Exam 1: Accounting in Action

The accounting equation, for a corporation, is best expressed as

Profit results when a company's expenses are higher than its revenues.

Employees are an example of an external user.

Mel Green is the proprietor (owner) of Green's, a retailer of athletic apparel. When recording the financial transactions of Green's, Mel does not record an entry for a car he purchased for personal use. Mel took out a personal loan to pay for the car. What accounting assumption guides Mel's behaviour in this situation?

A working knowledge of accounting can be useful to doctors or lawyers.

Each of the following independent situations represents a departure from generally accepted accounting principles: 1. Value Properties owns a number of apartment buildings. In April 2013 a new building was purchased for $1,000,000. Because of the rapid increase in real estate prices, by the time Value's accountant recorded the purchase in July 2013, the estimated value of the property had increased to $1,200,000. The accountant decided to record the new building at $1,200,000. 2. Expat Imports International purchases products in the United States for resale in Canada. The goods they buy in the US are paid for in US dollars. In Expat's financial statements, each amount is identified as being in either US or Canadian dollars, for example as follows: Instructions For each situation, (i) identify which principle has been violated, (ii) describe what the correct accounting treatment would be, and (iii) why the correct treatment provides better information.

The cost of advertising purchased for the month is considered an expense, not an asset because

Which of the following forms of business organizations typically have their shares listed on the Toronto Stock Exchange?

Jackson's Small Engine Repair Shop, a proprietorship, started the year with total assets of $60,000 and total liabilities of $40,000. During the year, the business recorded $100,000 in repair revenues, $55,000 in expenses, and Mike Jackson, the owner, withdrew $10,000. Jackson's Capital balance at the end of the year was

Liabilities are the resources owned by a business that are expected to provide future services or benefits.

Selected transactions for the Barkley Company are listed below: 1. Paid monthly utility bill. 2. Purchased new display case for cash. 3. Paid cash for repair work on security system. 4. Billed customers for services performed. 5. Received cash from customers billed in 4. 6. Withdrew cash for owner's personal use. 7. Incurred advertising expenses on account. 8. Paid monthly rent. 9. Received cash from customers when service was provided. Instructions List the number of the transaction and then describe the effect of each transaction on assets, liabilities, and owner's equity. Sample: Made initial cash investment in the business. The answer would be: Increase in assets and increase in owner's equity.

A service proprietorship shows five transactions summarized below. The effect of each transaction on the accounting equation is shown. Instructions For each transaction, write an explanation of the nature of the transaction.

The economic entity concept requires that an entity's business activities be combined with the activities of its owner for financial reporting purposes.

In each of the following situations, the accountant for Sydney Design Services (Sydney) must decide how to record the information in the financial statements. Sydney is a proprietorship owned and operated by Gloria Steinwald. 1. Gloria would like to borrow money from the bank to expand the business. Since she owns a house that can be pledged as security for a bank loan, she asks the accountant to ensure that the house is shown on Sydney's balance sheet. 2. The accountant is confident that with the new contract that was signed, Sydney will be a successful business for many years to come. However, before that was finalized, he was curious whether there would be any effect on accounting for the assets and liabilities of the business if its ongoing viability had been in doubt. Instructions For each of the situations, identify which generally accepted accounting principle would guide the accountant in deciding how to report the situation, and describe the correct treatment.

Owner's equity, in a proprietorship, is decreased by

The following amounts are the ending balances that form the accounting equation of Anna's Consulting Services. Instructions a. For each amount, indicate whether it is classified as an Asset (A), Liability (L) or Owner Equity (OE). b. Calculate total assets, total liabilities, and total owner equity. Use these amounts to show that the accounting equation is in balance.

Summaries of information from the balance sheets and income statements for four different proprietorships are provided below, with several amounts missing. Instructions Determine the missing amounts.

The Income Statement is sometimes referred to as

The main objective of the financial statements is

For each of the assumptions listed below, fill in the appropriate letter to indicate which of the following accounting assumptions have been violated. a) Monetary Unit Assumption b) Cost Principle 1. Harvester International revalues its financial statements each year to take into consideration the effects of inflation. The company justifies its decision by stating the "inflation adjusted statements more fully reflect the purchasing power of the company's earnings." 2. Ernie began operations 11 years ago and purchased land for $200,000. Ernie has since built a manufacturing plant on this land to use in daily operations. Today Ernie has appraised the value of his land to be $1.5 million. He would like the increase in the value of his land to be reported on the financial statements at $1.5 million.