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Exam 1: Accounting and Business

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Question 1

Multiple Choice

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Within the United States, the dominant body in the primary development of accounting principles is the

A) American Institute of Certified Public Accountants (AICPA)
B) American Accounting Association (AAA)
C) Financial Accounting Standards Board (FASB)
D) Institute of Management Accountants (IMA)

E) All of the above
F) B) and D)

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Question 2

Multiple Choice

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The monetary unit assumption

A) is only used in the financial statements of manufacturing companies
B) is not important when applying the cost principle
C) requires that different units be used for assets and liabilities
D) requires that economic data be reported in yen in Japan or dollars in the United States

E) B) and D)
F) A) and B)

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D

Question 3

Multiple Choice

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The natural business year is a

The assets and liabilities of Rocky's Day Spa at December 31 and expenses for the year are listed below. The stockholders' equity was $68,000 ($48,000 in Common Stock and $20,000 in Retained Earnings) at January 1. The shareholders invested in an additional $10,000 of common stock during the year. Net income for the year is $45,625. $\begin{array}{|l|c|l|r|}\hline \text { Accounts payable } & \$ 4,375 &\text { Spa operating expense } & \$ 23,760 \\\hline \text { Accounts receivable } &8,490& \text { Office expense } & 2,470 \\\hline \text { Cash } & 13,980& \text {Spa supplies } & 9,230 \\\hline \text { Fees earned } &???& \text { Wages expense } & 26,580 \\\hline \text { Spa furniture \& equipment } & 56,000& \text { Dividends } & 38,170 \\\hline \text { Computers } & 2,130 & \\\hline\end{array}$ ? Prepare an income statement for Rocky's Day Spa for the current year ended December 31.

Many countries outside the United States use financial accounting standards issued by the

The majority of businesses end their fiscal year on December 31.

The balance sheet represents the accounting equation.

The Austin Land Company sold land for $85,000 in cash. The land was originally purchased for $65,000. At the time of the sale, $40,000 was still owed to Regions Bank. After the sale, The Austin Land Company paid off the loan. Explain the effect of the sale and the payoff of the loan on the accounting equation.

Explain the interrelationship between the balance sheet and the statement of cash flows.

The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of stockholders.

Match each of the following characteristics with the financial statement it describes. Each financial statement may be used more than once.

A fiscal year for a business

Indicate how the following transactions affect the accounting equation. ​ (a) The purchase of supplies on account (b) The purchase of supplies for cash (c) Payment of cash dividends to stockholders (d) Revenues received in cash (e) Sale made on account

Bob Johnson is the sole owner of Johnson's Carpet Cleaning Service. Bob purchased a personal automobile for $10,000 cash plus he took out a loan for $20,000 in his name. Describe how this transaction is related to the business entity assumption.

A formal presentation of the accounting equation

A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to

The rights of owners in a corporation are referred to as

If the liabilities owed by a business total $300,000 and stockholders' equity is equal to $300,000, then the assets also total $300,000.

Krammer Company has liabilities equal to one fourth of the total assets. Krammer's stockholders' equity is $45,000. Using the accounting equation, what is the amount of liabilities for Krammer?

About 90% of the businesses in the United States are organized as corporations.