Deck 1: Accounting and the Business Environment

Question 1

financial statement is defined as reporting the inflows and outflows of cash in a proprietorship?

A) Income statement
B) Statement of owner's equity
C) Balance sheet
D) Statement of cash flows

Answer 1

Statement of cash flows

Question 2

obligation that a proprietorship owes to an outside person or agency is called a(n):

A) asset.
B) liability.
C) owner's equity.
D) revenue.

Answer 2

liability.

Question 3

are relatively few types of revenue. Which of the following in NOT a type of revenue?

A) Withdrawals paid to proprietors
B) Service
C) Interest
D) Sales

Answer 3

Withdrawals paid to proprietors

Question 4

Accounting information may be generated for a variety of purposes. The key products of accounting are:

A) financial statements.
B) remittance advices.
C) spreadsheets.
D) work sheets.

Question 5

Accounting is the information system that provides information to various users. This process includes:

A) compiling the data into reports.
B) measuring business activity.
C) communicating the results to decisions makers.
D) all of the above.

Question 6

By definition, which of the following represent the owners of a proprietorship?

A) Customers
B) Creditors
C) Proprietor
D) None of the above

Question 7

Managerial accounting focuses on information for decision makers outside the company.

Question 8

Outside investors often use accounting information to decide whether or not to invest in a business.

Question 9

of the following is most likely to be a user of information in a managerial accounting setting?

A) Potential investors
B) Creditors
C) Customers
D) Department heads

Question 10

of the following is likely to be a user of information in a financial accounting setting?

A) Taxing authorities
B) Other businesses
C) Potential investors
D) All of the above

Question 11

Generally accepted auditing standards are the rules that govern public accounting information.

Question 12

companies set standards of ethical conduct for their employees.

Question 13

principles called GAAP are established by the:

A) SEC.
B) AICPA.
C) FASB.
D) IRS.

Question 14

Proprietorships are the most common and numerous type of business organization.

Question 15

Businesses can be organized in a variety of forms. The types of business forms found in the U.S. include all of the following EXCEPT:

A) corporation.
B) tax shelter.
C) partnership.
D) proprietorship.

Question 16

proprietorship possesses all but one of the following characteristics. Which of the following is a characteristic of a proprietorship?

A) If a proprietorship cannot pay its debts, lenders can take the owner's personal assets to satisfy the obligations.
B) A proprietorship is an "artificial person" in the eyes of the law.
C) Ownership is divided into individual shares.
D) A proprietorship is owned by shareholders or stockholders.

Question 17

are more __________ than any other form of business organization.

A) partnerships
B) sole proprietorships
C) corporations
D) limited liability partnerships

Question 18

partnership possesses which of the following characteristics?

A) There are less risks to a corporation compared to the risks of a sole proprietorship.
B) If a partnership cannot pay its debts, lenders cannot take the owner's personal assets to satisfy the obligations.
C) A partnership joins two or more individuals as co-owners.
D) None of the above is a characteristic of a partnership.

Question 19

proprietorship possesses which of the following characteristics?

A) A proprietorship joins two or more individuals as co-owners.
B) If a proprietorship cannot pay its debts, lenders cannot take the owner's personal assets to satisfy the obligations.
C) A proprietorship has a single owner.
D) None of the above is a characteristic of a proprietorship.

Question 20

limited liability partnership possesses which of the following characteristics?

A) A limited liability partnership is an "artificial person" in the eyes of the law.
B) If a limited liability partnership cannot pay its debts, lenders cannot take the owner's personal assets to satisfy the obligations.
C) A limited liability partnership joins two or more individuals as co-owners.
D) All of the above are true.

Question 21

first step in incorporation is to:

A) have the board of directors designate a president.
B) agree to a set of bylaws.
C) issue the first shares of stock.
D) obtain a charter from the state.

Question 22

Organizing as a corporation separates management from the:

A) proprietors.
B) vendors.
C) customers.
D) stockholders.

Question 23

corporation has all of the following EXCEPT:

A) a charter.
B) a board of directors.
C) unlimited liability.
D) none of the above.

Question 24

of the following concepts (or principles) would be most likely to require that data be verifiable?

A) Cost principle
B) Reliability concept
C) Entity concept
D) Going-concern concept

Question 25

Counting the actual physical inventory of a company would be an example of the:

A) objectivity principle (verifiability).
B) entity concept.
C) going-concern concept.
D) stable monetary unit concept.

Question 26

American business using the US dollar and a European Union country business using the Euro represent which of the following concepts or principles?

A) Cash flow principle
B) Transaction principle
C) Objectivity principle
D) Stable monetary unit principle

Question 27

accounting equation only represents the relationship between assets and liabilities.

Question 28

Services are performed. Payment is expected next month. How does this affect the accounting equation?

A) Liabilities increase; owner's equity decreases.
B) Assets increase; owner's equity increases.
C) Assets decrease; owner's equity decreases.
D) Assets increase; owner's equity decreases.

Question 29

bill is received for services rendered this month. It will be paid next month. How does receiving this bill affect the accounting equation?

A) Assets decrease; owner's equity decreases.
B) Liabilities increase; owner's equity decreases.
C) Assets increase; liabilities increase.
D) Liabilities increase; owner's equity increases.

Question 30

Equipment is sold for cash equal to the amount recorded on the books. How does this sale affect the accounting equation?

A) Assets increase; assets decrease.
B) Assets increase; liabilities increase.
C) Assets increase; liabilities decrease.
D) Assets increase; owner's equity increases.

Question 31

Cash is collected from a customer who was previously put on account. How does the collection of the cash affect the accounting equation?

A) Assets increase; owner's equity increases.
B) Assets increase; liabilities increase.
C) Assets increase; assets decrease.
D) Assets decrease; owner's equity decreases.

Question 32

Land was originally purchased for $20,000. It is sold for $20,000 in cash. How does the sale affect the accounting equation?

A) Assets increase $65, 000; liabilities decrease $20, 000; owner's equity increases $45, 000.
B) Assets increase $20, 000; there is no change in liabilities; owner's equity increases $55, 000.
C) Assets increase $65, 000; owner's equity increases $65, 000.
D) Assets increase $45, 000; owner's equity increases $45, 000.

Question 33

Land is purchased with a $20,000 down payment and the execution of an $80,000 promissory note. How does this purchase affect the accounting equation?

A) Assets increase $80, 000; liabilities decrease $20,000.
B) Assets increase $20, 000; liabilities decrease $80,000.
C) Assets increase $80, 000; owner's equity increases $80,000.
D) Assets increase $80, 000; liabilities increase $80,000.

Question 34

Total liabilities increase by $7,000. How is the accounting equation affected?

A) Assets have increased by $7,000, or owner's equity has decreased by $7,000.
B) Assets have decreased by $7,000.
C) Assets and owner's equity have each decreased by $3,500.
D) Owner's equity has increased by $7,000.

Question 35

Net income is $29,000. Beginning capital was $34,000. Ending capital was $55,000. What were the cash withdrawals for the proprietorship??

A) $18,000
B) $ 8,000
C) $ 5,000
D) $60,000

Question 36

Sharon Samson starts a plumbing service, Reliable Waterworks, a proprietorship. Selected transactions are described as follows:
A. Sharon deposits $7,000 into a new checking account for the company.
B. Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
After all of the transactions, what is the amount of total assets?

A) $25,700
B) $ 5,200
C) $24,200
D) $20,200

Question 37

Sharon Samson starts a plumbing service, Reliable Waterworks, a proprietorship Selected transactions are described as follows:
A. Sharon deposits $7,000 into a new checking account for the company.
B. Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
C. Reliable borrows $15,000 from a local bank and deposits the money in the checking account.
D. Reliable pays $600 rent for the first month.
E. Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future.
F. Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash.
After all of the transactions, what is the amount of total owner's equity?

A) $ 5,200
B) $20,200
C) $ 7,700
D) None of the above

Question 38

Sharon Samson starts a plumbing service, Reliable Waterworks, a proprietorship. Selected transactions are described as follows:
A. Sharon deposits $7,000 into a new checking account for the company, receiving stock in exchange.
B. Reliable pays $4,000 cash for equipment to be used for plumbing repairs.
C. Reliable borrows $15,000 from a local bank and deposits the money in the checking account.
D. Reliable pays $600 rent for the first month.
E. Reliable pays $400 cash for plumbing supplies to be used on various jobs in the future.
F. Reliable completes a plumbing repair project for a local lawyer and receives $1,300 cash.
G. Sharon makes withdrawals of $2,500.
After all of the transactions, what is net income?

A) $ 600
B) $ 700
C) $4,500
D) $1,300

Question 39

Following is a list of account balances (except for owner's equity) of Wilson Mowing as of December 31 of the first year of operation:
$$\begin{array} { | l | r | } \hline \text { Accounts receivable } & \$ 2,500 \\\hline \text { Accounts payable } & 3,500 \\\hline \text { Salary expense } & 4,500 \\\hline \text { Repairs expense } & 800 \\\hline \text { Truck } & 8,500 \\\hline \text { Equipment } & 6,300 \\\hline \text { Notes payable } & 8,200 \\\hline \text { Cash } & 6,800 \\\hline \text { Supplies expense } & 1,600 \\\hline \text { Service revenue } & 31,900 \\\hline \text { Gasoline expense } & 3,800 \\\hline \text { Salary payable } & 200 \\\hline\end{array}$$ The sole proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year and made withdrawals of $12,000 during the year.
At the end of the year, what is the amount of total assets?

A) $12,200
B) $24,100
C) $11,900
D) $21,200

Question 40

Following is a list of account balances (except for owner's equity) of Wilson Mowing as of December 31 of the first year of operation:
$$\begin{array} { | l | r | } \hline \text { Accounts receivable } & \$ 2,500 \\\hline \text { Accounts payable } & 3,500 \\\hline \text { Salary expense } & 4,500 \\\hline \text { Repairs expense } & 800 \\\hline \text { Truck } & 8,500 \\\hline \text { Equipment } & 6,300 \\\hline \text { Notes payable } & 8,200 \\\hline \text { Cash } & 6,800 \\\hline \text { Supplies expense } & 1,600 \\\hline \text { Service revenue } & 31,900 \\\hline \text { Gasoline expense } & 3,800 \\\hline \text { Salary payable } & 200 \\\hline\end{array}$$ The sole proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year and made withdrawals of $12,000 during the year.
At the end of the year, what is the amount of total liabilities?

A) $11,900
B) $24,100
C) $21,200
D) $12,200

Question 41

Following is a list of account balances (except for owner's equity) of Wilson Mowing as of December 31 of the first year of operation:
$$\begin{array} { | l | r | } \hline \text { Accounts receivable } & \$ 2,500 \\\hline \text { Accounts payable } & 3,500 \\\hline \text { Salary expense } & 4,500 \\\hline \text { Repairs expense } & 800 \\\hline \text { Truck } & 8,500 \\\hline \text { Equipment } & 6,300 \\\hline \text { Notes payable } & 8,200 \\\hline \text { Cash } & 6,800 \\\hline \text { Supplies expense } & 1,600 \\\hline \text { Service revenue } & 31,900 \\\hline \text { Gasoline expense } & 3,800 \\\hline \text { Salary payable } & 200 \\\hline\end{array}$$ The sole proprietor, J.D. Wilson, contributed $3,000 at the beginning of the year and made $12,000 in withdrawals during the year.
At the end of the year, what is net income?

A) $21, 200
B) $11, 900
C) $12, 200
D) $24, 100

Question 42

The total assets and the total liabilities of Ty Williams, CPA, PC are as follows. During the year, the corporation paid dividends of $15,000.
$$\begin{array} { | l | r | r | } \hline & \text { Assets } & \text { Liabilities } \\\hline \text { Beginning of year } & \$ 395,000 & \$ 290,000 \\\hline \text { End of year } & 455,000 & 320,000 \\\hline\end{array}$$ What was the amount of net income for the year?

A) $ 85,000
B) $ 40,000
C) $ 45,000
D) $135,000

Question 43

invests money into his business. The two accounts affected are:

A) an asset and a liability.
B) an asset and an equity.
C) a liability and an equity.
D) two asset accounts.

Question 44

balance sheet of a proprietorship represents the account balances as of a particular date in time.

Question 45

Beginning capital was $25,000. Ending capital is $37,000. Withdrawals were $23,000. What was net income or loss for the year?

A) Net income of $16,000
B) Net loss of $35,000
C) Net loss of $14,000
D) Net income of $35,000

Question 46

Beginning capital was $25,000. Ending capital is $37,000. Withdrawals were $23,000. What was net income or loss for the year?

A) $18,000
B) $8,000
C) $60,000
D) $5,000

Question 47

Beginning capital is $20, 000. Withdrawals were $7, 000. Ending capital is $37, 000. What was net income?

A) $24, 000
B) $13, 000
C) $10, 000
D) $27, 000

Question 48

Statement of Owner's Equity shows the changes in the owner's claim to assets. Which one of these statements is true?

A) Increases in capital come from owner investments.
B) Decreases in capital earnings result from net losses.
C) Increases in capital result from net losses.
D) Both A and B are true.

Question 49

You can compare and evaluate business performance from year-to-year by analyzing which financial statements?

A) Income statement and statement of owner's equity
B) Statement of owner's equity and balance sheet
C) Balance sheet and income statement
D) All financial statements

Question 50

David has decided to open an auto-detailing business. He will pick up an automobile from the client, take it to his parents' garage, detail it, and return it to the client. Which of the following accounting decisions will he face?

A) Choice of products to use to detail the automobiles
B) How to organize the business
C) How to advertise his service
D) All of the above