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172. Della’s Donuts had cash inflows from operating activities of $27,000; cash outflows from
investing activities of $22,000, and cash outflows from financing activities of $12,000.
Calculate the net increase or decrease in cash.
A. $61,000 increase.
B. $37,000 increase.
C. $7,000 decrease.
D. $7,000 increase.
E. $34,000 decrease.
173. Della’s Donuts owner made investments of $50,000 and withdrawals of $20,000. The
company has revenues of $83,000 and expenses of $64,000. Calculate its net income.
A. $30,000.
B. $83,000.
C. $64,000.
D. $19,000.
E. $49,000.
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174. Cool Tours had beginning equity of $72,000; revenues of $90,000, expenses of $65,000,
and withdrawals by owners of $9,000. Calculate the ending equity.
A. $88,000.
B. $25,000.
C. $97,000.
D. $38,000.
E. $47,000.
175. A company’s balance sheet shows: cash $24,000, accounts receivable $30,000,
equipment $50,000, and equity $72,000. What is the amount of liabilities?
A. $104,000.
B. $76,000.
C. $32,000.
D. $68,000.
E. $176,000.
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176. Match the following terms with the appropriate definition.
a. Investing activities
b. Ethics
c. Recordkeeping
d. Internal users
e. Accounting
f. Financing activities
g. Social responsibility
h. Operating activities
i. External users
____ 1. An information and measurement system that identifies, records and communicates
relevant reliable and comparable information about an organization’s business activities.
____ 2. The part of accounting that involves recording transactions and events, either
electronically or manually.
____ 3. Persons using accounting information who are not directly involved in the running of
the organization.
____ 4. Persons using accounting information who are directly involved in managing the
organization.
____ 5. The use of resources to research, develop, purchase, produce, distribute, and market
products and services.
____ 6. The acquisition and disposing of resources that an organization uses to acquire and
sell products and services.
____ 7. Provide the means organizations use to pay for resources such as land, buildings, and
equipment to carry out plans.
____ 8. Beliefs that distinguish right from wrong.
____ 9. Concern for the impact of actions on society.
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177. Match each of the following terms with the most appropriate definition.
a. Return on assets
b. Financial accounting
c. Expenses
d. Risk
e. Liabilities
f. Planning
g. Net income
h. Managerial accounting
____ 1. The uncertainty about the expected return to be earned.
____ 2. Area of accounting aimed at serving the decision making needs of internal users.
____ 3. A financial ratio useful in evaluating management, analyzing and forecasting profits,
and planning activities.
____ 4. Creditor’s claims on a company’s assets.
____ 5. Costs of assets or services used to earn revenues.
____ 6. Defining the idea, goals, and actions of an organization.
____ 7. Area of accounting aimed at serving external users.
____ 8. The excess of revenue over expenses.
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178. The following is a list of selected users of accounting information. Match the appropriate
user to the following information needs.
a. Suppliers
b. Lenders
c. Shareholders
d. Production Managers
e. Employees
____ 1. Monitor costs and ensure quality.
____ 2. Judge the soundness of a customer before making sales on credit.
____ 3. Assessing employment opportunities.
____ 4. Measuring risk and return of loans.
____ 5. Assessing the risk and return of acquiring shares.
179. Match the following definitions with terms 1 through 8. Place the letter that identifies
the best definition in the blank space next to the term.
____ 1. Assets
____ 2. Going-concern principle
____ 3. Statement of owner’s equity.
____ 4. Net assets
____ 5. Objectivity principle
____ 6. Cost principle
____ 7. Owner withdrawal
____ 8. Revenues
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a. The accounting principle that requires assets and services to be recorded initially at the cash
or cash-equivalent amount given in exchange.
b. A principle that requires the information in financial statements to be supported by
independent unbiased evidence.
c. Gross increase in equity from a company’s earnings activities.
d. A principle that requires financial statements to reflect the assumption that the business will
continue operating instead of being closed or sold.
e. Resources owned or controlled by a company that are expected to yield future benefits.
f. A financial statement that reports the changes in equity over the reporting period; including
increases such as owner investment and net income and for decreases such as owner
withdrawals or net loss.
g. Assets an owner takes from the company for personal use.
h. Another term for equity.
180. Match the following definitions with the terms 1 through 9. Place the letter that identifies
the best definition in the blank space next to the term.
____ 1. Statement of cash flows
____ 2. Business transaction
____ 3. Monetary unit principle
____ 4. Business entity principle
____ 5. Revenue recognition principle
____ 6. Accounting equation
____ 7. Statement of owner’s equity
____ 8. Expenses
____ 9. Liabilities
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a. The relation between a company’s assets, liabilities, and equity.
b. An exchange of value between two parties.
c. The principle that assumes transactions and events can be expressed in money units.
d. A financial statement that reports the changes in equity over the reporting period; adjusted
for increases such as owner investment and net income and for decreases such as owner
withdrawals or net loss.
e. A financial statement that lists cash inflows (receipts) and cash outflows (payments); the
cash flows are arranged by operating, investing, and financing activities.
f. Creditor’s claims on assets.
g. The cost of assets or services used to earn revenue.
h. The principle that requires a business to be accounted for separately from its owners.
i. The principle that revenue is recognized when earned.
181. Identify each of the following business activities 1 through 6 into the appropriate
category a, b, and c.
a. Operating
b. Investing
c. Financing
____ 1. Paid utilities expenses.
____ 2. Withdrawal of funds by owners.
____ 3. Purchase of land.
____ 4. Sale of used equipment.
____ 5. Borrowed money from a bank on a long-term note.
____ 6. Paid employee wages.
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182. Match each of the following items 1 through 8 with the financial statement a through d in
which each item would most likely appear. An item may appear on more than one statement.
a. Income statement
b. Statement of owner’s equity
c. Balance sheet
d. Statement of cash flows
_____1. Assets.
_____2. Withdrawals.
_____3. Revenues.
_____4. Cash from investing activities.
_____5. Expenses.
_____6. Liabilities.
_____7. Cash from operating activities.
_____8. Total equity.
183. Classify the following activities according to the appropriate section of the statement of
cash flows.
a. Operating activity
b. Investing activity
c. Financing activity
____ 1. Cash received from a one-time sale of used office equipment.
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____ 2. Cash paid for withdrawals by owners.
____ 3. Cash received from customers.
____ 4. Cash received from owner contributions.
____ 5. Cash paid for utilities.
____ 6. Cash paid for a delivery van to be used in the business.
184. Explain the role of accounting in the information age.
185. What is the balance sheet? What is its purpose?
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186. Identify the users and uses of accounting information.
187. Identify several opportunities in accounting and its related fields.
188. Explain why ethics are an integral part of accounting.
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189. Describe the three important guidelines for revenue recognition.
190. Identify the three basic forms of business organizations.
191. How does the objectivity principle support ethical behavior?
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192. Identify the two main groups involved in establishing generally accepted accounting
principles.
193. How does the going-concern principle affect reporting asset values of a business?
194. Describe the relation between revenues, expenses, and net income.
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195. Explain the accounting equation and define its terms.
196. What distinguishes liabilities from equity?
197. What is the purpose of return on assets as an analytical tool?
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198. Discuss the relation between risk and return.
199. Describe the three types of activities reported on the statement of cash flows.
200. Identify and describe the four basic financial statements:
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Problems
201. The characteristics below apply to at least one of the forms of business organization.
a. Is a separate legal entity.
b. Is allowed to be owned by one person only.
c. Owner or owners are personally liable for debts of the business.
d. Is a taxable entity.
e. Is a business entity.
f. May have a contract specifying the division of profits among the owners.
g. Has an unlimited life
Use the following format to indicate (with a “yes” or “no”) whether or not a characteristic
applies to each type of business organization.
Proprietorship
Partnership
Corporation
a.
b.
c.
d.
e.
f.
g.
a.
b.
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202. 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?
203. You are reviewing the accounting records of Cathy’s Antiques, owned by Cathy Miller.
You have uncovered the following situations. Compose a memo to Ms. Miller. Cite the
appropriate accounting principle and suggest an action for each separate item.
1. In August, a check for $500 was written to Wee Day Care Center. This amount represents
child care for her son Brandon.
2. Cathy plans a Going Out of Business Sale for May, since she will be closing her business
for a month-long vacation in June. She plans to reopen July 1 and will continue operating
Cathy’s Antiques indefinitely.
3. Cathy received a shipment of pine furniture from Quebec, Canada. The invoice was stated
in Canadian dollars.
4. Joseph Clark paid $1,500 for a dining table. The amount was recorded as revenue. The
table will be delivered to Mr. Clark in six weeks.
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204. 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.
205. The accounts of Garfield Company with the increases or decreases
that occurred during the past year are as follows:
Account Increase Decrease
Cash ………………………………. $25,000
Accounts receivable ………… $(5,000)
Accounts payable ……………. (11,000)
Notes payable…………………. 16,000
Except for net income, an investment of $3,000 by the owner, and a withdrawal of $11,000 by
the owner, no other items affected the owner’s capital account. Using the balance sheet
equation, compute net income for the past year.
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206. Annie’s Attic has the following account balances for the dates given:
September 1 September 30
Cash …………………………………………………. $40,000 60,000
Accounts Receivable…………………………... 40,000 38,000
Accounts payable ……………………………….. 6,000 ?
Also, its net income, for September 1 through September 30 was $20,000 and there were no
investments or withdrawals by the owner. Determine the equity at both September 1 and
September 30.
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207. If the liabilities of a company increased $92,000 during a period of time and equity in the
business decreased $30,000 during the same period, did the assets of the company increase or
decrease? By what amount?
208. Hal Burton began a Web Consulting practice and completed these transactions during
September of the current year:
Sept.
1
Invested $100,000 of his personal savings into a checking
account opened in the name of the business.
2
Rented office space and paid $1,200 cash for the month of
September.
3
Purchased office equipment for $30,000, paying $8,000 cash
and agreeing to pay the balance in one year.
4
Purchased office supplies for $750 cash.
8
Completed work for a client and immediately collected
$2,700 cash for the services.
15
Completed $3,600 services for a client on credit.
20
Received $3,600 from a client for the work completed on
September 15.
30
Paid the office secretary’s monthly salary, $3,000 cash.
30
Burton withdrew $2,000 for personal use.
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Show the effects of the above transactions on the accounting equation of Halley Burton,
Consultant. Use the following format for your answers. The first item is shown as an example.
Increase = I Decrease = D No effect = N
Date
Assets
Liabilities
Equity
Example:
September 1
I
N
I