ACG2021 CH.1
If total assets decreased by $15,000 and total stockholders' equity increased by $5,000 during a period of time, then total liabilities must have changed by what amount and direction during that same period?
$20,000 decrease The accounting equation: Assets = Liabilities + Stockholders' Equity If assets decreased by $15,000 then liabilities plus stockholders' equity decreased by $15,000. Since stockholders' increased by $5,000 then liabilities must have decreased by $20,000 [i.e., ($15,000) = ($20,000) + $5,000].
At the end of the year, Stoneland Corporation has assets of $6,500 and liabilities of $2,500. How much is the company's equity at the end of the year?
$4,000 Assets = Liabilities + Equity Using the accounting equation, equity can be computed by subtracting liabilities from assets. Equity = $6,500 - 2,500 = $4,000.
What type of account or account classification is Retained Earnings?
Asset
Which of the following is an expense?
Cost of goods sold
Which of the following is true with regards to dividends?
Dividends represent a portion of corporate profits that are paid to the shareholders.
In which of the following sequences are these financial statements usually prepared?
None of these 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 retained earnings statement, ending retained earnings (from the retained earnings statement) is a required input for the balance sheet.
What section of a cash flows statement shows the amount of cash received from shareholders in exchange for issuing additional shares of its stock to its shareholders?
The financing section The cash flows statement has three sections: (i) operating, (ii) investing, and (iii) financing. Cash collected from shareholders in exchange for additional shares of stock is a financing activity.
What section of a cash flows statement shows the amount of cash collected from customers during the most recent accounting period?
The operating section
Which of the following would appear on a balance sheet?
Unearned revenue
Borrowing money from a bank in exchange for issuing the bank a note is an example of
a financing activity.
An annual report includes all of the following except
a listing of all of the stockholders.
Resources owned by a business are referred to as
assets
The retained earnings statement
reports both the net income and dividends for a specific period of time.
f total liabilities decreased by $15,000 and total stockholders' equity increased by $5,000 during a period of time, then total assets must have changed by what amount and direction during that same period?
$10,000 decrease The accounting equation: Assets = Liabilities + Stockholders' Equity If liabilities decreased by $15,000 and stockholders' equity increased by $5,000 then the right side of the accounting equation decreased by $10,000. Therefore, assets must have decreased by $10,000 to keep the accounting equation in balance [i.e., ($15,000) + $5,000 = ($10,000)].
The financial records for Harold Corporation included the following information: Accounts receivable, $60,000 Accounts payable, $5,000 Cash, $30,000 Common stock, $5,000 Dividends, $20,000 Insurance expense, $10,000 Salaries and wages expense, $40,000 Sales revenue, $150,000 Based on this information, how much was its net income?
$100,000 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 = $150,000 - 40,000 - 10,000 = $100,000
Jeremiah Company recorded the following cash transactions for the year: Collected $350,000 from customers Collected $40,000 from lenders Paid $20,000 to purchase office equipment. Paid $100,000 for salaries. Paid $10,000 in dividends. Paid $80,000 of goods and services What was the company's net cash provided by operating activities for the year?
$170,000 A company's activities are divided into three categories: (1) operating activities, (2) investing activities, and (3) financing activities. Operating activities include selling products and/or services, paying suppliers (e.g., buying inventory), employees workers, etc. Cash flows from operating activities are increases by collecting cash for operating activities (e.g., collecting cas from customers) and decreased by paying cash for operating activities (e.g., paying cash to employees for hours worked, paying cash to suppliers for inventory, etc.). This company's net cash provided by operating activities include (i) cash collected from customers, (ii) salaries paid for salaries, and (iii) cash paid for goods and services Net cash flow provided by operating activities = $350,000 - 100,000 - 80,000 = $170,000 Note: Not all cash collections and/or cash payments are operating activities. Some are investing activity cash flows (e.g., paying for property, plant, and equipment, etc.) and others are financing activity cash flows (e.g., paying dividends to shareholders, collecting cash from lenders [e.g., borrowing from banks], etc.).
If total liabilities increased by $15,000 and total stockholders' equity increased by $5,000 during a period of time, then total assets must have changed by what amount and direction during that same period?
$20,000 increase The accounting equation: Assets = Liabilities + Stockholders' Equity If liabilities increased by $15,000 and stockholders' equity increased by $5,000 then the right side of the accounting equation increased by $20,000. Therefore, assets must have increased by $20,000 to keep the accounting equation in balance [i.e., $20,000 = $15,000 + $5,000].
Joe's Repair Shop started the year with total assets of $200,000 and total liabilities of $160,000. During the year the business recorded $400,000 in revenues, $220,000 in expenses, and dividends of $40,000. It also issued $20,000 of additional stock to its shareholders. What is the stockholders' equity at the end of the year?
$200,000 The basic accounting equation is: Assets = Liabilities + Stockholders' equity At the start of the year, stockholders' equity is $40,000 (i.e., equity = assets - liabilities = 200,000 - 160,000 = 40,000). During the year equity increased by revenues, decreased by expenses, decreased by dividends, and increased by additional stock issued. Equity increased from $40,000 to $210,000 (i.e., $40,000 + 420,000 - 200,000 - 40,000 + 20,000 = 200,000).
Chris's Maid Service began the year with total liabilities of $100,000 and stockholders' equity of $40,000. During the year the company earned $110,000 in net income and paid $5,000 in dividends. Total liabilities at the end of the year were $240,000. How much are total assets at the end of the year?
$385,000 First, determine the ending balance of stockholders' equity. Ending stockholders' equity = beginning stockholders' equity + net income - dividends. Ending stockholders' equity = $40,000 + 110,000 - 5,000 = $145,000. Second, determine total liabilities. Assets = Liabilities + Stockholders' equity Assets = $240,000 + 145,000 Assets = $385,000
At the end of the year, Stoneland Corporation has assets of $6,500 and liabilities of $2,500. How much is the company's equity at the end of the year?
$4,000 Assets = Liabilities + Equity Using the accounting equation, equity can be computed by subtracting liabilities from assets. Equity = $6,500 - 2,500 = $4,000.
Jeremiah Company recorded the following cash transactions for the year: Collected $80,000 from lenders Collected $260,000 from customers Paid $130,000 for salaries. Paid $10,000 in dividends. Paid $90,000 of goods and services Paid $20,000 to purchase office equipment. What was the company's net cash provided by operating activities for the year?
$40,000 A company's activities are divided into three categories: (1) operating activities, (2) investing activities, and (3) financing activities. Operating activities include selling products and/or services, paying suppliers (e.g., buying inventory), employees workers, etc. Cash flows from operating activities are increases by collecting cash for operating activities (e.g., collecting cas from customers) and decreased by paying cash for operating activities (e.g., paying cash to employees for hours worked, paying cash to suppliers for inventory, etc.). This company's net cash provided by operating activities include (i) cash collected from customers, (ii) salaries paid for salaries, and (iii) cash paid for goods and services Net cash flow provided by operating activities = $260,000 - 130,000 - 90,000 = $40,000 Note: Not all cash collections and/or cash payments are operating activities. Some are investing activity cash flows (e.g., paying for property, plant, and equipment, etc.) and others are financing activity cash flows (e.g., paying dividends to shareholders, collecting cash from lenders [e.g., borrowing from banks], etc.).
The financial records for Harold Corporation included the following information: Accounts receivable, $60,000 Accounts payable, $25,000 Cash, $15,000 Common stock, $5,000 Dividends, $10,000 Insurance expense, $10,000 Sales revenue, $90,000 Salaries and wages expense, $25,000 Based on this information, how much was its net income?
$55,000 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 - 25,000 - 10,000 = $55,000
Jeremiah Company recorded the following cash transactions for the year: Collected $460,000 from customers Collected $50,000 from lenders Paid $10,000 to purchase office equipment. Paid $140,000 for salaries. Paid $20,000 in dividends. Paid $260,000 of goods and services What was the company's net cash provided by operating activities for the year?
$60,000 A company's activities are divided into three categories: (1) operating activities, (2) investing activities, and (3) financing activities. Operating activities include selling products and/or services, paying suppliers (e.g., buying inventory), employees workers, etc. Cash flows from operating activities are increases by collecting cash for operating activities (e.g., collecting cas from customers) and decreased by paying cash for operating activities (e.g., paying cash to employees for hours worked, paying cash to suppliers for inventory, etc.). This company's net cash provided by operating activities include (i) cash collected from customers, (ii) salaries paid for salaries, and (iii) cash paid for goods and services Net cash flow provided by operating activities = $460,000 - 140,000 - 260,000 = $60,000 Note: Not all cash collections and/or cash payments are operating activities. Some are investing activity cash flows (e.g., paying for property, plant, and equipment, etc.) and others are financing activity cash flows (e.g., paying dividends to shareholders, collecting cash from lenders [e.g., borrowing from banks], etc.).
The financial records for Harold 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 Based on this information, how much was its net income?
$65,000 Solution: 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 = $120,000 - 50,000 - 5,000 = $65,000
Pinson Company began the year with retained earnings of $570,000. During the year, the company issued $50,000 of additional common stock, recorded revenues of $600,000, recorded expenses of $380,000, and paid dividends of $140,000. What was Pinson's retained earnings at the end of the year?
$650,000
Chris's Maid Service began the year with total assets of $120,000 and stockholders' equity of $40,000. During the year the company earned $120,000 in net income and paid $15,000 in dividends. Total assets at the end of the year were $225,000. How much are total liabilities at the end of the year?
$80,000 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. (i.e., Assets = Liabilities + Stockholders' equity) Liabilities = $225,000 - 145,000 = $80,000.
Chris's Maid Service began the year with total assets of $100,000 and stockholders' equity of $40,000. During the year the company earned $110,000 in net income and paid $5,000 in dividends. Total assets at the end of the year were $240,000. How much are total liabilities at the end of the year?
$95,000 First, determine the ending balance of stockholders' equity. Ending stockholders' equity = beginning stockholders' equity + net income - dividends. Ending stockholders' equity = $40,000 + 110,000 - 5,000 = $145,000. Second, determine total liabilities. (i.e., Assets = Liabilities + Stockholders' equity) Liabilities = $240,000 - 145,000 = $95,000.
Which of the following is not one of the three primary business activities listed on the statement of cash flows?
Advertising activities
Which of the following is not one of the three primary business activities listed on the statement of cash flows?
Advertising activities 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 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 financial statement presents information as of a specific point in time?
Balance sheet
Which financial statement reports assets, liabilities, and stockholders' equity as of a given date?
Balance sheet. The balance sheet is a formal presentation of the accounting equation, such that Assets = Liabilities + Stockholders' Equity.
Easy transfer of ownership is a characteristic of which form of business organization?
Corporation
Which statement about users of accounting information is correct?
Creditors are considered external users.
What type of account or account classification is Cost of Goods Sold?
Expense Cost of goods sold is an expense. When a company sells inventory to a customer it reduces its inventory and it records the cost of the inventory sold as an expense.
Which of the following questions tends to be important to external users of a company's accounting information?
How does the company's profitability compare to its competitors? 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 authorities. Several questions are important to external users, but the questions tend to emphasize the company's overall profitability and ability to pay debts as they come due.
Which of the following is considered to be an external user of accounting information?
Investors 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 authorities.
Which of the following did not result from the Sarbanes-Oxley Act (SOX)?
It decreased the oversight role of boards of directors.
Which of the following is also referred to as debt?
Liabilities Liabilities are the amounts owed, such as the amounts that a company owes to its creditors. Example include accounts payable, notes payable, and unearned revenues.
Which section of the annual report presents highlights of favorable or unfavorable trends and identifies significant events and uncertainties affecting a company's ability to pay near-term obligations, and a company's ability to fund operations and expansion?
Management discussion and analysis
In which of the following sequences are these financial statements usually prepared?
None of these
Which of the following is required as a result of the Sarbanes-Oxley Act (SOX) passed into law in 2002?
None of these 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, and it increased the oversight role of boards of directors.
Which of the following would not appear on a balance sheet?
Service revenue
Which of the following would not appear on a retained earnings statement?
Service revenue
Which of the following is comprised of two parts: (1) common stock and (2) retained earnings?
Stockholders' equity
Which of the following best describes stockholders' equity?
Stockholders' equity are the claims of owners.
Which of the following best describes stockholders' equity?
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 against the firm's assets.
Which of the following did not result from the Sarbanes-Oxley Act (SOX)?
Tax rates on corporations increased. 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, and it increased the oversight role of boards of directors.
Which of the following are advantages of partnerships relative to corporations?
The ease of creating the business and low taxes. Sole proprietorships and partnerships have two characteristics that give them advantages relative to corporations. First, they are easier to form or create than corporations. Second, they do not pay income taxes. Only their owners pay income taxed. In contrast, corporations pay income taxes and their shareholders also pay income taxes on dividends from the corporation.
In which of the following sequences are these financial statements usually prepared?
The income statement is prepared before the retained earnings statement.
Which of the following is the most appropriate definition of accounting information?
The information system that identifies, records, and communicates the economic events of an organization to interested users
Which of the following is the most appropriate definition of accounting information?
The information system that identifies, records, and communicates the economic events of an organization to interested users The accounting information system identifies, records, and communicates the economic events of an organization to interested users.
In which of the following sequences are these financial statements usually prepared?
The retained earnings statement is prepared before the balance sheet.
A company borrowing money from a bank is an example of
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 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.
An annual report includes all of the following except
a listing of all of 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.
The right to receive money in the future is called a(n)
account receivable. If a company sells goods or services to customers and does not collect the customer's cash payment immediately then the company has a right to collect payment from the customer in the near future. The right to receive money in the future is called an account receivable.
The cost of assets consumed or services used is also known as
an expense.
A company paying cash to purchase equipment to be used in its business is an example of
an investing activity.
Paying cash to buy stocks or bonds of another company is an example of
an investing activity.
The payment of cash to purchase a truck to be used by a company as a delivery truck is an example of
an investing activity.
The payment of cash to purchase a truck to be used by a company as a delivery truck is an example of
an investing activity. Paying cash to purchase property, plant, and equipment (such as delivery trucks, machinery, buildings, etc. to be used in the company's operations is an investing activity cash outflow. Selling these same items is a cash inflow from investing activities. Another type of investing activity is buying and selling stocks and bonds of another company.
A company should report cash paid to its employees as wages on its statement of cash flows as
an operating activity.
In terms of the principal types of cash flow activities, paying for goods and services is an example of
an operating activity.
In terms of the principal types of cash flow activities, paying for goods and services is an example of
an operating activity. Companies engage in three types of cash flow activities: (i) operating activities, (ii) investing activities, and (iii) financing activities. 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 collecting interest from debtors).
When the auditor is satisfied that the financial statements provide a fair representation of the company's financial position and results of operation in accordance with generally accepted accounting principles, the auditor will express
an unqualified opinion.
When the auditor is satisfied that the financial statements provide a fair representation of the company's financial position and results of operation in accordance with generally accepted accounting principles, the auditor will express
an unqualified opinion. 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 expressing that opinion is an independent auditor who is a Certified Public Accountant. If the auditor is satisfied that the financial statements provide a fair representation of the company's financial position and results of operations in accordance with generally accepted accounting principles, then the auditor expresses an unqualified opinion.
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/are the
auditor's opinion.
The ending balance of the Retained Earnings account appears on
both the retained earnings statement and the balance sheet.
The ending balance of the Retained Earnings account appears on
both the retained earnings statement and the balance sheet. The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet. It does not appear on the income statement.
The balance sheet
reports the assets, liabilities, and stockholders' equity at a specific date.
Amounts earned on the sale of products or services to customers is known as
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.
Net income will result during a time period when
revenues exceed expenses
An income statement shows
revenues, expenses, and net income. The income statement reports 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.
Which of the following is an asset?
cash
Payments to a corporation's stockholders are called
dividends.
The segment of a corporation's annual report that describes the corporation's accounting methods is the
notes to the financial statements.
Collecting cash from customers is an example of a cash flow from
operating activities.
Which statement about users of accounting information is correct?
Taxing authorities are considered external users.
At the end of the year, Stoneland Corporation has assets of $3,000 and equity of $2,000. How much are the company's liabilities at the end of the year?
$1,000 Assets = Liabilities + Equity Using the accounting equation, liabilities can be computed by subtracting equity from assets. Liabilities = Assets - Equity Liabilities = $3,000 - $2,000 = $1,000.
If total liabilities decreased by $15,000 and total stockholders' equity increased by $5,000 during a period of time, then total assets must have changed by what amount and direction during that same period?
$10,000 decrease The accounting equation: Assets = Liabilities + Stockholders' Equity If liabilities decreased by $15,000 and stockholders' equity increased by $5,000 then the right side of the accounting equation decreased by $10,000. Therefore, assets must have decreased by $10,000 to keep the accounting equation in balance [i.e., ($15,000) + $5,000 = ($10,000)].
Hill Corporation began the year with retained earnings of $460,000. During the year, the company issued $840,000 of common stock, recorded expenses of $2,000,000, and paid dividends of $50,000. If Hill's ending retained earnings was $760,000, what was the company's revenue for the year?
$2,350,000
At the end of the year, Stoneland Corporation has liabilities of $6,000 and equity of $2,000. How much are the company's assets at the end of the year?
8,000 Assets = Liabilities + Equity Assets = $6,000 + 2,000 = $8,000.
Which of the following is an asset?
Accounts receivable 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.
Which of the following is not one of the forms of business organization?
Company Sole proprietorships, partnerships, and corporations are the three most well-known forms of business organization. Company is not a form of business organization.
Which of the following is not considered to be an external user of accounting information?
Company officers (e.g., Company president)
The obligation to pay for goods purchased from suppliers is called a(n)
Debts and obligations are amounts owed. These are referred to as liabilities. For example, when a company buys supplier on account it has not yet paid for the supplies. Rather, the company owes the supplier. Such a liability would be call an account payable.
A company should report an issuance of common stock on its statement of cash flows as
a financing activity.
