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Exam 1: Accounting in Business

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Question 101

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If a company uses $1,300 of its cash to purchase supplies, the effect on the accounting equation would be:

A) Assets increase $1,300 and liabilities decrease $1,300.
B) One asset increases $1,300 and another asset decreases $1,300, causing no effect.
C) Assets decrease $1,300 and equity decreases $1,300.
D) Assets decrease $1,300 and equity increases $1,300.
E) Assets increase $1,300 and liabilities increase $1,300

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

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Question 102

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If the assets of a company increase by $55,000 during the year and its liabilities increase by $25,000 during the same year, then the change in equity of the company during the year must have been:

A) An increase of $80,000.
B) A decrease of $80,000.
C) An increase of $30,000.
D) A decrease of $30,000.
E) An increase of $25,000.

F) C) and D)
G) A) and C)

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Question 103

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Ending retained earnings on the statement of retained earnings is calculated by adding stockholder investments and net losses and subtracting net income and dividends.

Atkins Company collected $1,750 as payment for the amount owed by a customer from services provided the prior month on credit. How does this transaction affect the accounting equation for Atkins?

Regulators often have legal authority over certain activities of organizations.

Risk is the uncertainty about the return we will earn.

External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.

An example of an investing activity is:

Stockholders' equity is increased when cash is received from customers in payment of previously recorded accounts receivable.

There are three major types of business activities. ________________ activities are the means organizations use to pay for resources such as land, building, and equipment to carry out plans.

Identify and describe the two main groups involved in establishing generally accepted accounting principles.

Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

The fraud triangle asserts that the three factors that must exist for a person to commit fraud are opportunity, pressure, and rationalization.

An external transaction is an exchange within an entity that may or may not affect the accounting equation.

Determine the net income of a company for which of the following information is available for the month of September. $\begin{array} { | l | r |} \hline \text { Service revenue } & \$ 300,000 \\\hline \text { Rent expense } & 48,000 \\\hline \text { Utilities expense } & 3,200 \\\hline \text { Salaries expense } & 81,000 \\\hline\end{array}$

The business entity assumption means that a business is accounted for separately from other business entities, including its owner or owners.

The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:

Explain why ethics are an integral part of accounting.

The four basic financial statements include the balance sheet, income statement, statement of retained earnings, and statement of cash flows.

How does the going-concern principle affect reporting asset values of a business?