College Accounting, 14e (Slater)
Chapter 1 Accounting Concepts and Procedures
1.1 Learning Objective 1-1
1) The type of business organization that can continue indefinitely is known as a:
A) corporation.
B) partnership.
C) sole proprietorship.
D) All of the above
2) The purpose of the accounting process is to provide financial information about:
A) sole proprietorships.
B) small businesses.
C) large corporations.
D) All of these answers are correct.
3) Accounting provides information to:
A) investors.
B) government.
C) managers.
D) All of these answers are correct.
4) Which of the following is a characteristic of a sole proprietorship?
A) Business owned by more than one person
B) Easy to form
C) Each stockholder acts as an owner of the company
D) Can continue indefinitely
5) A partnership is a business which:
A) is easy to form.
B) ends with the death of a partner.
C) is owned by more than one person.
D) All of these answers are correct.
6) Which is an advantage of a sole proprietorship form of business?
A) There is limited personal risk.
B) The business can continue indefinitely.
C) The owner makes all the decisions.
D) The business is legally separate from the owner.
7) Which of the following is NOT a type of business organization?
A) Corporation
B) Partnership
C) Sole proprietorship
D) An Accounting organization
8) A corporation:
A) is legally separate from its owners.
B) is owned by stockholders.
C) has limited risk to stockholders.
D) All of the above
9) The Sarbanes-Oxley Act was passed to:
A) prevent financial statement fraud at public companies.
B) replace inventory accounting procedures.
C) improve the accuracy of the company’s financial reporting.
D) Both A and C are correct.
10) A law firm would be considered a:
A) merchandise company.
B) manufacturer.
C) service company.
D) retailer.
11) Generally Accepted Accounting Principles are the procedures and guidelines that must be followed
every other year.
12) The function of accounting includes analyzing, recording, classifying, summarizing, reporting,
strategic management and environmental assessment.
13) A sole proprietorship ends with the death of the owner.
14) Put the 7 main steps of the accounting process in order (from 1 -7) below:
________ Interpreting
________ Analyzing
________ Recording
________ Classifying
________ Reporting
________ Communication
________ Summarizing
15) Discuss the advantages and disadvantages of sole proprietorships, partnerships and corporations.
16) What is the difference between Bookkeeping and Accounting?
1.2 Learning Objective 1-2
1) Which of the following will decrease Owner’s Equity?
A) A sale of merchandise
B) The purchase of an asset on credit
C) An investment by the owner
D) A withdrawal by the owner
2) The purchase of supplies for cash would affect which account category?
A) Assets
B) Liabilities
C) Capital
D) Expense
3) Items owned by the business such as land, supplies and equipment are:
A) Assets.
B) Liabilities.
C) Owner’s Equity.
D) Expenses.
4) Which of the following is NOT an Asset?
A) Cash
B) Accounts Receivable
C) Buildings
D) All of the above are Assets.
5) If total liabilities increased by $10,000 and the assets increased by $10,000 during the accounting period,
what is the change in the owner’s equity amount?
A) No effect on owner’s equity
B) Decrease of $10,000
C) Increase of $20,000
D) Decrease of $40,000
6) The claims of creditors against the Assets are:
A) Expenses.
B) Revenues.
C) Liabilities.
D) Owner’s Equity.
7) The Owner’s Equity of Logan’s Company is equal to one-half of the total Assets. Liabilities equal
$90,000. What is the amount of Owner’s Equity?
A) $45,000
B) $90,000
C) $135,000
D) None of these answers is correct.
8) Assets are equal to:
A) Liabilities + Owner’s Equity.
B) Liabilities – Owner’s Equity.
C) Liabilities – Revenues.
D) Revenues – Expenses.
9) The basic accounting equation is:
A) Assets = Revenues – Expenses.
B) Assets = Liabilities – Owner’s Equity.
C) Profit = Revenues – Expenses.
D) Assets = Liabilities + Owner’s Equity.
10) An acceptable variation of the accounting equation is:
A) Assets – Owner’s Equity = Liabilities.
B) Revenues = Profit – Expenses.
C) Assets = Liabilities – Owner’s Equity.
D) All of these answers are correct.
11) If total Liabilities are $50,000 and Owner’s Equity is $35,000, the total Assets must be:
A) $85,000.
B) $15,000.
C) $42,500.
D) $70,000.
12) If total Liabilities are $2,000 and total Assets are $16,000, Owner’s Equity must be:
A) $14,000.
B) $9,000.
C) $16,000.
D) $18,000.
13) How does the purchase of supplies on account affect the accounting equation?
A) Assets increase; Liabilities decrease
B) Assets increase; Owner’s Equity increases
C) Assets increase; Liabilities increase
D) Liabilities increase; Owner’s Equity decreases
14) Mary invested cash in her new business. What effect will this have?
A) Increase an Asset and increase a Liability
B) Decrease an Asset and increase a Liability
C) Increase an Asset and increase Owner’s Equity
D) Decrease an Asset and decrease Owner’s Equity
15) A business received $10,000 from a customer in payment of an amount owed. The effect of the
transaction on the accounting equation was to:
A) increase one Asset, decrease another Asset.
B) increase an Asset, increase a Liability.
C) decrease an Asset, decrease a Liability.
D) increase an Asset, increase Owner’s Equity.
16) Strum Hardware has total Assets of $60,000. What are the total Assets if new building is purchased for
$5,000 cash?
A) $70,000
B) $65,000
C) $55,000
D) $60,000
17) Harvest Moon Company has total Assets of $37,000. If $2,000 cash is used to purchase a new
computer, the total Assets would be:
A) $37,000.
B) $35,000.
C) $39,000.
D) $2,000.
18) Katie’s Vegetarian Restaurant, with total Assets of $121,000, borrows $27,000 from the bank. Which of
the following is a true statement upon borrowing the money?
A) Total Assets are now $148,000.
B) Total Assets are now $94,000.
C) Total Assets are now $175,000.
D) Total Assets are now $121,000.
19) Logan’s Motor Sports buys $47,000 of supplies for cash. Which of the following is a true statement?
A) Total Assets increase.
B) Total Assets are unchanged.
C) Total Assets decrease.
D) Total Liabilities are unchanged.
20) Bonnie’s Baskets purchases $3,000 worth of office equipment on open account. This causes:
A) Cash and Capital to decrease.
B) Office Equipment and Accounts Payable to increase.
C) Office Equipment to decrease and Accounts Payable to increase.
D) Accounts Payable to increase and Capital to decrease.
21) Eileen’s Corner Shoppe purchases a desk for cash. This causes:
A) Cash and Capital to increase.
B) Furniture and Cash to increase.
C) Furniture to increase and Cash to decrease.
D) Accounts Payable to increase and Capital to increase.
22) Bob purchased a new computer for the company for cash. The transaction will:
A) increase Computer; increase Capital.
B) decrease Cash; increase Accounts Payable.
C) decrease Cash; increase Computer.
D) increase Supplies; increase Accounts Payable.
23) Pat purchased $8,000 of new electronic equipment for her BJ Company on open account. The effect on
the basic accounting equation was to:
A) increase Cash $8,000 and increase Equipment $8,000.
B) increase Equipment $8,000 and increase Accounts Payable $8,000.
C) decrease Cash $8,000 and increase Accounts Payable $8,000.
D) decrease Cash $8,000 and increase Equipment $8,000.
24) The balance sheet contains:
A) Liabilities, Expenses and capital.
B) Assets, Liabilities and Revenues.
C) Expenses, Assets and cash.
D) None of the above is correct.
25) Which of the following items is NOT listed on the balance sheet?
A) Accounts Payable
B) Accounts Receivable
C) Service Revenue
D) Equipment
26) If Total Assets are $68,000 and Total Capital is $30,000, Liabilities must equal:
A) $38,000.
B) $30,000.
C) $98,000.
D) $68,000.
27) The purchase of supplies with both cash and on account was recorded as only an open account
purchase. Due to this error:
A) Assets would be understated.
B) Liabilities would be overstated.
C) Owner’s Equity would be overstated.
D) None of the above is correct.
28) A purchase of a vehicle on credit would have what effect on the accounting equation?
A) Total Assets and total Liabilities increase.
B) Total Liabilities are overstated.
C) Total Owner’s Equity is overstated.
D) Both A and B are correct.
29) The cash purchase of a truck was recorded as a credit purchase. Due to this error:
A) Assets were understated.
B) Liabilities were understated.
C) Answers A and B are both correct.
D) None of the above is correct.
30) Which of the following transactions would cause one asset to increase and another asset to decrease?
A) The owner invested cash in the business.
B) The business paid a creditor.
C) The business incurred an Expense on credit.
D) The business bought supplies for cash.
31) Which of the following transactions would cause an asset to decrease and the Owner’s Equity to
decrease?
A) The owner invested cash in the business.
B) The business incurred an Expense on credit.
C) The business bought supplies on account.
D) None of the above.
32) Which of the following would result if the owner withdrew cash from the business?
A) Cash would increase and Capital would decrease.
B) Cash would increase and Withdrawals would increase.
C) Cash would decrease and Withdrawals would increase.
D) An investment by the owner is not a business transaction.
33) Which of the following would result if the business purchased equipment for cash?
A) Supplies would increase and Cash would decrease.
B) Supplies would increase and Capital would increase.
C) Equipment would increase and Cash would decrease.
D) The purchase of supplies is not a business transaction.
34) Which of the following would result if a business purchased Equipment with a 40% down payment
and the rest on open account?
A) Equipment would increase and Cash would decrease.
B) Accounts Payable would increase.
C) Since the equipment has not been paid in full, there is nothing to record.
D) Both A and B are correct.
35) The right side of the accounting equation shows what is owed by the business.
36) Revenue is the same thing as cash.
37) The balance sheet shows the company’s financial position as of a particular date.
38) If the Liabilities owed by a business total $150,000, then the Assets must also total $150,000.
39) The left side of the accounting equation must always be greater than the right side of the equation.
40) If the Assets owned by a business total $59,000, Owner’s Equity must also total $59,000.
41) In a shift of Assets, the composition of the Assets changes but total Assets do not change.
42) If Owner’s Equity totals $73,000 and Liabilities total $40,000, then Assets owned by a business totals
$113,000.
43) To distinguish the total on a financial statement, use single underline.
44) Creditors’ claims against Assets are called Liabilities.
45) The three elements that make up a balance sheet are Assets, Liabilities and Owner’s Equity.
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46) The accounting equation states that total Assets must always equal total Liabilities plus Owner’s
Equity.
47) If Liabilities are $22,000 and Assets are $42,000, Owner’s Equity will be $20,000.
48) Record the following transactions in the basic accounting equation:
a. Brian invests $30,000 cash to begin an accounting service.
b. The company buys office furniture for cash, $900.
c. The company buys additional office furniture on account, $200.
d. The company makes a payment on the office furniture, $100.
Brian’s Accounting Service
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash + Office Furniture = Accounts Payable + Brian, Capital
a.
b.
c.
d.
Totals
49) Mike’s Photography completes the following transactions:
a. Mike invests $15,000 cash in her company.
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b. The company purchases equipment on account, $600.
c. The company purchases additional equipment for cash, $300.
d. The company makes a payment on account for the equipment, $500.
Required: Record the above transactions in the basic accounting equation.
Mike’s Photography
ASSETS = LIABILITIES + OWNER’S EQUITY
Cash + Equipment = Accounts Payable + Mike, Capital
a. =
b. =
c. =
d. =
Totals =
1.3 Learning Objective 1-3
1) The net income or net loss is calculated on the:
A) balance sheet.
B) statement of Owner‘s Equity.
C) income statement.
D) None of these
2) Owner’s withdrawals:
A) decrease Assets.
B) increase Expenses.
C) increase Assets.
D) decrease Withdrawals.
3) Go Big Red Retail Store collected $16,000 of its accounts receivable. The expanded accounting equation
changes include:
A) Cash and Capital increase $16,000.
B) Cash and Revenue increase $16,000.
C) Cash increases and Accounts Receivable decreases $16,000.
D) Accounts Receivable decreases and Capital increases $16,000.
4) If beginning capital was $170,000, ending capital is $93,000, and the owner’s withdrawals were $19,000,
the amount of net income or net loss was:
A) net income of $77,000.
B) net income of $58,000.
C) net loss of $58,000.
D) net loss of $77,000.
5) The payment of accounts payable would:
A) increase both Assets and Liabilities.
B) increase Assets and decrease Liabilities.
C) decrease both Assets and Liabilities.
D) decrease Assets and increase Liabilities.