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Exam 1: Introducing Accounting in Business

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Question 111

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Increases in retained earnings from a company's earnings activities are:

A) Assets
B) Revenues
C) Liabilities
D) Stockholder's equity
E) Expenses

F) None of the above
G) A) and B)

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Question 112

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The business entity assumption requires that a business be accounted for separately from other business entities,including its owner or owners.

A) True
B) False

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Question 113

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Explain the accounting equation and define its terms.

Assets created by selling goods and services on credit are:

Data for Madison Realty are as follows: $\begin{array}{|l|r|}\hline \text { Total assets at December 31, 2013 } & \$ 100,000 \\\hline \text { Total liabilities at December 31, 2013 } & 35,000 \\\hline \text { Total revenues 2014 } & 79,000 \\\hline \text { Total expenses for 2014 } & 47,000 \\\hline \text { Common stock at December 31, 2013 } & 20,000 \\\hline\end{array}$ Madison Realty paid dividends of $30,000 during 2014.From the above data,prepare Madison Realty's statement of retained earnings for the year ended December 31,2014.

Photometer Company paid off $30,000 of its accounts payable in cash.What would be the effects of this transaction on the accounting equation?

A company purchased $7,000 of supplies and testing equipment on credit.Enter the appropriate amounts for this transaction into the accounting equation format shown below: $\begin{array} { | c | c | c | } \hline \text { Assets } = & \text { Liabilities } + & \text { Equity } \\\hline & & \\\hline\end{array}$

The purchase of supplies must appear on the statement of cash flows as an investing activity because it involves the purchase of assets.

Reebok had income of $150 million and average assets of $1,800 million.Its return on assets is:

Return on assets is:

If the assets of a business increased $89,000 during a period of time and its liabilities increased $67,000 during the same period,equity in the business must have:

What is the purpose of return on assets as an analytical tool?

Generally Accepted Accounting Principles:

Match each of the following items with the financial statement in which each item would most likely appear. An item may appear on more than one statement.

Beginning assets were $700,000,beginning equity was $225,000,revenue for the year was $523,000,common stock issued during the year totaled $320,000,expenses for the year were $392,000,ending equity is $751,000,and ending assets are $963,000. What were the beginning liabilities for the year?

Which of the following elements are found on the income statement?

Understanding generally accepted accounting principles is not necessary when using and interpreting financial statements.

The following information is available for Skate and Boards Rental Company. $\begin{array}{|l|r|}\hline \text { Assets at December } 31,2014 & \$ 152,000 \\\hline 2014 \text { cash inflows from operating activities } & 105,000 \\\hline 2014 \text { cash outflows from financing activities } & (44,000) \\\hline 2014 \text { cash outflows from investing activities } & (84,000) \\\hline 2014 \text { expenses } & (43,000) \\\hline \text { Retained earnings at December } 31,2013 & 50,000 \\\hline \text { Liabilities at December } 31,2014 & 28,000 \\\hline \text { Common stock at December } 31,2014 & 12,000 \\\hline 2014 \text { revenues } & 135,000 \\\hline 2014 \text { dividends } & (30,000)\\\hline \end{array}$ Using the above information prepare an income statement,statement of retained earnings and statement of cash flows for the Skate and Boards Rental for 2014.Also,prepare its balance sheet as of December 31,2014.Assume that the 12/31/13 cash balance is $70,000.

Cash investments by owners in exchange for stock are listed on which of the following statements?

Apatha Company has assets of $600,000,liabilities of $250,000,and equity of $350,000.It buys office equipment on credit for $75,000.The effects of this transaction include: