Upgrade to remove ads
Only $35.99/year

ACCT Chapter 1 study

Terms in this set (60)

Group that has primary responsibility for establishing generally accepted accounting principles for business entities in the United States
Financial Accounting Standards Board (FASB)

Privately funded group.

Not a branch of US government
The Jefferson Company is a manufacturer of antique reproduction furniture. Which term best describes Jefferson's role in society?

A) Consumer
B) Regulatory Agency
C) Conversion Agent
D) Resource Owner
Businesses serve as conversion agents in the marketplace, transforming basic resources provided by resource owners into goods and services that consumers demand
Regulatory Agencies
set policies that affect the way that businesses operate
Which resource provider typically receives first priority when resources are divided as part of a business's liquidation?

A) Managers
B) Stockholders
C) Creditors
D) Owners
Creditors

In business liquidation, creditors receive first priority in the distribution of resources.

After creditors, the stockholders (aka owners) receive what is left
Type of accounting information intended to satisfy the needs of external users of accounting information
Financial Accounting
Tax Accounting
specifically intended for tax regulatory agencies
Managerial accounting provides information primarily to which of the following groups or individuals?
Internal users
GAAP stands for
Generally Accepted Accounting Principles
GAAP are established by
Financial Accounting Standards Board
IASB stands for
International Accounting Standards Board

Establishes standards for most countries outside of U.S.
Which of the following is an example of revenue?

A) Cash received from a bank loan

B) Cash received from customers at the time services were provided

C) Cash investments made by owners

D) All of these
B) Cash received from customers at the time services were provided

Cash received from providing services is an example of revenue
Cash received from bank loans is
a liability, notes payable
Cash investments made by owners
increases stockholders' equity account common stock
Which of the following is not an element of the financial statements?

A) Cash
B) Revenue
C) Assets
D) Distributions
A) Cash

Cash is not an element of financial statements. It is an account that is part of the element assets
The balance sheet of the Chesapeake Company contained the following accounts and balances

Cash: $600
Notes Payable: $300
Equity: $450
Land: ?

Land must be....
$150

600 + L = 300 + 450
Vandever Company's balance sheet reported assets of $42,000, liabilities of $15,000 and common stock of $12,000 as of December 31, 2012. If Retained Earnings on the December 31, 2013 balance sheet is $18,000 and Vandever paid a $14,000 dividend during 2013, then the amount of net income for 2013 was which of the following?
17,000

If total assets is $42,000, then other side of equation must be too

42000 = 15000 + 12000
42000 = 27000
42000 - 27000 = 15000

END 2012
START 2013
18000 RE (3000 increase
Paid 14000 dividend

3000+14000 = 17000
Hacienda Company issued a common stock for $250,000 cash. As a result of this event

A) Assets increased
B) RE increased
C) Equity increased
D) Assets increased and equity increased
D) Assets increased and equity increased

Issuing common stock increases both assets (cash) and equity (common stock).

It does not increased RE because no revenue is recognized
If Boyd Company reported assets of $500 and liabilities of $200, Boyd's total claims totaled
$500

In the accounting equation
assets = Liabilities + equi

If assets are $500 total, claims must also be $500
Accounting Equation
Assets = Claims
Assets = Liab + Stock Eq
Assets = L + CS + RE
If a company's total assets decreased while liabilities and common stock were unchanged, and no dividends were paid, then..
A) Cash flow from OA was greater than cash flow from IA
B) RE were less than Net income during the period
C) Revenues were less than expenses
D) The company must have purchased assets with cash
C) Revenues were less than expenses
If a company's total assets decreased while liabilities and common stock stayed the same, that RE MUST have decreased

*Find out why B is wrong*
The only things that cause Retained Earnings to decrease during an accounting period are
1) the payment of dividends

2) Recording a net loss for the period
Net Loss
Results when revenues are less than expenses

Decrease in net assets resulting from operating the business
Varghese Comapny paid cash to purchase land. As a result of this accounting event total assets
were unaffaced

Paying cash for land is an asset exchange transaction
The total equity of Timberlake Company at the beginning of 2013 amounted to $5,500. During 2013 the company reported net income of $1,800 and paid a $500 dividend. If retained earnings at the end of 2013 is $2,200, what was beginning common stock?
$4,600

Net income increases RE

RE During 2013
1800 - 500 = 1300

RE End 2013
= 2,200

2200 - 1300 = 900

5500 - 900 = 4,600
A company mistakenly recorded a cash purchase of land as an expense. As a result of this error
A) Assets were understated and equity was overstated
B) Assets and equity were understated
C) Assets and equity were overstated

D) Assets were overstated and equity was understated
B) Assets and equity were understated
If the transaction had been recorded correctly, one asset (land) would have increased and another asset (cash) would have decreased, causing no net change in total assets
The way it was recorded, the asset cash decreased and the expense caused equity to decrease as well.
As of December 31, 2013, Bloch Company had $3,800 of assets, $1,600 of liabilities and $700 of retained earnings. The balance in the common stock account on the December 31, 2013 balance sheet was
1500

Assets = L + Stock equi

3800 = 1600 + 700
3800 - 2300 = 1500
On January 1, Baird Company had beginning balances as lowz:
Assets: $2250
Liabilities: $620
Common Stock: $800
During 2013, Baird paid dividends to its stockholders of $900. Given that ending retained earnings was $600, what was Baird's net income for the 2013 accounting period?
$670
2250 = 620 + 800 + RE
RE = 830
830 - 900 + NI = 600
NI = 670
The transaction "earned cash revenue" affects which two accounts?

A) Revenue and Salaries Expense

B) Cash and Notes payable

C) Cash and Revenue

D) Cash and dividends
C) cash and revenue

Earning cash revenue increases a company's assets (cash) and equity (revenue, which closes to be RE)
During 2013, Bledsoe Company earned $6,700 of cash revenue, paid cash dividends of $950 to owners and paid $5,000 for cash expenses. Liabilities were unchanged. Which of the following accurately describes the effect of these events on the elements of the company's financial statements?

A) Assets increase $7700

B) Assets increase 750

C) Equity increase 2700
Assets increased by $750

Revenue - expenses - dividends = change in equity

6700 - 950 - 5000 = 750

If there was no change in liabilities, change in assets must also equal 750
At the end of 2013, retained earnings for the Bisk Company was $1,750. Revenue earned by the company in 2013 was $2,000, expenses paid during the period were $1,100, and dividends paid during the period were $500. Based on this information alone, retained earnings at the beginning of 2013 was
$1350

Beginning RE + Revenue - Expenses - Dividends
= Ending RE

2000 - 1100 - 500 = 1750
Which of the following is NOT an asset use transaction?

A) Paying cash to purchase land

B) Paying cash expenses

C) Paying off the principal of a loan

D) All of these are asset use transactions
A) paying cash to purchase land

This is an asset exchange transaction, not a use transaction
Borrowing cash from the bank is an example of which type of transaction?

A) Asset exchange
B) Claims use
C) Asset use
D) Asset source
D) Asset source
Which of the following statements regarding cash transactions is true?

A) Purchasing land for cash results in no net change in assets.

B) Issuance of stock to owners increases assets.

C) Expense transactions increase assets.

D) Purchasing land for cash results in no net change in assets and Issuance of stock to owners increases assets.
D) Purchasing land for cash results in no net change in assets and Issuance of stock to owners increases assets.

Purchasing land for cash is an asset exchange transaction that does not affect total assets.

Issuing stock to owners is an asset source transactions that increases assets

Expense transactions do not increase assets
Which of the following items appears in the investing activities section of the statement of cash flows?

A) Cash outflow for the purchase of a computer.

B) Cash inflow from the issuance of common stock.

C) Cash outflow for the payment of dividends.

D) Cash inflow from interest revenue.
A) Cash outflow for the purchase of a computer

Purchasing a computer (a long-lived asset) for cash is an investing activity.

Issuing common stock and paying dividends are both financing activities.

Cash inflow from interest revenue is an operating activity.
Jacks Company had a net increase in cash from operating activities of $8,000 and a net decrease in cash from financing activities of $1,000. If the beginning and ending cash balances for the company were $3,000 and $11,000, then net cash change from investing activities was:
An inflow or increase of $1000

Beginning cash balance + increase OA - decrease from financing activities +/- increase or decrease from IA = 11000

1000 = increase from IA
The year-end financial statements of Greenway Company contained the following elements and corresponding amounts: Assets = $20,000; Liabilities = ?; Common Stock = $5,000; Revenue = $11,000; Dividends = $750; Beginning Retained Earnings = $3,750; Ending Retained Earnings = $7,000.

Based on this information, the amount of expenses on Greenway's income statement was
7000

Beginning retained earnings + Revenue - Expenses - Dividends = Ending retained earnings

$3,750 + $11,000 - Expenses - $750 = $7,000

Expenses = $7,000
The year-end financial statements of Greenway Company contained the following elements and corresponding amounts: Assets = $20,000; Liabilities = ?; Common Stock = $5,000; Revenue = $11,000; Dividends = $750; Beginning Retained Earnings = $3,750; Ending Retained Earnings = $7,000.


The amount of liabilities reported on the end-of-period balance sheet was
8000

Assets = L + CS + RE
20,000 = L + 5000 + 7000

L = 8000
Which of the following financial statements provides information about a company as of a specific point in time?
Balance sheet

Cash flow, statement of changes in equity, and income statement all provide information about a period of time such as month
Which of the following statements is true?

A) Balance sheet accounts are referred to as nominal accounts

B) Balance sheet accounts are referred to as permanent accounts

C) Dividends are permanent accounts

D) All of these are true
Balance sheet accounts are known as permanent accounts, as the balances in them do not close at the end of the accounting period

Income statements and dividends are nominal accounts, as they close to RE at the end of the accounting period
In which section of a statement of cash flows would the payment of cash dividends be reported?
Financing activities

Paying cash dividends, and any cash exchanged between a company and its stockholders is a financing activity
Which financial statement matches asset increase from operating a business with asset decreases from operating the business?
Income statement

The income statement matches asset increases from operations (revenues) with asset decreases from operations (expenses)
Callahan Company earned $1,500 of cash revenue, paid $1,000 for cash expenses, and paid a $200 cash dividend to its owners. Which of the following statements is true?

A) The net cash flow from operating activities was $500.

B) The net cash flow from investing activities was an outflow or decrease of $200.

C) The net cash flow from operating activities was $300.

D) Cash flows from financing activities were unchanged.
Cash revenue and cash expenses are operating activities. Paying dividends is a financing activity. $1,500 revenue - $1,000 expense = $500 cash inflow from operating activities
Young company provided services to a customer for 6500 cash. As a result of this event

A) total assets decreased.

B) total liabilities increased.

C) net income increased.

D) cash flow from financing activities increased.
Providing services to a customer for cash increases assets and equity on the balance sheet. It also increases revenue, and therefore, net income on the income statement, and increases cash from operating activities on the statement of cash flows.
During 2013, Chi Company earned $950 of cash revenue, paid $600 of cash expenses, and paid a $100 cash dividend to its owners. Based on this information alone,

A) net income amounted to $350.

B) total assets increased by $250.

C) cash inflow from operating activities was $350.

D) all of these are correct.
D) All of these are correct

Revenue minus expenses equal net income ($950 - $600 = $350). Total assets increased by $250 ($950 - $600 - $100). Cash from operating activities increased by $350 ($950 - $600).
Grant Company purchased a delivery van for cash. The cash flow from this event should be shown on the statement of cash flows as

A) an operating activity that increases cash.

B) a financing activity that decreases cash.

C) an investing activity that decreases cash.

D) an operating activity that decreases cash.
C) investing that decreases cash

Paying cash to purchase a long-lived asset is a cash outflow for investing activities
Retained Earnings at the beginning and ending of the accounting period was $300 and $700, respectively. If revenues were $1,100 and dividends paid to stockholders were $200, expenses for the period must have been
500

Beginning retained earnings + Revenues - Expenses - Dividends = Ending retained earnings
$300 + $1,100 - Expenses - $200 = $700
Expenses = $500
Yi Company began operations on January 1, 2013. During 2013, the company engaged in the following cash transactions:

1) issued stock for $40,000
2) borrowed $25,000 from its bank
3) provided consulting services for $38,000
4) paid back $15,000 of the bank loan
5) paid rent expense for $9,000
6) purchased equipment costing $12,000
7) paid $3,000 dividends to stockholders
8) paid employees' salaries, $21,000

What is Yi's net cash flow from operating activities?
inflow of $8000

$38,000 inflow from consulting services - $9,000 outflow for rent expense - $21,000 outflow for salaries expense = $8,000 inflow
Yi Company began operations on January 1, 2013. During 2013, the company engaged in the following cash transactions:

1) issued stock for $40,000
2) borrowed $25,000 from its bank
3) provided consulting services for $38,000
4) paid back $15,000 of the bank loan
5) paid rent expense for $9,000
6) purchased equipment costing $12,000
7) paid $3,000 dividends to stockholders
8) paid employees' salaries, $21,000

What is Yi's net cash flow from investing activities?
outflow $12000

Outflow for purchasing equipment $12,000
Yi Company began operations on January 1, 2013. During 2013, the company engaged in the following cash transactions:

1) issued stock for $40,000
2) borrowed $25,000 from its bank
3) provided consulting services for $38,000
4) paid back $15,000 of the bank loan
5) paid rent expense for $9,000
6) purchased equipment costing $12,000
7) paid $3,000 dividends to stockholders
8) paid employees' salaries, $21,000

What is Yi's cash flow from financing activities?
Inflow of 47,000

$40,000 inflow from issuing stock + $25,000 inflow from borrowing - $15,000 outflow for loan repayment - $3,000 for dividends = $47,000 inflow
Petras Company engaged in the following transactions during 2012, its first year in operations: (Assume all transactions are cash transactions)

1) Acquired $950 cash from the issue of common stock.
2) Borrowed $420 from a bank.
3) Earned $600 of revenues.
4) Paid expenses of $250.
5) Paid a $50 dividend.

During 2013, Petras engaged in the following transactions: (Assume all transactions are cash transactions)

1) Issued an additional $325 of common stock.
2) Repaid $220 of its debt to the bank.
3) Earned revenues of $750.
4) Incurred expenses of $360.
5) Paid dividends of $100.

Petras Company's net cash inflow from operating activities for 2012 is
$350

$600 inflow from revenues - $250 outflow for expenses = $350 net cash flow
skipped 70-75
fyi
Which of the following items would appear in the cash flow from the financing activities section of a statement of cash flows?

A) Paid cash for expenses.

B) loaned cash to another company.

C) Sold land for cash.

D) Paid cash for dividends.
D) paid cash for dividends is a financing activity

Paying cash for dividends is a financing activity. Paying cash for expenses is an operating activity. Loaning cash to another company and selling land for cash are both investing activity.
George Company was started on January 1, 2013, when it acquired $8,000 cash by issuing common stock. During 2013, the company earned cash revenues of $3,500, paid cash expenses of $2,750, and paid a cash dividend of $300. Based on this information

A) The December 31, 2013 balance sheet would show total equity of $11,500.

B) The 2013 income statement would show net income of $450.

C) The 2013 statement of cash flows would show net cash inflow from operating activities of $750.

D) The 2013 statement of cash flows would show a net cash flow from financing activities of $8,000.
$3,500 cash inflow from revenues - $2,750 cash outflow for expenses = $750 net cash inflow from operating activities
Richardson Company paid $850 cash for rent expense. As a result of this business event,

A) Total assets decreased.

B) Liabilities decreased.

C) The net cash flow from operating activities decreased.

D) Total assets decreased and the net cash flow from operating activities decreased are correct.
d)

Paying cash for rent expense decreases assets (cash) and decreases equity (expense decreases retained earnings). Liabilities are not affected. It is reported as a cash flow for operating activities on the statement of cash flows.
As of December 31, 2012, Montross Company had $400 cash. During 2013, Montross earned $1,200 of cash revenue and paid $800 of cash expenses. The amount of cash shown on the 2013 balance sheet would be
800

$400 beginning balance + $1,200 revenue - $800 expenses = $800
Expenses are shown on the
Income statement
Dividends paid by a company are shown on the
statement of changes in stockholders equity and statement of cash flows
Liabilities are shown on the
balance sheet
skipped to 100
fyi
Vantage Corporation invested $800 cash in Tandem Company stock.

As a result of this transaction,


A) Vantage Corporation would have a cash outflow from financing activities.

B) Tandem Company would have a cash inflow from investing activities.

C) The balance in the Cash account on Vantage's books would decrease, while the balance in the Cash account on Tandem Company's books would increase.

D) All of these statements are true.
C) The balance in the Cash account on Vantage's books would decrease, while the balance in the Cash account on Tandem Company's books would increase.

When Vantage Corporation purchase stock in Tandem Corporation, Vantage's cash balance will decrease and Tandem's cash balance will increase. Vantage will report it as a cash outflow for investing activities, and Tandem will report it as a cash inflow from financing activities.
Students also viewed