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Exam 1: Accounting and the Business Environment

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Question 131

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Dividends affect the business's net income or net loss and are recorded as an expense.

A) True
B) False

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Question 132

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John contributed $6,000 to the business by opening a bank account in the name of the business, United Marketing. The corporation issued common stock to John. This transaction results in an increase in the assets of the business.

A) True
B) False

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Question 133

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A corporation purchased office supplies on account. As a result of this transaction, expenses and liabilities will increase.

Using the following information, provide the complete accounting equation. $\begin{array} { | l | l | } \hline \text { Use this information to } & \text { Provide the accounting equation to } \\\hline \text { Equity } \$ 200,000 ; \text { Assets } \$ 360,000 & \\\hline \text { Liabilities } \$ 180,000 ; \text { Assets } \$ 320,000 & \\\hline \text { Equity } \$ 725,000 \text { Liabilities } \$ 350,000 & \\\hline\end{array}$

Regarding generally accepted accounting principles (GAAP) , which of the following statements is incorrect?

What is the accounting equation? Briefly explain each of the three parts.

Investors primarily use managerial accounting information for decision-making purposes.

Match the accounting position to the job description. -Auditor

Selected information for Uptown Spa Services and Downtown Spa Services follows: $\begin{array}{c}\begin{array}{|l|l|}\hline\text { Uptown Spa } & \\\text { Services } & \\\hline \text { Total Assets } & \$ 125,000 \\\hline \text { Total } & \\\text { Stockholders' } & \\ \text { Equity } &\$ 90,000 \\ \hline \text { Total Revenues } &\$ 82,000\\\hline\text { Net Income } & \$ 12,000\\\hline\end{array}\begin{array}{|l|r|}\hline \begin{array}{l}\text { Downtown Spa } \\\text { Services }\end{array} & \\\hline \text { Total Assets } & \$ 162,000 \\\hline \text { Total } & \\\text { Stockholders' } & \\\text { Equity } & \$ 137,000 \\\hline \text { Total Revenues } & \$ 70,000\\\hline\text { Net Income } & \$ 18,000\\\hline \end{array}\end{array}$ The total assets and total stockholders' equity balances are at December 31, 2018. Total revenues and net income are for the year ended December 31, 2018. No dividends were paid. Average net assets are $128,000 for Uptown and $178,000 for Downtown. Provide answers for the following questions. Show your work and explain your answer. 1. Which business owes more to creditors? 2. Which business has more stockholders' equity at the end of the year? 3. Which business had more expenses? 4. What is the ROA for each business? (Show this as a percentage and round to one decimal place) Based on ROA, which company is more profitable?

Define liabilities. Provide three examples of liabilities.

Using the following information, provide the complete accounting equation. $\begin{array} { | l | l | } \hline \text { Use this information to } & \text { Provide the accounting equation } \\\hline \text { Assets } \$ 150,000 ; \text { Equity } \$ 60,000 & \\\hline \text { Liabilities } \$ 200,000 ; \text { Equity } \$ 45,000 & \\\hline \text { Assets } \$ 75,000 ; \text { Liabilities } \$ 40,000 & \\\hline\end{array}$

The statement of cash flows informs users about how much of the earnings were kept and reinvested in the company.

Indicate the effects on the accounting equation of the following business transactions of Garland Service Corporation for b) to d) below. Use proper account titles. Transaction a) is answered as a guide. a) Received cash from Trent Garland issued common stock to him. b) Collected cash on accounts receivable (created 20 days earlier). c) Purchased office supplies on account. d) Paid cash for the current month's electric bill.

As per the ________, the entity will remain in operation for the foreseeable future.

Which of the following financial statements reports cash receipts and cash payments during a period of time?

Stuart Allen Corporation manufactures computer hardware. The president of the corporation bought a new car as a gift for his daughter and paid for it using cash from the business. Since the corporation paid for the car, it was recorded in its books as an asset. Which of the following concepts or principles of accounting did the corporation violate?

Gulf Waterworks Corporation provides plumbing services. Transactions during the first year of operations are given below. a. Received $4,000 cash and issued common stock to Jason Robinson. B. Paid $2,000 cash for equipment to be used for plumbing repairs. C. Borrowed $26,000 from a local bank and deposited the money in the checking account. D. Paid $800 rent for the year. E. Purchased $800 of office supplies on account. F. Completed a plumbing repair project for a local lawyer and received $3,500 cash. Calculate the amount of total stockholders' equity at the end of the first year after recording the transactions. Assume office supplies of $800 are left at the end of the year.

Managerial accounting focuses on providing information for external decision makers.

Nick's Landscaping Services incurred $500 as a repair expense and promised to pay the repair company within 30 days. Which of the following accounts will increase as a result of this transaction?

The field of accounting that focuses on providing information for external decision makers is ________.