Question 1

Which of the following accounting principles require that all goods and services purchased be recorded at actual cost?

Accepted Answer

The cost principle requires that all goods and services purchased be recorded at actual cost, meaning the price paid or to be paid for the item or service.

Question 2

If a company receives $12,000 from the stockholders to establish a corporation, the effect on the accounting equation would be:

Accepted Answer

When a company receives $12,000 from stockholders, the cash received will increase the assets by $12,000. At the same time, the company will also increase its equity by $12,000 since the stockholders' investment represents an ownership interest in the business. Therefore, the accounting equation will be balanced with an increase of $12,000 on both sides (assets and equity).

Question 3

Marsha Bogswell is the owner of Bogswell Legal Services, Inc. Which accounting principle requires Marsha to keep her personal financial information separate from the financial information of Bogswell Legal Services, Inc.?

Accepted Answer

The business entity assumption requires a company's financial information to be kept separate from the personal financial information of its owners. This means that Marsha Bogswell's personal finances must be kept separate from the financial information of Bogswell Legal Services, Inc.

Question 4

If a company purchases equipment costing $4,500 on credit, the effect on the accounting equation would be:

Accepted Answer

The answer of If a company purchases equipment costing $4,500...

Question 5

On December 15 of the current year, Conrad Accounting Services signed a $40,000 contract with a client to provide bookkeeping services to the client in the following year. Which accounting principle would require Conrad Accounting Services to record the bookkeeping revenue in the following year and not the year the cash was received?

Accepted Answer

The revenue recognition principle states that revenue should be recognized (recorded) when it is earned, regardless of when payment is received. In this case, Conrad Accounting Services has not earned the revenue until they provide the bookkeeping services in the following year, so they should record the revenue in that year.

Question 6

Revenue is properly recognized:

Accepted Answer

Revenue should be recognized when the business has completed the sale, provided the service or product and obtained the right to collect payment. This is referred to as the "earned" method of revenue recognition and is in accordance with Generally Accepted Accounting Principles (GAAP). Recognizing revenue at the time of collection or order placement (choices A and E) can be misleading, and recognizing revenue only when an account receivable is created (choice B) is not always accurate. Recognizing revenue at the end of the accounting period (choice C) is also not correct, as revenue should be recognized when it is earned, not when the accounting period ends.

Question 7

If assets are $300,000 and liabilities are $192,000, then equity equals:

Accepted Answer

Assets = Liabilities + Stockholders' Equity
Equity = $300,000 - $192,000= $108,000

Question 8

Net Income:

Accepted Answer

Net income is the excess of revenues over expenses, meaning the profit made by a business. This profit increases equity for the owners or shareholders of a business.

Question 9

An example of an operating activity is:

Accepted Answer

Paying wages is an example of an operating activity, as it is an expense that directly relates to the company's operations and production of goods or services. Purchasing office equipment is a capital expenditure, borrowing money from a bank and selling stock are financing activities, and paying off a loan is a cash flow activity.

Question 10

Operating activities:

Accepted Answer

Operating activities involve using resources to research, develop, purchase, produce, distribute and market products and services.

Question 11

An example of an investing activity is:

Accepted Answer

The purchase of land is an investing activity because it involves acquiring a long-term asset that is expected to generate future economic benefits, such as rental income or capital appreciation. Paying wages, dividends, and selling inventory are operating activities, while contributions from shareholders are financing activities.

Question 12

If equity is $300,000 and liabilities are $192,000, then assets equal:

Accepted Answer

Assets = Liabilities + Stockholders' Equity
Assets = $192,000 + $300,000= $492,000

Question 13

Which of the following purposes would financial statements serve for external users?

Accepted Answer

Financial statements are important to external users, such as investors and regulatory bodies, in order to fulfill regulatory requirements for companies whose stock is sold to the public. The financial statements contain information on the company's financial performance, including revenue, expenses, assets, and liabilities, which can help investors assess the company's financial health and make informed investment decisions.

Question 14

A limited partnership:

Accepted Answer

A limited partnership consists of at least one general partner with unlimited liability, who manages the business, and one limited partner with limited liability who does not participate in management.

Question 15

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

Accepted Answer

The purchase of supplies with cash results in an increase in supplies (asset) and a decrease in cash (asset) by the same amount, causing no net effect on the total assets.

Question 16

Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?

Accepted Answer

The matching principle prescribes that a company record its expenses incurred to generate the revenue reported. This means that expenses should be recognized in the same accounting period as the revenue they helped generate, in order to accurately reflect the company's financial performance.

Question 17

In a business decision where there are ethical concerns, the preferred course of action should be one that:

Accepted Answer

When facing ethical concerns, the preferred course of action should be one that prioritizes ethical considerations and avoids casting doubt on the decision maker and upholds trust. While maximizing profits, maintaining operations, and minimizing costs are also important factors in a business decision, they should not override ethical considerations. In fact, taking ethical concerns into account can often lead to long-term profitability and sustainable operations. Therefore, the best choice would be E.

Question 18

The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

Accepted Answer

The cost principle requires that assets should be recorded on the balance sheet at their original cost to the company, not at their current market value or appraised value. Therefore, Superior should record the building on its records at $500,000, the amount it paid to acquire the building.

Question 19

A partnership:

Accepted Answer

A partnership has unlimited liability for its partners which means they are personally responsible for all debts and legal actions taken against the partnership. Option A is incorrect as a sole proprietorship is a business owned and run by one individual, not a partnership. Option C is only recommended, not required, for a partnership to have a written agreement. Option D is incorrect as a partnership is not a separate legal entity from its owners. Option E is incorrect as shareholders are only found in corporations, not partnerships.

Question 20

An example of a financing activity is:

Accepted Answer

Obtaining a long-term loan is an example of a financing activity because it involves raising capital from external sources.

Quiz 1: Accounting in Business