Question 1

Financial statements are business documents that are used to communicate information needed to make business decisions.

Accepted Answer

Financial statements provide important information about a company's financial performance and position, and are used by investors, creditors, and other stakeholders to make informed decisions.

Question 2

________ represent the right to receive cash in the future from customers for goods sold or for services performed.

Accepted Answer

Accounts receivable represents the amount of money that a business expects to receive from its customers who have bought goods or services on credit. It is considered as an asset on the balance sheet because it represents the right to receive cash in the future. Accounts payable, on the other hand, represent the obligation to pay cash in the future for goods or services received. Equity represents ownership in the business, while expenses represent the costs incurred by the business in generating revenue.

Question 3

The total assets and the total liabilities of Smart Financial Services are shown below.The company issued no common stock and paid no dividends during the year. $$\begin{array} { | l | r | r | } 
\hline & \text { Assets } & \text { Liabilities } \
\hline \text { Beginning of year } & \$ 425,000 & \$ 280,000 \
\hline \text { End of year } & 500,000 & 325,000 \
\hline
\end{array}$$ What was the amount of net income for the year?

Accepted Answer

Net income can be calculated as Total Assets - Total Liabilities = $300,000 - $270,000 = $30,000. Since the company did not issue any common stock or pay any dividends, the net income for the year is equal to the increase in equity. Therefore, the answer is (C) $30,000.

Question 4

Following is a list of account balances of Wilson Mowing Services as of December 31 of the first year of operation:
 $$\begin{array} { | l | r | } 
\hline \text { Accounts receivable } & \$ 5,000 \
\hline \text { Accounts payable } & 4,000 \
\hline \text { Salary expense } & 5,000 \
\hline \text { Repairs expense } & 1,000 \
\hline \text { Truck } & 10,000 \
\hline \text { Equipment } & 8,000 \
\hline \text { Notes payable } & 8,200 \
\hline \text { Cash } & 7,500 \
\hline \text { Supplies expense } & 1,600 \
\hline \text { Service revenue } & 32,000 \
\hline \text { Gasoline expense } & 3,800 \
\hline \text { Salary payable } & 200 \
\hline
\end{array}$$ What is the amount of total liabilities at the end of the year?

Accepted Answer

Total liabilities = Accounts payable + Notes payable = $4,000 + $8,200 = $12,200

Question 5

The income statement is also called the statement of financial position.

Accepted Answer

The income statement is also known as the profit and loss statement. The statement of financial position refers to the balance sheet.

Question 6

Financial statements are prepared after an entity's transactions are analyzed and recorded.Which of the following reports is one of the required financial statements?

Accepted Answer

The statement of cash flows is one of the three required financial statements, along with the balance sheet and income statement. It reports the cash inflows and outflows during a particular period, categorizing them as operating, investing, or financing activities. The other options (B, C, and D) are not required financial statements, although a statement of return on assets may be included as a performance measure in some cases.

Question 7

Star Homes Corporation just recorded a transaction in its books of accounts.If this transaction increased the total liabilities by $7,000,then ________.

Accepted Answer

The increase in liabilities should be balanced by either an increase in assets or a decrease in equity. Therefore, option A is the correct answer as it suggests that assets must increase, or equity must decrease, by $7,000. Option B is incorrect as it suggests that either assets or equity must decrease, which is not necessarily true. Option C is incorrect as both assets and equity do not necessarily have to each decrease by the same amount. Option D is incorrect as it suggests that assets must decrease, which is not necessarily true.

Question 8

Following is an extract of account balances of Wilson Mowing Services as of December 31 of the first year of operation: $$\begin{array} { | l | r | } 
\hline \text { Accounts receivable } & \$ 5,000 \
\hline \text { Accounts payable } & 4,000 \
\hline \text { Salary expense } & 5,000 \
\hline \text { Repairs expense } & 1,000 \
\hline \text { Truck } & 10,000 \
\hline \text { Equipment } & 8,000 \
\hline \text { Notes payable } & 8,200 \
\hline \text { Cash } & 7,500 \
\hline \text { Supplies expense } & 1,600 \
\hline \text { Service revenue } & 32,000 \
\hline \text { Gasoline expense } & 3,800 \
\hline \text { Salary payable } & 200 \
\hline
\end{array}$$ What is the amount of total assets at the end of the year?

Accepted Answer

Total assets are calculated by adding Accounts Receivable ($5,000), Truck ($10,000), Equipment ($8,000), and Cash ($7,500), which equals $30,500.

Question 9

The net income of Edwards Corporation amounted to $74,000 for this year.The beginning balance of stockholders' equity was $32,000 and the ending balance was $75,000.The company issued no common stock during the year.What was the amount of dividends distributed during the year?

Accepted Answer

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Question 10

Reliable Waterworks Corporation provides plumbing services.Transactions of Reliable Waterworks during the first year of operations are given below: 
A. Received $14,000 cash and issued stock to Sharon,stockholder.
B.Paid $2,000 cash for equipment to be used for plumbing repairs.
C.Borrowed $15,000 from a local bank and deposited the money in the checking account.
D.Paid $600 rent for the year.
E.Purchased $900 of office supplies by cash.
F.Completed a plumbing repair project for a local lawyer and received $3,500 cash.
Calculate the amount of total liabilities at the end of the first year.

Accepted Answer

Total liabilities at the end of the first year is $15,000. This is because the company borrowed $15,000 from a local bank and deposited the money in the checking account.

Question 11

Which of the following can be an effect of a transaction that increased an asset of a corporation for the accounting equation to balance?

Accepted Answer

According to the accounting equation, Assets = Liabilities + Equity. If an asset is increased, the equation must balance by either increasing liabilities or equity, or decreasing another asset. Since none of the other options increase liabilities or decrease equity, the only possible effect is a decrease in another asset to maintain the balance of the equation.

Question 12

The balance of stockholders' equity at the beginning of the year and the end of the year was $50,000 and $67,000,respectively.The company issued no common stock during the year.Dividends were $23,000.What was the net income or loss for the year?

Accepted Answer

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Question 13

Accord Corporation collected $5,000 from its customer,who owed it since the previous month.How does this affect the accounting equation of the business?

Accepted Answer

The answer of Accord Corporation collected $5,000 from its customer,who...

Question 14

The heading of a balance sheet will show the date as a specific date,not a period of time.

Accepted Answer

The heading of a balance sheet shows a specific date, not a period of time, as it represents the financial position of the company on a particular day.

Question 15

Following is a list of account balances of Wilson Mowing Services as of December 31 of the first year of operation:
 $$\begin{array} { | l | r | } 
\hline \text { Accounts receivable } & \$ 2,500 \
\hline \text { Accounts payable } & 3,500 \
\hline \text { Salary expense } & 4,500 \
\hline \text { Repairs expense } & 800 \
\hline \text { Truck } & 8,500 \
\hline \text { Equipment } & 6,300 \
\hline \text { Notes payable } & 8,200 \
\hline \text { Cash } & 6,800 \
\hline \text { Supplies expense } & 1,600 \
\hline \text { Service revenue } & 31,900 \
\hline \text { Gasoline expense } & 3,800 \
\hline \text { Salary payable } & 200 \
\hline
\end{array}$$ Calculate the net income.

Accepted Answer

Net income is calculated by subtracting total expenses from total revenue. Total expenses are $4,500 + $800 + $1,600 + $3,800 = $10,700. Total revenue is $31,900. Therefore, net income is $31,900 - $10,700 = $21,200.

Question 16

Accord Corporation purchased land for $100,000 by a cash payment of $20,000 and promised to pay the remaining amount at a later period.What is the net effect of this transaction on the business's accounting equation?

Accepted Answer

The land purchase increases assets by $100,000 (land) and decreases assets by $20,000 (cash), resulting in a net asset increase of $80,000. The remaining $80,000 is a liability, as it is a promise to pay later.

Question 17

Accord Corporation had originally purchased land for $20,000.It later sold it for $20,000 in cash.Which of the following is true of the effect of the sale on the accounting equation?

Accepted Answer

The sale does not result in any change in the accounting equation, as the asset (land) is simply exchanged for cash. The total assets remain the same, but the composition of assets changes. The transaction may result in a gain or loss, but it does not affect the total value of the assets or the equity.

Question 18

By looking at a statement of retained earnings,the effect of dividends on the ending balance in retained earnings can be determined.

Accepted Answer

The statement of retained earnings shows the beginning balance, net income or loss, any adjustments or allocations, and the dividends paid during the period, which ultimately leads to the ending balance in retained earnings. Therefore, by analyzing the statement of retained earnings, the effect of dividends on the ending balance in retained earnings can be determined.

Question 19

The balance sheet of a business summarizes an entity's revenues and expenses.

Accepted Answer

The balance sheet of a business summarizes the entity's assets, liabilities, and equity. It does not include revenues and expenses, which are summarized in the income statement.

Question 20

Bliss Corporation settles a liability by making a payment in cash.How does paying this liability affect the accounting equation of the business?

Accepted Answer

The answer of Bliss Corporation settles a liability by making...

Quiz 1: Accounting and the Business Environment