Question 1

An example of an investing activity is:

Accepted Answer

Purchase of land is an example of an investing activity as it involves acquiring a long-term asset that is expected to generate future economic benefit. The other options, such as paying wages of employees, selling inventory, or receiving contributions from stockholders, are examples of operating or financing activities. Dividends paid by the company can be considered an example of financing activity, but it is not an investing activity as it does not involve acquiring or disposing of long-term assets.

Question 2

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

Accepted Answer

The answer of If a company uses $1,300 of its...

Question 3

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 states that assets should be recorded at their original cost to the company. Therefore, Superior would record the building on its records at $500,000, the price it paid to acquire the building, rather than at the appraised value of $575,000. The fact that the seller paid $300,000 for the building 6 years ago is not relevant to Superior's accounting treatment of the building.

Question 4

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

Accepted Answer

Financial statements serve the purpose of fulfilling regulatory requirements for companies whose stock is sold to the public. This includes providing information to external users such as shareholders, potential investors, and regulators in order to assess the company's financial performance and make informed decisions.

Question 5

An example of a financing activity is:

Accepted Answer

Obtaining a long-term loan is a financing activity, as it involves borrowing money to fund business operations or investments. The other options (buying office supplies, buying office equipment, selling inventory, buying land) are all examples of operating or investing activities.

Question 6

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

Accepted Answer

The cost principle (also known as historical cost principle) requires that all goods and services purchased be recorded at their actual cost. This means that an asset or service should be recorded at the price paid to acquire it, including any additional costs necessary to bring it to its present condition and location. Other principles listed in the options do not relate to the recording of actual cost of goods and services purchased.

Question 7

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

Accepted Answer

When making a business decision with ethical concerns, the preferred course of action should prioritize upholding trust and avoiding casting doubt on the decision maker. This helps to maintain a positive reputation for the company, even if it may cost more or result in decreased profits in the short term. Ultimately, making ethical decisions can have long-term benefits for the success and sustainability of a business.

Question 8

Net Income:

Accepted Answer

Net income is the excess of revenues over expenses, which means it represents the profit generated by the business. It does not decrease equity (A), represent the amount of assets stockholders put into a business (B), or equal assets minus liabilities (C). While net income can ultimately impact stockholders' claims against assets (E), it is not a direct representation of those claims.

Question 9

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 when earned, regardless of when cash is received. In this case, Conrad Accounting Services earned the revenue by signing the contract to provide bookkeeping services in the following year, so the revenue should be recorded in the following year when the services are provided.

Question 10

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 11

A limited partnership:

Accepted Answer

A limited partnership includes at least one general partner who has unlimited personal liability for the partnership's debts and other obligations, while the limited partners have liability only for the amount of their investment.

Question 12

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

Accepted Answer

The matching principle requires a company to record its expenses in the same accounting period as the revenue they helped to generate. This helps ensure that the company accurately reflects the costs of doing business and the profitability of its operations.

Question 13

Revenue is properly recognized:

Accepted Answer

Revenue should be recognized when goods are sold or services are performed and the business obtains the right to collect payment. This is typically done when a transaction is completed, regardless of when payment is received.

Question 14

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 that the financial information of a business be kept separate from the personal financial information of its owner(s). This ensures that the financial statements accurately reflect the financial position and performance of the business entity, and not of its owner(s).

Question 15

The International Accounting Standards Board (IASB):

Accepted Answer

The IASB aims to establish globally accepted accounting standards to improve comparability among financial statements across different countries and regions.

Question 16

An example of an operating activity is:

Accepted Answer

Operating activities include the day-to-day activities of a business, such as paying wages to employees.

Question 17

A partnership:

Accepted Answer

A partnership has unlimited liability for its partners, meaning that their personal assets can be used to pay off business debts. This is different from a corporation, which is a legal organization separate from its owners and has shareholders. A sole proprietorship is a business owned by one person, not a partnership. While it is recommended to have a written agreement for a partnership, it is not required for it to be legal.

Question 18

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

Accepted Answer

According to the accounting equation, assets are equal to equity plus liabilities. 
Assets = Equity + Liabilities 
Assets = $300,000 + $192,000 
Assets = $492,000

Question 19

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 money from stockholders to establish a corporation, it is recorded as an increase in assets (cash) and an increase in equity (common stock). Therefore, the accounting equation would be balanced with an increase of $12,000 in both assets and equity.

Question 20

Operating activities:

Accepted Answer

Operating activities involve using resources to research, develop, purchase, produce, distribute, and market products and services. Option A refers to financing activities, while option C refers to investing activities. Option D and E are not correct definitions of operating activities.

Quiz 1: Introducing Financial Accounting