Question 1

To which of the following entities must a company report if it sells its stock on the organized stock market?

Accepted Answer

A company must report to the Securities and Exchange Commission (SEC) if it sells its stock on the organized stock market. The SEC is the regulatory body that oversees the securities industry in the United States, including the trading of stocks on the stock market.

Question 2

Which organization,in addition to the Financial Accounting Standards Board (FASB),occasionally issues authoritative rules for financial statements?

Accepted Answer

In addition to the FASB, the Securities and Exchange Commission (SEC) occasionally issues authoritative rules for financial statements. The Accounting Profession and Internal Revenue Service (IRS) do not issue authoritative rules for financial statements, and while the International Accounting Standards Board (IASB) does set international accounting standards that have been adopted by some countries, it is not a US-based organization and its standards are not considered authoritative for US financial statements.

Question 3

Which of the following organizations is responsible for setting auditing standards followed by public accounting firms in conducting independent audits of financial statements?

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) is responsible for setting auditing standards followed by public accounting firms in conducting independent audits of financial statements. The Financial Accounting Standards Board (FASB) is responsible for setting accounting standards, the Securities and Exchange Commission (SEC) oversees the financial reporting of public companies and enforces accounting and auditing standards, and the International Accounting Standards Board (IASB) sets international accounting standards.

Question 4

The natural progression in items from one statement to another and preparation of financial statements is best represented by the following order:

Accepted Answer

The correct order starts with the income statement, which determines the net income or loss. This figure is then used in the statement of retained earnings to adjust the beginning retained earnings balance. Finally, the updated retained earnings figure is used in the balance sheet, and the statement of cash flows is prepared, which uses information from all the other financial statements.

Question 5

Which of the following is a five-member body that has the authority from Congress to set standards for conducting audits?

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) is a five-member body established by Congress to oversee audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The other options listed (FASB, SEC, AICPA) are not responsible for setting standards for conducting audits.

Question 6

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000.If Sawaddee's total assets increased by $80,000 and its total liabilities increased by $57,000 during the year,what is the amount of Sawaddee's owners' equity at the end of the year?

Accepted Answer

We can use the accounting equation to solve this problem:

Assets = Liabilities + Owners' Equity

At the beginning of the year: 
$450,000 = $230,000 + Owners' Equity

Owners' Equity = $220,000

At the end of the year: 
Assets = $450,000 + $80,000 = $530,000 
Liabilities = $230,000 + $57,000 = $287,000

Using the accounting equation again: 
$530,000 = $287,000 + Owners' Equity

Owners' Equity = $530,000 - $287,000 = $243,000

Therefore, the amount of Sawaddee's owners' equity at the end of the year is $243,000.

Question 7

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000.If Sawaddee's total assets doubled to $900,000 and its owners' equity remained the same during the year,what was the amount of its total liabilities at the end of the year?

Accepted Answer

Since the owners' equity remained the same, it must still be $220,000 ($450,000 - $230,000). Therefore, the total liabilities at the end of the year would be the total assets minus the owners' equity, which is $900,000 - $220,000 = $680,000.

Question 8

The statement of retained earnings accomplishes which of the following?

Accepted Answer

The statement of retained earnings summarizes income earned and dividends paid over a single period of the business.

Question 9

Which one of the following is an assumption made in the preparation of financial statements?

Accepted Answer

The preparation of financial statements assumes that the entity for which they are prepared is a distinct legal and economic entity, separate from its owners or other entities. This is known as the entity concept or principle. Option B is incorrect because financial statements are prepared assuming that inflation has a pervasive effect on the monetary unit, not a distinct effect. Option C is incorrect because the balance sheet is a snapshot of the entity's financial position at a specific point in time, not a period of time. Option D is incorrect because the relevance of market values depends on the specific circumstances and context in which the financial statements are prepared.

Question 10

Why is the time period assumption required?

Accepted Answer

The time period assumption is required because external users of financial statements want statements that accurately reflect net income or earnings for a specific time period. This helps stakeholders make informed decisions about the company's financial performance and future prospects.

Question 11

At December 31,2014,the accounting records of Whole Foods Corporation contain the following:  If Cash is $26,000,what is the December 31,2014 capital stock balance?

Accepted Answer

The capital stock balance is calculated by subtracting the total liabilities and total assets from the total equity. We are not given the total liabilities and total equity, so we cannot calculate the exact capital stock balance. However, we can use the accounting equation, which states that assets = liabilities + equity. Therefore, total equity = assets - liabilities. Based on the information given, we know that cash is an asset and its balance is $26,000. Therefore, assets must be at least $26,000. Since the answer choices range from $220,000 to $400,000, we can eliminate choices C and D as they are too high. We are left with choices A and B. Without further information, we cannot determine the exact capital stock balance, but $240,000 (choice B) is a reasonable estimate given the information provided.

Question 12

At December 31,2014,the accounting records of Whole Foods Corporation contain the following:  If capital stock is $260,000,what is the December 31,2014 cash balance?

Accepted Answer

The answer of At December 31,2014,the accounting records of Whole...

Question 13

The reliability of the information in a company's financial statements is the responsibility of which of the following?

Accepted Answer

The answer of The reliability of the information in a...

Question 14

Which concept is the reason the dollar is used in the preparation of financial statements?

Accepted Answer

The monetary unit concept requires that financial transactions be measured and recorded in a stable currency, which in the case of the United States is the dollar. Therefore, the dollar is used in the preparation of financial statements to make them comparable and universally understandable to users.

Question 15

Sawaddee Enterprises began the year with total assets of $450,000 and total liabilities of $230,000.If Sawaddee total liabilities increased by $31,000 and its owners' equity decreased by $53,000 during the year,what was the amount of its total assets at the end of the year?

Accepted Answer

The increase in liabilities of $31,000 and the decrease in owners' equity of $53,000 result in a decrease in total equity of $84,000. 
To find the total assets at the end of the year, we can use the accounting equation: 
Assets = Liabilities + Owners' Equity 
We know that the total liabilities at the end of the year were $261,000 ($230,000 + $31,000), and we can calculate the total equity by subtracting the decrease from the beginning equity: 
$450,000 - $53,000 = $397,000 
Now we can plug these values into the equation: 
Assets = $261,000 + $397,000 = $658,000 
Therefore, the amount of total assets at the end of the year was $428,000 (choice D).

Question 16

Which one of the following statements is true concerning assets?

Accepted Answer

Accountants use the term historical cost to refer to the original cost of an asset. This means that assets are recorded at their original cost and not market value.

Question 17

All of the following are different expressions for net income except:

Accepted Answer

Profits, excess of revenues over expenses, and earnings are all different expressions for net income. Capital, however, refers to the amount of money invested in a business by the owner(s) or shareholders.

Question 18

Cranston Enterprises purchased land for $2,000,000 in 1999.In 2014,an independent appraiser assessed the value at $4,400,000.What amount should appear on the financial statements in 2014 with respect to the land?

Accepted Answer

According to the historical cost principle in accounting, land should be recorded at its original purchase price of $2,000,000, regardless of any changes in market value.

Question 19

The Securities and Exchange Commission (SEC)is concerned with

Accepted Answer

The SEC is primarily concerned with companies that issue securities to the general public, as it is responsible for regulating and enforcing federal securities laws.

Question 20

Which the following organizations is primarily responsible for establishing GAAP today?

Accepted Answer

The Financial Accounting Standards Board (FASB) is primarily responsible for establishing Generally Accepted Accounting Principles (GAAP) today. The SEC and IRS may also have influence on GAAP, but the FASB is the primary organization responsible for setting these standards. The federal government may also be involved in the process, but does not have direct responsibility for establishing GAAP.

Quiz 1: Accounting As a Form of Communication