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Exam 1: Accounting and Business

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Question 91

Multiple Choice

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Goods purchased on account for future use in the business, such as supplies, are called

A) prepaid liabilities
B) revenues
C) prepaid expenses
D) liabilities

E) B) and D)
F) C) and D)

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Question 92

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The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities.

A) True
B) False

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Question 93

Multiple Choice

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Match the following characteristics with the form of business entity that best describes it. Each may be used more than once. -Has the ability to obtain large amounts of resources

The accountant for Scott Industries prepared the following list of account balances from the company's records for the year ended December 31. Use this information to answer the question that follows. $\begin{array}{lrlr}\text { Fees earned } & \$ 165,000 & \text { Cash } & \$ 30,000 \\\text { Accounts receivable } & 16,000 & \text { Selling expenses } & 44,000 \\\text { Equipment } & 64,000 & \text { Common stock } & 47,000 \\\text { Accounts payable } & 12,000 & \text { Interest revenue } & 3,000 \\\text { Salaries \& wages expense } & 40,000 & \text { Income taxes expense } & 18,000 \\\text { Income taxes payable } & 5,000 & \text { Rent expense } & 20,000\end{array}$ ​ -Determine the total liabilities at the end of the current year for Scott Industries. ​

Match the following characteristics with the form of business entity that best describes it. Each may be used more than once. -Used by large businesses

An example of a general-purpose financial statement would be a report about projected price increases related to transportation costs.

A summary of cash flows for Evelyn's Event Planning for the year ended December 31 is shown below. Cash receipts: $\begin{array}{lr}\text { Cash received from customers } & \$ 57,360 \\\text { Cash received from bank loan } & 15,000\end{array}$ ? $\begin{array}{lr}\text { Cash payments: }\\\text { Cash paid for oper ating expenses } & \$ 12,120 \\\text { Cash paid for equipment } & 18,070 \\\text { Cash paid for party supplies } & 9,480 \\\text { Dividends } & 12,000\\\\\text { The cash balance as of January } 1&\$15,580\end{array}$ ? Prepare a statement of cash flows for Evelyn's Event Planning for the year ended December 31.

Identify each of the following as either internal or external users of accounting information. $\begin{array} { | l | l | } \hline \text { A. } & \text { Payroll manager } \\\hline \text { B. } & \text { Bank } \\\hline \text { C. } & \text { President's secretary } \\\hline \text { D. } & \text { Internal Revenue Service } \\\hline \text { E. } & \text { Raw material vendors } \\\hline \text { F. } & \text { Social Security Administration } \\\hline \text { G. } & \text { Health insurance provider } \\\hline \text { H. } & \text { Managerial accountant } \\\hline\end{array}$

Receiving payments on an account receivable increases both equity and assets.

An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a

Resources owned by a business are known as

If total liabilities decreased by $46,000 during a period of time and stockholders' equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a

Financial reports are said to be verifiable when

The assets section of the balance sheet normally presents assets in

Two common areas of accounting that respectively provide information to internal and external users are

An account receivable is a claim against a customer resulting from a sale on account.

Managerial accounting information is used by external and internal users equally.

Given the following data: Dec. 31, Year 2 Dec. 31, Year 1 Total liabilities $128,250 $120,000 Total stockholders' equity 95,000 80,000 (a) Compute the ratio of liabilities to stockholders' equity for each year. Round your answer to two decimal places. (b) Has the creditors' risk increased or decreased from December 31, Year 1, to December 31, Year 2?

Donner Company is selling a piece of land adjacent to its business. An appraisal reported the market value of the land to be $120,000. The Focus Company initially offered to buy the land for $107,000. The companies settled on a purchase price of $115,000. On the same day, another piece of land on the same block sold for $122,000. Under the cost principle, what is the amount that will be used to record this transaction in the accounting records?

Which of the following is a service business?