Chapter 1: Accounting as a Form of Communication
91. All assets are tangible in nature.
a. True
b. False
92. A liability is a future economic benefit to a business.
a. True
b. False
93. An expense is an inflow of assets resulting from the sale of goods and services.
a. True
b. False
94. Capital stock indicates the owners’ contributions to a partnership.
a. True
b. False
95. Financial accounting is the branch of accounting concerned with communication with internal management.
a. True
b. False
96. External users of accounting information include present and potential stockholders, bankers and other creditors,
and management.
a. True
b. False
97. Bondholders are internal users of company’s accounting information.
a. True
b. False
98. The income statement is sometimes called the statement of financial position.
a. True
b. False
Chapter 1: Accounting as a Form of Communication
99. The balance sheet is a statement that summarizes revenues and expenses for a period.
a. True
b. False
100. Assets may be used to satisfy business obligations and to carry on business operations.
a. True
b. False
101. The amount of earnings distributed to stockholders can be found in the income statement.
a. True
b. False
102. Profits from operating activities distributed to business owners are called dividends.
a. True
b. False
103. An entity‘s assets come from three primary sources: creditors, investors, and profits retained in the business.
a. True
b. False
104. The balance sheet is linked to the retained earnings statement by the ending retained earnings balance.
a. True
b. False
105. A balance sheet provides information at one specific point in time, while the other basic financial statements
provide information on activities that occur over a period of time.
a. True
b. False
106. When an entity’s revenues exceed its expenses for a period of time, the entity will report a net loss.
a. True
b. False
Chapter 1: Accounting as a Form of Communication
107. Owners‘ equity is the residual interest that remains after deducting liabilities from stockholders’ equity.
a. True
b. False
108. If a company prepares a statement of retained earnings, net income plus dividends are added to beginning retained
earnings on this statement.
a. True
b. False
109. Stockholders’ equity is owners’ equity in a corporation.
a. True
b. False
110. The time period assumption assumes a company prepares financial statements every month.
a. True
b. False
111. GAAP stands for Generally Accepted Auditing Procedures.
a. True
b. False
112. Because market values are subjective, many assets are carried on the balance sheet at their acquisition cost.
a. True
b. False
113. The term used to refer to an asset’s original cost is “historical cost.”
a. True
b. False
114. The going concern assumption infers that a company will continue to operate indefinitely.
a. True
b. False
Chapter 1: Accounting as a Form of Communication
115. A company in the process of liquidation meets the requirements under the going concern assumption.
a. True
b. False
116. The International Accounting Standards Board (IASB) was created in order to develop worldwide accounting
standards that must be used for all financial statements prepared regardless of country.
a. True
b. False
117. The primary objective of external auditors is to provide assurance to stockholders and other users that the
statements are fairly presented.
a. True
b. False
118. The independent auditor’s report conveys whether or not the business is a good investment.
a. True
b. False
119. The IASB is a branch of the FASB.
a. True
b. False
120. Information must be timely to be relevant.
a. True
b. False
121. According to the accounting profession, the purpose of financial reporting is to provide information about a
company that investors, lenders, and other creditors can use when deciding whether to provide resources to the
entity.
a. True
b. False
122. consists of all activities necessary to provide the members of an economic system
with goods and services.
Chapter 1: Accounting as a Form of Communication
123. A is a certificate that represents a corporation’s promise to repay a certain amount of money and
interest in the future.
124. is the type of accounting used by nonbusiness entities.
125. Owners of corporations are called ____________________.
126. The three types of business activities in which all corporations engage are ,
______________________, and _____________________.
127. The process of identifying, measuring, and communicating economic information to various users is called
____________________.
128. The names of the four financial statements are ________________________________,
________________________________, ________________________________, and
________________________________.
129. Another name for profits or earnings of a business is .
130. The various methods, rules, practices, and other procedures that have evolved over time in response to the need to
regulate the preparation of financial statements are called
__________________________________________________.
131. The concept that assumes that assets are recorded at the amount to acquire them is called the
_________________________.
132. The concept that assumes that an entity is not in the process of liquidation is .
133. The federal government agency with the ultimate authority to determine the rules in preparing statements for
companies whose stock is sold to the public is the
__________________________________________________.
Chapter 1: Accounting as a Form of Communication
134. The private sector group with authority to set accounting standards is the
__________________________________________________.
135. means the presentation of information is free from bias toward a particular result.
136. In 2002, Congress passed the Act to bring reform to corporate accountability and
stewardship in the wake of a number of major corporate scandals.
137. Good quality information should be both and present a .
138. Choose the user group that is most likely to have the need listed below. (Select all that apply.)
The ability of the company to pay its debts as they become due.
a. Stockholder
b. Company management
c. Supplier
d. Banker
e. Internal Revenue Service
f. Securities and Exchange Commission
g. Labor union
Chapter 1: Accounting as a Form of Communication
139. South Corporation has been in the business of delivering small packages for local companies within the city of
Atlanta, Georgia, since 1960. The following information concerning financial activities during 2015 is available at
December 31, 2015:
Delivery revenue
$280,000
Salary and wage expense
$82,000
Dividends declared and paid
85,000
Rent expense
43,000
Buildings
140,000
Land
60,000
Accounts payable
30,000
Accounts payable
30,000
Capital stock
105,000
Retained earnings, January 1, 2015
42,000
Water, gas, and electricity
28,000
Notes payable
34,000
Cash
56,000
Income tax expense
18,000
A. Prepare an income statement for the year ended December 31, 2015.
B. If you were a bank loan officer and South Corporation wanted to borrow
$100,000 from your bank, would you lend the money? Explain.
C. Calculate retained earnings at December 31, 2015.
Chapter 1: Accounting as a Form of Communication
140. Meredith Corporation is in the business of providing dog and cat grooming services to customers within the city of
New York. The following information concerning financial activities during 2014 is available at December 31,
2014:
Grooming revenue
$130,000
Salary and wage expense
$44,000
Dividends declared and paid
13,000
Rent expense
24,000
Equipment
40,000
Furniture
60,000
Accounts payable
30,000
Accounts receivable
23,000
Capital stock
22,000
Retained earnings, Jan. 1, 2014
21,000
Utilities expense
10,000
Notes payable
88,000
Cash
33,000
Income tax expense
7,000
A. Calculate net income for 2014
B. Prepare a statement of retained earnings for the year ended December 31, 2014.
C. What information can you derive from the statement of retained earning concerning this company? Explain.
Chapter 1: Accounting as a Form of Communication
141. Here is a list of accounts and their balances that appear on the Thomas Company’s income statement and balance
sheet.
Accounts payable
$ 800
Accounts receivable
500
Building
2,000
Cash
3,300
Gas, utilities, and other expenses
300
Land
4,000
Lawn-care revenue
1,500
Notes payable
6,000
Salaries and wages expense
900
Tools
800
Tree-trimming revenue
500
Truck
2,000
REQUIRED:
Identify which of these are:
(a) Assets
(b) Liabilities
(c) Expenses
(d) Revenues
Chapter 1: Accounting as a Form of Communication
142. Read the information for Taryn Corporation. Determine the following amounts for Taryn Corp.
A) Total assets at the end of 2014
B) Total liabilities at the end of 2014 _________________________
C) What parties have a claim on Taryn Corporation’s assets? Explain you answer in the terms of the
accounting equation.
143. Read the information for Taryn Corporation. Determine the following amounts for Taryn Corporation.
A) The balance of retained earnings at the end of 2014.
B) The total stockholders’ equity at the end of 2014. ______________________
C) Name the two events that might cause stockholders’ equity to increase.
Chapter 1: Accounting as a Form of Communication
144. Read the information for Taryn Corporation. Prepare an income statement for Taryn Corporation in good form.
145. Read the information for Taryn Corporation. Prepare a balance sheet for Taryn Corporation in good form.
Chapter 1: Accounting as a Form of Communication
146. Read the information for Taryn Corporation. Determine the following amounts for Taryn Corporation:
A)
Total revenues for 2014.
B)
Total expenses for 2014.
C)
What is the purpose of the income statement?
D)
Is Taryn Corp. profitable? Explain your answer.
E)
Is this the first year of operations for Taryn Corp.? Explain your answer.
Chapter 1: Accounting as a Form of Communication
Canyon Corporation
The accountant for the Canyon Corporation prepared the following list from the company’s accounting records for
the year ended December 31, 2014:
Retained earnings
?
Prepaid expenses
$ 3,000
Cash
$ 7,000
Common stock
40,000
Accounts payable
15,000
Accounts receivable
17,000
Sales revenue
125,000
Interest income
500
Cost of sales
70,000
Salary expense
4,000
Land
75,000
Income tax expense
200
Notes payable
15,000
Selling expense
45,000
Inventory
20,000
Salaries payable
5,000
147. Read the information for Canyon Corporation. Determine the following amounts for Canyon Corporation.
A) Total assets at the end of 2014.
B) Total liabilities at the end of 2014.
C) Total equity at the end of 2014.
148. Read the information for Canyon Corporation. Determine the following amounts for Canyon Corporation:
A) Total revenues for 2014.
B) Total expenses for 2014.
C) Net income for 2014.
Chapter 1: Accounting as a Form of Communication
149. Read the information for Canyon Corporation. Determine the following amounts for Canyon Corporation:
A) Stockholders’ equity at the end of 2014.
B) Retained earnings at the end of 2014. _______________________
C) Name two events that might cause stockholders’ equity to decrease.
150. Read the information for Canyon Corporation. Using good form, prepare an income statement for Canyon
Corporation.
151. Read the information for Canyon Corporation. Using good form, prepare a Balance Sheet for the Canyon
Corporation.
Chapter 1: Accounting as a Form of Communication
152. Assume that you have received copies of the financial statements for PepsiCo for the years ending December 31,
2014 and 2013. Answer the following questions:
A) If you were a banker, why would you need information from PepsiCo’s financial statements?
B) If you were a potential investor in PepsiCo stock, what information would you want from their financial
statements?
C) If you were a labor negotiator for a union that represents a group of PepsiCo’s employees, which financial
statement would provide you with the most useful information?
153. Target, Inc., started the year with total assets of $400,000 and total liabilities of $240,000. Net income for the year
is $120,000 and dividends declared and paid during the year are $90,000.
A) What is the amount of Target’s total stockholders’ equity at the end of the year?
B) Could Target have paid additional dividends during the year? Explain your answer.
Chapter 1: Accounting as a Form of Communication
154. Ramos Corp. started business at the beginning of the year, with assets of $600,000 and stockholders’ equity of
$240,000. By the end of the year, assets increased by $80,000 and liabilities increased by $60,000. Other than net
income or loss, the only change in stockholders‘ equity was dividends declared and paid of $55,000.
A) What was the amount of Ramos Corp. stockholders’ equity at the end of the year?
B) What was the amount of Ramos Corp. net income or net loss for the year?
Change in equity
Add: Dividends
Net Income
155. Presented below are selected data from the balance sheet of Farmer Company for 2014. The figures are
expressed in millions.
Total current assets
$ 5,572
Property, plant, and equipment
16,325
Other assets
?
Total current liabilities
3,274
Total long-term debt
5,632
Total stockholders’ equity
19,639
A) Determine the amount of “Other assets” for Farmer’s 2014 balance sheet. (HINT: you must use the
accounting equation concept to determine your answer.)
B) How much of Farmer Company is financed by creditors? How much is financed by the owners?
$6,648
$6,648)
Amount of financing by creditors: $8,906 or 31.2%
($3,274 Current liabilities + $5,632 Long-term debt = $8,906)
Amount of financing by owners: $19,639 or 68.8%
Chapter 1: Accounting as a Form of Communication
156. Presented below are selected data from the accounting records for Micco’s Gift Store for 2014.
Net sales
$ 190,000
Income taxes
30,000
Cost of sales
80,000
Operating expenses
45,000
Dividends
12,000
A) Calculate the net income or loss for 2014.
B) Explain how the amount from part “A” will affect the financial position of Micco’s Gift Store.
C) Is the company profitable? Explain your answer.
157. The following information comes from the records of Morton Corporation. Assume no additional investment by
owners when answering the following questions:
Assets
Liabilities
Owners’ Equity
January 1, 2014
$ 98,000
$ 54,000
$
December 31, 2014
131,000
84,000
A) What is the amount of owners’ equity at January 1, 2014? __________________
B) What is the amount of liabilities at December 31, 2014? __________________
C) Assume that the company declared and paid dividends of $22,000 during the year. How much net
income did it earn during the year?
D) Assume that the company paid no dividends during the year. Without looking at the income statement,
how can you tell if the company is profitable or not?
Chapter 1: Accounting as a Form of Communication
158. Carroll Corporation began the year with total assets of $800,000 and total liabilities of $620,000. Use the
accounting equation to answer the following questions. Assume no additional investment by owners when
answering these questions.
A) What was the amount of Carroll’s total assets at the end of the year if liabilities decreased by $60,000 and
owners’ equity increased by $90,000?
B) Was the company profitable? Explain your answer.
159. The beginning balance of retained earnings was $630,000, and the ending balance was $650,000. The company
declared and paid dividends of $60,000.
A) Determine the amount of net income for the year.
B) What information would one find on the income statement in addition to net income?
Chapter 1: Accounting as a Form of Communication
160. The Space Corporation began 2015 with $390,000 in assets, $140,000 in liabilities, and $170,000 of retained
earnings the year was $120,000, and dividends of $110,000 were declared and paid.
A) Prepare a statement of retained earnings for 2015.
B) What is the nature or purpose of the statement of retained earnings?
C) What was the amount of capital stock for Space Corporation at the beginning of 2015?
D) Identify what business events might occur in Space Corp.’s business operations that would cause the two
stockholders’ equity items to increase.
E) How do you identify whether Space was profitable during 2015 by examining the statement of retained
earnings?
Chapter 1: Accounting as a Form of Communication
161. Below are several accounts from Costello Company’s accounting records. Answer the questions that follow.
Total liabilities, end of the year
$92,000
Total assets, end of the year
$143,000
Capital stock, end of the year
16,000
Retained earnings, beginning of the year
15,000
Dividends declared and paid for the period
20,000
Net income
40,000
A) How much is the balance of retained earnings at the end of the year?
B) Show the accounting equation for Costello Company at the end of the year with the respective dollar
amounts.
C) If stockholders’ equity increases during the year, does that mean that the company is profitable? Explain
your answer.