ACG2021 Paterson Exam 1

Which of the following is an internal user of accounting data? a). the company's finance personnel b). the company's stockholders c). taxing authorities (e.g. Internal Revenue Service) d). the company employees' labor unions e). the company's customers

A). the company's finance personnel Users of a company's accounting information include internal users and external users. Examples of internal users include the company's employees (e.g. management, human resource personnel, marketing personnel, and finance personnel). Examples of external users include the company's investors (i.e. owners), creditors, taxing authorities customers, labor unions, and regulatory authority.

Which of the following is not an asset? a). supplies b). revenue c). cash d). accounts receivable e). inventory

B). revenue Accounts are classified into categories including assets, liabilities, equities, revenues, expenses, and dividends. Assets are the resources owned by a company. Common examples of assets include cash, accounts receivable, inventory, supplies, buildings, equipment, patents, etc.

Stockholders' equity can be described as a). creditors' claims on the company's assets b). employees' claims on the company's assets c). owners' claims on the company's assets d). customers' claims on the company's assets e). debtors' claims on the company's assets

C). owners' claims on the company's assets Stockholders' equity represents the claims of the owners on the company's total assets. Recall from the accounting equation that assets equal liabilities plus stockholders' equity. Liabilities are owed to creditors, such as banks that loaned money to the company. So, liabilities are creditors' claims on a company's assets. Assets not claimed by creditors can be claimed by stockholders.

Which of the following best defines accounting? a). the procedures for collecting information about the production of merchandise and services for sale to customers b). the system of electronic collection, organization, and communication of valuation information c). the interconnected network of financial information used to track the cash flows of a business organization d). the processing system and regulatory rules for determining the fair market value of a business organization e). the information system that identifies, measures, and communicates the economic events of an organization to interested users

E). the information system that identifies, measures, and communicates the economic events of an organization to interested users. Accounting is the information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information.

A company borrowing money from a bank is an example of a). an administrating activity b). an operating activity c). an investing activity d). a financing activity e). None of these

D). a financing activity Companies engage in three types of cash flow activities: (i)operating activities, (ii) investing activities, and (iii) financing activities. Examples of operating activities include paying cash to buy inventory (and materials to be converted into inventory) and collecting cash from customers. It also includes paying employees' salaries and wages, paying suppliers (e.g., for inventory purchased) and certain other transactions (e.g., paying interest to creditors and certain other transactions (e.g., paying interest to creditors and collecting interest from debtors). Examples of investing activities include buying and selling property, plant, & equipment and buying and selling stocks and bonds of other companies. Examples of financing activities include borrowing money and issuing or selling shares of stock in exchange for cash, and paying dividends.

Which of the following statements is true regarding the Sarbanes-Oxley Act (SOX)? a). None of these b). sox required independent auditors become employees because of the companies they audit c). SOX decreased penalties for financial fraud by management. Penalties no longer include the possibilities of imprisonment d). All of these e). SOX required company management to certify the accuracy of the company's financial statements

E). SOX required company management to certify the accuracy of the company's financial statements SOX was created by Congress and signed into law by the President to reduce unethical corporate behavior and to decrease the likelihood of future corporate scandals. The following summarizes the effects of SOX. Top management must certify the financial statements for their company. SOX also increased the independence of outside auditors who review the accuracy of corporate financial statements, it increased the oversight role of boards of directors, and it increased the penalties for fraudulent certifications of financial statements.

A business organized as a corporation a). is owned by its creditors b). requires that stockholders be personally liable for the debts of the business c). is disadvantaged in terms of raising funds d). is not considered to be a legal entity that is separate from its owners e). is tax disadvantaged compared to sole proprietorships and partnerships

E). is tax disadvantaged compared to sole proprietorships and partnerships Owners of sole proprietorships are called proprietors. A sole proprietor has a sole owner (i.e. it has one owner). Partnerships have two or more co-owners. Corporations have one or more owners called stockholders. Corporations incur tax at the business level, and stockholder (i.e. double taxation) while proprietorships and partnerships do not incur business level taxes (i.e. single taxation) indicating that sole proprietorships and partnerships are tax-advantaged relative to corporations. Corporations can raise capital (i.e. investments) from any number of owners giving them an advantage in terms of fundraising relative to sole proprietorships and partnership. Owners of corporations are not personally liable for the corporation's debts (i.e. stockholders have limited liability), but proprietors and partners are generally personally liable for their proprietorships' and partnerships' debts (i.e. unlimited liability)

The financial records for a corporation included the following information: Accounts receivable, $60,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $10,000 Dividends, $10,000 Insurance expense, $5,000 Salaries and wages expense, $50,000 Sales revenue, $120,000 Retained earnings is not given. Based on this information, how much is its net income? a). $65,000 b). $75,000 c). $45,000 d). $70,000 e). $55,000

a). $65,000 Net income equals the revenues earned during the year-the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses. Net income = revenue-expenses Net income = $120,000-50,000-5,000 = $65,000

An annual report includes all of the following except a). a listing of all the stockholders b). an income statement c). notes to the financial statements d). a management discussion and analysis section e). an auditor's report

a). a listing of all the stockholders The annual report does not include a listing of all of the stockholders. This information changes daily when stock is trading on public exchanges.

Which of the following would appear on a balance sheet? a). accounts receivable b). net income c). dividends d). interest expense e). service revenue

a). accounts receivable The balance sheet reports all of a company's assets (e.g. cash, accounts receivable, prepaid rent, equipment, etc.), liabilities (e.g. accounts payable, notes payable, unearned revenues, etc.), and equities (common stock, retained earnings, etc.).

Which of the following is an asset? a). cash b). common stock c). accounts payable d). retained earnings e). notes payable

a). cash Assets are the resources owned by a company. They are property. Examples include cash, accounts receivable, equipment, etc.

Stockholders' equity is comprised of two components, including a). common stock and retained earnings b). net income and retained earnings c). common stock and dividends d). dividends and retained earnings e). assets, revenues, and expenses

a). common stock and retained earnings Stockholders' equity is the owners' claims on the corporation's assets. There are two sources of stockholders' equity: (i) paid-in capital, such as common stock, (ii) retained earnings. Paid-in capital represents amounts owners paid to the corporation in exchange for their ownership interests in the corporation. Retained earnings if the accumulated net income of the company since it began operations minus dividends it paid to its stockholders since it began operations.

The financial statement that summarizes the changes in retained earnings for a specific period of time is the a). statement of stockholders' equity b). trial balance c). income statement d). balance sheet e). statement of cash flows

a). statement of stockholders' equity Companies report the changes in their retained earnings on the statement of stockholders' equity.

A company recorded the following cash transactions for the year: Paid $130,000 for salaries Borrowed $6,000 from a bank Collected $245,000 from customers What is the company's net cash from operating activities for the year? a). $55,000 b). $115,000 c). $245,000 d). $49,000 e). $109,000

b). $115,000 Business activities include financing activities, investing activities, and operating activities. After a company obtains financing from owners and creditors and after the company has invested in property, plant, and equipment, the company is ready for day-to-day operating activities. Examples of operating activities include buying and selling inventory, paying employees' wages, and other activities (e.g.,paying for marketing). This company's net cash from its operating activities = cash collected from customers - payments for employee salaries (i.e., 245,000-130,000=115,000). Buying equipment is an investment activity. Paying a dividend is a financing activity.

During the current year, a company's total liabilities increased by $75,000 and total stockholders' equity decreased by $25,000. How much did its total assets increase or decrease during the current year? a). $100,000 increase b). $100,000 decrease c). $50,000 increase d). $50,000 decrease e). $25,000 increase

c). $50,000 increase The accounting equation is: Assets = Liabilities + Equity. The accounting equation must stay in balance (i.e., assets must equal the sum of liabilities plus stockholders' equity). If one side increases by $1 then the other side must increase by $1. If liabilities increased by $75,000 and stockholders' equity decreased by $25,000 then the net increase for liabilities and stockholders' equity is $50,000. Assets must have increased by $50,000.

In what order should financial statement be prepared? a). First, the income statement. Second, balance sheet. Third, the retained earnings statement. b). First, the income statement. Second, the retained earnings statement. Third, the balance sheet. c). First, balance sheet. Second, the income statement. Third, the retained earnings statement. d). First, the retained earnings statement. Second, the income statement. Third, the balance sheet. e). First, the retained earnings statement. Second, the balance sheet. Third, the income statement.

b). First, the income statement. Second, the retained earnings statement. Third, the balance sheet. The financial statements are prepared in the following order: income statement, retained earnings statement, and balance sheet. This is because net income (from the income statement) is a required input for the statement of stockholders' equity, ending retained earnings (from the statement of stockholders' equity) is a required input for the balance sheet.

The annual report provided to shareholders includes an auditor's report. The auditor's report includes an opinion about the fairness of the financial statements. The party expressing that opinion is a). the company's internal auditor b). an independent auditor who is a Certified Public Accountant c). the Internal Revenue Service d). an independent auditor who is a member of the Government Auditing Accountants e). the company's Chief Operating Officer

b). an independent auditor who is a Certified Public Accountant The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is in the auditor's opinion. The party ex-pressing that opinion is an independent auditor who is a Certified Public Accountant.

Amounts earned on the sale of products or services to customers is known as a). expenses b). revenue c). liabilities d). equity e). assets

b). revenue Revenues are amounts earned on the sale of products or services to customers. Common examples of revenues include sales revenue, service revenue, and interest revenue. Expenses are the cost of assets consumed or services used in the process of generating revenues. Common examples of expenses include wage expense, depreciation expense, interest expense, marketing expense, etc. Expenses are incurred by business when they generate (or attempt to generate) revenues.

A corporation began the year with total liabilities of $125,000 and stockholders' equity of $40,000. During the year, the company reported the following: Net income, $90,000 Dividends, $20,000 Total liabilities at the end of the year were $225,000. How much were total assets at the end of the year? a). $150,000 b). $370,000 c). $335,000 d). $385,000 e). $95,000

c). $335,000 First, determine the ending balance of stockholders' equity. Ending stockholders' equity = beginning stockholders' equity + net income - dividends. Ending stockholders' equity = $40,000 + 90,000 - 20,000 = $110,000. Second, determine total liabilities Assets = Liabilities + Stockholders' equity Assets = $225,000 + 110,000 Assets = $335,000

A company's retained earnings at the start of the year was $300,000. At the end of the current year, its accounts had the following balances: Accounts payable, $80,000 Accounts receivable, $60,000 Cash, $140,000 Common stock, $120,000 Dividends, $40,000 Equipment, $300,000 Retained earnings, not given Salaries expense, $500,000 Service revenue, $560,000 Supplies, $20,000 Determine the company's total stockholders' equity at year-end. a).$380,000 b). $320,000 c). $440,000 d). $480,000 e). $420,000

c). $440,000 Ending retained earnings = beginning retained earnings + revenues - expenses - dividends Ending retained earnings = 300,000 + 560,000 - 500,000 - 40,000 = 320,000 Total stockholders' equity = 320,000 + 120,000 = 440,000

Which of the following is true with regards to the forms of business organization? a). Proprietors are generally not personally liable for their proprietorships' debts. b). A corporation is a business organized as a separate legal entity owned by stockholders. c). All of these are true d). Corporations and their owners generally receive more favorable tax treatment than sole proprietorships and partnerships. e). The majority of U.S. business is transacted by sole proprietorships.

c). A corporation is a business organized as a separate legal entity owned by stockholders. Owner of sole proprietorships, partnerships, and corporations are called proprietors, partners, and stockholders, respectively. While the combined number of proprietorships and partnerships is several times the number of corporations in the U.S., corporations conduct several times the business in terms of revenues generated. Corporations incur tax at the business level and stockholder level (i.e., double taxation) while proprietorships and partnerships do not incur business level taxes (i.e., single taxation). Owners of corporations are not personally liable for the corporation's debts (i.e., stockholders have limited liability), but proprietors and partners are generally personally liable for their proprietorships' and partnerships' debts (i.e., unlimited liability).

The accounting equation may be expressed as a). Assets = Revenues - Expenses - Dividends. b). Assets = Liabilities + (Revenues - Expenses). c). Assets = Liabilities + Stockholders' Equity. d). Assets = Dividends + Liabilities - Stockholders' Equity. e). Assets = Liabilities - Stockholder's Equity.

c). Assets = Liabilities + Stockholders' Equity. The accounting equation is the following: Assets = Liabilities + Stockholders' Equity.

Which of the following best describes stockholders' equity? a). stockholders' equity are the economic resources of the firm b). stockholders' equity is the difference between revenues and expenses c). stockholders' equity are the claims of owners d). stockholders' equity are the claims of creditors e). stockholders' equity is the cash collected from owners

c). stockholders' equity are the claims of owners Stockholders' equity represents claims of owners. Assets are the resources owned by the firm and liabilities are the claims of creditors agains the firm's assets

A company began the year with retained earnings of $590,000. During the year, the company did the following: Incurred expenses, $2,100,000 Issued common stock, $840,000 Declared and paid dividends, $50,000 The company's ending retained earnings is $760,000. What was the company's revenue for the year? a). $1,290,000 b). $3,160,000 c). $2,600,000 d). $2,320,000 e). $800,000

d). $2,320,000 Beginning retained earnings + Net income - Dividends = Ending retained earnings Replace net income with revenue - expenses Beginning retained earnings + Revenue - Expenses - Dividends = Ending retained earnings Re-arranging this equation to solve for revenues: Revenue = Ending retained earnings - Beginning retained earnings + Expenses + Dividends Revenue = 760,000 - 590,000 + 2,100,000 + 50,000 Revenue = 2,320,000

A company began the year with retained earnings of $570,000. During the year, the company did the following: Recognized revenues, $600,000 Issued common stock, $50,000 Incurred expenses, $380,000 Declared and paid dividends, $140,000 What is its retained earnings at the end of the year? a). $1,030,000 b). $500,000 c). $930,000 d). $650,000 e). $700,000

d). $650,000 Ending retained earnings = Beginning retained earnings + net income-dividends Replace net income with revenue-expenses Ending retained earnings= Beginning retained earnings + revenue-expenses-dividends Ending retained earnings = 570,000+600,000-380,000-140,000 Ending retained earnings = 650,000

To show how successfully your business performed during a period of time, you would report its revenues and expenses in the a). statement of stockholders' equity. b). balance sheet. c). statement of cash flows. d).income statement. e). sources and uses statement.

d). income statement The income statement summarizes all of the revenues and expenses for a given period of time, such as a year. Net income equals revenues minus expenses. Net income results when revenues exceed expenses. A net loss results when expenses exceed revenues.

Net income will result during a time period when a). cash increases b). assets exceed liabilities c). revenues exceed the prior year's revenues d). revenues exceed expenses e). equities are greater than dividends

d). revenues exceed expenses The income statement summarizes all of the revenues and expenses for a given period of time, such as a year. Net income= revenues-expenses. Net income results when revenues exceed expenses. A net loss results when expenses exceed revenues.

What section of a cash flows statement shows the amount of cash collected from customers during the most recent accounting period? a). the expense section b). the property section c). the investing section d). the operating section e). the financing section

d). the operating section The cash flows statement has three sections: (i) operating, (ii) investing, and (iii) financing. Cash collected from a customer is an operating activity.

A corporation began the year with total liabilities of $120,000 and stockholders' equity of $40,000. During the year, the company reported the following: Net income, $120,000 Dividends, $15,000 Total liabilities at the end of the year were $225,000. How much were total assets at the end of the year? a). $380,000 b). $105,000 c). $335,000 d). $90,000 e). $370,000

e). $370,000 First, determine the ending balance of stockholders' equity. Ending stockholders' equity = beginning stockholders' equity + net income - dividends. Ending stockholders' equity= $40,000 + 120,000- 15,000 =$145,000. Second, determine total liabilities. Assets= Liabilities +Stockholders' equity Assets = $225,000 +145,000 Assets = $370,000

The financial records for a corporation included the following information: Accounts receivable, $55,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $25,000 Dividends, $15,000 Sales revenue, $90,000 Salaries and wages expense, $30,000 Supplies expense, $10,000 Retained earnings is not given. Based on this information, how much is its net income? a). $35,000 b). $80,000 c). $65,000 d). $55,000 e). $50,000

e). $50,000 Net income equals the revenues earned during the year minus the expenses incurred during the year. Use the balances of the revenue and expense accounts to measure revenues and expenses.Net income = Revenue - expenses Net income = $90,000 - 30,000 - 10,000 = $50,000

Retained earnings at the end of the period is equal to which of the following? a). Retained earnings at the beginning of the period plus net income minus liabilities b). Assets minus liabilities c). Assets plus liabilities d). Net income since the business began operating e). Retained earnings at the beginning of the period plus net income minus dividends

e). Retained earnings at the beginning of the period plus net income minus dividends Stockholders' equity includes contributed capital (e.g., common stock) and retained earnings. Retained earnings is an equity account. It is generated from the company's net income since the company began operations minus dividends paid since it began operations. Beginning retained earnings plus net income minus dividends equals ending retained earnings.

The cost of assets consumed or services used is also known as a). a revenue b). a liability c). an asset d). an equity e). an expense

e). an expense Expenses are the cost of assets consumed or services used in the process of generating revenues. Common examples of expenses include wage expense, depreciation expense, interest expense, marketing expense, etc. These are incurred by business when they generate (or attempt to generate) revenues.

Publicly traded U.S. companies must provide shareholders with an annual report. Which of the following is not part of the annual report provided to shareholders? a). auditor's report b). management discussion and analysis c). statement of cash flows d). notes to the financial statements e). internal and external users report

e). internal and external users report Publicly traded companies must provide shareholders with an annual report. The annual report includes the financial statements and certain other items, including a management discussion and analysis, notes to the financial statements, and an independent auditor's report.