Financial Accounting Chapter 1

The Accounting Equation Ginger Enterprises began the year with total assets of $500,000 and total liabilities of $250,000. Using this information and the accounting equation, answer each of the following independent questions. 1. What was the amount of Ginger's owners' equity at the beginning of the year? 2. If Ginger's total assets increased by $100,000 and its total liabilities increased by $77,000 during the year, what was the amount of Ginger's owners' equity at the end of the year? 3. If Ginger's total liabilities increased by $33,000 and its owners' equity decreased by $58,000 during the year, what was the amount of its total assets at the end of the year? 4. If Ginger's total assets doubled to $1,000,000 and its owners' equity remained the same during the year, what was the amount of its total liabilities at the end of the year?

1) 250,000 Assets = Liabilities + Owners' Equity. 2) 273,000 Assets = Liabilities + Owners' Equity. Increase assets and liabilities, and then determine owners' equity amount needed to balance. 3) 475,000 Assets = Liabilities + Owners' Equity. Increase liabilities and decrease owners' equity, then determine asset amount needed to balance. 4) 750,000 Assets = Liabilities + Owners' Equity. Increase assets, and then determine liability amount needed to balance.

Reading and Interpreting Chipotle's Financial Statements Refer to the financial statements for Chipotle and answer the following questions. Enter all amounts in thousands as shown in Chipotle's financial statements. 1. What was the company's net income for 2015? 2. State Chipotle's financial position on December 31, 2015, in terms of the accounting equation. Assets = Liabilities + Owners' Equity 3. By what amount did property and equipment, net, increase during 2015?

1) 475,602 2) (A) 2,725,066 = (L) 597,092 + (OE) 2,127,974 3) 110,236 Notes: 1) Net income is found on the Income Statement. 2) Assets = Liabilities + Equity. 3) Change in account is determined by comparing statements. Consider what changes would increase or decrease the property account.

The Accounting Equation Ginger Enterprises began the year with total assets of $565,000 and total liabilities of $243,000. Using this information and the accounting equation, answer each of the following independent questions. 1. What was the amount of Ginger's owners' equity at the beginning of the year?$___________ 2. If Ginger's total assets increased by $136,000 and its total liabilities increased by $102,000 during the year, what was the amount of Ginger's owners' equity at the end of the year? 3. If Ginger's total liabilities increased by $32,000 and its owners' equity decreased by $74,000 during the year, what was the amount of its total assets at the end of the year? 4. If Ginger's total assets doubled to $1,130,000 and its owners' equity remained the same during the year, what was the amount of its total liabilities at the end of the year?

1. 322,000 2. 356,000 3. 523,000 4. 808,000

Classification of Financial Statement Items Regal Entertainment Group operates the largest chain of movie theaters in the U.S. Classify each of the following items found in the company's financial statements included in the Form 10-K for the year ended December 31, 2015, according to: 1. whether it belongs on the income statement or balance sheet and 2. whether it is a revenue, expense, asset, liability, or stockholders' equity item. Item Appears on the Classified as Example: Cash and cash equivalents Balance sheet Asset 1. Trade and other receivables, net 2. Class A common stock 3. Inventories 4. Admissions 5. Cost of concessions 6. Equipment 7. Accounts payable 8. Retained earnings 9. Interest expense, net 10. Long-term debt, less current portion

1. Balance Sheet, Asset 2. Balance Sheet, Stockholder's Equity 3. Balance Sheet, Asset 4. Income STMT, Revenue 5. Income STMT, Expense 6. Balance Sheet, Asset 7. Balance Sheet, Liability 8. Balance Sheet, Stockholder's Equity 9. Income STMT, Expense 10. Balance Sheet, Liability

Which of the following statement is incorrect? 1. Cash sales are a current asset and are shown on the balance sheet. 2. Accounts receivable is a current asset and is shown on the balance sheet. 3. Accounts payable is a current liability and is shown on the balance sheet. 4. Salaries and wages are expenses and are shown on the income statement.

1. Cash sales are a current asset and are shown on the balance sheet.

Types of Business Activities Braxton Corp. was organized on January 1 to operate a limousines service to and from the airport. For each of the following business activities, select whether it is a financing, investing or operating activity. 1. Issued shares of stock to each of the four owners. 2. Purchased two limousines. 3. Paid first month's rent for use of garage. 4. Obtained loan from local bank. 5. Received cash from customer for trip to the airport. 6. Paid driver first week's wages. 7. Purchased 500-gallon fuel tank.

1. Financing 2. Investing 3. Operating 4. Financing 5. Operating 6. Operating 7. Investing

Classification of Financial Statement Items Classify each of the following items according to: 1. whether it belongs on the income statement or balance sheet and 2. whether it is a revenue, expense, asset, liability, or stockholders' equity item. Item Appears on the Classified as Example: Cash Balance sheet Asset 1. Salaries expense 2. Equipment 3. Accounts payable 4. Membership fees earned 5. Capital stock 6. Accounts receivable 7. Buildings 8. Advertising expense 9. Retained earnings

1. Income STMT, Expense 2. Balance Sheet, Asset 3. Balance Sheet, Liability 4. Income STMT, Revenue 5. Balance Sheet, Stockholder's Equity 6. Balance Sheet, Asset 7. Balance Sheet, Asset 8. Income STMT, Expense 9. Balance Sheet, Stockholder's Equity

Which of the following statement is correct? 1. The statement of shareholders' equity does not show any opening balance. 2. The balance in the statement of shareholder's equity is shown on the income statement. 3. Any information normally provided in the statement of retained earnings is not shown on the Statement of shareholder's equity. 4. Statement of shareholder's equity would also show issuance and retirement of stock.

4. Statement of shareholder's equity would also show issuance and retirement of stock.

Raising money to start a business is considered part of: An operating activity. A financing activity. An investing activity. A revenue generating activity.

A financing activity.

Transactions would have which of the following effects on financial statements? Transactions are internal events only and do not impact financial statements. Transactions under $10 are nominal and do not impact financial statements. A transaction is an unofficial tool of accounting. A transaction is any event that is recognized in a set of financial statements.

A transaction is any event that is recognized in a set of financial statements.

What is accounting? Accounting is the process of identifying financial information to various users. Accounting is the process of measuring financial information to various users. Accounting is the process of communicating financial information to various users. All of the above.

All of the above.

1. Which of the following businesses provide services? A milk supplier. A restaurant. An airline. A cheese manufacturer.

An airline.

Which of the following is a true statement? An external event is an interaction between an entity and its environment. An internal event is an interaction between an entity and its environment. External and internal events do not affect a company. Internal events happen in the company when it deals with stakeholders.

An external event is an interaction between an entity and its environment.

Balance Sheet The following items are available from records of Freescia Corporation at the end of the current year: Accounts payable $12,550 Notes payable $50,000 Accounts receivable 23,920 Office equipment 12,000 Advertising expense 2,100 Retained earnings, end of year 37,590 Buildings 85,000 Salary and wage expense 8,230 Capital stock 25,000 Sales revenue 14,220 Cash 4,220 Using the data given, prepare a balance sheet for Freescia Corporation at the end of the current year. Freescia Corporation Balance Sheet End of the Year Assets _____________ $___________ _________________ ___________ _____________ ________ _____________ ________ Total assets $___________ Liabilities and stockholders' equity ____________ $__________ ____________ __________ ____________ __________ ____________ __________ Total liabilities and stockholders' equity $_______________ For each non-balance-sheet item, indicate whether it should appear on the income statement or the statement of retained earnings. Account Should be located in Advertising expense Income statement Salary and wage expense Income statement Sales revenue Income statement

Assets Cash 4,220 Accounts receivable 23,920 Office equipment 12,000 Buildings 85,000 Total assets 125,140 Liabilities and stockholders' equity Accounts payable $12,550 Notes payable 50,000 Capital stock 25,000 Retained earnings 37,590 Total liabilities and stockholders' equity$125,140 Advertising expense Income statement Salary and wage expense Income statement Sales revenue Income statement

Corrected Balance Sheet Dave is the president of Avon Consulting Inc. Avon began business at the beginning of the current year. The company's controller is out of the country on business. Dave needs a copy of the company's balance sheet for a meeting tomorrow and asks his assistant to obtain the required information from the company's records. She presents Dave with the following balance sheet. He asks you to review it for accuracy. Avon Consulting Inc. Balance Sheet For the Current Year Assets Accounts payable $13,000 Cash 21,000 Cash dividends paid 16,000 Furniture and equipment 43,000 Liabilities and S E Accounts receivable $16,000 Capital stock 20,000 Net income for the year 72,000 Supplies 9,000 1. Using the data given, prepare a corrected balance sheet. Avon Consulting Inc. Balance Sheet End of the Year Assets Total assets Liabilities and stockholders' equity Total liabilities and stockholders' equity 2. Complete the paragraph given below by choosing the correct dropdowns. The balance sheet should be ______________instead of ____________. Accounts payable should be classified as____________ . Cash dividends should appear on the _____________ . Accounts receivable should be classified as______________ . Net income for the current year should flow through to the _____________ . Supplies should be classified as ____________ . Retained earnings should go with ___________and since this is the first year of operations, the retained earnings balance comprises the ____________less_______________ .

Assets Cash 21,000 Accounts receivable $16,000 Supplies 9,000 Furniture and equipment 43,000 Total Assets $89,000 Liabilities and S E Accounts payable $13,000 Capital stock 20,000 Retained earnings 56,000 (RE= starting NI 0+ Cash dividends paid -16,000+Net income for the year 72,000) Total L & SE $89,000 The balance sheet should be as of a certain date instead of for a period ended . Accounts payable should be classified as a liability . Cash dividends should appear on the statement of retained earnings . Accounts receivable should be classified as an asset . Net income for the current year should flow through to the statement of retained earnings . Supplies should be classified as an asset . Retained earnings should go with capital stock in the equity section on the balance sheet and since this is the first year of operations, the retained earnings balance comprises the net income less cash dividends .

The difference between management accounting and financial accounting is: Each branch of accounting provides information to a different set of users. Management accounting prepares information for external users. Financial accounting prepares information for internal users. Financial accounting helps facilitate planning and control.

Each branch of accounting provides information to a different set of users.

Operating activities refers to: Buying assets such as machinery. Borrowing money from creditors. Generating revenues (and profits) via sales. Paying creditors back

Generating revenues (and profits) via sales.

1. Financial statements are the responsibility of: Auditors. Accountants. Management. Owners. 2. The International Accounting Standards Board (IASB): a. Sets standards that are followed by all countries. b. Is the group responsible for developing worldwide accounting standards. c. Is the same as the FASB. d. Sets standards for multinational companies only.

Management b. Is the group responsible for developing worldwide accounting standards.

1. Which of the following is also known as the statement of financial position? The Income Statement. The Statement of Cash Flows. The Balance Sheet. The Statement of Retained Earnings. 2. Which transactions would impact the Income Statement? A restaurant paying its suppliers. A company issuing new shares. Borrowing money from the bank. All transactions impact the Income Statement.

The Balance Sheet. A restaurant paying its suppliers.

Users of Accounting Information and Their Needs Listed below are descriptions of a major need of accounting information. For each, select the one user group that is most likely to have the need described. Needs Information About User Group 1.The profitability of each division in the company 2. The prospects for future dividend payments 3. The profitability of the company since the last contract with the workforce was signed 4. The financial status of a company issuing securities to the public for the first time 5. The prospects that a company will be able to meet its interest payments on time 6. The prospects that a company will be able to pay for its purchases on time 7. The company's profitability based on the tax code

User Group 1. Company management 2. Stockholder 3. Labor union 4. Securities and Exchange Commission 5. Banker 6. Supplier 7. Internal Revenue Service

1. The conceptual framework: a. Is an abstract concept used in accounting. b. Acts as a foundation for the methods, rules, and practices that make up generally accepted accounting principles. c. Has nothing to do with accounting. d. Is a management tool used in strategic planning. 2. Financial Statement Assumptions include: a. The Economic Entity Concept and the Cost Principle. b. The Cost Principle but not the Monetary Unit. c. The Economic Entity Concept but not the Cost Principle. d. The Time Period assumption but not the Going Concern assumption.

b. Acts as a foundation for the methods, rules, and practices that make up generally accepted accounting principles. a. The Economic Entity Concept and the Cost Principle.

What does it mean when you own a share of stock in a company rather than one of its bonds? a. This is evidence that the company has a legal obligation to repay you some specified amount in the future. b. This is evidence that you have ownership in the company and have claims to the assets of the company. c. This increases assets and increases liabilities. d. This decreases assets and decreases liabilities.

b. This is evidence that you have ownership in the company and have claims to the assets of the company.

Which of these is not a liability? a. Bonds b. Mortgage c. Common share capital d. Accounts payable

c. Common share capital

1. Which of the following is a false statement? a. Ethical behavior must be considered while decision making. b. External decision makers should be aware of the potential for ethical conflicts that arise within organizations. c. Decision makers should consider the legal but not the moral and social implications of their decisions. d. Internal decision makers should stay alert for potential pressures on themselves or others to make choices that are not in the best interest of the company, its owners, and its employees as a whole. 2. Ethical Decision Making: a. Is easy to make. b. Is best left to lawyers. c. Requires the evaluation of difficult issues and making a decision. d. Cannot be understood and is best left to experts.

c. Decision makers should consider the legal but not the moral and social implications of their decisions. c. Requires the evaluation of difficult issues and making a decision.

Which of the following is not an asset? a. Cash b. Prepaid insurance c. Outstanding salaries d. Accounts receivable

c. Outstanding salaries

Which of these is not a type of business activity in which companies engage? a. Investing b. Financing c. Philanthropy d. Operating

c. Philanthropy

Which of these is not within the purview of the authority of the Securities and Exchange Commission? a. Determine the rules in preparing the financial statements. b. Play an active role in setting accounting standard. c. Provide loans on securities. d. Enforcement of GAAP as a means of protecting the rights of investors.

c. Provide loans on securities.

Which of the following shows the proper order of the four steps to help a person make ethical decisions? a. Identification, Analysis, Resolution, Evaluation b. Analysis, Identification, Resolution, Evaluation c. Resolution, Analysis, Evaluation, Identification d. Identification, Analysis, Evaluation, Resolution

d. Identification, Analysis, Evaluation, Resolution

The monetary unit assumption requires that companies in the United States prepare financial statements in dollars , and companies in Japan prepare financial statements in yen because they are the recognized medium of exchange in the respective companies.

monetary unit dollars yen

2. Chipotle Restaurant is considered an example of a: transport company. product company. non business entity. government entity.

product company.