ACCT 2110 Exam 1

Which of the following statements is true concerning assets?

Assets are initially recorded using the historical cost principle.

Which of the following statements is true regarding economic events?

External events involve exchanges between an entity and another entity outside the company

T/F: A chart of accounts is prepared to determine whether the books have gotten out of balance.

False

T/F: According to the historical cost principle, assets are always carried at their current market value.

False

T/F: Because the four financial statements are interrelated (i.e., there is a natural progression from one financial statement to another), the balance sheet should be prepared first.

False

T/F: Current assets include all of the following: cash, inventory, equipment, supplies, and accounts receivable.

False

T/F: If a company performed services for credit, then the debit side of the journal entry would be to Accounts Payable and the credit would be to Service Revenue.

False

T/F: The amount of earnings distributed to stockholders can be found in the income statement as an expense.

False

T/F: If a company made a payment on account, then assets and liabilities would both decrease.

True

T/F: Independent auditors (CPAs) render an opinion that the financial statements do or do not fairly present a company's financial position, operating results, and cash flows.

True

T/F: The Statement of Cash Flows shows cash inflows and cash outflows for a period of time.

True

The purchase of office equipment on credit has what effect on the accounting equation?

assets and liabilities increase

The payment of employee salaries has what effect on the accounting equation?

assets and stockholders' equity decrease

Who is an internal user of financial information?

company management

What is the name of the branch of accounting concerned with providing outside decision makers with information to assess the amounts, timing and uncertainties of the company's future cash flows?

financial accounting

Businesses engage in which of the following three main activity categories?

financing, investing, operating

Which financial statement would you refer to in order to determine how much resources (assets) the company owned?

Balance Sheet

T/F: The ending cash balance is shown on the Balance Sheet and the Statement of Retained Earnings.

False

T/F: The payment of a dividend increases both cash and stockholders' equity of the distributing entity.

False

T/F: The time-period assumption assumes that a company prepares its financial statements every month.

False

T/F: When an entity's stock issuances exceed its expenses for a period of time, the entity will report net income.

False

The first step in preparing the classified balance sheet is to list the assets in order of liquidity.

False

Which of the following organizations is primarily responsible for establishing GAAP in the United States?

Financial Accounting Standards Board (FASB)

Which of the following is an assumption made in the preparation of the financial statements?

Financial statements are prepared for a specific entity that is distinct from the entity's owners

Which of the following underlying assumptions for the conceptual framework is the reason the dollar is used in the preparation of financial statements?

Monetary Unit

During March, Honeybaked Spam purchased supplies for cash. The supplies will be used in April. What effect does this transaction have on the accounting equation at the time the supplies are purchased?

There is no effect on the accounting equation, as one asset account increases while another asset account decreases

T/F: The accounting equation must balance before and after every accounting transaction.

True

True/False: Three common categories of long-term assets are: 1) property, plant, and equipment, 2) long-term investments, and 3) intangibles.

True

"Revenues" are best described as

increases in assets resulting from the sale of products or services

What is unearned revenue?

liability