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Exam 1: Introduction to Accounting and Business

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Question 71

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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 72

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Expenses are assets that are used up during the process of earning revenue.

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B) False

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Question 73

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The main objective of a not-for-profit business is to make a profit.

About 90% of the businesses in the United States are organized as corporations.

Which of the following is not a business transaction?

Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The statement of owner's equity (OE) , the balance sheet (B) , and the income statement (I) are prepared in a certain order to obtain information needed for the next statement. In what order are these three statements prepared?

Company G has a ratio of liabilities to stockholders' equity of 0.12 and 0.28 for 2010 and 2011, respectively. In contrast, Company M has a ratio of liabilities to stockholders' equity of 1.13 and 1.29 for the same period. REQUIRED: Based on this information, which company's creditors are more at risk and why? Should the creditors of either company fear the risk of nonpayment?

A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to

The assets and liabilities of S&P Day Spa at December 31, 2014 and expenses for the year are listed below. The capital of the owner was $68,000 at January 1, 2014. The owner invested an additional $10,000 during the year. Net income for 2014 is $45,625. $\begin{array}{|l|l|l|l|}\hline \text { Accounts Payable } & \$ 4,375 & \text { Spa Operating Expense } & \$ 23,760 \\\hline \text { Accounts Receivable } & \$ 8,490 & \text { Office Expense } & \$ 2,470 \\\hline \text { Cash } & \$ 13,980 & \text { Spa Supplies } & \$ 9,230 \\\hline \text { Fees Earned } & ? ? & \text { Wages Expense } & \$ 26,580 \\\hline \text { Spa Furniture \& Equipment } & \$ 56,000 & \text { Drawing } & \$ 38,170 \\\hline \text { Computers } & \$ 2,130 & & \\\hline & & & \\\hline\end{array}$ Prepare an income statement for the current year ended December 31, 2014.

Generally accepted accounting principles regulate how and what financial information is reported by businesses.

Assets are

If total assets decreased by $30,000 during a specific period and owner's equity decreased by $35,000 during the same period, the period's change in total liabilities was an $65,000 increase.

The year-end balance of the owner's capital account appears in

The accountant for Franklin Company prepared the following list of account balances from the company's records for the year ended December 31, 2011: $\begin{array}{llll}\text { Fees Earned } & \$ 165,000 & \text { Cash } & \$ 30,000 \\\text { Accounts Receivable } & 14,000 & \text { Selling Expenses } & 44,000 \\\text { Equipment } & 64,000 & \text { Franklin, Capital } & 27,000 \\\text { Accounts Payable } & 12,000 & \text { Interest Income } & 3,000 \\\text { Salaries \& Wages Expense } & 40,000 & \text { PrepaidRent } & 2,000 \\\text { Income Taxes Payable } & 5,000 & \text { Income Taxes Expense } & 18,000 \\\text { Notes Payable } & 20,000 & \text { Rent Expense }&20,000\end{array}$ Based on this information, is Franklin Company profitable? Explain your answer.

Some of the major fraudulent acts by senior executives started as what they considered to be small ethical lapses which grew out of control.

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

The accountant for Franklin Company prepared the following list of account balances from the company's records for the year ended December 31, 2011: $\begin{array}{llll}\text { Fees Earned } & \$ 165,000 & \text { Cash } & \$ 30,000 \\\text { Accounts Receivable } & 14,000 & \text { Selling Expenses } & 44,000 \\\text { Equipment } & 64,000 & \text { Franklin, Capital } & 27,000 \\\text { Accounts Payable } & 12,000 & \text { Interest Income } & 3,000 \\\text { Salaries \& Wages Expense } & 40,000 & \text { PrepaidRent } & 2,000 \\\text { Income Taxes Payable } & 5,000 & \text { Income Taxes Expense } & 18,000 \\\text { Notes Payable } & 20,000 & \text { Rent Expense }&20,000\end{array}$ Determine the total assets at the end of 2011 for Franklin Company.

Which of the following concepts relates to separating the reporting of business and personal economic transactions?

The excess of revenue over the expenses incurred in earning the revenue is called capital.

The asset section of the Balance Sheet normally presents assets in