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Exam 1: Introduction to Accounting and Business

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Question 1

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The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles.

A) True
B) False

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Question 2

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The total assets and total liabilities of Paul's Pools, a proprietorship, at the beginning and at the end of the current fiscal year are as follows: $\begin{array}{lrr}&\text { January } 1 & \text { December } 31\\\text { Total assets } & \$ 280,000 & \$ 475,000 \\\text { Total liabilities } & 205,000 & 130,000\end{array}$ (a)Determine the amount of net income earned during the year. The owner did not invest any additional assets in the business during the year and made no withdrawals. (b)Determine the amount of net income during the year. The assets and liabilities at the beginning and end of the year are unchanged from the amounts presented above. However, the owner withdrew $53,000 in cash during the year (no additional investments). (c)Determine the amount of net income earned during the year. The assets and liabilities at the beginning and end of the year are unchanged from the amounts presented above. However, the owner invested an additional $35,000 in cash in the business in June of the current fiscal year (no withdrawals). (d)Determine the amount of net income earned during the year. The assets and liabilities at the beginning and end of the year are unchanged from the amounts presented above. However, the owner invested an additional $12,000 in cash in August of the current fiscal year and made 12 monthly cash withdrawals of $1,500 each during the year.

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Question 3

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Match the following characteristics with the form of business entity that best describes it. Each may be used more than once. -Owned by two or more individuals

For accounting purposes, the business entity should be considered separate from its owners if the entity is

Which of the following is a business transaction?

Match the following items to the financial statement where they can be found. (Hint: Some of the items can be found on more than one financial statement.) A. Balance sheet B. Income statement C. Statement of cash flows D. Statement of owner's equity $\begin{array}{|l|l|}\hline & \text { Item } \\\hline 1 . & \text { Withdrawals } \\\hline 2 . & \text { Revenues } \\\hline 3 . & \text { Supplies } \\\hline 4 . & \text { Land } \\\hline 5 . & \text { Accounts payable } \\\hline 6 . & \text { Accounts receivable } \\\hline 7 . & \text { Operating activities } \\\hline 8 . & \text { Wages expense } \\\hline 9 . & \text { Net income } \\\hline 10 . & \text { Cash } \\\hline\end{array}$

Match the following business types with each business listed below. Each may be used more than once. -A dressmaking company

Discuss the characteristics of a limited liability company (LLC).

How does the purchase of equipment by signing a note affect the accounting equation?

How does paying a liability in cash affect the accounting equation?

If a building is appraised for $85,000, it is offered for sale at $90,000, and the buyer pays $80,000 cash for it, the buyer would record the building at $85,000.

For each of the following, determine the amount of net income or net loss for the year. (a)Revenues for the year totaled $71,300 and expenses totaled $35,500. The owner made an additional investment of $15,000 during the year. (b)Revenues for the year totaled $220,500 and expenses totaled $175,000. The owner withdrew $40,000 during the year. (c)Revenues for the year totaled $149,000 and expenses totaled $172,000. The owner invested an additional $12,000 and withdrew $16,000 during the year. (d)Revenues for the year totaled $198,150 and expenses totaled $174,200. The owner withdrew $35,000 during the year.

Debts owed by a business are referred to as

Cash investments made by the owner to the business are reported on the statement of cash flows in the

Receiving payments on an account receivable increases both equity and assets.

Which of the following accounts is a liability?

What is the major difference between the objective of financial accounting and the objective of managerial accounting?

An account receivable is a claim against a customer resulting from a sale on account.

Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.

Cash withdrawals by owners decrease assets and increase equity.