Accounting 201 - Chapter 1

The North Company had liabilities of $90,000 at the beginning of February. During the month, it billed customers $40,000 for services performed, purchased $20,000 of equipment on account, and paid an account payable of $10,000. What is the amount of total liabilities at the end of February?

$100,000

Thomas Company's balance sheet consisted of $10,000 Cash, $30,000 Accounts Receivable, $60,000 Equipment, $16,000 Accounts Payable, $50,000 Capital Stock, and $34,000 Retained Earnings. Total assets were:

$100,000

The East Company has assets of $230,000 at the beginning of June. During the month, it received $88,000 cash and billed customers $36,000 for services performed, purchased $16,000 of equipment on account, and paid employees $4,000 in wages. What is the amount of total assets at the end of June?

$366,000

Ruiz Company's current balance sheet showed an increase in Stockholders' equity of $100,000 over the previous year, but no change in liabilities. The current balance sheet would list assets of: Answer: C

A. $100,000 less than the previous year. B. no change from the previous year. C.$100,000 more than the previous year. D. The balance sheet does not reflect assets.

Lang Corporation showed the following information at the beginning of June 2012: Assets, $32,000; Liabilities, $4,000; Capital Stock, $6,000. During the month of June, Lang Corporation generated $30,000 of revenues, incurred $8,000 of expenses, and paid dividends of $2,000. Retained earnings at the end of June would be: Answer: B

A. $20,000 B. $42,000 C.$44,000 D. $22,000

The income statement's final figure is called: Answer: B

A. Gross Revenue B. Net Income C. Revenues in excess of expenses for the period D. total period's cash flow

The Cox Company advertises in the local paper and pays for each month's displays on the tenth of the following month. It recorded on the last day of April the $2,000 cost of advertising that appeared during the month. Which statement describes the effects of this entry? Answer: D

A. Liabilities decreased by $2,000, and stockholders' equity increased by $2,000. B. Both assets and liabilities increased by $2,000. C. Liabilities decreased by $2,000, and assets increased by $2,000. D. Liabilities increased by $2,000, and stockholders' equity decreased by $2,000.

A financial statement element that appears on two of the three financial statements is: Answer: C

A. Retained Earnings balance at the beginning of the period. B. dividends during the period. C. net income for the period. D. total assets at the end of the period.

Which of the following statements is true? Answer: C

A. The balance sheet summarizes revenue and expense data for a period of operations between two income statement dates. B. The heading of the balance sheet should indicate clearly the period of operations that it covers. C. By showing revenues, the income statement shows the total flow of assets into a company from the rendering of services or the sale of goods. D. The income statement shows the assets and liabilities of a company at a stated moment in time.

Which of the following statements is incorrect? Answer: A

A. The income statement shows the changes in assets and liabilities that occurred during the period of operations covered by the statement. B. An income statement shows how much net income or net loss was generated for a period of time. C. An income statement summarizes revenue and expense transactions for a period of operations between two balance sheet dates. D. The income statement heading should disclose the name of the company and the period of time that the statement covers.

The formula to find the equity ratio is: Answer: D

A. Total debt/Stockholders' equity. B. More than one answer is correct. C. Stockholders' equity/Total liabilities. D. Stockholders' equity/Total equities.

An increase in an expense: Answer: D

A. decreases a liability. B. increases stockholders' equity. C. increases an asset. D. decreases retained earnings.

The form of business organization in which the owner(s) do not directly manage the organization is: Answer: D

A. the single proprietorship. B. both the partnership and the corporation. C. the partnership. D. the corporation.

Summers Corporation collected $1,000 of its $2,000 of accounts receivable. How is the balance sheet affected?

Accounts receivable is decreased by $1,000, and liabilities are increased by $1,000.

The basic accounting equation can be expressed correctly as:

Assets=Liabilities + Stockholders' Equity

"Going-concern" refers to a business having an assumed limited life.

False

A single proprietorship is quite difficult to establish because of all the legal formalities.

False

Examples of merchandising companies include grocery stores, car repair shops, computer stores, and home construction companies.

False

If a bill is received for utilities used during a month, but the bill is not paid at that point, an expense has been incurred and no balance sheet account is affected.

False

If a company borrowed money by signing a note, both accounts payable and cash would increase.

False

If a corporation fails, the owners can lose everything they have, including their personal assets.

False

In a single proprietorship, the owner is not held solely responsible for all the debts of the business.

False

Manufacturing companies sell only to final customers.

False

Only very large businesses are corporations.

False

Providing services on account results in an increase in service revenue and a decrease in accounts receivable.

False

A partnership is an unincorporated business owned by two or more persons associated as partners.

True

Economic activity is initially recorded and reported in terms of a common unit of measurement.

True

Examples of manufacturing companies include steel mills, clothing factories, automobile factories, and carpet factories.

True

If Stockholders invested $40,000 of cash and inventory valued at $30,000 to start a new business, the business has assets of $70,000.

True

The basic equation of Assets = Liabilities + Stockholder's Equity is always true, assuming the underlying accounting is correct.

True

The column totals in a summary of transactions are used to prepare the balance sheet.

True

The income statement reports on the profit-seeking activities of a business entity for a period of time.

True

The financial statement that is a representation of the accounting equation A = L + SE, is the:

balance sheet.

The underlying assumption that assets are to be recorded at their acquisition cost is called the:

cost (or exchange-price) concept.

A payment to the stockholders of a business as a return on the investment they provided is called a (an):

dividend.

The sacrifice made, or the cost incurred, to produce revenue is called a(n):

expense.

Douglas Company borrowed $25,000 on a note at the bank. The money is to be used later to purchase display counters. The effect of this transaction when the money is borrowed is to:

increase an asset (Cash) and increase a liability (Notes Payable).