Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  $60,000. 
B)  $16,200. 
C)  $23,200. 
D)  $20,000. 
A)  $60,000. 
B)  $16,200. 
C)  $23,200. 
D)  $20,000.

Question 3

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:

Accepted Answer

A)  The accounting equation. 
B)  The stable-dollar assumption. 
C)  The business entity concept. 
D)  The cost principle. 
A)  The accounting equation. 
B)  The stable-dollar assumption. 
C)  The business entity concept. 
D)  The cost principle.

Question 4

The sale of additional shares of capital stock will cause treasury stock to increase.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following best defines an asset?

Accepted Answer

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. 
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.

Question 6

Which business organization is recognized as a separate legal entity under the law?

Accepted Answer

A)  Corporation. 
B)  Sole proprietorship. 
C)  Partnership. 
D)  All business organizations are separate legal entities. 
A)  Corporation. 
B)  Sole proprietorship. 
C)  Partnership. 
D)  All business organizations are separate legal entities.

Question 7

If Capital Stock is $260,000, what is the December 31, 2009 cash balance?

Accepted Answer

A)  $86,000. 
B)  $94,000. 
C)  $46,000. 
D)  $686,000. 
A)  $86,000. 
B)  $94,000. 
C)  $46,000. 
D)  $686,000.

Question 8

Blue Wholesale Shirt Co. 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 Co. is considered to be a:

Accepted Answer

A)  borrower. 
B)  liability. 
C)  creditor. 
D)  debtor. 
A)  borrower. 
B)  liability. 
C)  creditor. 
D)  debtor.

Question 9

A statement of cash flows for August, would report net cash flows from investing activities of:

Accepted Answer

A)  $26,000. 
B)  $32,400. 
C)  $40,000. 
D)  $46,400. 
A)  $26,000. 
B)  $32,400. 
C)  $40,000. 
D)  $46,400.

Question 10

Financial statements
A set of financial statements includes three related accounting reports, or statements. In the space provided, list the names of three primary statements, and give a brief description of the accounting information contained in each.

Accepted Answer

* Balance sheet. A report showing at a s

Question 11

Accounting terminology
Listed below are nine technical accounting terms introduced in this chapter:
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.
 $$\begin{array} { | l | l | l | } 
\hline \text { Assets } & \text { Accounting equation } & \text { Inflation } \
\hline \text { Balance Sheet } & \text { Liabilities } & \text { Going concern assumption } \
\hline \text { Cost principle } & \text { Owners' equity } & \text { Liquidity } \
\hline
\end{array}$$

Accepted Answer

(A.) Liquidity; (B.) Going con

Question 12

A transaction caused an increase in both assets and owners' equity. This transaction could have been:

Accepted Answer

A)  A sale of service to a customer producing revenue. 
B)  Sale of land for a price less than its cost. 
C)  Borrowing money from a bank. 
D)  Sale of land for cash at a price equal to its cost. 
A)  A sale of service to a customer producing revenue. 
B)  Sale of land for a price less than its cost. 
C)  Borrowing money from a bank. 
D)  Sale of land for cash at a price equal to its cost.

Question 13

Capital stock represents:

Accepted Answer

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. 
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.

Question 14

An accounting entity may best be described as:

Accepted Answer

A)  An individual. 
B)  A particular economic unit. 
C)  A publicly owned corporation. 
D)  Any corporation, regardless of size. 
A)  An individual. 
B)  A particular economic unit. 
C)  A publicly owned corporation. 
D)  Any corporation, regardless of size.

Question 15

The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is:

Accepted Answer

A)  Accounts receivable. 
B)  Cash. 
C)  Capital stock. 
D)  Retained earnings. 
A)  Accounts receivable. 
B)  Cash. 
C)  Capital stock. 
D)  Retained earnings.

Question 16

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

Accepted Answer

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. 
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.

Question 17

Which of the following statements is not consistent with generally accepted accounting principles relating to asset valuation?

Accepted Answer

A)  Many assets are originally recorded in accounting records at their cost to the business entity. 
B)  Subtracting total liabilities from total assets indicates what the owner's equity in the business is worth under current market conditions. 
C)  Accountants assume that assets such as office supplies, land, and buildings will be used in business operations, rather than being sold at current market prices. 
D)  Accountants prefer to base the valuation of assets upon objective, verifiable evidence rather than upon appraisals or personal opinion. 
A)  Many assets are originally recorded in accounting records at their cost to the business entity. 
B)  Subtracting total liabilities from total assets indicates what the owner's equity in the business is worth under current market conditions. 
C)  Accountants assume that assets such as office supplies, land, and buildings will be used in business operations, rather than being sold at current market prices. 
D)  Accountants prefer to base the valuation of assets upon objective, verifiable evidence rather than upon appraisals or personal opinion.

Question 18

If Cash at December 31, 2009, is $26,000, total owners' equity is:

Accepted Answer

A)  $160,000. 
B)  $366,000. 
C)  $606,000. 
D)  $400,000. 
E)  ($160,000) = $400,000 Total Owners' Equity = $400,000 
A)  $160,000. 
B)  $366,000. 
C)  $606,000. 
D)  $400,000. 
E)  ($160,000) = $400,000 Total Owners' Equity = $400,000

Question 19

The financial statements of a business entity:

Accepted Answer

A)  Include the balance sheet, income statement, and income tax return. 
B)  Provide information about the profitability and financial position of the company. 
C)  Are the first step in the accounting process. 
D)  Are prepared for a fee by the Financial Accounting Standards Board. 
A)  Include the balance sheet, income statement, and income tax return. 
B)  Provide information about the profitability and financial position of the company. 
C)  Are the first step in the accounting process. 
D)  Are prepared for a fee by the Financial Accounting Standards Board.

Question 20

If during the current year, liabilities of Hayden Travel decreased by $50,000 and owners' equity increased by $75,000, then:

Accepted Answer

A)  Assets at the end of the year total $125,000. 
B)  Assets at the end of the year total $25,000. 
C)  Assets increased during the year by $25,000. 
D)  Assets decreased during the year by $125,000. 
A)  Assets at the end of the year total $125,000. 
B)  Assets at the end of the year total $25,000. 
C)  Assets increased during the year by $25,000. 
D)  Assets decreased during the year by $125,000.

Exam 2: Basic Financial Statements

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.

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:

The sale of additional shares of capital stock will cause treasury stock to increase.

Which of the following best defines an asset?

Which business organization is recognized as a separate legal entity under the law?

If Capital Stock is $260,000, what is the December 31, 2009 cash balance?

Blue Wholesale Shirt Co. 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 Co. is considered to be a:

A statement of cash flows for August, would report net cash flows from investing activities of:

Financial statements A set of financial statements includes three related accounting reports, or statements. In the space provided, list the names of three primary statements, and give a brief description of the accounting information contained in each.

A transaction caused an increase in both assets and owners' equity. This transaction could have been:

Capital stock represents:

An accounting entity may best be described as:

The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is:

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

Which of the following statements is not consistent with generally accepted accounting principles relating to asset valuation?

If Cash at December 31, 2009, is $26,000, total owners' equity is:

The financial statements of a business entity:

If during the current year, liabilities of Hayden Travel decreased by $50,000 and owners' equity increased by $75,000, then:

Accounting: Information for Decision Making

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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