Accounting 201 Exam 1

If assets are $300,000 and liabilities are $192,000, then equity equals:

$108,000

1. Use the accounting equation to compute the missing financial statement amounts. 2. Use the expanded accounting equation to compute the missing financial statement amounts. 1. $75,000 = ___ + $40,000 2. ___ = $25,000 + $70,000 3. $85,000 = $20,000 + ___ 1. $40,000 = $16,000 + $20,000 - $0 + ___ - $8,000 2. $80,000 = $32,000 + $44,000 - ___ + $24,000 - $18,000

1. $75,000 = $35,000 + $40,000 2. $95,000 = $25,000 + $70,000 3. $85,000 = $20,000 + $65,000 1. $40,000 = $16,000 + $20,000 − $0 + $12,000 − $8,000 2. $80,000 = $32,000 + $44,000 − $2,000 + $24,000 − $18,000

A corporation is:

A business legally separate from its owners.

The description of the relation between a company's assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the:

Accounting equation

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Common Stock

Equity

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Dividends

Equity

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Depreciation Expense

Expense

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Rent Expense

Expense

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Salaries Expense

Expense

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Utilities Expenses

Expense

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

Expense recognition (matching) principal

The private-sector group that currently has the authority to establish generally accepted accounting principles in the United States is the:

FASB

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 principal

Financial statements reflect the assumption that the business continues operating.

Going-concern assumption

Identify the following users as either external users (E) or internal users (I). Controllers

I

Identify the following users as either external users (E) or internal users (I). Managers

I

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Accounts Payable

Liability

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Accounts Payable

Liability

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Salaries Payable

Liability

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Wages Payable

Liability

The area of accounting aimed at serving the decision making needs of internal users is:

Managerial Accounting

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

Measurement (Cost) principle

Information is based on actual costs incurred in transactions.

Measurement (cost) principle

In a recent year's financial statements, Home Depot reported the following results. Sales $106billion Net income 13.50billion Average total assets 53billion Compute Home Depot's return on assets. (Enter the values in billions. Round "Net income" to 2 decimal places.)

Net Income / Average Total Assets = Return on Assets $13.50 / $53 = 25.5%

Swiss Group reports net income of $36,000 for 2018. At the beginning of 2018, Swiss Group had $197,000 in assets. By the end of 2018, assets had grown to $247,000. What is Swiss Group's 2018 return on assets?

Net Income / Average Total Assets = Return on Assets $36,000 / $222,000 = 16.2% $36,000 / [($197,000 + $247,000) / 2] = 16.2%

The accounting concept that requires financial statement information to be supported by independent, unbiased evidence is:

Objectivity principle

The fraud triangle asserts three factors must exist for a person to commit fraud. Identify the fraud risk factor in each of the following situations: No one matches the cash in the register to receipts when shifts end.

Opportunity

The fraud triangle asserts three factors must exist for a person to commit fraud. Identify the fraud risk factor in each of the following situations: The business has no cameras or security devices at it's warehouse.

Opportunity

The full disclosure principle:

Prescribes that a company report the details behind financial statements that would impact users' decisions

The fraud triangle asserts three factors must exist for a person to commit fraud. Identify the fraud risk factor in each of the following situations: Managers are expected to grow business or be fired

Pressure

The fraud triangle asserts three factors must exist for a person to commit fraud. Identify the fraud risk factor in each of the following situations: Officers are told to show rising income or risk layoffs.

Pressure

The time period assumption:

Presumes that the life of a company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods.

The primary objective of financial accounting is to

Provide accounting information that serves external users

External users of accounting information include all of the following except

Purchasing managers

The fraud triangle asserts three factors must exist for a person to commit fraud. Identify the fraud risk factor in each of the following situations: A worker feels that fellow employees are not honest.

Rationalization

The fraud triangle asserts three factors must exist for a person to commit fraud. Identify the fraud risk factor in each of the following situations: A worker sees other employees regularly take inventory for personal use.

Rationalization

Cage Company had income of $357 million and average invested assets of $2,020 million. Its return on assets (ROA) is:

Return on Assets = Net Income/Average Assets Return on Assets = $357 million/$2,020 million = 0.177 = 17.7%

Chou Co. has a net income of $61,000, assets at the beginning of the year are $268,000 and assets at the end of the year are $318,000. Compute its return on assets.

Return on Assets = Net Income/Average Assets Return on Assets = $61,000/ [ ($268,000 + $318,000) / 2 ] Return on Assets = $61,000/$293,000 = 0.208 = 20.8%

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Dividends Revenue

Revenue

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Sales

Revenue

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. The client paid the entire $40,000 on the date the contract was signed. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

Revenue recognition principle

The rule that (1) requires revenue to be recognized when goods or services are provided to the customer and (2) at the amount expected to be received from the customer is called the:

Revenue recognition principle

Detailed rules used in reporting events and transactions.

Specific accounting principle

The basic financial statements include all of the following except

Statement of Changes in Assets

For each of the following (1) identify the type of account as an asset, liability, equity, revenue, or expense; (2) identify the normal balance of the account; and (3) select debit(Dr.) or credit (Cr.) to identify the kind of entry that would increase the account balance. License Fee Revenue

Type of Account: Revenue Normal Balance: Credit Increase: Credit

Identify the normal balance (debit or credit) for each of the following accounts. Common Stock

Credit

Identify the normal balance (debit or credit) for each of the following accounts. Taxes Payable

Credit

Identify the normal balance (debit or credit) for each of the following accounts. Wages Payable

Credit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To decrease Office Supplies

Credit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To decrease Prepaid Parking

Credit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To decrease supplies

Credit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To increase Common Stock

Credit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To increase Rental Revenue

Credit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To increase Utilities Payable

Credit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Advertising Expense

Credit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Buildings

Credit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Dividends

Credit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Postage Expense

Credit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Prepaid Insurance

Credit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Repairs Expense

Credit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Salaries Expense

Credit

Identify the normal balance (debit or credit) for each of the following accounts. Dividends

Debit

Identify the normal balance (debit or credit) for each of the following accounts. Equipment

Debit

Identify the normal balance (debit or credit) for each of the following accounts. Land

Debit

Identify the normal balance (debit or credit) for each of the following accounts. Legal Expense

Debit

Identify the normal balance (debit or credit) for each of the following accounts. Notes Receivable

Debit

Identify the normal balance (debit or credit) for each of the following accounts. Store Supplies

Debit

Identify whether a debit or credit results in the indicated change for each of the following accounts. Increase Prepaid Service Fees

Debit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To decrease Salaries Payable

Debit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To increase Salaries Expense

Debit

Identify whether a debit or credit results in the indicated change for each of the following accounts. To increase Store Supplies

Debit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Consulting Revenue

Debit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Interest Revenue

Debit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Service Revenue

Debit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Taxes Payable

Debit

Indicate whether a debit or credit decreases the normal balance of each of the following accounts. Utilities Payable

Debit

Identify the following users as either external users (E) or internal users (I). Brokers

E

Identify the following users as either external users (E) or internal users (I). Business Press

E

Identify the following users as either external users (E) or internal users (I). Consumer Group

E

Identify the following users as either external users (E) or internal users (I). Customers

E

Identify the following users as either external users (E) or internal users (I). Directors

E

Identify the following users as either external users (E) or internal users (I). District Attorney

E

Identify the following users as either external users (E) or internal users (I). FBI and IRS

E

Identify the following users as either external users (E) or internal users (I). Lenders

E

Identify the following users as either external users (E) or internal users (I). Suppliers

E

Identify the following users as either external users (E) or internal users (I). Shareholders

E

For each transaction, (1) analyze the transaction using the accounting equation, (2) record the transaction in journal entry form, and (3) post the entry using T-accounts to represent ledger accounts. Use the following (partial) chart of accounts—account numbers in parentheses: Cash (101); Accounts Receivable (106); Office Supplies (124); Trucks (153); Equipment (167); Accounts Payable (201); Unearned Landscaping Revenue (236); Common Stock (307); Dividends (319); Landscaping Revenue (403); Wages Expense (601), and Landscaping Expense (696). On May 15, DeShawn Tyler opens a landscaping company called Elegant Lawns by investing $90,000 in cash along with equipment having a $50,000 value in exchange for common stock. On May 21, Elegant Lawns purchases office supplies on credit for $680. On May 25, Elegant Lawns receives $9,800 cash for performing landscaping services. On May 30, Elegant Lawns receives $3,000 cash in advance of providing landscaping services to a customer.

Analyze: a. $140,000 = $0 + $140,000 b. $680 = $680 + $0 c. $9,800 = $0 + $9,800 d. $3,000 = $3,000 + $0 General Journal: 1. May 15: Cash $90,000 Equipment $50,000 Common Stock $140,000 2. May 21: Office Supplies $680 Accounts Payable $680 3. May 25: Cash $9,800 Landscaping revenue $9,800 4. May 30: Cash $3,000 Unearned landscaping revenue $3,000 T Accounts: Cash: Debit May 15: $90,000 May 25: $9,800 May 30: $3,000 End. Bal: $102,800 Equipment Debit May 15: $50,000 End. Bal: $50,000 Unearned Landscaping Revenue Credit May 25: $9,800 End. Bal: $9,800 Office Supplies Debit May 21: $680 End. Bal: $680 Accounts Payable Credit May 21: $680 End. Bal: $680 Common Stock Credit May 15: $140,000 End. Bal: $140,000

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Building

Asset

A chart of accounts is a list of all ledger accounts and an identification number for each. Identify the following accounts as either an asset (A), liability (L), equity (EQ), revenue (R), or expense (E) account. Land

Asset

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Accounts Receivable

Asset

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Cash

Asset

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Note Receivable

Asset

Classify each of the following accounts as an asset (A), liability (L), or equity (EQ) account. Prepaid Insurance

Asset

a. Total assets of Charter Company equal $860,000 and its equity is $500,000. What is the amount of its liabilities? b. Total assets of Martin Marine equal $660,000 and its liabilities and equity amounts are equal to each other. What is the amount of its liabilities? What is the amount of its equity?

Assets = Liabilities + Equity a $860,000 = $360,000 + $500,000 b. $660,000 = $330,00 + $330,000

If assets are $89,000 and liabilities are $27,800, then equity equals:

Assets = Liabilities + Equity $89,000 = $27,800 + Equity Equity = $61,200

If the liabilities of a company increased $100,000 during a period of time and equity in the company decreased $32,000 during the same period, what was the effect on the assets?

Assets = Liabilities + Equity Change in Assets = Change in Liabilities + Change in Equity Change in Assets = +$100,000 - $32,000 Change in Assets = Increase of $68,000 Assets would have increased $68,000

If the liabilities of a business increased $81,000 during a period of time and the equity in the business decreased $33,000 during the same period, the assets of the business must have:

Assets = Liabilities + Equity Change in Assets = Change in Liabilities + Change in Equity Change in Assets = +$81,000 - $33,000 Change in Assets = Increase of $48,000

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

Business entity assumption

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

Business entity assumption