Chapter 1: Introduction to Accounting and Business

Clayton Company purchased a new coffee maker in the amount of $3,500. Clayton paid $1,000 down and will pay the remainder in 60 days. What effect does this transaction have on the accounting equation? a. $2,500 net increase in assets and $2,500 increase in liabilities. b. $$3,500 net increase in assets and $3,500 increase in liabilities. c. $1,000 net decrease in assets and $1,000 decrease in liabilities. d. $3,500 net increase in assets and $2,500 increase in liabilities.

a. $2,500 net increase in assets and $2,500 increase in liabilities.

Which financial statement reports financial data based on the matching concept? a. Income Statement b. Statement of Cash Flows c. Retained Earnings Statement d. Balance Sheet

a. Income Statement

Which of the following is not accurate when it pertains to managerial accounting? a. Provides economic data reports on the operations and condition of the business that are useful for banks and other creditors in deciding whether to lend money to the business. b. Uses both financial accounting information and estimates in helping managers make daily decisions. c. Uses past information to estimate the planning of future operations. d. The gathering and reporting of information that is relevant to the decision-making needs of management.

a. Provides economic data reports on the operations and condition of the business that are useful for banks and other creditors in deciding whether to lend money to the business.

The statement that summarizes the changes in retained earnings that have occurred during a specific period is the a. Retained earnings statement. b. Statement of cash flows. c. Income statement. d. Balance sheet.

a. Retained earnings statement

All of the following are incorrect as to the rights of creditors regarding a business's assets except: a. The rights of creditors come before the rights of stockholders. b. The rights of creditors and the rights of the stockholders are equal. c. The rights of the stockholders precede the rights of the creditors. d. The rights of creditors come after the rights of stockholders.

a. The rights of creditors come before the rights of stockholders.

For a corporation, stockholders' equity can best be defined as a. The rights of owners. b. The rights of either owners or creditors. c. The rights of both owners and creditors. d. The rights of creditors.

a. The rights of owners

A(n) _________________ changes basic inputs into products that are sold to customers. a. manufacturing business b. enterprise business c. service business d. merchandising business

a. manufacturing business

Ramos Inc. has total assets of $1,000 and total liabilities of $450 on December 31, 2013. Assume that assets increased by $130 and liabilities decreased by $25 during 2014. What would stockholders' equity be as of December 31, 2014? a. $550 b. $705 c. $655 d. $1,295

b. $705 $1,130-$425= $705

Assets of a company may include a. Personal property of the stockholders. b. Cash, inventory, buildings, and equipment. c. The rights of creditors. d. All of these choices are correct.

b. Cash, inventory, buildings, and equipment.

If Company A has a lower ratio of liabilities to stockholders' equity than Company B, this means that a. Company A is more likely to lose money that Company B. b. Company A is better able to withstand poor business conditions than Company B. c. The creditors of Company A have a greater risk of nonpayment than do the creditors of Company B. d. Company A is more likely to go bankrupt than Company B.

b. Company A is better able to withstand poor business conditions than Company B.

Which of the following forms of business entities generates 90% of business revenues in the U.S.? a. Partnerships b. Corporations c. Manufacturing companies d. Proprietorships

b. Corporations

Which of the following does NOT represent the accounting equation? a. Assets - Liabilities = Stockholders' Equity b. Assets - Stockholders' Equity = Liabilities c. Assets + Stockholders' Equity = Liabilities d. Assets = Liabilities + Stockholders' Equity

c. Assets + Stockholders' Equity = Liablities

Which of the following is not true about GAAP? a. GAAP is a standard set of principles that allows for the comparison of financial performance. b. GAAP impacts how companies report and what they report. c. GAAP allows a company's management to record and report data as it sees fit. d. GAAP are the principles and concepts that the management of a company uses to record and report its financial information.

c. GAAP allows a company's management to record and report data as it sees fit.

Each of the following transactions affects stockholders' equity except a. A withdrawal of cash by owner. b. A sale on account. c. The purchase of land with cash. d. An investment by owner.

c. The purchase of land with cash.

Which of the following concepts requires that economic data be recorded in dollars in the U.S.? a. Cost concept b. Objectivity concept c. Unit of measure concept d. Business entity concept

c. Unit of measure concept

Included on the balance sheet are a. Income and expense accounts. b. Asset, income, and expense accounts. c. All types of accounts. d. Asset, liability, and stockholders' equity accounts.

d. Asset, liablity, and stockholders' equity on accounts.

The following data were taken from Reynolds Company balance sheet: Dec2014 Dec2013 Total Liablities $240k $210k Total Stockhold $160k $150k Which of the following best explains the change in creditors' risk from 2013 to 2014? a. Decreased risk b. Risk did not change c. Not enough information is provided to answer this question d. Increased risk

d. Increased Risk

Which of the following is not considered an internal user of accounting information? a. A small business owner b. An employee c. A manager d. A supplier

d. a supplier