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Exam 1: Accounting in Business

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Question 61

True/False

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Objectivity means that financial information is supported by independent, unbiased evidence.

A) True
B) False

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Question 62

Multiple Choice

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U.S. government bonds are:

A) High-risk and high-return investments.
B) Low-risk and low-return investments.
C) High-risk and low-return investments.
D) Low-risk and high-return investments.
E) High-risk and no-return investments.

F) B) and E)
G) A) and B)

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Question 63

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The ______________ assumption assumes business will continue operating indefinitely instead of being closed or sold.

Risk is the _________________ about the return an investor expects to earn.

The accounting equation is ______________________________.

The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called the:

The accounting equation for Long Company shows an increase in its assets and an increase in its liabilities. Which of the following transactions could have caused that effect?

All of the following regarding a Certified Public Accountant are true except:

Liabilities are the owner's claim on assets.

External users of accounting information include all of the following except:

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

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

Assets created by selling goods and services on credit are:

Return on assets is often stated in ratio form as the amount of average total assets divided by income.

Explain the accounting equation and define its terms.

At the beginning of the year, a company had $120,000 worth of liabilities. During the year, assets increased by $160,000 and at year-end they equaled $360,000. Liabilities decreased $20,000 during the year. Calculate the beginning and ending values of equity.

The statement of cash flows shows the net effect of revenues and expenses for a reporting period.

A parcel of land is offered for sale at $600,000, is assessed for tax purposes at $500,000, is recognized by its purchasers as easily being worth $575,000, and is sold for $570,000. At what amount should the land be recorded in the purchaser's books? What accounting principle supports your answer?

Grandmark Printing pays $2,000 rent to the landlord of the building where its facilities are located. How does this transaction affect the accounting equation for Grandmark?

For each of the following transactions, identify the effects as reflected in the accounting equation. Use "+" to indicate an increase and "-" to indicate a decrease. Use "A", "L", and "E" to indicate assets, liabilities, and equity, respectively. Part A has been completed as an example. $\begin{array} {| l | l | l | l| } \hline\text { a. } & \text { L. Chester invested } \$ 100,000 \text { in a corporation. } & + \mathrm { A } & + \mathrm { E } \\\hline \begin{array} { l } \text { b. }\end{array} & \begin{array} { l } \text { Land was purchased for } \$ 50,000 . \\\text { A down payment of } \$ 15,000 \text { eash was made and a note was } \\\text { signed for the balance. }\end{array} & & \\\hline \text { c. } & \text { Services were rendered to customers for cash. } & \\\hline \text { d. } & \text { A building was purchased for cash. } & & \\\hline \text { e. } & \text { Supplies were purchased for cash. } & & \\\hline \text { f. } & \text { Paid the office secretary's salary. } & & \\\hline \text { g. } & \text { The amount owed on the land from Part (b) was paid. } & & \\\hline\end{array}$