Accounting 200 - Exam 1 Prep

Financial statements can be prepared ______. (Select all that apply.)

- quarterly - annually - monthly

The expensing of a long-term asset, such as Equipment, over its useful life causes a(n) ______. (Select all that apply.)

- Decrease in assets - Decrease in shareholders' equity

The heading of an income statement should include ______. (Select all that apply.)

- the title "Income Statement" - the accounting period covered by the statement - the name of the business

If a company borrows money by issuing a note payable at the beginning of the accounting period, as a result, it will report ________.

Interest Expense on the income statement

The balance sheet reports the ________.

describes the financial situation of a company at a specific point in time

True or false: An exchange of promises is a transaction that affects the accounting equation.

FALSE

Match each item below with the appropriate description using each one only once.

Income Statement = reports a summary of all revenues minus all expenses during a period Statement of Shareholders' Equity = reports changes that took place in the amount if the owners' investment during a period Statement of Cash Flows = reports a summary of cash collected and cash paid during a period Balance Sheet = reports the assets, liabilities and shareholders' equity of a company at a specific point in time Notes (or footnotes) = reports additional info needed to better understand the financial statements

Record the transaction: Suage, Inc., paid $6,000 cash for 1,000 sausages at $6 each.

Assets = 6,000 inventory; (6,000) cash Liabilities = NO EFFECT Stock = NO EFFECT Retained Earnings = NO EFFECT

Assume Year 1 is the company's first year of business and there were $100 dividends in Year 1 and $100 dividends in Year 2. After determining the missing amounts ($______) in the above financial statements, calculate and type in the December 31, Year 2 Retained Earnings 1.$_________.

* See Module 1 LO 6.5 Connections Between the Financial statements * Similar Exercise with Feedback: Fill in the missing amounts in Daily Kneads' condensed income statements and balance sheets for its first two years of business. It did not pay dividends in its first year of business but paid $50 of dividends in its second year. Similar Example on Youtube: https://www.youtube.com/watch?v=pRV9VlZ8jm4&feature=youtu.be Answer: 6,100

Which of the following are possible effects on the accounting equation when recording a transaction that increases an asset by $100? (Select all that apply.

- An asset decreases by $100 - A shareholders' equity account increases by $100 - A liability account increases by $100

Which of these would be captured and reported in an accounting system? (Select all that apply.)

- Financing Activities - Investing Activities - Purchase of equipment on account

Which of the following are assets? (Select all that apply.)

- Inventory - Land - Equipment - Supplies

Select the financing activities from the list below. (Select all that apply.)

- Issued Stock - Issued a Notes Payable

Determine the missing Inventory balance. Cash - $14,000 Supplies - 13,000 Inventory - n/a Land - 21,000 Total Assets - n/a Notes Payable - $20,000 Stock -n/a Retained Earnings - n/a Total Liabilities & Shareholders' Equity - $66,000

- See Module 1 - 6.5 Connections Between the Financial Statements. First solve for Total Assets: Assets = Liabilities + Shareholders' Equity. Then solve for the missing asset balance by subtracting all of the other assets from total assets. Land + Supplies + Cash = Total Assets 21,000 + 13,000 +14,000 = 48,000 Shareholder's Equity - Total Assets = Inventory 66,000 - 48,000 = 18,000 Answer: 18,000

Determine the missing the Cost of Goods Sold and Net Income in the following multi-step income statement: Sales Revenue - $1,000 Cost of Goods Sold - n/a Gross Profit - 300 Operating Expenses - 100 Operating Income - n/a Interest Expense - 10 Net Income - n/a

- See Module 1, LO 6.1 Income Statement Sales Revenue - $1,000 Cost of Goods Sold - 700 Gross Profit - 300 Operating Expenses - 100 Operating Income - 200 Interest Expense - 10 Net Income - 190 See Module 1, LO 6.1 Income Statement * Sales Revenue - Cost of Goods Sold = Gross Profit * Gross Profit - Operating Expenses = Operating Income * Operating Income - Interest Expense = Net income Answer: $700 & $190

If a company's total assets equals $60,000 and its shareholders' equity equals $30,000, how much are the creditors' claims to the company's assets?

- Use the accounting equation: Assets = Liabilities + Shareholder's Equity Answer: 30,000

Depreciating a long-term asset, such as Equipment, over its useful life records the ______. (Select all that apply.)

- giving up some of the asset's usefulness, Accumulated Depreciation - getting use of or service from an asset, Depreciation Expense

At December 31, Year 1, Lord of the Fries, Inc.'s assets were $50,000 and liabilities were $40,000. At December 31, Year 2, its assets are $120,000 and liabilities are $50,000. During the year, it did not issue new stock and did not declare or pay dividends. Calculate net income for Year 2.

60,000

If a company's total assets equals $90,000 and its shareholders' equity equals $30,000, then its liabilities must equal $______.

90,000 - 30,000 = 60,000

Financial information needed to manage a company is provided by a(n) ______ system.

Accounting

Assume Year 1 is the company's first year of business and there were $100 dividends in Year 1 and $100 dividends in Year 2. After determining the missing amounts ($______) in the above financial statements, calculate and type in the December 31, Year 2 Retained Earnings 1.$_________.

Answer: 5,100

Show the effect of the transaction: Wursthaus, Inc., paid its employee, Tom, $400 for the work he performed in January.

Assets - (400) cash Liabilities - NO EFFECT Stock - NO EFFECT Retained Earnings - (400) wage expense

Show the effect of the transaction: Wursthaus, Inc., paid a $30 cash dividend to its owners.

Assets = (30) Cash Liabilities = NO EFFECT Stock = NO EFFECT Retained Earnings = (30) Dividends

Par for the Course, Inc., purchased equipment for $60,000 by issuing a $20,000 note and paying the remainder with cash. What is the net effect of this transaction for each column in the accounting equation?

Assets = 20,000 increase Liabilities = 20,000 increase Shareholder's Equity = NO EFFECT

Show the effect of the transaction: Cap & Trade, Inc., sold 300 baseball caps that cost $6 each to customers for $3,000 cash.

Assets = 3,000 cash; (1,800) inventory Liabilities = NO EFFECT Retained Earnings = 3,000 sales revenue; (1,800) cost of goods sold

Landon Mars, the company bookkeeper, recorded the $10,000 purchase of land as Rent Expense by decreasing Cash and decreasing Shareholders' Equity. What is the effect of this error on the accounting equation?

Assets = too low Liabilities = correct Shareholders' Equity = too low

Which financial statement reports the long-term assets owned?

Balance Sheet

Florist Grump, Inc., had beginning retained earnings of $137,000. During the year, Florist Grump had net income of $63,000 and declared and paid dividends of $18,000. What will be shown for ending retained earnings on Florist Grump's year-end balance sheet?

Beginning Retained Earnings + Net Income (from the income statement) - Dividends = Ending Retained Earnings 137,000 + 63,000 - 18,000 = 182,000

At December 31, Year 1, Sea the World Cruises, Inc.'s assets were $60,000 and liabilities were $40,000. At December 31, Year 2, its assets are $130,000 and liabilities are $50,000. During the year, it did not issue new stock, and it declared and paid $100 dividend. Calculate net income for Year 2.

First = SE = Assets - Liabilities (60,000 - 40,000 = 20,000) Second, change in SE. (Use REDS - Revenue (increase SE), Expenses (decrease SE), Dividends (decrease SE), Stock (New)) Beginning - SE + R - E - D + S = Ending SE (20,000 + ___ - ____ - 100 + 0 = ___) Third, Net Income (NI) = R - E Last, solve for NI: Beginning SE + NI - D + S = Ending SE; NI = Ending SE - Beginning SE + D - S Answer: 60,100 Similar Example on Youtube: https://www.youtube.com/watch?v=iekdUeLRi_g&feature=youtu.be

Classify the Balance Sheet accounts listed below as an Asset, Liability, or Shareholders' Equity.

Land - Asset Accounts Payable - Liability Stock - Shareholders' Equity

Match each statement below with the appropriate financial statement being summarized. Statement 1: - "For the period ended dec. 31" - revenues, expenses & net income Statement 2: - "For the period ended dec. 31" - beginning RE, net income, dividends & ending retrained earnings Statement 3: - "At Dec. 31" - Assets, liabilities, stock & retained earnings

Statement 1: Answer: Income Statement Statement 2: Answer: Shareholders' Equity Statement 3: Answer: Balance Sheet

Which financial statement reports the activity in stock and retained earnings during the period?

Statement of Shareholders' Equity

Which of the following is a characteristic of a sole proprietorship?

The owner is personally responsible for the debts of the business even if the debts are more than the owner has invested in the business

Indicate the form of organization with which each of the following characteristics is associated. More than one form of organization may apply to some of them.

The ownership is represented by shares of stock = Corporation The business exposes the owner(s) to unlimited liability = Partnership/Sole Proprietorship

Which item would be reported as a cash flow from investing activities?

cash paid to buy equipment

Enterprise-wide resource planning systems (ERP) ______.

includes both financial and non-financial information for all areas of the business

The adjusting entry for the amount of interest owed on Notes Payable causes a(n) ________.

increase in liabilities and decrease in shareholders' equity

Morris Lest, Inc., purchased machinery for $10,000 cash. The effect of this transaction is to cause ______.

total assets to remain the same