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Which of the following concepts relates to separating the reporting of business and personal economic transactions?


A) Cost principle
B) Monetary unit assumption
C) Economic entity assumption
D) Objectivity assumption

E) A) and D)
F) B) and C)

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Liabilities are reported on the:


A) income statement.
B) statement of retained earnings.
C) statement of cash flows.
D) balance sheet.

E) B) and C)
F) A) and D)

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On January 1, 2012, Blackstone Company reported assets of $1,000,000 and liabilities of $600,000. During 2012 assets decreased by $200,000 and Equity decreased $250,000. What is the amount of Equity on December 31, 2012.


A) $650,000
B) $150,000
C) $400,000
D) $800,000

E) B) and D)
F) A) and B)

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The principle of conservatism is concerned with:


A) the avoidance of overstating assets or income in the preparation of financial statements.
B) the minimization of costs associated with providing financial information.
C) the company's ability to carry out its existing commitments.
D) the company's procedures for recording activities at their initial exchange price.

E) B) and C)
F) All of the above

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A

Which financial statement would you analyze to determine its operating performance for the past year?


A) Balance sheet
B) Statement of retained earnings
C) Income statement
D) Statement of cash flows

E) A) and D)
F) B) and C)

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Each of the situations in A through C below applies to one of the assumptions or principles included in the conceptual framework of accounting. Identify which assumption or principles applies and explain why that assumption or principle applies. Each of the situations in A through C below applies to one of the assumptions or principles included in the conceptual framework of accounting. Identify which assumption or principles applies and explain why that assumption or principle applies.

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Tarp Corporation  Beginning retained earnings $550,000 Ending retained earnings 700,000 Dividends paid 100,000 Revenue 525,000\begin{array}{ll}\text { Beginning retained earnings } & \$ 550,000 \\\text { Ending retained earnings } & 700,000 \\\text { Dividends paid } & 100,000 \\\text { Revenue } & 525,000\end{array} -Refer to the selected information provided for Tarp Corporation. The company's expenses are:


A) $100,000.
B) $150,000.
C) $450,000.
D) $275,000.

E) None of the above
F) C) and D)

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What does the phrase, "Revenue is recognized when earned" mean?


A) Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on the income statement when sold to the customer.
B) Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer.
C) Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the income statement when the cash payment is received from the customer.
D) Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer.

E) B) and C)
F) A) and C)

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Which of the following best describes the term "expenses"?


A) The cost of assets used in the investing activities of a business.
B) The amount of interest or claim that the owners have in the business.
C) The future economic resources of a business entity.
D) A decrease in resources resulting from the sale of goods or provision of services.

E) A) and B)
F) A) and D)

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Which of the following is a correct fundamental accounting equation?


A) Assets + Liabilities = Equity
B) Assets + Retained Earnings = Equity
C) Assets + Equity = Liabilities
D) Assets = Liabilities + Equity

E) B) and D)
F) B) and C)

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Several amounts from GM Company at December 31, 2012, are listed below. Answer the questions.  Service revenue $817,500 Salaries expense $343,500 Dividends paid 75,000 Rent expense 129,000 Buildings 165,000 Land 150,000 Accounts payable 60,000 Accounts receivable 42,000 Capital stock 90,000 Retained earnings, Jan. 1,2012600,000 Utilities expense 28,500 Notes payable 45,000 Income tax payable 6,000 Income tax expense 165,000\begin{array}{llll}\text { Service revenue } & \$ 817,500 & \text { Salaries expense } & \$ 343,500 \\\text { Dividends paid } & 75,000 & \text { Rent expense } & 129,000 \\\text { Buildings } & 165,000 & \text { Land } & 150,000 \\\text { Accounts payable } & 60,000 & \text { Accounts receivable } & 42,000 \\\text { Capital stock } & 90,000 & \text { Retained earnings, Jan. } 1,2012 & 600,000 \\\text { Utilities expense } & 28,500 & \text { Notes payable } & 45,000 \\\text { Income tax payable } & 6,000 & \text { Income tax expense } & 165,000\end{array} Several amounts from GM Company at December 31, 2012, are listed below. Answer the questions. \begin{array}{llll} \text { Service revenue } & \$ 817,500 & \text { Salaries expense } & \$ 343,500 \\ \text { Dividends paid } & 75,000 & \text { Rent expense } & 129,000 \\ \text { Buildings } & 165,000 & \text { Land } & 150,000 \\ \text { Accounts payable } & 60,000 & \text { Accounts receivable } & 42,000 \\ \text { Capital stock } & 90,000 & \text { Retained earnings, Jan. } 1,2012 & 600,000 \\ \text { Utilities expense } & 28,500 & \text { Notes payable } & 45,000 \\ \text { Income tax payable } & 6,000 & \text { Income tax expense } & 165,000 \end{array}

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Times Corporation The accountant for the Times Corporation prepared the following list from the company's accounting records for the year ended December 31, 2012.  Retained earnings: ? Preprid expenses $7,000 Casin $97,000 Common stock 500,000 Accounts payable 70,000 Accounts receivable 260,000 Sales revenue 1,075,000 Interest income 70,000 Cost of sales 780,000 Salary expense 220,000 Land 810,000 Income tax expense 60,000 Notes payable 520,000 Selling expense 75,000 Inventory 280,000 Salaries payable 55,000\begin{array}{llll}\text { Retained earnings: } & ? & \text { Preprid expenses } & \$ 7,000 \\\text { Casin } & \$ 97,000 & \text { Common stock } & 500,000 \\\text { Accounts payable } & 70,000 & \text { Accounts receivable } & 260,000 \\\text { Sales revenue } & 1,075,000 & \text { Interest income } & 70,000 \\\text { Cost of sales } & 780,000 & \text { Salary expense } & 220,000 \\\text { Land } & 810,000 & \text { Income tax expense } & 60,000 \\\text { Notes payable } & 520,000 & \text { Selling expense } & 75,000 \\\text { Inventory } & 280,000 & \text { Salaries payable } & 55,000\end{array} Prepare a Balance Sheet for the Times Corporation in a proper format.

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


A) Balance sheet
B) Statement of retained earnings
C) Income statement
D) Statement of cash flows

E) B) and C)
F) A) and B)

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If stockholders want to know how money flowed into and out of the company, what financial statement would they use?


A) Income statement
B) Statement of cash flows
C) Balance sheet
D) Statement of retained earnings

E) B) and C)
F) B) and D)

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B

What is the difference between comparability and consistency?

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Comparability allows comparisons to be made between or among companies. Even though a certain amount of freedom exists in selecting accounting techniques, when this information is disclosed in the financial statements, users can still compare the information when they know what technique is used. Consistency refers to the application of the same accounting techniques over time. It involves the relationships between a set of numbers over several periods, but within one company only, unlike comparability that can be between or among companies.

List the four financial statements. Explain the connection between these four statements.

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blured image Net income on the income statement incr...

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Ponzi Corporation Ponzi Corporation reported the following information for the year ended December 31, 2012.  Net income $100,000 Dividends 6,000 Retained earnings at December 31,2012$120,000\begin{array}{ll}\text { Net income } & \$ 100,000 \\\text { Dividends } & 6,000 \\\text { Retained earnings at December } 31,2012 & \$ 120,000\end{array} - Refer to the information provided above for Ponzi Corporation. What was the economic effect of the payment of Ponzi's dividends?


A) The dividend reduced net income for 2012.
B) The dividend should be added to net income if the company's accounting equation is in balance.
C) The dividend reduced total retained earnings.
D) The dividends must be paid whenever Ponzi Corporation reports net income.

E) B) and C)
F) A) and D)

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Which one of the following is not one of the activities on the statement of cash flows?


A) Operating activities
B) Investing activities
C) Business activities
D) Financing activities

E) A) and B)
F) A) and C)

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How is the balance sheet linked to the other financial statements?


A) The amount of retained earnings is reported on the balance sheet as a liability.
B) Retained earnings is added to total assets and reported on the balance sheet.
C) Retained earnings from the statement of retained earnings is reported on the balance sheet.
D) There is no link between the balance sheet and other statements, as each contains different accounts and provides different information.

E) All of the above
F) A) and C)

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Who among the following invest funds into a business and are considered owners?


A) Stockholders
B) Creditors
C) Bankers
D) Lenders

E) B) and D)
F) A) and D)

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