Accounting Concepts and Procedures College Accounting .docx

College Accounting Accounting Concepts and Procedures 1.1 1) The type of business organization that can continue indefinitely is known as a: A) sole proprietorship. B) partnership. C) corporation. D) None of the above Answer: C Learning Outcome: Define accounting terms, accounting concepts and principles 2) The purpose of the accounting process is to provide financial information about: A) sole proprietorships. B) small businesses. C) large corporations. D) All of these answers are correct. Answer: D Learning Outcome: Define accounting terms, accounting concepts and principles 3) Accounting provides information to: A) managers. B) government. C) investors. D) All of these answers are correct. Answer: D Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which of the following is a characteristic of a sole proprietorship? A) Business owned by more than one person B) Easy to form C) Each stockholder acts as an owner of the company D) Can continue indefinitely Answer: B Learning Outcome: Define accounting terms, accounting concepts and principles 5) A partnership is a business which is: A) easy to form. B) ends with the death of a partner. C) owned by more than one person. D) All of these answers are correct. Answer: D Learning Outcome: Define accounting terms, accounting concepts and principles 6) Which is an advantage of a sole proprietorship form of business? A) There is limited personal risk. B) The business can continue indefinitely. C) The owner makes all the decisions. D) All of these answers are correct. Answer: C Learning Outcome: Define accounting terms, accounting concepts and principles 7) Which of the following is not a type of business organization? A) Corporation B) Partnership C) Sole proprietorship D) Operation Answer: D Learning Outcome: Define accounting terms, accounting concepts and principles 8) A corporation: A) can continue indefinitely. B) is owned by stockholders. C) has limited risk to stockholders. D) all of the above. Answer: D Learning Outcome: Define accounting terms, accounting concepts and principles 9) The Sarbanes-Oxley Act was passed to: A) prevent fraud at public companies. B) replace all of the old accounting procedures with new ones. C) improve the accuracy of the company's financial reporting. D) Both A and C are correct. Answer: D Learning Outcome: Define accounting terms, accounting concepts and principles 10) A legal firm would be considered a: A) merchandise company. B) manufacturer. C) service company. D) None of the above are correct. Answer: C Learning Outcome: Define accounting terms, accounting concepts and principles 11) Generally Accepted Accounting Principles are the procedures and guidelines that must be followed during the accounting process. Answer: TRUE Learning Outcome: Define accounting terms, accounting concepts and principles 12) The function of accounting includes analyzing, recording, classifying, summarizing, reporting, and interpreting financial information. Answer: TRUE Learning Outcome: Define accounting terms, accounting concepts and principles 13) A sole proprietorship ends with the death of the owner. Answer: TRUE Learning Outcome: Define accounting terms, accounting concepts and principles 14) Put the 7 main steps of the accounting process in order (from 1 -7) below: ________ Classifying ________ Analyzing ________ Recording ________ Interpreting ________ Reporting ________ Communication ________ Summarizing Answer: 3 Classifying 1 Analyzing 2 Recording 6 Interpreting 5 Reporting 7 Communication 4 Summarizing Learning Outcome: Define accounting terms, accounting concepts and principles 15) Discuss the advantages and disadvantages of sole proprietorships, partnerships and corporations. Answer: A sole proprietorship is a business that has one owner. The advantage of a sole proprietorship is that the owner makes all of the decisions for the business. Another advantage is ease of formation. A disadvantage is that if the business cannot pay its obligations, the business owner must pay them from personal assets. The business ends with the death of the owner or the closing of the business. A partnership is a business owned by more than one person. Its advantage is ease of formation. The disadvantages are that partners could lose personal assets to meet obligations of the partnership and a partnership ends with death of a partner or exit of a partner. A corporation is a business owned by stockholders. The advantages are that stockholders have limited personal risk which is limited to their investment in the company. The corporation has unlimited life and the disadvantage is that a corporation is more difficult to form. Learning Outcome: Define accounting terms, accounting concepts and principles 16) What is the difference between Bookkeeping and Accounting? Answer: Bookkeeping is the recording function within the accounting process. A bookkeeper records the transactions into the company's books (more transactional) while an accountant reviews and analyzes the information that is reported. The accountant then takes the information and prepares the financial statements. Learning Outcome: Define accounting terms, accounting concepts and principles 1.2 Learning Objective 1-2 1) Which of the following will be recorded in the owner's equity column as an increase? A) An exchange of assets B) The purchase of an asset on credit C) An investment by the owner D) A withdrawal by the owner Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 2) The purchase of supplies for cash would affect which account category? A) Assets B) Liabilities C) Capital D) Expense Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) Items owned by the business such as land, supplies and equipment are: A) assets. B) liabilities. C) owner's equity. D) revenue. Answer: A Learning Outcome: Define accounting terms, accounting concepts and principles 4) Which of the following is not an asset? A) Cash B) Accounts Receivable C) Accounts Payable D) Buildings Answer: C Learning Outcome: Define accounting terms, accounting concepts and principles 5) If total liabilities increased by $6,000 and the assets increased by $8,000 during the accounting period, what is the change in the owner's equity amount? A) Increase of $2,000 B) Decrease of $2,000 C) Increase of $10,000 D) Decrease of $10,000 Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) The claims of creditors against the assets are: A) expenses. B) revenues. C) liabilities. D) owner's equity. Answer: C Learning Outcome: Define accounting terms, accounting concepts and principles 7) The Owner's Equity of Logan's Company is equal to one-quarter of the total assets. Liabilities equal $60,000. What is the amount of Owner's Equity? A) $40,000 B) $20,000 C) $30,000 D) None of these answers are correct. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 8) Assets are equal to: A) liabilities + owner's equity. B) liabilities - owner's equity. C) liabilities - revenues. D) revenues - expenses. Answer: A Learning Outcome: Define accounting terms, accounting concepts and principles 9) The basic accounting equation is: A) Assets = Revenues - Expenses. B) Assets = Liabilities - Owner's Equity. C) Assets = Owner's Equity - Liabilities. D) Assets = Liabilities + Owner's Equity. Answer: D Learning Outcome: Define accounting terms, accounting concepts and principles 10) An acceptable variation of the accounting equation is: A) Assets - Liabilities = Owner's Equity. B) Assets + Owner's Equity = Liabilities. C) Assets = Liabilities - Owner's Equity. D) All of these answers are correct. Answer: A Learning Outcome: Define accounting terms, accounting concepts and principles 11) If total liabilities are $18,000 and owner's equity is $21,000, the total assets must be: A) $39,000. B) $5,000. C) $20,000. D) $17,000. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) If total liabilities are $1,000 and total assets are $8,000, owner's equity must be: A) $7,000. B) $3,000. C) $10,000. D) $13,000. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) How does the purchase of office equipment on account affect the accounting equation? A) Assets increase; liabilities decrease B) Assets increase; owner's equity increases C) Assets increase; liabilities increase D) Liabilities increase; owner's equity decreases Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) Mary invested cash in her new business. What effect will this have? A) Increase an asset and increase a liability B) Decrease an asset and increase a liability C) Increase an asset and increase owner's equity D) Increase an asset and decrease owner's equity Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) A business paid $5,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to: A) increase one asset, decrease another asset. B) increase an asset, increase a liability. C) decrease an asset, decrease a liability. D) increase an asset, increase owner's equity. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) Strum Hardware has total assets of $50,000. What are the total assets if new equipment is purchased for $10,000 cash? A) $45,000 B) $50,000 C) $55,000 D) $60,000 Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 17) Harvest Moon Company has total assets of $15,000. If $3,000 cash is used to purchase a new computer, the total assets would be: A) $15,000. B) $13,000. C) $17,000. D) $2,000. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) Katie's Vegetarian Restaurant, with total assets of $90,000, borrows $15,000 from the bank. Which of the following is a true statement upon borrowing the money? A) Total assets are now $105,000. B) Total assets are now $80,000. C) Total assets are now $15,000. D) Total assets are now $75,000. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) Logan's Motor Sports buys $30,000 of equipment on credit. Which of the following is a true statement? A) Total assets increase. B) Total assets are unchanged. C) Total liabilities decrease. D) Total liabilities are unchanged. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) Bonnie's Baskets purchases $4,000 worth of office equipment on account. This causes: A) Cash and Capital to decrease. B) Office Equipment and Accounts Payable to increase. C) Office Equipment to decrease and Accounts Payable to increase. D) Accounts Payable to increase and Capital to decrease. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) Eileen's Corner Shoppe purchases a new computer for cash. This causes: A) Cash and Capital to increase. B) Computer Equipment and Cash to increase. C) Computer Equipment to increase and Cash to decrease. D) Accounts Payable to increase and Capital to increase. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) Bob purchased a new computer for the company on account. The transaction will: A) increase Computer; increase Capital. B) decrease Cash; increase Accounts Payable. C) decrease Cash; increase Computer. D) increase Computer; increase Accounts Payable. Answer: D Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) Katelyn purchased $11,000 of new electronic equipment for her DJ Company on account. The effect on the basic accounting equation was to: A) decrease Cash $11,000 and increase Equipment $11,000. B) increase Equipment $11,000 and increase Accounts Payable $11,000. C) decrease Cash $11,000 and increase Accounts Payable $11,000. D) increase Cash $11,000 and increase Equipment $11,000. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 24) The balance sheet contains: A) liabilities, expenses and capital. B) assets, liabilities and revenues. C) expenses, assets and cash. D) assets, liabilities and owner's equity. Answer: D Learning Outcome: Describe the components of and prepare the four basic financial statements 25) Which of the following items is not listed on the balance sheet? A) Accounts Payable B) Accounts Receivable C) Revenue D) Equipment Answer: C Learning Outcome: Describe the components of and prepare the four basic financial statements 26) If total assets are $30,000 and total liabilities are $18,000, Capital must equal: A) $12,000. B) $28,000. C) $8,000. D) $20,000. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) The purchase of equipment with both cash and on account was recorded as only a credit purchase. Due to this error: A) assets would be understated. B) liabilities would be overstated. C) owner's equity would be overstated. D) None of the above are correct. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) A purchase of a vehicle for cash would have what affect on the accounting equation? A) Total asset amount remains the same. B) Total liabilities are overstated. C) Total owner's equity is overstated. D) Both A and B are correct. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) The cash purchase of a truck was recorded as a purchase on credit. Due to this error: A) assets were overstated. B) liabilities were overstated. C) answers A and B are both correct. D) None of the above are correct. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) Which of the following transactions would cause one asset to increase and another asset to decrease? A) The owner invested cash in the business. B) The business paid a creditor. C) The business incurred an expense on credit. D) The business bought supplies for cash. Answer: D Learning Outcome: Analyze and record transactions and their effects on the financial statements 31) Which of the following transactions would cause an asset to increase and the owner's equity to increase? A) The owner invested cash in the business. B) The business incurred an expense on credit. C) The business bought supplies on account. D) The owner withdrew cash from the business. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 32) Which of the following would result if the owner invested cash in the business? A) Cash would increase and Capital would decrease. B) Cash would increase and Capital would increase. C) Cash would decrease and Capital would increase. D) An investment by the owner is not a business transaction. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 33) Which of the following would result if the business purchased supplies on credit? A) Supplies would increase and Cash would decrease. B) Supplies would increase and Capital would increase. C) Supplies would increase and Accounts Payable would increase. D) The purchase of supplies is not a business transaction. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 34) Which of the following would result if a business purchased Equipment paying a 40% down payment in cash? A) Equipment would increase and Cash would decrease. B) Accounts Payable would increase. C) Since the equipment has not been paid in full, there is nothing to record. D) Both A and B are correct. Answer: D Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) The left side of the accounting equation shows what is owned by the business. Answer: TRUE Learning Outcome: Define accounting terms, accounting concepts and principles 36) Cash is the same thing as Capital. Answer: FALSE Learning Outcome: Define accounting terms, accounting concepts and principles 37) The balance sheet shows the company's financial position as of a particular date. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 38) If the liabilities owed by a business total $250,000, then the assets must also total $250,000. Answer: FALSE Learning Outcome: Analyze and record transactions and their effects on the financial statements 39) The left side of the accounting equation must always equal the right side of the equation. Answer: TRUE Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) If the assets owned by a business total $100,000, owner's equity must also total $100,000. Answer: FALSE Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) In a shift of assets, the composition of the assets changes but total assets do not change. Answer: TRUE Learning Outcome: Analyze and record transactions and their effects on the financial statements 42) If the assets owned by a business total $60,000 and liabilities total $30,000, then owner's equity totals $90,000. Answer: FALSE Learning Outcome: Analyze and record transactions and their effects on the financial statements 43) To distinguish the total on a financial statement, use double underlines. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 44) Creditors' claims against assets are called owner's equity. Answer: FALSE Learning Outcome: Describe the components of and prepare the four basic financial statements 45) The three elements that make up a balance sheet are assets, liabilities and expenses. Answer: FALSE Learning Outcome: Describe the components of and prepare the four basic financial statements 46) The accounting equation states that total assets must always equal total liabilities plus owner's equity. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 47) If liabilities are $10,000 and assets are $20,000, owner's equity will be $10,000. Answer: TRUE Learning Outcome: Analyze and record transactions and their effects on the financial statements 48) Record the following transactions in the basic accounting equation: a. Brian invests $10,000 cash to begin an accounting service. b. The company buys office furniture for cash, $600. c. The company buys additional office furniture on account, $300. d. The company makes a payment on the office furniture, $200. Brian's Accounting Service ASSETS = LIABILITIES + OWNER'S EQUITY Cash + Office Furniture = Accounts Payable + Brian's Capital a. b. c. d. Totals Answer: Brian's Accounting Service ASSETS = LIABILITIES OWNER'S EQUITY Cash + Office Furniture = Accounts Payable Brian's Capital a. +$10,000 = +$10,000 b. - 600 +$600 = c. + 300 = +$300 d. - 200 ______ = - 200 ________ T +$9,200 +$900 = +$100 +$10,000 Learning Outcome: Analyze and record transactions and their effects on the financial statements 49) Tracey's Photography completes the following transactions: a. Tracey invests $10,000 cash in her company. b. The company purchases equipment on account, $500. c. The company purchases additional equipment for cash, $200. d. The company makes a payment on account for the equipment, $300. Required: Record the above transactions in the basic accounting equation. Tracey's Photography ASSETS = LIABILITIES + OWNER'S EQUITY Cash + Equipment = Accounts Payable + Tracey's Capital a. = b. = c. = d. = Totals = Answer: Tracey's Photography ASSETS = LIABILITIES OWNER'S EQUITY Cash + Equipment = Accounts Payable Tracey's Capital a. +$10,000 = +$10,000 b. +$500 = +$500 c. -200 + 200 = d. - 300 ______ = - 300 ________ T +$9,500 +$700 = +$200 +$10,000 Learning Outcome: Analyze and record transactions and their effects on the financial statements 1.3 Learning Objective 1-3 1) The net income or net loss is calculated on the: A) balance sheet. B) statement of owner's equity. C) income statement. D) none of these. Answer: C Learning Outcome: Describe the components of and prepare the four basic financial statements 2) Owner's withdrawals: A) decrease assets. B) increase expenses. C) increase liabilities. D) decrease withdrawals. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 3) Go Blue Retail Store collected $12,000 of its accounts receivable. The expanded accounting equation changes include: A) Cash and Capital increase, $12,000. B) Cash and Revenue increase $12,000. C) Cash increases and Accounts Receivable decreases $12,000. D) Accounts Receivable decreases and Capital increases $12,000. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 4) If beginning capital was $110,000, ending capital is $95,000, and the owner's withdrawals were $10,000, the amount of net income or net loss was: A) net income of $5,000. B) net income of $15,000. C) net loss of $15,000. D) net loss of $5,000. Answer: D Learning Outcome: Describe the components of and prepare the four basic financial statements 5) The payment of accounts payable would: A) increase both assets and liabilities. B) increase assets and decrease liabilities. C) decrease both assets and liabilities. D) decrease assets and increase liabilities. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 6) Ryan withdrew cash from the business to pay his personal cell phone bill. The expanded accounting equation changes include: A) increase in both Cash and Withdrawal. B) decrease in both Cash and Withdrawal. C) decrease in Cash and increase in Withdrawal. D) increase in Cash and decrease in Withdrawal. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 7) Revenue, expenses, and withdrawals are subdivisions of: A) assets. B) liabilities. C) owner's equity. D) All of these answers are correct. Answer: C Learning Outcome: Describe the components of and prepare the four basic financial statements 8) Which of the following transactions has no effect on owner's equity? A) Paying salaries expense B) Equipment purchase C) Billing for services rendered D) A withdrawal Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 9) When services are rendered but payment is not made, which account would be increased? A) Accounts Receivable B) Accounts Payable C) Cash D) Withdrawal Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 10) If 'Ol Fashioned Toys' revenues are less than its expenses during the accounting period: A) owner's withdrawals decrease net income. B) net income causes liabilities to decrease. C) the business will incur a loss. D) owner's withdrawals increase owner's equity. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 11) If 'Ol Fashioned Toys' revenues are greater than its expenses during the accounting period: A) assets will increase more than liabilities. B) liabilities will increase more than assets. C) the business will incur a loss. D) the business will earn a net income. Answer: D Learning Outcome: Analyze and record transactions and their effects on the financial statements 12) Carrie billed her legal clients $6,000 for legal work completed during the month. This transaction will: A) cause a $6,000 increase in revenues and liabilities. B) cause a $6,000 increase in revenues and a decrease in liabilities. C) cause a $6,000 increase in assets and revenues. D) not be recorded until the cash is collected. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 13) Boxes R' Us paid $3,000 in salaries and wages for February. This transaction will: A) increase expenses and decrease revenue. B) increase expenses and increase liabilities. C) decrease assets and increase expenses. D) decrease assets and expenses. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) Crystal Clear Imagery received and paid a utility bill for $500 for the month of November. This transaction will: A) increase Cash and increase Utility Expense. B) decrease Cash and increase Utility Expense. C) increase Cash and decrease Utility Expense. D) increase Utility Expense and decrease Withdrawal. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) If a company's revenues are higher than its expenses, it will cause: A) an increase in owner's equity. B) a decrease in owner's equity. C) an increase in assets. D) no effect on owner's equity. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 16) Expenses: A) are costs the company incurs in carrying on operations. B) are a subdivision of owner's equity. C) record personal expenses not related to the business. D) Both A and B are correct. Answer: D Learning Outcome: Describe the components of and prepare the four basic financial statements 17) An expense should be recorded when: A) the bill is paid. B) the expense is incurred. C) a bill is received in the mail. D) None of the above are correct. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) A revenue should be recorded when: A) it is earned. B) payment is received. C) the invoice is sent to the customer. D) None of the above are correct. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) Legal services were provided to a credit customer. How would this affect the accounting equation? A) Cash and Accounts Receivable increase. B) Accounts Payable and Capital increase. C) Accounts Receivable and Revenue increase. D) None of the above are correct. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 20) Which accounts are affected when the company pays salaries? A) Assets and Capital B) Liabilities and Capital C) Assets and Expenses D) None of the above are correct. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 21) Which accounts are affected when the company buys supplies on account? A) Assets and Capital B) Liabilities and Capital C) Assets and Liabilities D) None of the above are correct. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 22) Which accounts are affected when the company provides services to a cash customer? A) Assets and Capital B) Liabilities and Capital C) Assets and Revenue D) None of the above are correct. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 23) Which accounts are affected when the owner withdraws cash from the business? A) Assets and Withdrawals B) Liabilities and Capital C) Assets and Liabilities D) None of the above are correct. Answer: A Learning Outcome: Analyze and record transactions and their effects on the financial statements 24) Which of the following transactions would cause an asset to decrease and the owner's equity to decrease? A) The business provided services to a cash customer. B) The business bought supplies for cash. C) The owner withdrew cash from the business. D) The business bought supplies on account. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 25) Vic's Mart collects $700 of its accounts receivable. The expanded accounting equation impact is: A) Cash and Capital increase $700. B) Cash and Revenue increase $700. C) Cash increases and Accounts Receivable decreases $700. D) Accounts Receivable decreases and Capital increases $700. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 26) Mark paid $800 cash to partially reduce the amount owed for equipment that was previously bought on account. This transaction would: A) increase both assets and liabilities. B) increase assets and decrease liabilities. C) decrease both assets and liabilities. D) decrease assets and increase liabilities. Answer: C Learning Outcome: Analyze and record transactions and their effects on the financial statements 27) Victoria received $400 from customers in partial payment for accounting services performed previously. The recording of this transaction would: A) increase Cash and Victoria's Capital $400. B) increase Cash and decrease Accounts Receivable $400. C) increase Cash and increase Accounts Receivable $400. D) decrease Accounts Receivable and increase Victoria's Capital $400. Answer: B Learning Outcome: Analyze and record transactions and their effects on the financial statements 28) The owner of a business paid personal rent with a company check. This payment reduces Cash as well as increases the expenses of the firm. Answer: FALSE Learning Outcome: Analyze and record transactions and their effects on the financial statements 29) Accounts Receivable results from earning revenue when cash is not yet received. Answer: TRUE Learning Outcome: Analyze and record transactions and their effects on the financial statements 30) Expenses are recorded as costs of doing business whether cash was paid or not. Answer: TRUE Learning Outcome: Analyze and record transactions and their effects on the financial statements 31) Withdrawals are considered an expense of doing business. Answer: FALSE Learning Outcome: Describe the components of and prepare the four basic financial statements 32) When expenses are greater than revenue, net loss is the result. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 33) The four parts of owner's equity include capital, liabilities, revenue, and expenses. Answer: FALSE Learning Outcome: Describe the components of and prepare the four basic financial statements 34) Cash withdrawals by the owner increase both equity and assets. Answer: FALSE Learning Outcome: Analyze and record transactions and their effects on the financial statements 35) Cash investments by the owner increases both equity and assets. Answer: TRUE Learning Outcome: Analyze and record transactions and their effects on the financial statements 36) Revenue and cash will always be the same amount. Answer: FALSE Learning Outcome: Analyze and record transactions and their effects on the financial statements 37) Withdrawals are business expenses that are included on the balance sheet. Answer: FALSE Learning Outcome: Describe the components of and prepare the four basic financial statements 38) If expenses are less than revenue, a net income is incurred. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 39) Indicate whether each of the following represents (1) Asset, (2) Liability, or (3) Owner's Equity: 1. ________ Office Supplies 2. ________ Accounts Payable 3. ________ Capital 4. ________ Cash 5. ________ Withdrawal 6. ________ Land 7. ________ Accounts Receivable 8. ________ Expense 9. ________ Equipment 10. ________ Revenue Answer: 1. Asset 2. Liability 3. Owner's Equity 4. Asset 5. Owner's Equity 6. Asset 7. Asset 8. Owner's Equity 9. Asset 10. Owner's Equity Learning Outcome: Analyze and record transactions and their effects on the financial statements 40) Record the following transactions into the expanded accounting equation for the Mayoras' Law Firm. Note that all titles have beginning balances. (You will need to determine the beginning capital balance.) a. Provided legal services for cash, $1,200 b. Billed customers for services rendered, $2,400 c. Received and paid the monthly utility bill, $300 d. Collected $600 on account from customers e. Paid supplies expense, $250 f. Withdrew $300 cash for personal use Mayoras' Law Firm ASSETS = LIAB. OWNER'S EQUITY Cash + Accts.Rec. = Accts Payable Mayoras, Capital +Rev. -Exp -Mayoras Withdrawal beg. $900 $100 = $300 ?? a. b. c. d. e. f. T Answer: Mayoras' Law Firm ASSETS = LIAB. OWNER'S EQUITY Cash + Accts.Rec. = Accts Payable Mayoras, Capital +Rev. -Exp -Mayoras Withdrawal beg. $900 $100 = $300 $700 a. +1200 = +1200 b. +2400 = +2400 c. - 300 = +300 d. +600 -600 = e. -250 = +250 f. -300 = +300 T $1,850 $1,900 = $300 $700 $3,600 $550 $300 Learning Outcome: Analyze and record transactions and their effects on the financial statements 41) Katie's Wedding Planning Service completed the following transactions: a. Billed clients for service, $1,250. b. Completed work for clients who paid $500 cash. c. Received a bill for utilities to be paid later, $120. d. Collected cash on account from clients, $700. e. Paid the amount due for utilities. f. Withdrew $500 cash for personal use. Required: Record the above transactions in the expanded accounting equation. Note that the items have beginning balances. Katie's Wedding Planning Service ASSETS = LIAB. OWNER'S EQUITY Cash + Accts.Rec. = Accts Payable Katie, Capital +Rev. -Exp -Katie With. beg. $800 $85 = $300 $235 $900 $400 $150 a. b. c. d. e. f. T Answer: Katie's Wedding Planning ASSETS = LIAB. OWNER'S EQUITY Cash + Accts.Rec. = Accts Payable Katie, Capital +Rev. -Exp -Katie With. beg. $800 $85 = $300 $235 $900 $400 $150 a. 1,250 = 1,250 b. 500 = 500 c. = 120 120 d. 700 -700 = e. -120 = -120 f. -500 = 500 T $1380 $635 = $300 $235 $2650 $520 $650 Learning Outcome: Analyze and record transactions and their effects on the financial statements 1.4 Learning Objective 1-4 1) The increase or decrease in the owner's equity is reported on the: A) income statement. B) statement of owner's equity. C) balance sheet. D) All of these are correct. Answer: B Learning Outcome: Describe the components of and prepare the four basic financial statements 2) Which financial statement is prepared first? A) Statement of Owner's Equity B) Balance Sheet C) Income Statement D) None of the above Answer: C Learning Outcome: Describe the components of and prepare the four basic financial statements 3) The financial statement that shows business results in terms of revenue and expenses is: A) an income statement. B) a balance sheet. C) a statement of owner's equity. D) the statement of cash flows. Answer: A Learning Outcome: Describe the components of and prepare the four basic financial statements 4) An accounting report that shows the changes in capital during the accounting period is: A) a balance sheet. B) an income statement. C) a statement of owner's equity. D) All of these answers are correct. Answer: C Learning Outcome: Describe the components of and prepare the four basic financial statements 5) Which of the following items are on both the balance sheet and the statement of owner's equity? A) Net loss B) Capital C) Additional owner's investments D) Owner's withdrawals Answer: B Learning Outcome: Describe the components of and prepare the four basic financial statements 6) The financial statement that shows revenue and expenses for a period of time is the: A) balance sheet. B) income statement. C) statement of owner's equity. D) statement of cash flows. Answer: B Learning Outcome: Describe the components of and prepare the four basic financial statements 7) The income statement is a financial statement showing business results in terms of revenues and expenses. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 8) Statement of owner's equity shows the change in capital. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 9) The statement of owner's equity shows assets, liabilities and capital.. Answer: FALSE Learning Outcome: Describe the components of and prepare the four basic financial statements 10) Total assets are included in the statement of owner's equity. Answer: FALSE Learning Outcome: Describe the components of and prepare the four basic financial statements 11) The statement of owner's equity is the link between the income statement and balance sheet. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 12) The income statement is the first financial statement completed. Answer: TRUE Learning Outcome: Describe the components of and prepare the four basic financial statements 13) Calculate the total Liabilities if the company has: Assets totaling $700 and Capital of $450. $ ________ Answer: ($250 = $700 - $450) Learning Outcome: Analyze and record transactions and their effects on the financial statements 14) Calculate the total Assets if the company has: Cash $200, Accounts Receivable $300, Accounts Payable $500, Equipment $500. $ ________ Answer: ($1,000 = $200 + 300 + 500) Learning Outcome: Analyze and record transactions and their effects on the financial statements 15) Use the following information to prepare 1) an income statement, 2) a statement of owner's equity, and 3) a balance sheet for the month ended March 31, 200x for Bolthouse Company. J. Bolthouse, Capital (beg.) $2,000 Revenue 900 Expenses 600 Withdrawals 150 Cash 3,000 Equipment 1,000 Accounts Receivable 150 Accounts Payable 2,000 Answer: Bolthouse Company INCOME STATEMENT For the month ended March 31, 200x Revenue $900 Expenses 600 Net Income $300 Bolthouse Company STATEMENT OF OWNER'S EQUITY For the month ended March 31, 200x J. Bolthouse, Capital, March 1 $2,000 Net Income $300 Less Withdrawals 150 Increase in Capital 150 J. Bolthouse Capital, March 31 $2,150 Bolthouse Company BALANCE SHEET March 31, 200x Assets Liabilities and Owner's Equity Liabilities Cash $3,000 Accounts Payable $2,000 Accounts Receivable 150 Owner's Equity Equipment 1,000 J. Bolthouse , Capital 2,150 Total Assets $4,150 Total Liabilities and Owner's Equity $4,150 Learning Outcome: Describe the components of and prepare the four basic financial statements 16) Prepare the financial statements for H. Logan of Logan Motorcycles from the following account balances: 1) an income statement, 2) a statement of owner's equity, and 3) a balance sheet for the month ended October 31, 200x. You will need to calculate the value of the Accounts Payable account (note: remember the basic accounting equation). Cash $1,300 Accounts Receivable 500 Equipment 2,000 Accounts Payable ??? Travis, Capital 3,000 Revenue 1,000 Expenses 700 Travis, Withdrawal 100 Answer: Logan Motorcycles INCOME STATEMENT For the month ended October 31, 200x Revenue $1,000 Expenses 700 Net Income $300 Logan Motorcycles STATEMENT OF OWNER'S EQUITY For the month ended October 31, 200x H. Logan , Capital, Oct. 1 $3,000 Net Income $300 Less Withdrawals 100 Increase in Capital 200 H. Logan , Capital, Oct. 31 $3,200 Logan Motorcycles BALANCE SHEET October 31, 200x Assets Liabilities and Owner's Equity Liabilities Cash $1,300 Accounts Payable $ 600 Accounts Receivable 500 Owner's Equity Equipment 2,000 H. Logan , Capital 3,200 Total Assets $3,800 Total Liabilities & Owner's Equity $3,800 Learning Outcome: Describe the components of and prepare the four basic financial statements 17) Determine the ending capital balance of a business which had a beginning capital balance of $1,970, additional investments of $530, withdrawals of $750, revenue of $3,790, and expenses of $2,600. $ ________ Answer: $2,940 [$1,970 + $530 - $750 + $3,790 - $2,600] Learning Outcome: Analyze and record transactions and their effects on the financial statements 18) Determine the beginning capital balance of a business having an ending capital balance of $10,900, no additional investments, withdrawals of $2,500, and a net income of $4,100. $ ________ Answer: $9,300 [$10,900 - $4100 + $2500] Learning Outcome: Analyze and record transactions and their effects on the financial statements 19) Given the following account balances, determine the total liabilities. Cash $350, Accounts Receivable $275, Equipment $300 and Capital $700. $ ________ Answer: $225 [$350 + $275 + $300 - $700] Learning Outcome: Analyze and record transactions and their effects on the financial statements