Question 1

Which of the following groups has the primary responsibility for establishing generally accepted accounting principles for business entities in the United States?

Accepted Answer

The Financial Accounting Standards Board is a privately funded group charged with establishing accounting standards for the U.S. It is not a branch of the U.S. government.

Question 2

Hazeltine Company issued common stock for $200,000 cash.What happened as a result of this event?

Accepted Answer

Issuing common stock increases both assets (cash) and stockholders' equity (common stock). stockholders' equity and liabilities collectively make up claims in the accounting equation.

Question 3

As of December 31,Year 2,Bristol Company had $100,000 of assets,$40,000 of liabilities and $25,000 of retained earnings.What percentage of Bristol's assets were obtained through investors?

Accepted Answer

If assets total $100,000, claims must also total $100,000. Claims include liabilities, common stock and retained earnings. Because liabilities and retained earnings equal $65,000, common stock must be $35,000. The common stock account represents the assets that were obtained through investors. $35,000 is 35% of $100,000.

Question 4

Which resource providers lend financial resources to a business with the expectation of repayment with interest?

Accepted Answer

Businesses borrow money from creditors, and repay the amount borrowed, plus an additional fee known as interest. Investors, in contrast, provide financial resources in exchange for ownership interest in the business. Consumers demand goods and services from businesses.

Question 5

Ballard Company reported assets of $500 and liabilities of $200.What amount will Ballard's report for stockholders' equity?

Accepted Answer

In the accounting equation, assets equal claims (liabilities + stockholders' equity). If assets are $500, total claims must also be $500. Therefore, stockholders' equity must be $500 ? $200, or $300.

Question 6

The Heritage Company is a manufacturer of office furniture.Which term best describes Heritage's role in society?

Accepted Answer

Businesses serve as conversion agents in the marketplace, transforming basic resources provided by resource owners into goods and services that consumers demand. Regulatory agencies set policies that affect the way that businesses operate.

Question 7

Which of the following is an example of revenue?

Accepted Answer

Cash received from providing services to customers is an example of revenue, and is an asset source transaction. Cash received from the result of a bank loan results in a liability, notes payable. Cash investments made by owners increase the stockholders' equity account common stock. Cash received from the sale of land for its original selling price is an asset exchange transaction that decreases one asset, land, and increases another asset, cash.

Question 8

Which of the following statements is false regarding managerial accounting information?

Accepted Answer

Managerial accounting provides information primarily for internal users, or managers, of businesses. Managers require more detailed information about a business than do external users, and sometimes that information is nonfinancial in nature. Managerial accounting information focuses on divisional rather than overall profitability and is not typically made available to external users, such as investors.

Question 9

Algonquin Company reported assets of $50,000,liabilities of $22,000 and common stock of $15,000.Based on this information only,what is the amount of the company's retained earnings?

Accepted Answer

Assets = Liabilities + Equity; Equity includes common stock and retained earnings. $50,000 = $22,000 + $15,000 + Retained earnings; Retained earnings = $13,000

Question 10

Which type of accounting information is intended to satisfy the needs of external users of accounting information?

Accepted Answer

Financial accounting is intended to satisfy the needs of external users of accounting information. Managerial accounting, including cost accounting, is intended for the needs of internal users, or managers, of a business. Tax accounting is specifically intended for tax regulatory agencies.

Question 11

When a business provides services for cash,which elements of the accounting equation are affected?

Accepted Answer

Providing services for cash increases a company's assets (cash) and stockholders' equity (retained earnings). Revenue increases on the income statement.

Question 12

Li Company paid cash to purchase land.What happened as a result of this business event?

Accepted Answer

Paying cash for land is an asset exchange transaction that increases one asset (land) and decreases another asset (cash). The result is no overall change in total assets.

Question 13

Stosch Company's balance sheet reported assets of $40,000,liabilities of $15,000 and common stock of $12,000 as of December 31,Year 1.Retained earnings on the December 31,Year 2 balance sheet is $18,000 and Stosch paid a $14,000 dividend during Year 2.What is the amount of net income for Year 2?

Accepted Answer

If assets on December 31, Year 1 totaled $40,000, total claims (including liabilities, common stock, and retained earnings) on that date must have also been $40,000. If liabilities were $15,000 and common stock was $12,000, retained earnings on December 31, Year 1 must have been $13,000. At the end of Year 2, the company reported $18,000 in retained earnings, a $5,000 increase. During Year 2, Stosch paid a $14,000 cash dividend, which reduced retained earnings. Therefore, Year 2 net income must have been $5,000 greater than the dividend paid. $14,000 + $5,000 = $19,000.

Question 14

A company's total assets increased during the period while its liabilities and common stock were unchanged.No dividends were declared or paid during the period.Which of the following would explain this situation?

Accepted Answer

Assets = Liabilities + stockholders' equity
Assets = Liabilities + Common stock + Retained earnings
If a company's total assets increased while liabilities and common stock were unchanged, retained earnings must have increased. In order for retained earnings to increase, the company must have reported net income. In other words, its revenues must have been greater than its expenses.

Question 15

Financial accounting standards are known collectively as GAAP.What does that acronym stand for?

Accepted Answer

Generally Accepted Accounting Principles are established by the Financial Accounting Standards Board.

Question 16

On January 1,Year 2,Chavez Company had beginning balances as follows: total assets of $12,500,total liabilities of $4,500,and common stock of $3,000.During Year 2,Chavez paid dividends to its stockholders of $2,000.Given that retained earnings amounted to $6,000 at the end of Year 2,what was Chavez's net income for Year 2?

Accepted Answer

On January 1, Year 2:
Assets = Liabilities + Common Stock + Retained Earnings
$12,500 = $4,500 + $3,000 + Retained Earnings
Retained Earnings = $5,000
During Year 2:
Beginning retained earnings + Net income ? Dividends = Ending retained earnings
$5,000 + Net Income ? $2,000 = $6,000
Net Income = $3,000

Question 17

At the time of liquidation,Fairchild Company reported assets of $200,000,liabilities of $120,000,common stock of $70,000 and retained earnings of $10,000.What is the maximum amount of Fairchild's assets that the shareholders are entitled to receive?

Accepted Answer

Creditors receive first priority in asset distribution during a business liquidation. Therefore, creditors would collect the $120,000 owed to them, leaving the shareholders with the remaining $80,000 ($70,000 common stock + $10,000 retained earnings).

Question 18

Which of the following is not an element of the financial statements?

Accepted Answer

Cash is not an element of the financial statements. It is an account that is part of the element assets.

Question 19

Turner Company reported assets of $20,000 (including cash of $9,000),liabilities of $8,000,common stock of $7,000,and retained earnings of $5,000.Based on this information,what can be concluded?

Accepted Answer

Retained earnings of $5,000 is equal to 25% of the company's assets, indicating that 25% of Turner's assets are from prior earnings. $8,000, or 40%, of Turner's assets are liabilities, indicating that those assets are the result of borrowed resources. A company can pay out no more in dividends than it has in its Retained Earnings account.

Question 20

International accounting standards are formulated by the IASB.What does that acronym stand for?

Accepted Answer

The International Accounting Standards Board establishes accounting standards for most countries outside of the U.S.

Quiz 1: An Introduction to Accounting