TRUE 18) FALSE 19) FALSE 20) TRUE 21) FALSE 22) FALSE 23) TRUE 24) FALSE 25) FALSE 26) TRUE Version 1

27) FALSE 28) TRUE 29) TRUE 30) TRUE 31) FALSE 32) FALSE 33) B 34) C 35) C 36) C 37) B 38) D 39) A 40) B 41) C 42) D 43) B 44) A 45) A 46) A 47) A 48) C 49) A 50) A 51) A 52) D 53) C 54) A 55) A 56) A Version 1

57) C 58) A 59) A 60) B 61) A 62) B 63) C 64) C 65) B 66) D 67) C 68) A 69) A 70) A 71) D 72) B 73) C 74) C 75) A 76) A 77) B 78) B 79) D 80) D 81) D 82) D 83) B 84) C 85) C 86) B Version 1

87) C 88) C 89) D 90) B 91) C 92) C 93) C 94) B 95) C 96) C 97) B 98) A 99) C 100) C 101) C 102) A 103) A 104) A 105) A 106) B 107) B 108) B 109) D 110) B 111) B 112) D 113) D 114) B 115) B 116) B Version 1

117) B 118) B 119) A 120) A 121) C 122) C 123) D 124) D 125) B 126) B 127) C 128) C 129) B 130) B 131) C 132) B 133) A 134) D 135) D 136) C 137) D 138) C 139) A 140) C 141) B 142) B 143) C 144) A 145) B 146) B Version 1

147) A

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CHAPTER 3: PROBLEM MATERIAL ESSAY. Write your answer in the space provided or on a separate sheet of paper. 1) Listed below are nine technical accounting terms introduced in this chapter:Matching principleDouble-entryAccounting cycleDebitCreditLedgerTrial balanceJournalConservatismMatch each term to its definition below.(A.) The accounting record in which transactions are initially recorded. (B.) A concept designed to avoid overstatement of the financial strength of a company. (C.) A schedule prepared to determine the equality of the debit and credit amounts in the ledger. (D.) An amount entered in the right side of a ledger account. (E.) The sequence of procedures involved in recording transactions, processing the information in the accounting system, and summarizing the information in the form of financial statements. (F.) The accounting record that contains a separate account for each type of asset and liability, and for each element of owners' equity appearing in the balance sheet. (G.) The system of accounting in which every business transaction is recorded by equal dollar amounts of debit and credit entries.

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2) On July 20, Year 1, Mollie Rose began a new business called MR Printing, which provides typing, duplicating, and printing services. The following six transactions were completed by the business during July, Year 1. a) Issued to Rose 1,000 shares of capital stock in exchange for her investment of $200,000 cash. b) Purchased land and a small building for $450,000, paying $165,000 cash and signing a note payable for the balance. The land was considered to be worth $240,000 and the building $210,000. c) Purchased office equipment for $30,000 from Quality Interiors, Incorporated. Paid $17,000 cash and agreed to pay the balance within 60 days. d) Purchased a motorcycle on credit for $3,400 to be used for making deliveries to customers. Mollie agreed to make payment to Spokes, Incorporated. within 10 days. e) Paid in full the account payable to Spokes, Incorporated. f) Borrowed $30,000 from a bank and signed a note payable due in six months. Required: (1) Record the above transactions directly in the T accounts below. Identify each entry in a T account with the letter shown for the transaction. Cash Debit Credit

Office Equipment Debit Credit

Notes Payable Debit Credit

Land Debit Credit

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Delivery Equipment Debit Credit

Accounts Payable Debit Credit

Buildings Debit Credit

Capital Stock Debit Credit

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(2) Prepare a trial balance at July 31, Year 1.

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3) On May 15, Year 1, George Manny began a new business, called Sounds, Incorporated, a recording studio to be rented out to artists on an hourly or daily basis. The following six transactions were completed by the business during May, Year 1: a) Issued to Manny 5,000 shares of capital stock in exchange for his investment of $200,000 cash. b) Purchased land and a building for $410,000, paying $100,000 cash and signing a note payable for the balance. The land was considered to be worth $310,000 and the building $100,000. c) Installed special insulation and soundproofing throughout most of the building at a cost of $120,000. Paid $32,000 cash and agreed to pay the balance in 60 days. Manny considers these items to be additional costs of the building. (D.) Purchased office furnishings costing $18,000 and recording equipment costing $88,400 from Music Supplies. Sounds paid $28,000 cash with the balance due in 30 days. d) Borrowed $180,000 from a bank by signing a note payable. e) Paid the full amount of the liability to Music Supplies arising from the purchases in D above. Required: (1) Record the above transactions directly in the T accounts below. Identify each entry in a T account with the letter shown for the transaction. Cash Debit Credit

Office Furnishings Debit Credit

Notes Payable Debit Credit

Land Debit Credit

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Recording Equipment Debit Credit

Accounts Payable Debit Credit

Buildings Debit Credit

Capital Stock Debit Credit

(2) Prepare a trial balance at May 31, Year 1.

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4) A list of accounts for Harding Company is provided below.1.Cash2.Acccounts Receivable3.Land4.Building5.Office Equipment6.Notes Payable7.Accounts Payable8.Capital Stock9.Retained EarningsRequired:For each of the transactions listed below, indicate the accounts that would be debited and credited by placing the appropriate number (or numbers) in the space provided. (An example transaction has been completed below.) Transaction Example: Purchased office equipment, paying part cash, with the balance due on account A. Purchased land and a building, paying part cash and issuing a note payable for the balance of the purchase price B. Sold a piece of the company's office equipment at cost; received part of the proceeds in cash, with the balance due in 30 days C. Collected an account receivable

Account(s) Debited 5

Account(s) Credited 1,7

D. Borrowed money from a bank and signed a note payable due in one year E. Paid an account payable F. Issued capital stock in exchange for cash

5) Listed below are accounts of Global Company, each identified by a number.1.Cash2.Acccounts Receivable3.Land4.Building5.Delivery Equipment6.Notes Payable7.Accounts Payable8.Capital Stock9.Retained EarningsRequired: For each of the transactions listed below, indicate the accounts that would be debited and credited by placing the appropriate number (or numbers) in the space provided. (An example transaction has been completed below.) Transaction

Account(s) Debited Example: Purchased delivery equipment, paying 5 part cash and charging the balance on account

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Account(s) Credited 1,7

A. Paid an account payable B. Collected an account receivable C. Issued capital stock in exchange for cash D. Sold some delivery equipment at cost; received part of the proceeds in cash, with the balance due in 60 days E. Purchased land and building paying part cash and signing a note payable for the balance F.Borrowed money from a bank and signed a note payable due in six months

6) Fieldstone, Incorporated had the following transactions during the month of March, the first month of operations for the business:The corporation issued 12,000 shares of capital stock to Sandy Fieldstone in exchange for $120,000 cash.Purchased $73,000 of equipment; made an $18,000 down payment and signed a note payable for the balance.Made payment of $9,000 on the amount owed for equipment.Required: (A) Compute the balance in the Cash account at the end of March. (B) What are the total assets of Fieldstone, Incorporated at the end of March? (C) Compute the balance in the Notes Payable account at the end of March. (D) What is the total amount of owners' equity at the end of March?

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7) Clark Plumbing had the following transactions during the month of June, the first month of operations for the business:The corporation issued 12,000 shares of capital stock to Bill Clark in exchange for his investment of $72,000 cash.Purchased $36,000 of equipment; made an $8,000 down payment and signed a note payable for the balance.Made payment of $4,000 on the amount owed for equipment. (A) Compute the balance in the Cash account at the end of June. (B) What are the total assets of Clark Plumbing at the end of June? (C) Compute the balance in the Notes Payable account at the end of June. (D) What is the total amount of owners' equity at the end of June?

8) Items in the balance sheet are classified into three categories: assets, liabilities, and owners' equity.

Required: (A) Identify by name two ledger accounts in each of the first two categories above (assets and liabilities) and one owners' equity account. State whether each account would normally have a debit or credit balance. (B) Describe briefly the rules of debits and credits as applied to the three categories of balance sheet accounts: asset accounts, liability accounts, and owners' equity accounts.

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