Test Bank IFRS 2nd_Ed Financial Accounting by Weygandt-Kimmel-Kieso

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Test Bank IFRS 2nd_Ed Financial Accounting by Weygandt-Kimmel-Kieso

Sample Chapter No 1                         

CHAPTER 1

 

ACCOUNTING IN ACTION

 

 

CHAPTER LEARNING OBJECTIVES

  1. Explain what accounting is. Accounting is an information system that identifies, records, and communicates the economic events of an organization to interested users.
  2. Identify the users and uses of accounting. The major users and uses of accounting are as follows: (a) Management uses accounting information to plan, organize, and run the business. (b) Investors (owners) decide whether to buy, hold, or sell their financial interests on the basis of accounting data. (c) Creditors (suppliers and bankers) evaluate the risks of granting credit or lending money on the basis of accounting information. Other groups that use accounting information are taxing authorities, regulatory agencies, customers, labor unions, and economic planners.
  3. Understand why ethics is a fundamental business concept. Ethics are the standards of conduct by which actions are judged as right or wrong. Effective financial reporting depends on sound ethical behavior.
  4. Explain accounting standards and the measurement principles. Accounting is based on standards, such as International Financial Reporting Standards (IFRS). IFRS generally uses one of two measurement principles, the historical cost principle or the fair value principle. Selection of which principle to follow generally relates to trade-offs between relevance and faithful representation.
  5. Explain the monetary unit assumption and the economic entity assumption. The monetary unit assumption requires that companies include in the accounting records only transaction data that can be expressed in terms of money. The economic entity assumption requires that the activities of each economic entity be kept separate from the activities of its owners and other economic entities.
  6. State the accounting equation, and define its components. The basic accounting equation is:

Assets = Liabilities + Equity

Assets are resources a business owns. Liabilities are creditors’ claims on total assets. Equity is the ownership claim on total assets.

The expanded accounting equation is:

Assets = Liabilities + Share Capital—Ordinary

+ Revenues – Expenses – Dividends

Share capital—ordinary is affected when the company issues new ordinary shares in exchange for cash. Revenues are increases in assets resulting from income-earning activities. Expenses are the costs of assets consumed or services used in the process of earning revenue. Dividends are payments the company makes to its shareholders.

 

  1. Analyze the effects of business transactions on the accounting equation. Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset increases, there must be a corresponding (1) decrease in another asset, or (2) increase in a specific liability, or (3) increase in equity.
  2. Understand the four financial statements and how they are prepared. An income statement presents the revenues and expenses, and resulting net income or loss, for a specific period of time. A retained earnings statement summarizes the changes in retained earnings for a specific period of time. A statement of financial position reports the assets, liabilities, and equity at a specific date. A statement of cash flows summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time.

a9.  Explain the career opportunities in accounting. Accounting offers many different jobs in fields such as public and private accounting, government, and forensic accounting. Accounting is a popular major because there are many different types of jobs, with unlimited potential for career advancement.

 

 

TRUE-FALSE STATEMENTS

  1. Owners of business firms are the only people who need accounting information.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Transactions that can be measured in dollars and cents are recorded in the financial information system.

 

Ans: T   LO1   BT: K   Difficulty: Easy   TOT: .5 min   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The hiring of a new company president is an economic event recorded by the financial information system.

 

Ans: F   LO1   BT: C   Difficulty: Easy  TOT: .5 min   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Management of a business enterprise is the major external user of information.

 

Ans: F   LO2   BT: K   Difficulty: Easy   TOT: .5 min   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Accounting communicates financial information about a business enterprise to both internal and external users.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Accounting information is used only by external users with a financial interest in a business enterprise.

 

Ans: F   LO2   BT: C   Difficulty: Easy   TOT: .5 min.  AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Financial statements are the major means of communicating accounting information to interested parties.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min. AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.

 

Ans: F   LO2   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The State Administration of Taxation in the People’s Republic of China is an example of an internal user of accounting information.

 

Ans: F   LO2   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The German Confederation of Trade Unions is an example of an external user of accounting information.

 

Ans: T   LO2   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information.

 

Ans: T   LO3   BT: K   Difficulty: Easy   TOT: .5 min.  AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The primary accounting standard-setting body in the United States is the International Accounting Standards Board.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The Financial Accounting Standards Board is a part of the International Accounting Standards Board.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The two primary accounting standard-setting bodies are the International Accounting Standards Board and the Financial Accounting Standards Board.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Most companies in the United States follow standards issued by the IASB.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. International Financial Reporting Standards are determined by the IASB.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The process of reducing the differences between Generally Accepted Accounting Principles and International Financial Reporting Standards is known as convergence.

 

Ans: T   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. IFRS follows one measurement principle known as the historical cost principle.

 

Ans: F   LO4   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Even though a partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from the personal activities of the owners.

 

Ans: T   LO5   BT: C   Difficulty; Easy   TOT: .5 min.  AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.

 

Ans: T   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

 

Ans: T   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. In order to possess future service potential, an asset must have physical substance.

 

Ans: F  LO6  BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Owners’ claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.

 

Ans: F   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The basic accounting equation states that Assets = Liabilities.

 

Ans: F   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Share capital is the total amount paid in by shareholders for shares purchased.

 

Ans: T   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The principal source of equity is amounts paid in by shareholders.

 

Ans: F   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Expenses are increases in equity that result from operating the business.

 

Ans: F   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The two components of equity are retained earnings and share capital.

 

Ans: T   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The purchase of an asset on account increases assets and decreases equity.

 

Ans: F   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Providing services for cash increases assets and equity.

 

Ans: T   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Accountants record both internal and external transactions.

 

Ans: T   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.

 

Ans: F   LO7   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The purchase of store equipment for cash reduces the equity by an equal amount.

 

Ans: F   LO7   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The purchase of office equipment on credit increases total assets and total liabilities.

 

Ans: T   LO7   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.

 

Ans: T   LO8   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Net income for the period is determined by subtracting total expenses and dividends from total revenues.

 

Ans: F   LO8    BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The ending retained earnings balance is reported on the statement of financial position.

 

Ans: T   LO8   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The statement of financial position is also known as the balance sheet.

 

Ans: T   LO8    BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

40      Compared to IFRS, GAAP tend to be simpler and less detailed.

 

Ans: F   LO8   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

  1. Foreign companies whose shares are traded on U.S. stock markets must use GAAP.

 

Ans: F   LO8    BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

a42.     The study of accounting is not useful for a business career unless your career objective is to become an accountant.

 

Ans: F   LO9   BT: K   Difficulty: Easy   TOT: .5 min.  AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

a43.     Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CAs and CPAs.

 

Ans: T   LO9   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

Additional True-False Questions

 

  1. Identifying is the process of keeping a chronological diary of events measured in dollars and cents.

 

Ans: F   LO1   BT: K   Difficulty: Easy   TOT: .5 min.  AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.

 

Ans: F   LO2   BT: K   Difficulty; Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Accountants do not have to worry about issues of ethics.

 

Ans: F   LO3   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Ethics   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The monetary unit assumption requires that all dollar amounts be rounded to the nearest dollar.

 

Ans: F   LO5   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.

 

Ans: T   LO6   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. External transactions involve economic events between the company and some other enterprise or party.

 

Ans: T   LO7   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

  1. In the retained earnings statement, revenues are listed first, followed by expenses, and net income (or net loss).

 

Ans: F   LO8   BT: K   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA  BB: Critical Thinking   AICPA  FN: Reporting

 

Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. F 9. T 17. T 25. F 33. F 41. F 49. T
2. T 10. F 18. T 26. T 34. F 42. F 50. F
3. F 11. T 19. F 27. F 35. T 43. T
4. F 12. T 20. T 28. F 36. T 44. F
5. T 13. F 21. T 29. T 37. F 45. F
6. F 14. F 22. T 30. F 38. T 46. F
7. T 15. T 23. F 31. T 39. T 47. F
8. F 16. F 24. F 32. T 40. F 48. T

 


MULTIPLE CHOICE QUESTIONS

  1. Accountants refer to an economic event as a
  2. purchase.
  3. sale.
  4. transaction.
  5. change in ownership.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The accounting process includes each of the following except
  2. communication.
  3. convergence.
  4. identification.
  5. recording.

 

Ans: b   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Communication of economic events is the part of the accounting process that involves
  2. identifying economic events.
  3. quantifying transactions into dollars and cents.
  4. preparing accounting reports.
  5. recording and classifying information.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?
  2. The appointment of a new accounting firm to perform an audit.
  3. The purchase of a new computer.
  4. The sale of store equipment.
  5. Payment of income taxes.

 

Ans: a   LO1   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Recording of economic events involves
  2. keeping a systematic, chronological diary of events.
  3. analyzing reported information.
  4. explaining the meaning of reported data.
  5. preparing accounting reports.

 

Ans: a   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The accounting process involves all of the following except
  2. identifying economic events that are relevant to the business.
  3. communicating financial information to users by preparing financial reports.
  4. recording non-quantifiable economic events.
  5. analyzing and interpreting financial reports.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. The accounting process is correctly sequenced as
  2. identification, communication, recording.
  3. recording, communication, identification.
  4. identification, recording, communication.
  5. communication, recording, identification.

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following techniques is not used by accountants to interpret and report financial information?
  2. Graphs.
  3. Special memos for each class of external users.
  4. Charts.
  5. Ratios.

 

Ans: b   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Bookkeeping primarily involves which of the following parts of the accounting process?
  2. Identification.
  3. Communication.
  4. Recording.
  5. Analysis.

 

Ans: c   LO1   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following would not be considered an external user of accounting data for the GHI Company?
  2. Taxing authority representative.
  3. Management.
  4. Creditors.
  5. Customers.

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following would not be considered internal users of accounting data for a company?
  2. The president of a company.
  3. The controller of a company.
  4. Creditors of a company.
  5. Salesmen of a company.

 

Ans: c   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following is an external user of accounting information?
  2. Labor unions.
  3. Finance directors.
  4. Company officers.
  5. Managers.

 

Ans: a   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. Which one of the following is not an external user of accounting information?
  2. Regulatory agencies.
  3. Customers.
  4. Investors.
  5. All of these answer choices are correct.

 

Ans: d   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following would not be considered an internal user of accounting data for GHI Company?
  2. President of the company.
  3. Production manager.
  4. Merchandise inventory clerk.
  5. President of the employees’ labor union.

 

Ans: d   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Internal users of accounting information include all of following except the
  2. CEO of Sony.
  3. Human Resources department at Hyundai.
  4. Marketing department at Braun.
  5. Shareholders of Airbus.

 

Ans: d   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Internal users of accounting information include
  2. the shareholders of Royal Dutch Shell.
  3. the State Administration of Taxation of China.
  4. the Chief Financial officer of Credit Suisse.
  5. the International Accounting Standards Board.

 

Ans: c   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. External users of accounting information include all of following except
  2. the shareholders of Air Italy.
  3. the management of Pirelli.
  4. a potential customers of Olivetti.
  5. All of these answer choices are correct.

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. External users of accounting information include the
  2. lnternational Accounting Standards Board.
  3. shareholders of Ferragamo.
  4. Marketing department at Olivetti.
  5. CEO of Air Italy.

 

Ans: b   LO2   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The origins of accounting are generally attributed to the work of
  2. Christopher Columbus.
  3. Abner Doubleday.
  4. Luca Pacioli.
  5. Leonardo da Vinci.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Financial accounting provides economic and financial information for each of the following except
  2. creditors.
  3. investors.
  4. managers.
  5. other external users.

 

Ans: c   LO2   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The final step in solving an ethical dilemma is to
  2. identify and analyze the principal elements in the situation.
  3. recognize an ethical situation.
  4. identify the alternatives and weigh the impact of each alternative on stakeholders.
  5. recognize the ethical issues involved.

 

Ans: c   LO3   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The first step in solving an ethical dilemma is to
  2. identify and analyze the principal elements in the situation.
  3. identify the alternatives.
  4. recognize an ethical situation and the ethical issues involved.
  5. weigh the impact of each alternative on various stakeholders.

 

Ans: c   LO3   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Ethics   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Ethics are the standards of conduct by which one’s actions are judged as
  2. right or wrong.
  3. honest or dishonest.
  4. fair or unfair.
  5. All of these answer choices are correct.

 

Ans: d   LO3   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Ethics   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The historical cost principle requires that companies record assets at their
  2. appraisal value.
  3. cost.
  4. market price.
  5. list price.

 

Ans: b   LO4   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. IFRS are determined by the
  2. Internal Accounting Standards Body.
  3. International Accounting Studies Board.
  4. International Accounting Standards Board.
  5. International Auditors’ Standards Body.

 

Ans: c   LO4   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. GAAP stands for
  2. Generally Accepted Auditing Procedures.
  3. Generally Accepted Accounting Principles.
  4. Generally Accepted Auditing Principles.
  5. Generally Accepted Accounting Procedures.

 

Ans: b   LO4   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The Duce Company has five plants nationwide that cost $200 million. The current fair value of the plants is $500 million. The plants will be recorded and reported as assets at
  2. $200 million.
  3. $700 million.
  4. $300 million.
  5. $500 million.

 

Ans: a   LO4   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Convergence refers to
  2. using the same accounting principles from one period to the next.
  3. use of the same accounting principles by all companies.
  4. the elimination of all accounting standard-setting bodies except the International Accounting Standards Board.
  5. the process of reducing the differences between IFRS and GAAP.

 

Ans: d   LO4   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The body that has the power to prescribe the accounting practices and standards used by most US companies is the
  2. FASB.
  3. IASB.
  4. GAAP.
  5. IFRS.

 

Ans: a   LO4   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The fair value principle
  2. is one of the two costing principles followed by the IASB.
  3. is more useful than the historical cost principle for valuing some assets.
  4. dictates that an asset should be valued at the price at which it could be sold.
  5. All of these answer choices are correct.

 

Ans: d   LO4   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Most assets should be valued at cost because fair values
  2. are not useful for decision-making.
  3. may not be representationally faithful.
  4. are not relevant.
  5. may be higher or lower than historical cost.

 

Ans: b   LO4   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Harrod’s Inc. purchased land for ₤55,000 in 2004. At December 31, 2014, an appraisal determined the fair value of the land is ₤65,000.  If Harrod’s follows the historical cost principle, in the 2014 financial statements, the land will be reported at
  2. ₤55,000 on the statement of financial position.
  3. ₤65,000 on the statement of financial position.
  4. ₤55,000 on the income statement.
  5. ₤65,000 on the income statement.

 

Ans: a   LO5   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. Hyundai Inc. purchased land for W118,000,000 in 2005. At December 31, 2014, an appraisal determined the fair value of the land is W136,000,0000. If Hyundai follows the cost principle, the land will be reported on the statement of financial position at
  2. W100,000,000.
  3. W118,000,000.
  4. W136,000,000.
  5. W154,000,000.

 

Ans: b   LO4   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Bumi Corporation purchased an investment in the ordinary shares of another corporation for Rp250,000,000 in 2012. The shares are actively traded on the Indonesian Stock Exchange. The fair value of the investment at December 31, 2014 is Rp268,000,000. If the company follows the fair value principle, the investment will be reported in the 2014 financial statement at
  2. Rp250,000,000 on the statement of financial position.
  3. Rp268,000,000 on the statement of financial position.
  4. Rp250,000,000 on the retained earnings statement.
  5. Rp268,000,000 on the retained earnings statement.

 

Ans: b   LO4   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Asian Company purchased land for W92,000,000 in 2000. At December 31, 2014, an appraisal determined the fair value of the land is W106,000,000. The company has an investment in the ordinary shares of another company for which it paid W49,000,000 in 2012.The shares are actively traded on the South Korea Stock Exchange. The fair value of the investment at December 31, 2014 is W63,000,000. The land and investment will be reported on the December 31, 2014 statement of financial position at
  2. W92,000,000 and W49,000,000, respectively.
  3. W92,000,000 and W63,000,000, respectively.
  4. W106,000,000 and W49,000,000, respectively.
  5. W106,000,000 and W63,000,000, respectively.

 

Ans: b   LO5   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The proprietorship form of business organization
  2. must have at least three owners in most states.
  3. requires that the owner be personally liable for all debts of the business.
  4. combines the records of the business with the personal records of the owner.
  5. is characterized by a legal distinction between the business as an economic unit and the owner.

 

Ans: b   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The economic entity assumption requires that the activities
  2. of different entities can be combined if all the entities are corporations.
  3. must be reported to the Securities and Exchange Commission.
  4. of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
  5. of an entity be kept separate from the activities of its owner.

 

Ans: d   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. A business organized as a corporation
  2. is not a separate legal entity in most countries.
  3. requires that shareholders be personally liable for the debts of the business.
  4. is owned by its shareholders.
  5. terminates when one of its original shareholders dies.

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The partnership form of business organization
  2. is a separate legal entity.
  3. is a common form of organization for service-type businesses.
  4. enjoys an unlimited life.
  5. has limited liability.

 

Ans: b   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following is not an advantage of the corporate form of business organization?
  2. Limited liability of shareholders
  3. Transferability of ownership
  4. Unlimited personal liability for shareholders
  5. Unlimited life

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A small neighborhood barber shop that is operated by its owner would likely be organized as a
  2. joint venture.
  3. partnership.
  4. corporation.
  5. proprietorship.

 

Ans: d   LO5   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. John and Sam met at law school and decide to start a small law practice after graduation. They agree to split revenues and expenses evenly. The most common form of business organization for a business such as this would be a
  2. joint venture.
  3. partnership.
  4. corporation.
  5. proprietorship.

 

Ans: b   LO5   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following is true regarding the corporate form of business organization?
  2. Corporations are the most prevalent form of business organization.
  3. Corporate businesses are generally smaller in size than partnerships and proprietor-ships.
  4. The revenues of corporations are greater than the combined revenues of partnerships and proprietorships.
  5. Corporations are separate legal entities organized exclusively under federal law.

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the
  2. stand alone concept.
  3. monetary unit assumption.
  4. corporate form of ownership.
  5. economic entity assumption.

 

Ans: d   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The assumption that enables accounting to quantify (measure) economic events is the
  2. economic entity assumption.
  3. cost principle.
  4. historical cost principle.
  5. monetary unit assumption.

 

Ans: d   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A business whose owners enjoy limited liability is a
  2. proprietorship.
  3. partnership.
  4. corporation.
  5. sole proprietorship.

 

Ans: c   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The common characteristic possessed by all assets is
  2. long life.
  3. great monetary value.
  4. tangible nature.
  5. future economic benefit.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Equity is best depicted by the following:
  2. Assets = Liabilities.
  3. Liabilities + Assets.
  4. Residual equity + Assets.
  5. Assets – Liabilities.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The basic accounting equation may be expressed as
  2. Assets – Equity = Liabilities.
  3. Assets – Liabilities = Equity.
  4. Assets = Liabilities + Equity.
  5. All of these answer choices are correct.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Liabilities
  2. are future economic benefits.
  3. are existing debts and obligations.
  4. possess service potential.
  5. are things of value used by the business in its operation.

 

Ans: b   LO6   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Liabilities of a company would not include
  2. notes payable.
  3. accounts payable.
  4. wages payable.
  5. cash.

 

Ans: d   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Liabilities of a company are owed to
  2. debtors.
  3. benefactors.
  4. creditors.
  5. underwriters.

 

Ans: c   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Equity can be described as
  2. creditorship claim on total assets.
  3. ownership claim on total assets.
  4. benefactor’s claim on total assets.
  5. debtor claim on total assets.

 

Ans: b   LO6   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Equity is often referred to as
  2. residual equity.
  3. leftovers.
  4. spoils.
  5. second equity.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. When assets are distributed to the shareholders of a corporation, these distributions are termed
  2. depletions.
  3. consumptions.
  4. dividends.
  5. a credit line.

 

Ans: c   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A dividend is
  2. a distribution of the company’s earnings to its shareholders.
  3. equal to liabilities minus equity.
  4. equal to assets minus equity.
  5. equal to revenues less expenses.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Revenues would not result from
  2. sale of merchandise.
  3. issuance of ordinary shares.
  4. performance of services.
  5. rental of property.

 

Ans: b   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Sources of increases to equity are
  2. issuance of shares.
  3. purchases of merchandise.
  4. dividends.
  5. expenses.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The basic accounting equation cannot be restated as
  2. Assets – Liabilities = Equity.
  3. Assets – Equity = Liabilities.
  4. Equity + Liabilities = Assets.
  5. Assets + Liabilities = Equity.

 

Ans: d   LO6   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Equity is decreased by all of the following except
  2. issuance of shares.
  3. dividends.
  4. expenses.
  5. net losses.

 

Ans: a   LO6   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If total liabilities increased by ¥35,000 and equity increased by ¥10,000 during a period of time, then total assets must change by what amount and direction during that same period?
  2. ¥45,000 decrease
  3. ¥45,000 increase
  4. ¥60,000 increase
  5. ¥70,000 increase

 

Ans: b   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If total liabilities decreased by ¥35,000 and equity increased by ¥10,000 during a period of time, then total assets must change by what amount and direction during that same period?
  2. ¥45,000 increase
  3. ¥25,000 decrease
  4. ¥25,000 increase
  5. ¥35,000 decrease

 

Ans: b   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If total liabilities decreased by ¥30,000 and equity increased by ¥5,000 during a period of time, then total assets must change by what amount and direction during that same period?
  2. ¥25,000 decrease
  3. ¥25,000 increase
  4. ¥30,000 increase
  5. ¥35,000 increase

 

Ans: a   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If total liabilities decreased by ¥35,000 and equity decreased by ¥10,000 during a period of time, then total assets must change by what amount and direction during that same period?
  2. ¥45,000 increase
  3. ¥25,000 increase
  4. ¥45,000 decrease
  5. ¥25,000 decrease

 

Ans: c   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If total liabilities increased by ¥26,000 during a period of time and equity decreased by ¥9,000 during the same period, then the amount and direction of the period’s change in total assets is a(n)
  2. ¥26,000 increase.
  3. ¥35,000 increase.
  4. ¥17,000 decrease.
  5. ¥17,000 increase.

 

Ans: d   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The equity section of a statement of financial position has two components:
  2. share capital and liablities.
  3. assets and liablities.
  4. share capital and retained earnings.
  5. share capital and assets.

 

Ans: c   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A company increases its share capital by
  2. selling ordinary shares to its investors.
  3. performing services for cash.
  4. selling goods on account.
  5. paying dividends to its shareholders.

 

Ans: a   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The retained earnings section of the statement of financial position is determined by
  2. assets,liabilities and share capital.
  3. revenues, expenses and share capital.
  4. share capital, dividends and residual equity.
  5. revenues, expenses and dividends.

 

Ans: d   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. All of the following transactions increase revenue except the
  2. sale of additional ordinary shares by British Airways.
  3. sale of clothing by the French Connection.
  4. performance of acccounting services by PricewaterhouseCoopers.
  5. sale of pertroleum by Royal Dutch Shell.

 

Ans: a   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. As of December 31, 2014, Dolce & Gabanna Inc. had assets of €7,600,000, share capital of €2,800,000 and retained earnings of €3,200,000. Total liabilities as of that date are
  2. €0.
  3. €1,600,000.
  4. €4,800,000.
  5. €13,600,000.

 

Ans: b   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. On its December 31, 2014 statement of financial position, Adaro Corporation reported liabilities of Rp5,132,000,000, share capital of Rp2,662,000,000 and retained earnings of Rp4,202,000,000. Total assets as of December 31, 2014 are
  2. Rp1,732,000,000.
  3. Rp4,202,000,000.
  4. Rp6,864,000,000.
  5. Rp11,996,000,000.

 

Ans: d   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. As of December 31, 2014, Oxford-welsh Inc. had assets of ₤6,520,000, liabilities of ₤1,980,000, and share capital of ₤2,820,000. Retained earnings as of that date are
  2. ₤1,720,000.
  3. ₤3,700,000.
  4. ₤4,540,000.
  5. ₤6,520,000.

 

Ans: a   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. As of December 31, 2014, Thames Company reported assets of ₤6,480,000, liabilities of ₤1,920,000 and retained earnings of ₤3,315,000. Share capital reported on the December 31, 2014 statement of financial position is
  2. ₤1,245,000.
  3. ₤1,395,000.
  4. ₤5,235,000.
  5. ₤9,795,000.

 

Ans: a   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. As of December 31, 2014, Deitrich Inc. had assets of €13,050,000, liabilities of €4,650,000, share capital of ₤3,300,000 and retained earnings of €5,100,000. Total equity as of that date is
  2. €3,300,000.
  3. €3,750,000.
  4. €8,400,000.
  5. €13,050,000.

 

Ans: c   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. As of December 31, 2014, Lojas Company reported assets of R$7,400,000, liabilities of R$2,200,000, share capital of R$1,980,000 and retained earnings of R$3,220,000. Total equity reported on the statement of financial position as of that date is
  2. R$1,240,000.
  3. R$5,200 000.
  4. R$5,400 000.
  5. R$7,400.000.

 

Ans: b   LO6   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

  1. On January 11, 2014, Britannica Corporation sold ordinary shares to investors for ₤6,550,000. This transaction will increase assets and
  2. decrease liabilities by ₤6,550,000.
  3. decrease equity by ₤6,550,000.
  4. increase revenues by ₤6,550,000.
  5. increase equity by ₤6,550,000.

 

Ans: d   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Burgundy Inc. purchased supplies on account for €26,000. This transaction will
  2. increase liabilities and decrease equity by €26,000.
  3. increase assets and decrease equity by €26,000.
  4. increase assets and increase liabilities by €26,000.
  5. have no effect on the accounting equation.

 

Ans: c   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Sao Paulo Company performed services on account for R$160,000. This transaction will
  2. increase assets and liabilities by R$160,000.
  3. increase assets and equity by R$160,000.
  4. increase liabilities and equity by R$160,000.
  5. have no effect on the accounting equation.

 

Ans: b   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Bennoit Corporation paid dividends totaling €295,000 to its shareholders. This transaction will decrease assets and
  2. decrease equity by €295,000.
  3. decrease liabilities by €295,000.
  4. increase expenses by €295,000.
  5. have no effect on the accounting equation.

 

Ans: a   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Gafisa Inc. performed services for R$195,000. The company collected R$65,000 in cash. The balance will be collected in 30 days. Performing services for R$195,000 will increase
  2. assets by R$65,000 and equity by R$130,000.
  3. assets by R$65,000, liablities by R$130,000 and equity by R$195,000.
  4. liabilites and equity by R$195,000.
  5. assets and equity by R$195,000.

 

Ans: d   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. On June 6, Wing Wah Inc. purchased supplies on account for HK$60,000. On June 30, the company paid half of the balance due. The June 30 payment will
  2. decrease Cash and increase Supplies Expense by HK$ 60,000.
  3. increase Cash and decrease Accounts Receivable by HK$30,000.
  4. decrease Cash and decrease Accounts Payable by HK$30,000.
  5. decrease Supplies and increase Supplies Expense by HK$30,000.

 

Ans: c   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. On November 4, Vivo Company performed services on account for R$295,000. On November 26, the company collected the balance due. The November 26 transaction will increase
  2. Cash and Accounts Payable by R$295,000.
  3. Accounts Receivable and Service Revenue by R$295,000
  4. Cash and decrease Accounts Receivable by R$295,000
  5. Service Revenue and decrease Accounts Receivable by R$295,000.

 

Ans: c   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Freirs Company paid the monthly rent of €6,000. This transaction will
  2. increase Cash and decrease Rent Expense by €6,000.
  3. decrease Cash and decrease Rent Expense by €6,000.
  4. decrease Cash and increase Rent Expense by €6,000.
  5. have no effect on the accounting equation.

 

Ans: c   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Vita Corporation performed services on account for €22,000. This transaction will
  2. increase Cash and increase Service Revenue by €22,000.
  3. increase Accounts Receivable and increase Service Revenue by €22,000.
  4. decrease Accounts Payable and increase Cash by €22,000.
  5. increase Cash and decrease Accounts Receivable by €22,000.

 

Ans: b   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. On February 1, Potter Company paid £900 for advertisements to run during the month of February. This transaction will
  2. decrease Cash and increase Advertising Expense by £900.
  3. increase Advertising Expense and increase Accounts Payable by £900.
  4. decrease Accounts Payable and decrease Cash by £900.
  5. decrease Cash and decrease Advertising Expense by £900.

 

Ans: a   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. McDonagal Inc. sold ordinary shares for £2,200,000. This transaction will increase
  2. Cash and increase Retained Earnings by £2,200,000.
  3. Cash and increase Share Capital by £2,200,000.
  4. Service Revenue and increase Share Capital by £2,200,000.
  5. Service Revenue and increase Cash by £2,200,000.

 

Ans: b   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. An investment of cash by an owner of a business increases assets and
  2. increases liabilities.
  3. increases equity.
  4. decreases equity.
  5. decreases liabilities.

 

Ans: b   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. The purchase of supplies on account increases assets and
  2. also decreases assets so there is no net change.
  3. increases liabilities.
  4. decreases equity.
  5. increases equity.

 

Ans: b   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A payment on account decreases
  2. assets and equity.
  3. liabilities and equity.
  4. assets and liabilities.
  5. assets, liabilities and equity.

 

Ans: c   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The accounting equation for Gudgeyes Enterprises is as follows:

  Assets          Liabilities           Equity

$140,000   =  $60,000     +     $80,000

If Gudgeyes purchases office equipment on account for $12,000, the accounting equation will change to

Assets        Liabilities          Equity

  1. $140,000 =  $60,000   +    $80,000
  2. $152,000 =  $60,000   +    $92,000
  3. $152,000 =  $76,000   +    $76,000
  4. $152,000 =  $72,000   +    $80,000

 

Ans: d   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. As of June 30, 2014, Dallas Company has assets of $140,000 and equity of $10,000. What are the liabilities for Dallas Company as of June 30, 2014?
  2. $150,000
  3. $120,000
  4. $130,000
  5. $140,000

 

Ans: c   LO7   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Equity is increased by
  2. dividends.
  3. revenues.
  4. expenses.
  5. liabilities.

 

Ans: b   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Equity is decreased by
  2. assets.
  3. revenues.
  4. expenses.
  5. liabilities.

 

Ans: c   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. If total liabilities increased by $6,000, then
  2. assets must have decreased by $6,000.
  3. equity must have increased by $6,000.
  4. assets must have increased by $6,000, or equity must have decreased by $6,000.
  5. assets and equity each increased by $3,000.

 

Ans: c   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Collection of a $500 accounts receivable
  2. increases an asset $500; decreases an asset $500.
  3. increases an asset $500; decreases a liability $500.
  4. decreases a liability $500; increases equity $500.
  5. decreases an asset $500; decreases a liability $500.

 

Ans: a   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Revenues are
  2. the cost of assets consumed during the period.
  3. gross increases in equity resulting from business activities.
  4. the cost of services used during the period.
  5. actual or expected cash outflows.

 

Ans: b   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If an individual asset is increased, then
  2. there must be an equal decrease in a specific liability.
  3. there must be an equal decrease in equity.
  4. there must be an equal decrease in another asset.
  5. None of these answer choices are correct.

 

Ans: c   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If services are rendered for credit, then
  2. assets will decrease.
  3. liabilities will increase.
  4. equity will increase.
  5. liabilities will decrease.

 

Ans: c   LO7   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If expenses are paid in cash, then
  2. assets will increase.
  3. liabilities will decrease.
  4. equity will increase.
  5. assets will decrease.

 

Ans: d   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If a corporation distributes cash to its shareholders, then
  2. there has been a violation of accounting principles.
  3. equity will increase.
  4. equity will decrease.
  5. there will be a new liability showing the shareholders owe money to the business.

 

Ans: c   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. As of December 31, 2014, Sievers Company has assets of ₤90,000 and equity of ₤40,000. What are the liabilities for Sievers Company as of December 31, 2014?
  2. ₤50,000.
  3. ₤20,000.
  4. ₤30,000.
  5. ₤40,000.

 

Ans: a   LO7   BT: AN   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following events is not a business transaction?
  2. Issuance of shares in exchange for cash
  3. Hired employees
  4. Incurred utility expenses for the month
  5. Earned revenue for services provided

 

Ans: b   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Net income results when
  2. Assets > Liabilities.
  3. Revenues = Expenses.
  4. Revenues > Expenses.
  5. Revenues < Expenses.

 

Ans: c   LO8   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Retained earnings at the end of the period is equal to
  2. retained earnings at the beginning of the period plus net income minus liabilities.
  3. retained earnings at the beginning of the period plus net income minus dividends.
  4. net income.
  5. assets plus liabilities.

 

Ans: b   LO8   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A statement of financial position shows
  2. revenues, liabilities, and equity.
  3. expenses, dividends and equity.
  4. revenues, expenses, and dividends.
  5. assets, liabilities, and equity.

 

Ans: d   LO8   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. An income statement
  2. summarizes the changes in equity for a specific period of time.
  3. reports the changes in assets, liabilities, and equity over a period of time.
  4. reports the assets, liabilities, and equity at a specific date.
  5. presents the revenues and expenses for a specific period of time.

 

Ans: d   LO8   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. If the retained earnings account increases from the beginning of the year to the end of the year, then
  2. net income is less than dividends.
  3. net loss is less than dividends.
  4. the company must have sold shares.
  5. net income is greater than dividends.

 

Ans: d   LO8   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

Use the following information for questions 158–160.

 

Carla’s Computer Repair Shop started the year with total assets of $540,000 and total liabilities of $360,000. During the year, the business recorded $900,000 in computer repair revenues, $510,000 in expenses, and the company paid dividends of $90,000.

 

  1. Equity at the end of the year was
  2. $480,000.
  3. $450,000.
  4. $570,000.
  5. $390,000.

 

Ans: a   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The net income reported by Carla’s Computer Repair Shop for the year was
  2. $300,000.
  3. $390,000.
  4. $180,000.
  5. $810,000.

 

Ans: b   LO8   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Total equity changed by what amount from the beginning of the year to the end of the year?
  2. $90,000.
  3. $390,000.
  4. $180,000.
  5. $300,000.

 

Ans: d   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The statement of financial position is frequently referred to as
  2. an operating statement.
  3. the balance sheet.
  4. the statement of cash flows.
  5. the statement of changes in equity.

 

Ans: b   LO8   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The primary purpose of the statement of cash flows is to report
  2. a company’s investing transactions.
  3. a company’s financing transactions.
  4. information about cash receipts and cash payments of a company.
  5. the net increase or decrease in cash.

 

Ans: c   LO8   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. All of the financial statements are for a period of time except the
  2. income statement.
  3. retained earnings statement.
  4. statement of financial position.
  5. statement of cash flows.

 

Ans: c   LO8   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. The ending retained earnings amount is shown on
  2. the statement of financial position only.
  3. the retained earnings statement only.
  4. both the income statement and the retained earnings statement.
  5. both the statement of financial position and the retained earnings statement.

 

Ans: d   LO8   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Benito Company began the year with equity of $525,000. During the year, the company recorded revenues of $750,000, expenses of $570,000, and paid dividends of $60,000. What was Benito’s equity at the end of the year?
  2. $765,000.
  3. $645,000.
  4. $1,215,000.
  5. $705,000.

 

Ans: b   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Carter Company issued ordinary shares to Sam Carter in exchange for his investment of $40,000 cash in the business. The company recorded revenues of $370,000, expenses of $320,000, and paid dividends of $20,000. What was Carter’s net income for the year?
  2. $30,000.
  3. $70,000.
  4. $50,000.
  5. $90,000.

 

Ans: c   LO8   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Marilu Company began the year with equity of $75,000. During the year, Marilu issued additional ordinary shares in exchange for cash of $105,000, recorded expenses of $300,000, and paid dividends of $20,000. If Marilu’s ending equity was $230,000, what was the company’s revenue for the year?
  2. $350,000.
  3. $370,000.
  4. $455,000.
  5. $475,000.

 

Ans: b   LO8   BT: AP   Difficulty: Medium   TOT: 2.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Nguyen Company began the year with equity of $434,000. During the year, Nguyen issued ordinary shares for $588,000, recorded expenses of $1,680,000, and paid dividends of $112,000. If Nguyen’s ending equity was $1,062,000, what was the company’s revenue for the year?
  2. $1,720,000.
  3. $1,832,000.
  4. $2,308,000.
  5. $2,420,000.

 

Ans: b   LO8   BT: AP   Difficulty: Medium   TOT: 2.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Use the following information for questions 169–170.

 

Saira’s Service Shop started the year with total assets of $250,000 and total liabilities of $200,000. During the year, the business recorded $525,000 in revenues, $275,000 in expenses, and paid dividends of $50,000.

 

  1. Equity at the end of the year was
  2. $300,000.
  3. $250,000.
  4. $200,000.
  5. $225,000.

 

Ans: b   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The net income reported by Saira’s Service Shop for the year was
  2. $200,000.
  3. $250,000.
  4. $150,000.
  5. $475,000.

 

Ans: b   LO8   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

Use the following information for questions 171–172.

 

Metzger Company compiled the following financial information as of December 31, 2014:

Revenues                                               €140,000

Retained earnings (1/1/14)                        70,000

Equipment                                                  80,000

Expenses                                                 125,000

Cash                                                           35,000

Dividends                                                   10,000

Supplies                                                       5,000

Accounts payable                                      20,000

Accounts receivable                                  15,000

Share capital-ordinary                               65,000

 

  1. Metzger’s assets on December 31, 2014 are
  2. €275,000.
  3. €210,000.
  4. €120,000.

d    €135,000.

 

Ans: d   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Metzger’s equity on December 31, 2014 is
  2. €110,000.
  3. €100,000.
  4. €140,000.
  5. €125,000.

 

Ans: c   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. Copper Company’s equity at the beginning of August 2014 was $750,000. During the month, the company earned net income of $150,000 and paid dividends of $50,000. At the end of August 2014, what is the amount of equity?
  2. $650,000
  3. $750,000
  4. $850,000
  5. $950,000

 

Ans: c   LO8   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. On January 1, 2014, Affleck Company reported equity of $470,000. During the year, the company paid dividends of $20,000. At December 31, 2014, the amount of equity was $520,000. What amount of net income or net loss would the company report for 2014?
  2. Net income of $50,000
  3. Net loss of $70,000
  4. Net income of $30,000
  5. Net income of $70,000

 

Ans: d   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

Use the following information for questions 175–177.

 

Stahl Consulting started the year with total assets of €80,000 and total liabilities of €20,000. During the year, the business recorded €64,000 in catering revenues and €32,000 in expenses. Stahl issued ordinary shares of €12,000 and paid dividends of €20,000 during the year.

 

  1. The equity at the end of the year was
  2. €84,000.
  3. €72,000.
  4. €32,000.
  5. €8,000.

 

Ans: a   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The net income reported by Stahl Consulting for the year was
  2. €64,000.
  3. €44,000.
  4. €32,000.
  5. €12,000.

 

Ans: c   LO8   BT: AP   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Equity changed by what amount from the beginning of the year to the end of the year?
  2. €60,000
  3. €56,000
  4. €24,000
  5. €12,000

 

Ans: c   LO8   BT: AP   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. During the year 2014, Diego Company earned revenues of $90,000, had expenses of $50,000, purchased assets with a cost of $10,000 and paid dividends of $6,000. Net income for the year is
  2. $90,000.
  3. $40,000.
  4. $34,000.
  5. $30,000.

 

Ans: b   LO8   BT: AN   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. At October 1, Smithson Enterprises reported equity of $210,000. During October, no capital shares were issued and the company earned net income of $24,000. If equity at October 31 totals $192,000, what amount of dividends were paid during the month?
  2. $0
  3. $6,000
  4. $18,000
  5. $42,000

 

Ans: d   LO8   BT: AN   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. At October 1, Smithson Enterprises reported equity of $210,000. During October, no capital shares were issued and the company posted a net loss of $18,000. If equity at October 31 totals $192,000, what amount of dividends were paid during the month?
  2. $0
  3. $6,000
  4. $18,000
  5. $63,000

 

Ans: a   LO8   BT: AN   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. At October 1, Smithson Enterprises reported equity of $210,000. During October, capital shares of $12,000 were issued and the company earned net income of $36,000. If equity at October 31 totals $240,000, what amount of dividends were paid during the month?
  2. $0
  3. $18,000
  4. $24,000
  5. $30,000

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. At October 1, Smithson Enterprises reported equity of $210,000. During October, capital shares of $30,000 were issued and the company posted a net loss of $18,000. If equity at October 31 totals $210,000, what amount of dividends were paid during the month?
  2. $0
  3. $12,000
  4. $18,000
  5. $30,000

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. During October, Mica Inc. sold ordinary shares for €600,000, earned revenue of €66,000, incurred expenses of €36,000, and paid dividends of €3,000. Net income for the month is
  2. €27,000.
  3. €30,000.
  4. €627,000.
  5. €630,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. During January, Bruni Corporation earned revenue of €90,000, incurred expenses of €44,000, and paid dividends of €6,000. The income statement will report net income for the month of
  2. €40,000.
  3. €46,000.
  4. €52,000.
  5. €90,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. During June, Sing Tao Inc. sold ordinary shares for HK$17,175,000, earned revenue of HK$3,030,000, incurred expenses of HK$1,545,000, and paid dividends of HK$45,000. Net income for June is
  2. HK$1,485,000.
  3. HK$1,490,000.
  4. HK$18,615,000.
  5. HK$20,205,000.

 

Ans: a   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. During May, Brunhilde Company earned revenue of €212,000, incurred expenses of €136,000, of which €96,000 were on account, and paid dividends of €32,000. Net income (loss) for the month is
  2. (€40,000).
  3. €44,000.
  4. €76,000.
  5. €116,000.

 

Ans: c   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. During 2014, Li & Fung Corporation earned revenue of HK$9,225,000, incurred expenses of expenses of HK$6,945,000, and paid dividends of HK$630,000. Net income for 2014 is
  2. HK$1,650,000.
  3. HK$2,280,000.
  4. HK$8,595,000.
  5. HK$9,225,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. During March, Bindi Company earned revenue of €270,000 on account of which €178,000 had been collected by the end of the month. The company incurred expenses of €156,000. The company paid all of its expenses in cash as well as paying dividends of €46,000. Net income (loss) for the month is
  2. (€24,000).
  3. €22,000.
  4. €68,000.
  5. €114,000.

 

Ans: d   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Mica Inc. began operations in October, 2014. During October, Mica sold ordinary shares for €600,000, earned revenue of €66,000, incurred expenses of €36,000, and paid dividends of €3,000. Retained earnings at the end the month is
  2. €27,000.
  3. €30,000.
  4. €627,000.
  5. €630,000.

 

Ans: a   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Mica Inc. began operations in October, 2014. During October, Mica sold ordinary shares for €600,000, earned revenue of €66,000, incurred expenses of €36,000, and paid dividends of €3,000. Equity at the end of the month is
  2. €27,000.
  3. €30,000.
  4. €627,000.
  5. €630,000.

 

Ans: c   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Bruni Corporation began operations on January 1, 2014. During January, Bruni earned revenue of €90,000, incurred expenses of €44,000, and paid dividends of €6,000. Retained earnings at the end the month is
  2. €40,000.
  3. €46,000.
  4. €52,000.
  5. €90,000.

 

Ans: a   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Sing Tao Inc. began operations on June 2, 2014. During June, Sing Tao sold ordinary shares for HK$17,175,000, earned revenue of HK$3,030,000, incurred expenses of HK$1,545,000, and paid dividends of HK$45,000. Retained earnings at June 30, 2014
  2. HK$1,440,000.
  3. HK$1,485,000.
  4. HK$18,615,000.
  5. HK$20,206,000.

 

Ans: a   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. Sing Tao inc. began operations on June 2, 2014. During June, Sing Tao sold ordinary shares for HK$17,175,000, earned revenue of HK$3,030,000, incurred expenses of HK$1,545,000, and paid dividends of HK$45,000. Equity at the end of June is
  2. HK$1,440,000.
  3. HK$1,485,000.
  4. HK$18,615,000.
  5. HK$20,205,000.

 

Ans: c   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Nigiri Inc. began operations on October 1, 2014. During October, Nigiri sold ordinary shares for ¥440,000,000, earned net income of ¥64,000,000, and paid dividends of ¥1,978,000. Retained earnings at the end of October is
  2. ¥504,000,000.
  3. ¥502,022,000.
  4. ¥64,000,000.
  5. ¥62,022,000.

 

Ans: d   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Nigiri Inc. began operations on October 1, 2014. During October, Nigiri sold ordinary shares for ¥440,000,000, earned net income of ¥64,000,000, and paid dividends of ¥1,978,000. Equity at the end of October is
  2. ¥504,000,000.
  3. ¥502,022,000.
  4. ¥64,000,000.
  5. ¥62,022,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Le Bateau Company began operations on March 1, 2014. During March, Le Bateau sold ordinary shares for €6,750,000 and incurred a net loss of €915,000. Equity at the end of March is
  2. (€915,000).
  3. €5,835,000.
  4. €7,665,000.
  5. cannot be determined from the information given.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. During July, its first period of operations, Aju Inc. sold ordinary shares for W960,000,000, earned net income of W130,000,000, and paid dividends of W27,000,000. Retained earnings at the end of July is
  2. W1,090,000,000.
  3. W1,063,000,000.
  4. W933,000,000.
  5. W103,000,000.

 

Ans: d   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. During July, its first period of operations, Aju Inc. sold ordinary shares for W960,000,000, earned net income of W130,000,000, and paid dividends of W27,000,000. Equity at the end of July is
  2. W1,090,000,000.
  3. W1,063,000,000.
  4. W933,000,000.
  5. W103,000,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

Use the following information for questions 199–203

 

O’ Hara Company began operations on December 1, 2014. Presented below is selected information related to O’ Hara Company at December 31, 2014.

 

Equipment                               ₤  80,000         Utilities Expense                                ₤ 12,000

Cash                                           28,000         Accounts Receivable                             54,000

Service Revenue                      216,000         Salaries and Wages Expense                94,000

Rent Expense                             26,000         Notes Payable                                       20,000

Accounts Payable                      32,000         Dividends                                               30,000

Share Capital-ordinary               56,000

 

  1. At December 31, 2014, assets total
  2. £108,000.
  3. £140,000.
  4. £162,000.
  5. £194,000.

 

Ans: c   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. At December 31, 2014, liabilities total
  2. £32,000.
  3. £52,000.
  4. £74,000.
  5. £82,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Net income for the month of December is
  2. £54,000.
  3. £84,000.
  4. £112,000.
  5. £132,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Retained earnings at December 31, 2014 is
  2. £30,000.
  3. £44,000.
  4. £54,000.
  5. £110,000.

 

Ans: c   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. Equity at December 31, 2014, is
  2. £296,000.
  3. £242,000.
  4. £186,000.
  5. £110,000.

 

Ans: d   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

Use the following information for questions 204–208

 

EI Greco Corporation began operations on January 1, 2014. Presented below is selected information related to EI Greco at December 31, 2014.

 

Equipment                           €290,000             Utilities Expense                                        €  36,000

Cash                                        84,000             Accounts Receivable                                     82,000

Service Revenue                  648,000             Salaries and Wages Expense                      242,000

Rent Expense                          78,000            Notes Payable                                                96,000

Accounts Payable                   44,000             Dividends                                                        90,000

Share Capital-Ordinary         168,000             Salaries and Wages Payable                         16,000

Supplies                                   30,000             Advertising Expense                                      40,000

 

  1. The statement of financial position at December 31, 2014 reports total assets of
  2. €320,000.
  3. €404,000.
  4. €456,000.
  5. €486,000.

 

Ans: d   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The statement of financial position at December 31, 2014 reports total liabilities of
  2. €60,000.
  3. €120,000.
  4. €156,000.
  5. €238,000.

 

Ans: c   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Net income (loss) reported on the income statement for the month of December is
  2. €252,000.
  3. €180,000.
  4. €162,000.
  5. €96,000.

 

Ans: a   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Retained earnings reported on the statement of financial position at December 31, 2014 is
  2. €330,000.
  3. €252,000.
  4. €168,000.
  5. €162,000.

 

Ans: d   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. The statement of financial position at December 31, 2014 reports equity of
  2. €420,000.
  3. €330,000.
  4. €180,000.
  5. €162,000.

 

Ans: b   LO8   BT: AN   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

a209.    All of the following are services offered by public accountants except

  1. budgeting.
  2. auditing.
  3. tax planning.
  4. consulting.

 

Ans: a   LO9   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

a210.    Which list below best describes the major services performed by public accountants?

  1. Bookkeeping, mergers, budgets.
  2. Employee training, auditing, bookkeeping.
  3. Auditing, taxation, management consulting.
  4. Cost accounting, production scheduling, recruiting.

 

Ans: c   LO9   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

a211.    Preparing tax returns and engaging in tax planning is performed by

  1. public accountants only.
  2. private accountants only.
  3. both public and private accountants.
  4. IRS accountants only.

 

Ans: c   LO9   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

a212.    A private accountant can perform many activities in a business organization but would not work in

  1. budgeting.
  2. accounting information systems.
  3. external auditing.
  4. tax accounting.

 

Ans: c   LO9   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

Additional Multiple Choice Questions

 

213….. Which of the following is not part of the accounting process?

  1. Recording
  2. Identifying
  3. Financial decision making
  4. Communicating

 

Ans: c   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The first part of the accounting process is
  2. communicating.
  3. identifying.
  4. processing.
  5. recording.

 

Ans: b   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Keeping a systematic, chronological diary of events that are measured in dollars and cents is called
  2. communicating.
  3. identifying.
  4. processing.
  5. recording.

 

Ans: d   LO1   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Internal users of accounting information include all of the following except
  2. company officers.
  3. investors.
  4. marketing managers.
  5. production supervisors.

 

Ans: b   LO2   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Most companies in the United States follow standards issued by the
  2. Financial Accounting Standards Board.
  3. International Accounting Standards Board.
  4. Internal Revenue Service.
  5. Securities and Exchange Commission.

 

Ans: a   LO4   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A proprietorship is a business
  2. owned by one person.
  3. owned by two or more persons.
  4. organized as a separate legal entity under state corporation law.
  5. owned by a governmental agency.

 

Ans: a   LO5   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. The Roy’s Downtown Diner received a bill of $400 from the Emeril Advertising Agency. The owner, Roy James, is postponing payment of the bill until a later date. The effect on specific items in the basic accounting equation is
  2. a decrease in Cash and an increase in Accounts Payable.
  3. a decrease in Cash and an increase in Retained Earnings.
  4. an increase in Accounts Payable and a decrease in Retained Earnings.
  5. a decrease in Accounts Payable and an increase in Retained Earnings.

 

Ans: c   LO7   BT: C   Difficulty: Medium   TOT: 1.5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Ryder Company purchases $600 of equipment from Montez Inc. for cash. The effect of this transaction on the components of the basic accounting equation of Ryder Company is
  2. an increase in assets and liabilities.
  3. a decrease in assets and liabilities.
  4. no change in total assets.
  5. an increase in assets and a decrease in liabilities.

 

Ans: c   LO7   BT: C   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

  1. Fontaine Fox Company buys a $12,000 van on credit. This transaction will affect the
  2. income statement only.
  3. statement of financial position only.
  4. income statement and retained earnings statement only.
  5. income statement, retained earnings statement, and statement of financial position.

 

Ans: b   LO7   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. A net loss will result during a time period when
  2. assets exceed liabilities.
  3. assets exceed equity.
  4. expenses exceed revenues.
  5. revenues exceed expenses.

 

Ans: c   LO8   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

a223.    Auditing is

  1. the examination of financial statements by a CA or CPA in order to provide an opinion on their accuracy.
  2. a part of accounting that involves only recording of economic events.
  3. an area of accounting that involves such activities as cost accounting, budgeting, and accounting information systems.
  4. conducted by the Securities and Exchange Commission to ensure that registered financial statements are presented fairly.

 

Ans: a   LO9   BT: K   Difficulty: Easy   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

Answers to Multiple Choice Questions

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
51. c 76. b 101. d 126. d 151. a 176. c 201. b
52. b 77. a 102. c 127. c 152. b 177. c 202. c
53. c 78. d 103. b 128. b 153. c 178. b 203. d
54. a 79. a 104. a 129. a 154. b 179. d 204. d
55. a 80. d 105. c 130. d 155. d 180. a 205. c
56. c 81. b 106. a 131. c 156. d 181. b 206. a
57. c 82. a 107. b 132. c 157. d 182. b 207. d
58. b 83. b 108. a 133. c 158. a 183. b 208. b
59. c 84. b 109. d 134. b 159. b 184. b a209. a
60. b 85. b 110. a 135. a 160. d 185. a a210. c
61. c 86. b 111. b 136. b 161. b 186. c a211. c
62. a 87. d 112. b 137. b 162. c 187. b a212. c
63. d 88. c 113. a 138. b 163. c 188. d 213. c
64. d 89. b 114. c 139. c 164. d 189. a 214. b
65. d 90. c 115. d 140. d 165. b 190. c 215. d
66. c 91. d 116. c 141. c 166. c 191. a 216. b
67. b 92. b 117. a 142. b 167. b 192. a 217. a
68. b 93. c 118. d 143. c 168. b 193. c 218. a
69. c 94. d 119. a 144. c 169. b 194. d 219. c
70. c 95. d 120. b 145. a 170. b 195. b 220. c
71. c 96. c 121. d 146. b 171. d 196. b 221. b
72. c 97. d 122. a 147. c 172. c 197. d 222. c
73. d 98. d 123. a 148. c 173. c 198. b a223. a
74. b 99. d 124. c 149. d 174. d 199. c
75. c 100. b 125. b 150. c 175. a 200. b

 

BRIEF EXERCISES

 

BE 224

Match the following external users of financial accounting information with the type of decision that user will make with the information.

 

  1. Creditor
  2. Investor
  3. Regulatory Agency

d    Taxing Authority

 

_______    (1)   Is the company operating within prescribed guidelines?

 

_______    (2)   Is the company complying with tax laws?

 

_______    (3)   Is the company able to pay its debts?

 

_______    (4)   Is the company a good investment?

 

 

Solution 224
  1. c
  2. d
  3. a
  4. b

 

LO2   BT: C   Difficulty: Easy   TOT: 3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

BE 225

Match the following terms and definitions.

 

  1. Accounts receivable c.   Accounts payable
  2. Creditor d.   Note payable

 

_______   (1)   Amounts due from customers

_______   (2)   Amounts owed to suppliers for goods and services purchased

_______   (3)   Amounts owed to bank

_______   (4)   Party to whom money is owed

 

 

Solution 225
  1. a
  2. c
  3. d
  4. b

 

LO6   BT: K   Difficulty: Easy   TOT: 3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

BE 226

Indicate which of these items is an asset (A), liability (L) or equity (E) account.

_______    (1)   Supplies

_______    (2)   Dividends

_______    (3)   Buildings

_______    (4)   Note Payable

_______    (5)   Taxes Payable

 

 

Solution 226
  1. Assets (A)
  2. Equity (E)
  3. Asset (A)
  4. Liability (L)
  5. Liability (L)

 

LO6   BT: K   Difficulty: Easy   TOT: 3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

BE 227

Use the accounting equation to answer the following questions.

  1. Force 10 Sails Co. has total assets of $120,000 and total liabilities of $65,000. What is equity?
  2. Marcy Fun Center has total assets of $225,000 and equity of $105,000. What are total liabilities?
  3. Franco’s Restaurant has total liabilities of $50,000 and equity of $75,000. What are total assets?

 

 

Solution 227
  1. $120,000 – $65,000 = $55,000 equity
  2. $225,000 – $105,000 = $120,000 total liabilities
  3. $50,000 + $75,000 = $125,000 total assets

 

LO6   BT: AP   Difficulty: Easy   TOT: 5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 


BE 228

Determine the missing items.

 

Assets   =   Liabilities    +     Equity

¥85,000          ¥52,000                (a)

(b)             ¥28,000            ¥34,000

¥89,000               (c)               ¥55,000

 

 

Solution 228
  1. ¥33,000
  2. ¥62,000
  3. ¥34,000

 

LO6   BT: AP   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

BE 229

Classify each of these items as an asset (A), liability (L), or equity (E).

 

_____  1.   Accounts receivable

_____  2.   Accounts payable

_____  3.   Share capital-ordinary

_____  4.   Supplies

_____  5.   Utilities expense

_____  6.   Cash

_____  7.   Note payable

_____  8.   Equipment

 

 

Solution 229     (5 min.)
  1. A 5.    E
  2. L 6.    A
  3. E 7.    L
  4. A 8.    A

 

LO6   BT: C   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 


BE 230

Identify the impact on the accounting equation of each of the following transactions.

  1. Purchase office supplies on account.
  2. Paid secretary weekly salary.
  3. Purchased office furniture for cash.
  4. Received monthly utility bill to be paid at later time.

 

 

Solution 230     (5 min.)
  1. Increase assets and increase liabilities.
  2. Decrease assets and decrease equity.
  3. Increase assets and decrease assets.
  4. Increase liabilities and decrease equity.

 

LO7   BT: C   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

BE 231

Statement of financial position amounts as of December 31, 2014 for Lori’s Tutoring Service are listed below. Prepare a statement of financial position in good form.

Accounts Payable                            $    1,600

Accounts Receivable                             1,300

Cash                                                          800

Share Capital-Ordinary                                 ?

Solution 231     (5 min.)

LORI’S TUTORING SERVICE

Statement of Financial Position

December 31, 2014

 

Assets                                                             Equity and Liabilities

Accounts Receivable              $ 1,300            Share Capital-Ordinary                              $   500

Cash                                              800            Accounts Payable                                        1,600

Total assets                             $ 2,100            Total equity and liabilities                           $2,100

 

 

LO8   BT: AP   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 


BE 232

Identify whether the following items would be reported on the income statement (IS) or statement of financial position (FP).

  1. Cash
  2. Service Revenue
  3. Notes Payable
  4. Interest Expense
  5. Accounts Receivable

 

 

Solution 232
  1. Statement of Financial Position (FP)
  2. Income Statement (IS)
  3. Statement of Financial Position (FP)
  4. Income Statement (IS)
  5. Statement of Financial Position (FP)

 

LO8   BT: C   Difficulty: Easy   TOT:  3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

BE 233

Use the following information to calculate for the year ended December 31, 2014 (a) net income (net loss), (b) ending retained earnings, and (c) total assets.

 

Supplies                                      ¥  1,000                    Revenues                                ¥21,000

Operating expenses                     12,000                    Cash                                          13,000

Accounts payable                           9,000                    Dividends                                     1,000

Accounts receivable                       3,000                    Notes payable                             1,000

Beginning retained earnings           5,000                    Equipment                                   6,000

 

 

Solution 233

(a)         ¥9,000            (b)       ¥13,000            (c)       ¥23,000

 

LO8   BT: AP   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 


BE 234

Listed below in alphabetical order are the statement of financial position items of Rowan Company at December 31, 2014. Prepare a statement of financial position and include a complete heading.

Accounts payable                                                  $    19,000

Accounts receivable                                                    25,000

Buildings                                                                       96,000

Cash                                                                             14,000

Equipment                                                                      5,000

Share capital – ordinary                                             121,000

 

 

Solution 234

ROWAN COMPANY

Statement of Financial Position

December 31, 2014

ASSETS

Buildings                                                                                                                            $  96,000

Equipment                                                                                                                               5,000

Accounts receivable                                                                                                             25,000

Cash                                                                                                                                  $  14,000

Total assets                                                                                                                 $140,000

 

EQUITY AND LIABILITIES

Equity

Share capital-ordinary                                                                                                        121,000

Liabilities

Accounts payable                                                                                                                 19,000

Total equity and liabilities                                                                                            $140,000

 

LO8   BT: AP   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

EXERCISES

Ex. 235

Determine the missing amount for each of the following.

  Assets        =        Liabilities +          Equity

  1. (a) €30,000                €75,000
  2. €125,000 (b)                €85,000
  3. €140,000 €65,000                        (c)

 

Solution 235
  1. (a) = €105,000 (€30,000 + €75,000)
  2. (b) = €40,000 (€125,000 – €85,000)
  3. (c) = €75,000 (€140,000 – €65,000)

LO6   BT: C   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

Ex. 236

For the items listed below, fill in the appropriate code letter to indicate whether the item is an asset, liability, or equity item.

Code

Asset                              A

Liability                            L

Equity                             E

 

______    1.    Rent Expense                            ______    6.    Cash

 

______    2.    Equipment                                  ______    7.    Accounts Receivable

 

______    3.    Accounts Payable                      ______    8.    Dividends

 

______    4.    Share Capital-Ordinary              ______    9.    Service Revenue

 

______    5.    Insurance Expense                    ______ 10.    Notes Payable

 

 

Solution 236

  1. E                                6.     A
  2. A                                7.     A
  3. L                                8.     E
  4. E                                9.     E
  5. E                              10.     L

 

LO6   BT: C   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

Ex. 237

At the beginning of the year, Keats Company had total assets of $750,000 and total liabilities of $250,000. Answer the following questions viewing each situation as being independent of the others.

(1)   If total assets increased $200,000 during the year, and total liabilities decreased $75,000, what is the amount of equity at the end of the year?

(2)   During the year, total liabilities increased $230,000 and equity decreased $90,000. What is the amount of total assets at the end of the year?

(3)   If total assets decreased $40,000 and equity increased $130,000 during the year, what is the amount of total liabilities at the end of the year?


Solution 237

Total Assets                          Total Liabilities                         Equity

Beginning           $750,000                                 $250,000

Change                200,000                                    (75,000)

Ending                $950,000               –                $175,000            =             $775,000 (1)

 

Total Assets                         Total Liabilities                           Equity

Beginning           $750,000                                 $250,000                           $500,000

Change                                                                230,000                              (90,000)

Ending                $890,000 (2)         =                $480,000            +             $410,000

 

Total Assets                          Total Liabilities                          Equity

Beginning           $750,000                                 $250,000                           $500,000

Change                 (40,000)                                                                            130,000

Ending                $710,000               =                $  80,000 (3)      +             $630,000

 

LO6   BT: AP   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 238

Jill’s Car Cleaning has the following statement of financial position items:

Equipment                                           Notes Payable

Accounts Payable                               Share Capital-Ordinary

Cash                                                    Retained Earnings

Supplies

Accounts Receivable

 

Identify which items are    (1)  Assets

(2)  Liabilities

(3)  Equity

 

 

Solution 238

(1)   Assets— Equipment, Cash, Supplies, Accounts Receivable

(2)   Liabilities—Accounts Payable, Notes Payable

(3)   Equity—Share Capital-Ordinary, Retained Earnings

 

LO6   BT: C   Difficulty: Easy   TOT: .5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 239

On June 1, 2014, Bush Company prepared a statement of financial position that shows the following:

………….. Assets (no cash)………………………………………………………..    ₤100,000

………….. Liabilities……………………………………………………………………        75,000

………….. Equity……………………………………………………………………….        25,000

 

 

Ex. 239         (cont.)

Shortly thereafter, all of the assets were sold for cash. How would the statement of financial position appear immediately after the sale of the assets for cash for each of the following cases?

 

Cash Received for                     Balances Immediately After Sale                

      the Assets                Assets         –      Liabilities       =         Equity

Cash A            ₤110,000               ₤________            ₤________            ₤________

 

Cash B              100,000                 ________              ________              ________

 

Cash C                90,000                 ________              ________              ________

 

 

Solution 239

Cash Received for                     Balances Immediately After Sale                

      the Assets                Assets         –      Liabilities       =            Equity

Cash A            ₤110,000                 ₤110,000                 ₤75,000                   ₤35,000

Cash B              100,000                   100,000                   75,000                     25,000

Cash C                90,000                     90,000                   75,000                     15,000

 

LO6   BT: AP   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 240

At the beginning of 2014, Bonds Company had total assets of $650,000 and total liabilities of $370,000. Answer each of the following questions.

  1. If total assets increased $60,000 and equity decreased $90,000 during the year, determine the amount of total liabilities at the end of the year.
  2. During the year, total liabilities decreased $75,000 and equity increased $50,000. Compute the amount of total assets at the end of the year.
  3. If total assets decreased $100,000 and total liabilities increased $55,000 during the year, determine the amount of equity at the end of the year.

 

 

Solution 240

  1. Ending Total Liabilities = ($650,000 + $60,000) – ($650,000 – $370,000 – $90,000)

= $710,000 – $190,000 = $520,000

  1. Ending Total Assets = ($370,000 – $75,000) + ($650,000 – $370,000 + $50,000)

= $295,000 + $330,000 = $625,000

  1. Ending Equity = ($650,000 – $100,000) – ($370,000 + $55,000)

= $550,000 – $425,000 = $125,000

 

LO6   BT: AN   Difficulty: Medium   TOT:  5 min.   AACSB: Analysis   AICPA BB: Critical Thinking   AICPA  FN: Reporting


Ex. 241

Compute the missing amount in each category of the accounting equation.

  Assets                       Liabilities                       Equity

(a)           $279,000                     $    ?                            $143,000

(b)           $223,000                     $  79,000                     $     ?     

(c)           $     ?                           $173,000                     $325,000

 

 

Solution 241

(a)   $136,000  ($279,000 – $143,000 = $136,000).

(b)   $144,000  ($223,000 – $79,000 = $144,000).

(c)   $498,000  ($173,000 + $325,000 = $498,000).

 

LO6   BT: AN   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 242

From the following list of selected accounts taken from the records of McDreamy Homeopathic Center, identify those that would appear on the statement of financial position.

  1. Share Capital-Ordinary                       f.    Accounts Payable
  2. Service Revenue                                g.   Cash
  3. Land                                                    h.   Rent Expense
  4. Salaries and Wages Expense             i.    Supplies
  5. Notes Payable                                    j.    Utilities Expense

 

 

Solution 242

a, c, e, f, g, i

 

LO6   BT: C   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 243

Selected transactions for Tall Timber Tree Service are listed below.

  1. Made cash investment to start the business.
  2. Paid for monthly advertising.
  3. Purchased supplies on account.
  4. Billed customers for services performed.
  5. Paid cash dividends.
  6. Received cash from customers billed in (4).
  7. Incurred utilities expense on account.
  8. Purchased additional supplies for cash.
  9. Received cash from customers when service was performed.

 


Instructions

List the numbers of the above transactions and describe the effect of each transaction on assets,

liabilities, and owner’s equity. For example, the first answer is: (1) Increase in assets and increase in equity.

 

 

Solution 243

  1. Increase in assets and increase in equity.
  2. Decrease in assets and decrease in equity.
  3. Increase in assets and increase in liabilities.
  4. Increase in assets and increase in equity.
  5. Decrease in assets and decrease in equity.
  6. Increase in assets and decrease in assets.
  7. Increase in liabilities and decrease in equity.
  8. Increase in assets and decrease in assets.
  9. Increase in assets and increase in equity.

 

LO6, 7   BT: C   Difficulty: Easy   TOT:  3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting
Ex. 244

Lawrence Legal Eagles Company entered into the following transactions during

March 2013.

  1. Purchased office equipment for $21,500 from Business Equipment, Inc. on account.
  2. Paid $4,000 cash for March rent on office furniture.
  3. Received $15,000 cash from customers for legal work billed in February.
  4. Provided legal services to Amy Construction Company for $3,000 cash.
  5. Paid Northern States Power Co. $11,000 cash for electric usage in March.
  6. Lawrence invested an additional $32,000 in the business.
  7. Paid Business Equipment, Inc. for the office equipment purchased in (1) above.
  8. Incurred advertising expense for March of $1,200 on account.

 

Instructions

Indicate with the appropriate letter whether each of the transactions above results in:

(a) an increase in assets and a decrease in assets.

(b) an increase in assets and an increase in equity.

(c) an increase in assets and an increase in liabilities.

(d) a decrease in assets and a decrease in equity.

(e) a decrease in assets and a decrease in liabilities.

(f) an increase in liabilities and a decrease in equity.

(g) an increase in equity and a decrease in liabilities.

 

 

Solution 244

  1. (c) 5.         (d)
  2. (d) 6.         (b)
  3. (a) 7.         (e)
  4. (b) 8.         (f)

 

LO6, 7   BT: C   Difficulty: Easy   TOT:  3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

Ex. 245

Two items are omitted from each of the following summaries of statement of financial position and income statement data for two companys for the year 2014, Holly Enterprises and Craig Stevens.

 

Holly Enterprises                  Craig Stevens

Beginning of year:

Total assets                          € 98,000                           €129,000

Total liabilities                          70,000                                 (c)

Total equity                                 (a)                                  80,000

End of year:

Total assets                           160,000                             180,000

Total liabilities                        120,000                               50,000

Total equity                              40,000                             130,000

Changes during year in equity:

Additional investment                (b)                                   25,000

Dividends                                 25,000                                  (d)

Total revenues                       215,000                             100,000

Total expenses                      180,000                               65,000

 

Instructions

Determine the missing amounts.

 

Solution 245

(a)        Total assets (beginning of year)                           €98,000

Total liabilities (beginning of year)                         (70,000)

Total equity (beginning of year)                             €28,000

 

(b)        Total equity (end of year)                                     €40,000

Total equity (beginning of year)                             (28,000)

Increase in equity                                                   €12,000

 

Total revenues                                                     €215,000

Total expenses                                                    (180,000)

Net income                                                           €  35,000

 

Increase in equity                                                   €12,000

Less:  Net income                        (€35,000)

Add:   Dividends                              25,000)           (10,000)

Additional investment                                               €2,000

 

(c)        Total assets (beginning of year)                          €129,000

Total equity (beginning of year)                              (80,000)

Total liabilities (beginning of year)                         49,000

 

Solution 245        (cont.)

(d)        Total equity (end of year)                                           €130,000

Total equity (beginning of year)                                   (80,000)

Increase in equity                                                        50,000

 

Total revenues                                                            €100,000

Total expenses                                                              (65,000)

Net income                                                                 €  35,000

 

Increase in equity                                                         €50,000

Less:  Net income                            € 35,000

Additional investment              25,000               (60,000)

Dividends                                                                    €(10,000)

LO6, 7   BT: AP   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting
Ex. 246

An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is shown below. Each increase and decrease in equity is explained.

 

 

                                                  Assets                                         =      Liab.         +                                Equity                       

Retained Earnings

Accounts                                                                 Accounts                Share

Cash   +      Receivable + Supplies +        Equipment     =   Payable   +            Cap.  +    Rev.  –   Exp.    –   Div.

 

  1. +$15,000 +$15,000                                    Iss. Sh.
  2. – 2,000                                                         +$5,000                    +$3,000
  3. – 750                                       +$750
  4. + 2,500     +$6,600                                                                                                 + $9,100                               Serv. Rev.
  5. – 1,500                                                                                           −   1,500
  6. – 2,500                                                                                                                                                            −   $2,500 Div.
  7. – 650                                                                                                                                                 − $650      Rent Exp.
  8. + 550     –      550
  9. – 3,500                                                                                                                                                − 3,500       Sal. Exp.
  10. + 500            − 500        Util. Exp.

 

Instructions

(a) Determine how much equity increased for the month.

(b) Compute the amount of net income for the month.

 

Solution 246

(a)        Investment                                                        $15,000

Service revenue                                                   9,100

Dividends                                                             (2,500)

Rent expense                                                          (650)

Salaries expense                                                 (3,500)

Utilities expense                                                      (500)

Increase in equity                                              $16,950

 


Solution 246        (cont.)

(b)        Service revenue                     $9,100

Rent expense                              (650)

Salaries expense                    (3,500)

Utilities expense                          (500)

Net income                            $4,450

LO7   BT: AP   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting
Ex. 247

The Lim Company had the following assets and liabilities on the dates indicated.

December 31                         Total Assets              Total Liabilities

2012                         $530,000                     $230,000

2013                         $480,000                     $210,000

2014                         $590,000                     $300,000

Lim began business on January 1, 2012, with an investment of $100,000.

 

Instructions

From an analysis of the change in equity during the year, compute the net income (or

loss) for:

(a)  2012, assuming Lim paid dividends of $25,000 for the year.

(b)  2013, assuming Lim made an additional investment of $60,000 and paid no dividends in 2013.

(c)  2014, assuming Lim made an additional investment of $10,000 and paid dividends of $30,000 in 2014.

 

Solution 247

(a)        Equity—12/31/12 ($530,000 – $230,000)                   $300,000

Equity—1/1/12                                                             (100,000)

Increase in equity                                                          200,000

Add:   Dividends                                                              25,000

Net income for 2012                                                   $225,000

 

(b)        Equity—12/31/13 ($480,000 – $210,000)                   $270,000

Equity—1/1/13—see (a)                                             (300,000)

Decrease in equity                                                        (30,000)

Less:  Additional investment                                           60,000

Net loss for 2013                                                         $ (90,000)

 

(c)        Equity—12/31/14 ($590,000 – $300,000)                   $290,000

Equity—1/1/14—see (b)                                               (270,000)

Increase in equity                                                           20,000

Less:  Additional investment                                          (10,000)

10,000

Add:   Dividends                                                             30,000

Net income for 2014                                                   $  40,000

 

LO7   BT: AP   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting
Ex. 248

For each of the following, indicate whether the transaction affects revenue (R), expense (E), Dividends (D), Share Capital (SC), or no effect on equity (NOE).

  1. Made an investment to start the business.
  2. Billed customers for services performed.
  3. Purchased equipment on account.
  4. Paid monthly rent.
  5. Paid dividends.

 

 

Solution 248

  1. Share Capital (SC)
  2. Revenue (R)
  3. No effect (NOE)
  4. Expense (E)
  5. Dividends (D)

 

LO7   BT: C   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 249

Presented below is a statement of financial position for Jim Henson Yard Service at December 31, 2014.

JIM HENSON YARD SERVICE

Statement of Financial Position

December 31, 2014

 

Assets                                                 Equity and Liabilities

Equipment                              £11,000        Equity

Supplies                                     9,000            Share capital–ordinary                                 ₤16,000

Accounts receivable                  6,000        Liabilities

Cash                                        13,000             Accounts payable                                             8,000

                          Notes payable                                                 15,000

Total assets                     £39,000             Total equity & liabilities                                 ₤39,000

 

The following additional data are available for the year which began on January 1: All expenses (excluding supplies expense) total ₤6,000. Supplies on January 1 were ₤11,000 and ₤5,000 of supplies were purchased during the year. Net income for the year was ₤8,000 and dividends paid were ₤5,000.

 

Instructions

Determine the following:  (Show all computations.)

  1. Supplies used during the year.
  2. Total expenses for the year.
  3. Service revenues for the year.
  4. Equity on January 1.

 

Solution 249

  1. Computation of Supplies Used:

Beginning Supplies, Jan. 1                                                                ₤11,000

Add: Purchases                                                                                     5,000

Less: Ending Supplies, Dec. 31                                                            (9,000)

Equals: Supplies Used                                                                       ₤  7,000

 

  1. Computation of Total Expenses:

All Expenses (excluding supplies expense)                                      ₤  6,000

Plus: Supplies Used                                                                               7,000

Total Expenses                                                                                  ₤13,000

 

  1. Computation of Revenues:

Net Income                                                                                        ₤  8,000

Plus: Total Expenses                                                                           13,000

Total Revenues                                                                                  ₤21,000

 

  1. Computation of equity on January 1:

Equity, December 31                                                                         ₤16,000

Plus: Dividends                                                                                      5,000

Less: Net Income                                                                                  (8,000)

Equity, January 1                                                                               ₤13,000

 

LO7   BT: AN   Difficulty: Hard   TOT:  10 min.   AACSB: Analysis   AICPA BB: Critical Thinking   AICPA  PC: Problem Solving

 

Ex. 250

Analyze the transactions of a business organized as a proprietorship described below and indicate their effect on the basic accounting equation. Use a plus sign (+) to indicate an increase and a minus sign (–) to indicate a decrease.

 

Assets       =    Liabilities      +      Equity

 

  1. Received cash for services rendered.      ________           ________           ________
  2. Purchased office equipment on credit.     ________           ________           ________
  3. Paid employees’ salaries.                          ________           ________           ________
  4. Received cash from customer in

payment on account.                                 ________           ________           ________

  1. Paid telephone bill for the month.              ________           ________           ________
  2. Paid for office equipment purchased

in transaction 2.                                          ________           ________           ________

  1. Purchased office supplies on credit.         ________           ________           ________
  2. Paid dividends.                                           ________           ________           ________
  3. Obtained a loan from the bank.                 ________           ________           ________
  4. Billed customers for services rendered.    ________           ________           ________


Solution 250

Assets   =      Liabilities        +         Equity

 

  1. Received cash for services rendered.           +                                                    +
  2. Purchased office equipment on credit.          +                    +
  3. Paid employees’ salaries.                               –                                                    –
  4. Received cash from customer in                  +,–

payment on account.

  1. Paid telephone bill for the month.                   –                                                    –
  2. Paid for office equipment purchased

in transaction 2.                                               –                    –

  1. Purchased office supplies on credit.              +                    +
  2. Paid dividends                                                 –                                                    –
  3. Obtained a loan from the bank.                      +                    +
  4. Billed customers for services rendered.         +                                                    +

 

LO7   BT: C   Difficulty: Medium   TOT: 10 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 251

For each of the following, indicate whether the transaction increased (+), decreased (-), or had no effect (NE) on assets, liabilities, and equity using the following format.

Assets = Liabilities + Equity

  1. Issued ordinary shares in exchange for cash.
  2. Billed customers for services performed.
  3. Purchased equipment on account.
  4. Paid dividends.
  5. Paid for equipment purchased in 3. above.

 

Solution 251

Assets      =     Liabilities          +                     Equity

  1. + NE                                +
  2. + NE                                +
  3. + +                                NE
  4. – NE                                –
  5. – –                                 NE

LO7   BT: C   Difficulty: Easy   TOT: 10 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting


Ex. 252

Bill Phinnes decides to open a cleaning and laundry service near the local college campus that will operate as a corporation. Analyze the following transactions for the month of June in terms of their effect on the basic accounting equation. Record each transaction by increasing (+) or decreasing (–) the dollar amount of each item affected. Indicate the new balance of each item after a transaction is recorded. It is not necessary to identify the cause of changes in equity.

 

Transactions

(1)     Issued ordinary shares in exchange for $20,000 cash on June 1.

(2)     Purchased laundry equipment for $5,000 paying $3,000 in cash and the remainder due in 30 days.

(3)     Purchased laundry supplies for $1,200 cash.

(4)     Received a bill from College News for $300 for advertising in the campus newspaper.

(5)     Cash receipts from customers for cleaning and laundry amounted to $1,500.

(6)     Paid salaries of $200 to student workers.

(7)     Billed the Lion Soccer Team $200 for cleaning and laundry services.

(8)     Paid $300 to College News for advertising that was previously billed in Transaction 4.

(9)     Paid dividends of $700.

(10)     Incurred utility expenses for month on account, $150.

Trans-                     Accounts                                                      Accounts      Share          Retained

action        Cash  +  Receivable  +  Supplies  +  Equipment  =  Payable    +   Capital   +   Earnings

(1)

———————————————————————————————————————————

Balance

(2)

———————————————————————————————————————————

Balance

(3)

———————————————————————————————————————————

Balance

(4)

———————————————————————————————————————————

Balance

(5)

———————————————————————————————————————————

Balance

(6)

———————————————————————————————————————————

Balance

(7)

———————————————————————————————————————————

Balance

(8)

———————————————————————————————————————————

Balance


Ex. 252         (cont.)

(9)

———————————————————————————————————————————

Balance

(10)

———————————————————————————————————————————

Totals

                                                                                                                                                             

 

 

Solution 252

Trans-                     Accounts                                                    Accounts        Share          Retained

action        Cash  +  Receivable  +  Supplies  +  Equipment  =  Payable    +   Capital   +   Earnings

(1)       +$20,000                                                                                       +$20,000

———————————————————————————————————————————

Balance    $20,000                                                                                         $20,000

(2)           – 3,000                                                 +$5,000       +$2,000

———————————————————————————————————————————

Balance    $17,000                                                   $5,000         $2,000       $20,000

(3)           – 1,200                         +$1,200

———————————————————————————————————————————

Balance    $15,800                           $1,200             $5,000         $2,000       $20,000

(4)                                                                                              +  300                             –    $300

———————————————————————————————————————————

Balance    $15,800                           $1,200             $5,000         $2,300       $20,000         –    $300

(5)          + 1,500                                                                                                                + 1,500

———————————————————————————————————————————

Balance    $17,300                           $1,200             $5,000         $2,300       $20,000            $1,200

(6)           –    200                                                                                                                  –   200

———————————————————————————————————————————

Balance    $17,100                           $1,200             $5,000         $2,300       $20,000            $1,000

(7)                              +$200                                                                                               +   200

———————————————————————————————————————————

Balance    $17,100          $200         $1,200             $5,000         $2,300       $20,000            $1,200

(8)            –   300                                                                        –  300

———————————————————————————————————————————

Balance    $16,800          $200         $1,200             $5,000         $2,000       $20,000            $1,200

(9)            –   700                                                                                                                  –   700

———————————————————————————————————————————

Balance    $16,100          $200         $1,200             $5,000         $2,000       $20,000               $500

(10)                                                                                              +  150                                –   150

———————————————————————————————————————————

Totals       $16,100          $200         $1,200             $5,000         $2,150        $20,000               $350

                                                                                                                                                             

 

LO7   BT: AP   Difficulty: Medium   TOT: 20 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 


Ex. 253

For each of the following, describe a transaction that will have the stated effect on the elements of the accounting equation.

(a)   Increase one asset and decrease another asset.

(b)   Increase an asset and increase a liability.

(c)   Decrease an asset and decrease a liability.

(d)   Increase an asset and increase equity.

(e)   Increase one asset, decrease one asset, and increase a liability.

 

 

Solution 253

(a)   Receive cash from customers on account.

Purchase supplies for cash.

(b)   Purchase supplies on account.

Purchase equipment and signed a note payable.

(c)   Pay cash to reduce accounts payable.

Pay cash to reduce a note payable.

(d)   Issued ordinary shares in exchange for cash.

Render services on account or for cash.

(e)   Buy equipment with a cash down payment with the remainder financed by a note payable.

 

LO7   BT: C   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 254

The following transactions represent part of the activities of Tigger Company for the first month of its existence. Indicate the effect of each transaction upon the total assets of the business by one of the following phrases: increased total assets, decreased total assets, or no change in total assets.

(a)   Issued ordinary shares in exchange for cash.

(b)   Purchased a computer for cash.

(c)   Purchased office equipment with money borrowed from the bank.

(d)   Paid the first month’s utility bill.

(e)   Collected an accounts receivable.

(f)    Paid dividends.

 

 

Solution 254

(a)   Increased total assets.

(b)   No change in total assets.

(c)   Increased total assets.

(d)   Decreased total assets.

(e)   No change in total assets.


Solution 254     (cont.)

(f)    Decreased total assets.

 

LO7   BT: C   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 255

Selected transactions for Parton Company are listed below. List the number of the transaction and then describe the effect of each transaction on assets, liabilities, and equity.

Sample:  Issued ordinary shares in exchange for cash investment.

The answer would be—Increase in assets and increase in equity.

  1. Paid monthly utility bill.
  2. Purchased new display case for cash.
  3. Paid cash for repair work on security system.
  4. Billed customers for services performed.
  5. Received cash from customers billed in 4.
  6. Paid dividends.
  7. Incurred advertising expenses on account.
  8. Paid monthly rent.
  9. Received cash from customers when service was rendered.

 

 

Solution 255

  1. Decrease in assets and decrease in equity.
  2. No net change in assets.
  3. Decrease in assets and decrease in equity.
  4. Increase in assets and increase in equity.
  5. No net change in assets.
  6. Decrease in assets and decrease in equity.
  7. Increase in liabilities and decrease in equity.
  8. Decrease in assets and decrease in equity.
  9. Increase in assets and increase in equity.

 

LO7   BT: C   Difficulty: Medium   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

Ex. 256

A service proprietorship shows five transactions summarized below. The effect of each transaction on the accounting equation is shown, and also the new balance of each item in the equation. For each transaction (a) to (e) write an explanation of the nature of the transaction.

Accounts         Equip-                                                     Accounts

         Cash    +    Rec.       +    ment       +      Land     +     Building   =   Payable     +             Equity
———————————————————————————————————————————

$5,000         $6,500          $10,000          $7,500          $50,000         $3,000                $76,000

  1. a) –2,000                                                                                          –2,000                            

3,000           6,500            10,000            7,500            50,000           1,000                  76,000

  1. b) +1,000 – 1,000                                                                                                                    

4,000           5,500            10,000            7,500            50,000           1,000                  76,000


Ex. 256         (cont.)
  1. c)                                + 5,000                                                           +5,000                      

4,000           5,500            15,000            7,500             50,000               6,000             76,000

  1. d) +2,500                                                                                                                       + 2,500

6,500           5,500            15,000            7,500             50,000               6,000             78,500

  1. e)         +3,000                                                                                                          + 3,000

$6,500         $8,500          $15,000          $7,500           $50,000             $6,000           $81,500

 

 

Solution 256

(a)   Paid cash to creditors.

(b)   Received cash from customers on account.

(c)   Bought equipment on account.

(d)   Issued ordinary shares in exchange for cash.

(e)   Services rendered on account.

 

 

LO7   BT: C   Difficulty: Medium   TOT:  5 min.   AACSB: Analysis   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

Ex. 257

There are ten transactions listed below. Match the transactions that have the identical effect on the accounting equation. You should end up with 5 matches.

 

  1. Receive cash from customers on account.
  2. Issue ordinary shares in exchange for cash.
  3. Pay cash to reduce an accounts payable.
  4. Purchase supplies for cash.
  5. Pay cash to reduce a notes payable.
  6. Purchase supplies on account.
  7. Issue ordinary shares in exchange for noncash assets.
  8. Purchase equipment with a note payable.
  9. Pay utilities with cash.
  10. Pay dividends.

 

Solution 257

Match #1    =  a, d

#2    =  c, e

#3    =  f, h

#4    =  b, g

#5    =  i, j

 

LO7   BT: C   Difficulty: Medium   TOT: 10 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 


Ex. 258

An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is shown below. Each increase and decrease in equity is explained.

 

                                                  Assets                                               =      Liab.   +                                Equity                       

Retained Earnings

Accounts                                                                    Accounts           Share

Cash   +       Receivable + Supplies +    Equipment =             Payable   +       Cap     +  Rev.  –   Exp.  –     Div.

 

  1. +€15,000 +€15,000                              Iss. Share
  2. – 2,000                                                      +€5,000                        +€3,000                                                        Serv. Rev.
  3. – 750                                       +€750
  4. + 2,500        +€6,600                                                                                                  + €9,100                          Serv. Rev.
  5. – 1,500                                                                                           –   1,500
  6. – 2,500                                                                                                                                                               – €2,500 Div.
  7. – 650                                                                                                                                                    – €650   Rent Exp.
  8. + 550         –      550
  9. – 3,500                                                                                                                                                   – 3,500   Sal. Exp.
  10.                                                                                                                 + 500                                           – 500    Util. Exp.

Instructions

(a) Prepare an income statement for the month ending July 31, 2014.

(b) Prepare a retained earnings statement for the month ending July 31, 2014.

Solution 258

(a)

  1. T. LANG & CO.

Income Statement

For the Month Ended July 31, 2014

 

Revenues

Service revenue                                             €9,100

Expenses

Salaries and wages expense  €3,500

Rent expense                               650

Utilities expense                           500

Total expenses                                      4,650

Net income                                                                 €4,450

 

(b)

  1. T. LANG & CO.

Retained Earnings Statement

For the Month Ended July 31, 2014

 

Retained earnings, July 1                               €        0

Add:   Net income                                               4,450

4,450

Less:  Dividends                                                  2,500

Retained earnings, July 31                                 1,950

LO8   BT: AP   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting


Ex. 259

An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is shown below.

                                     Assets                                     Liab.                    Equity                

Retained Earnings

Accounts                                                Accounts     Share

Cash   +    Receivable + Supplies + Equipment = Payable   +  Cap.  +   Rev. –  Exp.  –   Div.

 

  1. +€15,000 +€15,000
  2. – 2,000                                            +€5,000         +€3,000
  3. – 750                          +€750
  4. + 2,500    +€6,600                                                                                 + €9,100
  5. – 1,500                                                                   –   1,500
  6. – 2,500                                                                                                                         – €2,500
  7. – 650                                                                                                           –   € 650
  8. + 550    –      550
  9. – 3,500                                                                                                         –   3,500
  10. + 500                         –      500

 

Instructions

Prepare a statement of financial position at July 31, 2014.

Solution 259

 

  1. T. LANG & CO.

Statement of Financial Position

July 31, 2014

 

Assets

Equipment                                                                                           €   5,000

Supplies                                                                                                     750

Accounts receivable                                                                              6,050

Cash                                                                                                        7,150

Total assets                                                                             €18,950

 

Equity and Liabilities

Equity

Share capital-ordinary                        €15,000

Retained earnings                                  1,950                          16,950

Liabilities

Accounts payable                                                                       2,000

Total equity and liabilities                                            €18,950

LO8   BT: AP   Difficulty: Easy   TOT:  5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting


Ex. 260

 

The following information relates to Ty Ringo Co. for the year 2014.

 

Retained earnings, January 1, 2014               $ 47,000                      Advertising expense   $1,500

Dividends                                                             6,000                      Rent expense                9,500

Service revenue                                                65,500                      Utilities expense            3,400

Salaries and wages expense                             29,000

 

Instructions

After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2014

 

 

Solution 260

 

TY RINGO CO.

Income Statement

For the Year Ended December 31, 2014

 

Revenues

Service revenue                                                         $65,500

Expenses

Salaries and wages expense              $29,000

Rent expense                                          9,500

Utilities expense                                      3,400

Advertising expense                               1,500

Total expenses                                                  43,400

Net income                                                                             $22,100

 

 

TY RINGO CO.

Retained Earnings Statement

For the Year Ended December 31, 2014

 

Retained earnings, January 1                                                 $47,000

Add:   Net income                                                                     22,100

69,100

Less:  Dividends                                                                          6,000

Retained earnings, December 31                                           $63,100

 

 

LO8   BT: AP   Difficulty: Easy   TOT:  7 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 


Ex. 261

 

Cyn Sclose is the bookkeeper for Ayala Company. Cyn has been trying to get the statement of financial position of Ayala Company to balance. Ayala’s statement of financial position is as follows.

 

 

 

AYALA COMPANY

Statement of Financial Position

December 31, 2014

Assets                                                                                     Liabilities

 

Equipment                   $48,000                                   Accounts payable                   $33,000

Supplies                          7,100                                   Accounts receivable                (12,500)

Cash                              17,400                                   Share capital-ordinary                          40,000

Dividends                        6,200                                   Retained earnings                     18,200

Total equity and

Total assets                 $78,700                                   liabilities                                   $78,700

 

Instructions

Prepare a correct statement of financial position.

 

 

Solution 261

AYALA COMPANY

Statement of Financial Position

December 31, 2014

 

Assets

Equipment                                                                                           $48,000

Supplies                                                                                                  7,100

Accounts receivable                                                                            12,500

Cash                                                                                                      17,400

Total assets                                                                             $85,000

 

Equity and Liabilities

Equity

Share capital-ordinary                                                $40,000

Retained earnings ($18,200 – $6,200)             12,000           $52,000

Liabilities

Accounts payable                                                                     33,000

Total equity and liabilities                                            $85,000

LO8   BT: AN   Difficulty: Medium   TOT:  5 min.   AACSB: Analytical   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 


Ex. 262

Presented below is information related to Smith and Jones, Attorneys at Law.

 

Retained earnings, January 1, 2014               $  23,000

Service revenue—2014                                    300,000

Total expenses—2014                                      231,000

Assets, January 1, 2014                                     85,000

Liabilities, January 1, 2014                                 62,000

Assets, December 31, 2014                             168,000

Liabilities, December 31, 2014                           85,000

Dividends—2014                                                59,000

 

Instructions

Prepare the 2014 retained earnings statement for Smith and Jones, Attorneys at Law.

 

Solution 262

SMITH AND JONES, ATTORNEYS AT LAW

Retained Earnings Statement

For the Year Ended December 31, 2014

 

Retained earnings, January 1……………………………………………………                    $  23,000

Add: Net income……………………………………………………………………..                         69,000*

92,000

Less: Dividends……………………………………………………………………….                        59,000

Retained earnings, December 31………………………………………………                    $ 33,000

*Legal service revenue…………………………………………………………….                    $300,000

Total expenses……………………………………………………………..                      231,000

Net income………………………………………………………………….                    $  69,000

 

LO8   BT: AP   Difficulty: Medium   TOT:  7 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting
Ex. 263

Prepare an income statement, a retained earnings statement, and a statement of financial position for the acupuncture practice of Lei Chen, from the items listed below for the month of September.

 

Retained earnings, September 1                                                                               ¥12,000

Share capital-ordinary                                                                                                 30,000

Accounts payable                                                                                                          7,000

Equipment                                                                                                                    27,000

Service revenue                                                                                                          24,000

Dividends                                                                                                                       6,000

Supplies expense                                                                                                           3,500

Cash                                                                                                                               8,000

Utilities expense                                                                                                                700

Supplies                                                                                                                         2,800

Salaries and wages expense                                                                                         9,000

Accounts receivable                                                                                                    14,000

Rent expense                                                                                                                 2,000


Ex. 263         (cont.)

LEI CHEN, ACUPUNCTURIST

Income Statement

For the Month Ended September 30, 2014

——————————————————————————————————————————

Revenues                                                                                                                       ¥

 

Expenses                                                                                                  ¥                   ¥

                 

Total expenses                                                                                                         ¥

                 

 

Net income                                                                                                              ¥               

 

LEI CHEN, ACUPUNCTURIST

Retained Earnings Statement

For the Month Ended September 30, 2014

——————————————————————————————————————————

Retained Earnings, September 1                                                                                  ¥

Add:

                 

¥

 

Less:

                 

 

¥               

 

LEI CHEN, ACUPUNCTURIST

Statement of Financial Position

September 30, 2014

——————————————————————————————————————————

Assets

¥

 

 

 

Total assets                                                                                                                               

¥               

 

Equity and Liabilities

 

Equity                                                                                                                             ¥

 

Liabilities                                                                                          ¥                                              

 

 

Total equity and liabilities                                                                                         ¥               

 

 


Solution 263

LEI CHEN, ACUPUNCTURIST

Income Statement

For the Month Ended September 30, 2014

——————————————————————————————————————————

Revenues

Service revenue……………………………………………………………………..                            ¥24,000

Expenses

Salaries and wages expense…………………………………………………….        ¥9,000

Supplies expense…………………………………………………………………….          3,500

Rent expense………………………………………………………………………….          2,000

Utilities expense………………………………………………………………………             700

Total expenses…………………………………………………………………..                              15,200

Net income……………………………………………………………………….                             ¥ 8,800

 

 

LEI CHEN, ACUPUNCTURIST

Retained Earnings Statement

For the Month Ended September 30, 2014

 

Retained Earnings, September 1……………………………………………………                            ¥12,000

Add: Net income…………………………………………………………………………..                                8,800

20,800

Less: Dividends…………………………………………………………………………….                                6,000

Retained Earnings, September 30………………………………………………….                            ¥14,800

 

 

LEI CHEN, ACUPUNCTURIST

Statement of Financial Position

September 30, 2014

——————————————————————————————————————————

Assets

Equipment……………………………………………………………………………………                            ¥27,000

Supplies………………………………………………………………………………………                                2,800

Accounts receivable……………………………………………………………………..                              14,000

Cash……………………………………………………………………………………………                                8,000

Total assets…………………………………………………………………………….                            ¥51,800

 

Equity and Liabilities

Equity

Share capital-ordinary……………………………………………………………..   ¥30,000

Retained earnings……………………………………………………………………     14,800            ¥44,800

Liabilities

Accounts payable……………………………………………………………………                                7,000

Total liabilities and equity………………………………………………………….                            ¥51,800

 

 

LO8   BT: AP   Difficulty: Hard   TOT: 15 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 


Ex. 264

Indicate whether the following items would appear on the statement of financial position (FP), income statement (IS), or retained earnings statement (RE).

  1. Advertising expense
  2. Accounts receivable
  3. Dividends
  4. Rent revenue
  5. Salaries and wages payable
  6. Supplies

 

Solution 264     (5 min.)
  1. Income statement (IS) 4.  Income statement (IS)
  2. Statement of financial position (FP) 5.  Statement of financial position (FP)
  3. Retained earnings statement (RE) 6.  Statement of financial position (FP)

 

LO8   BT: C   Difficulty: Easy   TOT: 5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 265

Listed below in alphabetical order are the statement of financial position items of Pieter Company at December 31, 2014. Prepare a statement of financial position and include a complete heading.

Accounts Payable                                                                      $  31,000

Accounts Receivable                                                                     15,000

Buildings                                                                                         56,000

Cash                                                                                               24,000

Equipment                                                                                        4,000

Land                                                                                               52,000

Share Capital-Ordinary                                                                120,000

 

LO8   BT: AP   Difficulty: Medium   TOT: 5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Solution 265     (5 min.)

PIETER COMPANY

Statement of Financial Position

December 31, 2014

 

ASSETS

Land                                                                                                                                  $  52,000

Buildings                                                                                                                                56,000

Equipment                                                                                                                               4,000

Accounts receivable                                                                                                             15,000

Cash                                                                                                                                      24,000

Total assets                                                                                                                       $151,000

 


Solution 265     (cont.)

EQUITY and LIABILITIES

Share capital-ordinary                                                                                                    $ 120,000

Accounts payable                                                                                                                 31,000

Total equity and liabilities                                                                                            $151,000

 

LO8   BT: AP   Difficulty: Medium   TOT: 5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

Ex. 266

One item is omitted in each of the following summaries of statement of financial position and income statement data for three different corporations, X, Y, and Z. Determine the amounts of the missing items, identifying each corporation by letter.

                        Corporation                         

      X                          Y                         Z     

Beginning of the Year:

Assets                                                                ₤380,000            ₤150,000            ₤199,000

Liabilities                                                               270,000              105,000              168,000

End of the Year:

Assets                                                                  450,000              185,000              195,000

Liabilities                                                               280,000                95,000              149,000

During the Year:

Issued additional ordinaryshares                              ?                      79,000                80,000

Dividends                                                               90,000                83,000                  ?      

Revenue                                                              195,000                    ?                    187,000

Expenses                                                             170,000              113,000              175,000

 

 

Solution 266

Corporation X        (₤125,000)

Beginning equity (₤380,000 – ₤270,000)                                               ₤110,000

Additional investments (₤260,000 – ₤110,000 – ₤25,000)                      125,000

Net income for year (₤195,000 – ₤170,000)                                             25,000

260,000

Less dividends                                                                                           90,000

Ending equity (₤450,000 – ₤280,000)                                                    ₤170,000

Corporation Y        (₤162,000)

Beginning equity (₤150,000 – ₤105,000)                                              ₤   45,000

Additional investments                                                                               79,000

Net income for year                                                                                   49,000

[Revenues = ₤162,000  (₤113,000 + ₤49,000)]                                 173,000

Less dividends                                                                                           83,000

Ending equity (₤185,000 – ₤95,000)                                                      ₤  90,000

 


Solution 266     (cont.)

Corporation Z        (₤77,000)

Beginning equity (₤199,000 – ₤168,000)                                              ₤   31,000

Additional investments                                                                               80,000

Net income for year (₤187,000 – ₤175,000)                                             12,000

123,000

Less dividends (₤123,000 – ₤46,000)                                                        77,000

Ending equity (₤195,000 – ₤149,000)                                                   ₤   46,000

 

LO8   BT: AN   Difficulty: Hard   TOT: 10 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  PC: Problem Solving

 

 

Ex. 267

Indicate in the space provided by each item whether it would appear on the Income Statement (IS), Statement of Financial Position (FP), or Retained Earnings Statement (RE):

 

  1. _____ Service Revenue                             g.   ___   Accounts Receivable

 

  1. _____ Utilities Expense                               h.   ___   Retained Earnings (ending)

 

  1. _____ Cash                                                 i.    ___   Equipment

 

  1. _____ Accounts Payable                            j.    ___    Advertising Expense

 

  1. _____ Supplies                                            k.   ___    Dividends

 

  1. _____ Salaries and Wages Expense          l.    ___    Notes Payable

 

 

Solution 267

  1. IS g.   FP
  2. IS h.   RE, FP
  3. FP i.    FP
  4. FP j.    IS
  5. FP k.   RE
  6. IS l.    FP

 

LO8   BT: C   Difficulty: Easy   TOT: 5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

 


Ex. 268

At September 1, the statement of financial position accounts for Stanley’s Restaurant were as follows:

 

Accounts Payable                        $  3,800            Land                                                   $33,000

Accounts Receivable                     11,600            Share Capital-Ordinary                            ?

Buildings                                         68,000            Notes Payable                                     48,000

Cash                                               10,000            Supplies                                                 6,600

Equipment                                      18,700

 

The following transactions occurred during the next two days:

 

The company issued additional ordinary shares for $22,000 cash invested in the business. The accounts payable were paid in full. (No payment was made on the notes payable.)

 

Instructions

Prepare a statement of financial position at September 3, 2014.

 

 

Solution 268

STANLEY’S RESTAURANT

Statement of Financial Position

September 3, 2014

 

ASSETS

Land                                                                                                                                $ 33,000

Buildings                                                                                                                             68,000

Equipment                                                                                                                          18,700

Supplies                                                                                                                               6,600

Accounts receivable                                                                                                          11,600

Cash                                                                                                                                   28,200

Total assets                                                                                                           $166,100

 


Solution 268     (cont.)

EQUITY and LIABILITIES

Share capital-ordinary                                                                                                   $118,100

Notes payable                                                                                                                    48,000

Accounts payable                                                                                                                -0-  .

Total equity and liabilities                                                                                      $166,100

 

Cash ($10,000 + $22,000 – $3,800) = $28,200

Accounts payable ($3,800 – $3,800) = $0

Share capital:      Beginning balance ($147,900 – $51,800)     $  96,100

Additional investment                                        22,000

Ending balance                                              $118,100

 

LO8   BT: AP   Difficulty: Hard   TOT: 10 min.   AACSB: Analysis   AICPA BB: Critical Thinking   AICPA  PC: Problem Solving

 

 

Ex. 269

Presented below are items for Wilson Company at December 31, 2014.

Accounts payable                             €45,000

Accounts receivable                           36,000

Cash                                                   27,000

Equipment                                          62,000

Share capital-ordinary                        30,000

Notes payable                                    50,000

Compute each of the following:

  1. Total assets.
  2. Total liabilities.

 

Solution 269
  1. Total assets = €125,000 (€36,000 + €27,000 + €62,000)
  2. Total liabilities = €95,000 (€45,000 + €50,000)

 

LO8   BT: AP   Difficulty: Easy   TOT: 5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 


COMPLETION STATEMENTS

  1. Accounting is an information system that identifies, _____________, and _____________ the economic events of an organization.

 

  1. The mere recording of economic events is called ______________, and is just one part of the _______________ process.

 

  1. Accounting standards issued in the United States by the Financial Accounting Standards Board are called _________________.

 

  1. The ________________ principle states that companies should record assets at their cost.
  2. The _________________ assumption requires that the activities of an entity be kept separate from the activities of its owner.

 

  1. The residual claim on total assets of a business is known as ________________ and is equal to total assets minus total liabilities.

 

  1. Dividends ________________ equity but are not expenses.

 

  1. The ________________ reports the assets, liabilities, and equity of a business enterprise at a specific date.

 

a278.    The three major services rendered by a public accountant are ______________, ________________, and management ________________.

 

a279.    Accountants who are employees of business enterprises are referred to as ________________ accountants.

 

 

Answers to Completion Statements

  1. records, communicates 275.   equity
  2. bookkeeping, accounting 276.   reduce
  3. generally accepted accounting principles 277.    statement of financial position
  4. historical cost 278.    auditing, taxation, management consulting
  5. economic entity a279.  private (or managerial)

 

LO1-8   BT: K   Difficulty: Easy   TOT: 3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

 


MATCHING

  1. Match the items below by entering the appropriate code letter in the space provided.

 

  1. Convergence                                     F.    Corporation
  2. Bookkeeping                                     G.    Assets
  3. IASB                                                  H.    Equities
  4. Proprietorship                                    I.      Expenses
  5. Economic entity assumption             J.     Transactions

 

_____    1.  Activities of an entity must be kept separate from its owner’s activities.

_____    2.  Consumed assets or services.

_____    3.  Ownership is limited to one person.

_____    4.  Process of reducing differences between IFRS and GAAP.

_____    5.  Creditor and ownership claims against the assets of the business.

_____    6.  A separate legal entity under state laws.

_____    7.  Accounting organization that issues standards.

_____    8.  Involves only the recording of economic events.

_____    9.  Future economic benefits.

_____ 10.  Economic events recorded by accountants.

 

 

 

 

Answers to Matching

  1. E 6.     F
  2. I 7.     C
  3. D 8.     B
  4. A 9.     G
  5. H 10.     J

 

LO1-8   BT: K   Difficulty: Easy   TOT: 3 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 


SHORT-ANSWER ESSAY QUESTIONS

S-A E 281

Your friend, James, made this comment:

My major is biology and I plan to research for cures for major illnesses. Thus, I have no need to study accounting.

 

What is your response to James?

 

Solution 281

James, you are entering a dynamic profession and you have the opportunity to make important contributions to society. While science will be your profession and major concern, you will not be able to escape the need to understand accounting. Accounting staff and professionals will always be available to assist you. Here are some areas that will directly affect you:

 

As a manager, you will need to review accounting information (both internal and external) and make decisions. Budgets will be an important part of your research activities. As an employee, you will be concerned about the financial information of your employer. Thus, you will need to be able to read the company’s financial statements. Also, as an investor, you will be interested in the financial statements of other companies.

 

You will probably not be a preparer of the financial statements, but you do need an understanding of how they are prepared.  You also need a good understanding of how to interpret the information on the financial statements.

 

LO2   BT: S   Difficulty: Hard   TOT: 5 min.   AACSB: Communication   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

S-A E 282

The information needs of a specific user of financial accounting information depends upon the kinds of decisions that user makes. Identify the major users of accounting information and discuss what questions financial accounting information answers for each group of users.

 

 

Solution 282

The major users of accounting information are internal users and external users. Internal users are those who manage the business. External users are those outside the business who have either a present or potential financial interest.

 

Financial accounting information may answer the following questions for internal users:

  1. Is cash sufficient to pay our debts?
  2. Can we afford to give employee pay raises this year?
  3. What is the cost of manufacturing each unit of product?
  4. Which product line is the most profitable?

 

Questions answered by financial accounting information for external users include:

  1. Is the company earning satisfactory income?
  2. How does the company compare in size and profitability with competitors?
  3. Will the company be able to pay its debts as they come due?

 

LO2   BT: C   Difficulty: Medium   TOT: 5 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting S-A E  284

 

S-A E  283

The framework used to record and summarize the economic activities of a business enterprise is referred to as the accounting equation. State the basic accounting equation and define its major components. How are business transactions and financial statements related to the accounting equation?

 

 

Solution 283

The basic accounting equation is expressed as follows:

Assets = Liabilities + Equity

 

Assets are defined as resources owned by the business. Liabilities are creditor claims against the assets of the business; or simply put, liabilities are existing debts and obligations. Equity is the ownership claim on the total assets of the business; it is equal to total assets minus total liabilities.

 

Business transactions are economic events and activities that affect the elements of the basic accounting equation; that is, transactions cause increases or decreases in the assets, liabilities, and equity. The financial statements report the results and effects of transactions on the business’ assets, liabilities, and equity. The statement of financial position is a summary expression of the basic accounting equation.

 

LO6   BT: C   Difficulty: Medium   TOT: 4 min.   AACSB: Communication   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

aS-A E  284

The accounting profession provides many career opportunities for individuals. Identify the major fields that exist in accounting and comment on the major functions performed by individuals in each of these areas.

aSolution 284

The major fields that exist in accounting are in the areas of (1) public accounting, (2) private accounting, and (3) not-for-profit accounting. In public accounting, an accountant may practice as: (1) an auditor who examines the financial statements of companies and expresses an opinion as to the fairness of presentation; (2) a tax specialist who gives tax advice, prepares tax returns, and represents clients before governmental agencies; and (3) a management accountant who engages in the development of accounting and computer systems and the design of organizational systems.

 

Private (managerial) accountants perform many different activities within a company. Private accountants may be involved in:  cost accounting, budgeting, general financial accounting, accounting information systems, and tax accounting.

 

LO9   BT: K   Difficulty: Medium   TOT: 5 min.   AACSB: Communication   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 


S-A E  285   (Ethics)

Sam Dryer owns and operates Sam’s Burgers, a small fast food store, located at the edge of City College campus in Newton, Ohio. After several very profitable years, Sam’s Burgers began to have problems. Most of the problems were related to Sam’s expansion of the eating area in the restaurant without corresponding increases in the food preparation area. Sam does not have the cash or financial backing to expand further. He has therefore decided to sell his business.

 

Jerry Finney is interested in purchasing the business. However, he is located in another city and is unfamiliar with Newton. He has asked Sam why he is selling Sam’s Burgers. Sam replies that his elderly mother requires extra care, and that his brother needs help in his manufacturing business. Both are true, but neither is his primary reason for selling. Sam reasons that Jerry should not have asked him anyway, since profitable businesses don’t come up for sale.

 

Required:

  1. Identify the stakeholders in this situation.
  2. Did Sam act ethically in not revealing fully his reasons for selling the business? Why or why not?

 

 

Solution 285
  1. The stakeholders include

Sam Dryer

Jerry Finney

Newton, Ohio

students of City College

City College

persons financing the purchase of Sam’s Burgers

 

  1. Sam did not act ethically in not revealing fully his reasons for selling the business. Students might be of the opinion that a purchaser should investigate a business before purchasing it, rather than relying entirely on the seller’s assertions. However, students should realize that Sam should have said something about his problems. He might ethically be allowed to put these in the best possible light, perhaps, but failure to disclose them at all is certainly unethical. This is especially true, since family concerns might well cause someone to sell a business that is otherwise doing well. Sam has shown an intent to deceive that is unethical, and might be actionable in court as well.

 

LO3   BT: E   Difficulty: Medium   TOT: 5 min.   AACSB: Ethics   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

 

 

S-A E  286   (Communication)

Sue Havens is a friend of yours from high school. She decided to become a beautician after leaving high school, rather than to attend college. She recently opened her own shop, and has contracted her services to a local hospital. She is paid a monthly fee for her services, and receives a small gratuity from each of the patients.

 

She has just received her first set of financial statements from her accountant. She is quite upset. The statements show a cash balance of $3,600 at the end of the month, but a net income of only $500. She has written you a letter, asking you whether such a situation is possible, or whether she should find another accountant.

 

Required:

Write a short letter to your friend. Use proper form. Answer her question completely, but briefly.

 

 

Solution 286

Answers will vary. The instructor’s requirements concerning proper form should be followed. The letter may be either business or personal. As a minimum, the letter should be in a recognizable form, and proper grammar and spelling should be used. Neat erasures and corrections might be allowed. A suggested personal letter follows:

 

 

 

1245 Lily Lane

Buena Vista, AR  77661

(Date)

 

Dear Sue,

 

Congratulations on opening your business!  I am sure you will do well, combining your creative genius with your talent for serving others.

 

You asked about your financial statements. Of course, you realize that I am just an accounting student, but I do know that it is possible to have a large cash balance and little net income. You may have had expenses that were not paid in cash yet. These expenses reduce your income, but not your cash.

 

I think that you should discuss the statements with the accountant who prepared them. He or she will be in the best position to explain the results.

 

Thanks for the question. It really made me think.

 

Sincerely,

(signature)

 

 

LO8   BT: C   Difficulty: Medium   TOT: 5 min.   AACSB: Communication   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 


GAAP QUESTIONS

  1. The Sarbanes-Oxley Act determines
  2. U.S tax regulations.
  3. internal control standards of U.S. publicly traded companies.
  4. internal control standards as enforced by the IASB.
  5. international tax regulations.

 

Ans: B   LO9   BT: K   Difficulty: Medium   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. IFRS is considered to be more
  2. detailed than GAAP.
  3. rules-based and less principles-based than GAAP.
  4. principles-based and less rules-based than GAAP.
  5. None of these answer choices are correct.

 

Ans: C   LO9   BT: K   Difficulty: Medium   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following statements is false?
  2. Proprietorships, partnerships, and corporations are also found in countries that use IFRS.
  3. Non-U.S companies that trade shares in U.S markets must reconcile their accounting with                 GAAP.
  4. FASB and the IASB are working on a joint project related to the conceptual framework.
  5. GAAP is based on a conceptual framework that is similar to that used to develop IFRS.

 

Ans: B   LO9   BT: K   Difficulty: Medium   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

  1. Which of the following is true?
  2. Equity is defined under GAAP as the residual interest in the liabilities of the company.
  3. IFRS companies have agreed to adopt the Sarbanes-Oxley Act related to internal control                         in 2015.
  4. Transaction analysis is basically the same under GAAP and IFRS.
  5. Financial frauds have not occurred in U.S. companies because GAAP has detailed           accounting and disclosure requirements.

 

Ans: C   LO9   BT: K   Difficulty: Medium   TOT: 1.0 min.   AACSB: Reflective Thinking   AICPA BB: Critical Thinking   AICPA  FN: Reporting

 

      
Test Bank IFRS 2nd_Ed Financial Accounting by Weygandt-Kimmel-Kieso

Test Bank IFRS 2nd_Ed Financial Accounting by Weygandt-Kimmel-Kieso