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Exam 1: Accounting in Business

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Question 131

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The Superior Company acquired a building for $500,000. The building was appraised at a value of $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Superior to record the building on its records at $500,000?

A) Business entity assumption.
B) Revenue recognition principle.
C) Monetary unit assumption.
D) Measurement (Cost) principle.
E) Going-concern assumption.

F) All of the above
G) A) and D)

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Question 132

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Objectivity means that financial information is supported by independent, unbiased evidence; it demands more than a person's opinion.

A) True
B) False

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Question 133

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

A ________ is a business that is owned by only one person.

Owners of a corporation are called shareholders or stockholders.

A net loss occurs when revenues exceed expenses.

A balance sheet lists:

An income statement reports on investing and financing activities.

Determine the net income of a company for which the following information is available for the month of September. $\begin{array} { l r } \text { Service revenue } & \$ 300,000 \\\text { Rent expense } & 48,000 \\\text { Utilities expense } & 3,200 \\\text { Salaries expense } & 81,000\end{array}$

The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:

As a general rule, revenues should not be recognized in the accounting records when earned, but rather when cash is received.

The records of Roadmaster Auto Rentals show the following information as of December 31. The owner, Rob Fletcher withdrew $52,000 during the year for personal expenses. Prepare a December income statement, a December statement of owner's equity, and a December 30 balance sheet. $\begin{array}{|l|c|l|c|}\hline\text { Accounts payable } & \$ 36,000 & \text { Wages expense } & \$ 75,000 \\\hline \text { Insurance expense } & 2,000 & \text { Advertising expense } & 22,000 \\\hline \text { Accounts receivable } & 24,000 & \text { Cash } & 11,000 \\\hline \text { R. Fletcher, Capital, } & & & \\\hline \text { January 1 } & 150,000 & \text { Office Furniture } & 15,000 \\\hline \text { Airplanes } & 150,000 & \text { Maintenance expense } & 39,000 \\\hline \text { Notes payable } & 47,000 & \text { Revenues } & 217,000 \\\hline \text { Hangar } & 60,000 & & \\\hline\end{array}$

The accounting equation implies that: Assets + Liabilities = Equity.

The accounting concept that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

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. ____ 7. Received investment from owner. ____ 8. Paid an amount due on a long-term bank loan.

Return on assets is also known as return on investment.

Risk is the ________ about the return an investor expects to earn.

Determine the net income of a company for which the following information is available for the month of July. $\begin{array} { l r } \text { Employee salaries expense } & \$ 180,000 \\\text { Interest expense } & 10,000 \\\text { Rent expense } & 20,000 \\\text { Consulting revenue } & 400,000\end{array}$

Identify and describe the four basic financial statements:

An example of an investing activity is: