ACCT 203 CH 1

During its first year of operations, Mario Lupo formed Lupo Company as a corporation and personally invested $15,000 in the business in exchange for common stock. Lupo Company also paid dividends of $2,000. The company earned $35,000 of revenues and incurred $23,000 of expenses. At the end of the year, the company's equity totaled: - $13,000 - $15,000 - $25,000 - $75,000

$25,000

If equity is $30,000 and liabilities are $19,000, then assets must equal:

$49,000

Which of the following statements explain(s) how the accounting equation applies to businesses? Check all that apply. - The equation reflects the fact that, at any point in time, total revenues will always equal total liabilities and assets. - The relation of assets, liabilities and equity is reflected in the equation. - The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners. - The equation states that Revenues - Expenses = Assets. - The equation states that Assets = Liabilities + Equity. - The equation applies to all transactions.

- The relation of assets, liabilities and equity is reflected in the equation. - The equation reflects that the total of what a business owns at any point in time will equal the total of what it owes creditors and owners - The equation states that Assets = Liabilities + Equity. - The equation applies to all transactions.

Identify the broad opportunity areas of accounting. (Check all that apply.) - managerial - financial - taxation - sales - public

- managerial - financial - taxation

an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities

Accounting

Why does a business need accounting information?

Accounting records business transactions and communicates financial information.

Which of the statement(s) below define(s) an asset? (Check all that apply.) Multiple select question. An amount owned Resources with expected future benefits Resources controlled by the business an amount owed to a creditor

An amount owned Resources with expected future benefits Resources controlled by the business

identify the correct definition of an asset An asset is an amount owed to a creditor An asset refers to the claims of the owners An asset is something of value that a business owns or controls

An asset is something of value that a business owns or controls

an assessment of whether financial statements follow GAAP examines whether financial statements are prepared using GAAP it does not ensure absolute accuracy of the statements

Audit

Why is accounting important? - Businesses, regulatory agencies, and the general public use accounting information. - Accounting information impacts businesses only. - Accounting is important only to those who are majoring in accounting.

Businesses, regulatory agencies, and the general public use accounting information.

Accounting certifications includes: IFRS CPA GAAP SEC

CPA

The Sarbanes-Oxley Act requires the following? Documentation and verification of internal controls. Documentation and verification of financial statements. Documentation and verification of external control effectiveness. All of the above.

Documentation and verification of internal controls.

requires that whistleblowers be paid a percentage of sanctions and mandates recovery of excessive compensation

Dodd-Frank Act

A company records its expenses incurred to generate the revenue reported.

Expense recognition principle

A group that sets accounting principles in the United States

FASB

The organization that is primarily responsible for developing GAAP for use by all U.S. companies is the:

FASB

An international group that issues IFRS

IASB

The organization that is responsible for issuing International Financial Reporting Standards is the:

IASB

Which of the following is a proper reflection of the sequence of steps when deciding on the preferred course of action in making an ethical decision? Identify ethical concerns; Make ethical decision; Analyze options. Analyze options; Identify ethical concerns; Make ethical decision. Identify ethical concerns; Analyze options; Make ethical decision. Correct Analyze options; Make ethical decision; Identify ethical concerns.

Identify ethical concerns; Analyze options; Make ethical decision

Amount a business earns in excess of all expenses and costs associated with its sales and revenues

Net income

Preparing and entering a list of checks issued. Using a cash register to enter sales.

Recording

the recording of transactions and events only, either manually or electronically

Recordkeeping

a government agency enforces proper use of GAAP

SEC

Russell is the sole owner of Wilson Sports. The business is not a separate legal entity from Russell and the business ends with his death. Physio Products does not pay income taxes and has one owner. The owner has unlimited liability for business debt. IBC Services does not have separate legal existence apart from the one person who owns it.

Sole proprietorship

A business is accounted for separately from other business entities and its owner. What Assumption?

business entity assumption

Each business is accounted for separately from its owner or owners.

business entity assumption

Why does a business need accounting informatuion? a) Accounting accumulates passwords for security purposes b) Accounting identifies personnel who do not have strong customer service skills c) Accounting records business transactions and communicates financial information d) Accounting inspires management to work harder in order to climb the corporate ladder

c) Accounting records business transactions and communicates financial information

Interpreting information from financial reports. Preparing financial statements for creditors.

communicating

preparing financial statements presenting financial information interpreting sales and cost information preparing an internal report for management

communicating

The FASB conceptual framework consists of all of the following except: objectives qualitative characteristics elements recognition and measurement concepts

concepts

Micah and Nancy own Financial Services, which pays a business income tax. Micah and Nancy do not have personal responsibility for the debts of Financial Services. Oscar, Angela, and Kevin own Accounting Solutions. The business has an indefinite life and pays an additional business income tax.

corporation

Upon her promotion to manager at the regional public accounting firm that has employed her for the past five years, Gail Mahaffey moves to the firm's Chicago office. After welcoming her to the office on her first day, the partner managing the Chicago office shares some great news. The firm just learned of its successful bid to audit Morrison's reports. Morrison's business has been expanding and the company is expected to become an important client of the firm. The partner then congratulates Gail; he has decided to assign her to head up the team that will audit Morrison. Thrilled by the exciting news, Gail leaves the office, eager to meet the rest of the team. As she walks to the meeting room, she considers the fact that she inherited a share of Morrison's stock last year under the terms of her grandfather's will. She recalls that the stock is currently trading at $15 per share. Assuming that Gail wants to make an ethical decision in this situation, she will: - decline the assignment because of the fact that it is her first day and she is not in a position to accept such a challenging assignment. - accept the assignment because her ownership of a single share of stock worth only $15 obviously would not influence her decisions about the figures set forth in Morrison's reports. - decline the assignment; even though she only owns a single share of stock, that direct investment in the stock of Morrison would cast doubt on decisions that she makes during the audit. - accept the assignment after promising the partner that she will maintain the highest ethical standards with regards to the decisions that she makes with regards to the figures set forth in Morrison's reports.

decline the assignment; even though she only owns a single share of stock, that direct investment in the stock of Morrison would cast doubt on decisions that she makes during the audit.

All of the following are part of the FASB conceptual framework: (Select all that apply). elements assumptions qualitative characteristics objectives recognition and measurement principles

elements qualitative characteristics objectives recognition and measurement

beliefs that distinguish right from wrong

ethics

A company records the expenses incurred to generate the revenues reported.

expense recognition (matching) principle

Users who do not directly run the organization and have limited access to accounting information are known as

external

customers board of directors suppliers labor union

external information user

analyzing external financial reports preparing external financial statements reviewing financial statements for criminal investigations

financial accounting

Resources contributed by creditors Resources contributed by the owner along with any income the owner leaves in the organization

financing

three factors push a person to commit fraud: opportunity, pressure, and rationaliztion

fraud triangle

A company reports details behind financial statements that would impact users' decisions.

full disclosure principle

A company reports details behind financial statements that would impact users' decisions.

full-disclosure principle

Concepts, assumptions, and guidelines for preparing financial statements.

general accounting principle

Presumes that the business will continue operating in the future. What Assumption?

going concern assumption

Financial statements reflect the assumption that the business continues operating.

going-concern assumption

Entering a list of the sales invoices, including the prices and quantities, for the company's recordkeeper.

identifying

Observing transactions and events.

identifying

Users of accounting information can be divided into two main groups. These groups include: - customers and government - internal and external - top management and lower management - sales staff and management

internal and external

Procedures set up to protect company property and equipment, ensure reliable accounting, promote efficiency, and encourage adherence to policies.

internal controls

payroll clerk marketing manager

internal information user

Acquiring resources (assets) that an organization plans to use to acquire and sell its products and services is an example of: disposing of resources (assets) that an organization uses to acquire and sell its products or services

investing

Vera is the sole owner of Tech Solutions. The business is a separate legal entity and does not pay an additional business income tax.

limited liability company

_____ includes opportunities in general accounting, cost accounting and internal auditing. Accounting-related Financial accounting Managerial accounting Taxation

managerial accounting

budgeting consulting with treasurer on cash flows cost accounting

managerial accounting

Information is based on actual costs incurred in transactions.

measurement (cost) principle

accounting information is based on actual cost

measurement principle

Transactions and events are expressed in monetary units. What Assumption?

monetary unit assumption

sales and revenues

operating

The three factors that must exist for a person to commit fraud include

opportunity pressure rationalization

Harvey and Louis own NYC Law. Harvey and Louis are jointly liable for partnership debts.

partnership

An employee that is having trouble paying his personal bills might exhibit the following fraud factor: - pressure - rationalization - opportunity

pressure

a more effective way to stop fraud than detection

prevention

The majority of accounting opportunities are in _____ accounting. private public government not-for-profit

private

inputting an employee sales commission measuring shipping costs keeping a log of service costs

recording

Each of the following are areas of accounting opportunities except - regulators - managerial - taxation - financial

regulators

Generally accepted accounting principles (GAAP) wants information to have: (Check all that apply). - relevance - faithful representation - rules - conceptual history

relevance faithful representation

Revenue is recognized when goods are provided to the customer at the amount expected to be received

revenue recognition principle

Revenue is recorded when products and services are delivered.

revenue recognition principle

regulations aimed to stop financial abuses by emphasizing effective internal controls

sarbanes-oxley act

Detailed rules used in reporting events and transactions.

specific accounting principle

Planning transactions to minimize taxes enforcing tax laws

tax accounting

Which of the following statements best represents the reason for the accounting equation?

the total of everything owned by a business must always equal the total of what the business owes to creditors and owners.

The life of the company can be divided into specific time periods. What Assumption?

time period assumption