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Exam 1: Introduction to Accounting and Business

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Question 41

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All of the following statements regarding the ratio of liabilities to owner's equity are true except:

A) A ratio of 1 indicates that liabilities equal owner's equity.
B) Corporations can use this ratio but substitute total stockholders' equity for total owner's equity.
C) The higher this ratio is, the better able a business is to withstand poor business conditions and pay creditors.
D) The lower this ratio is, the better able a business is to withstand poor business conditions and pay creditors.

E) A) and B)
F) C) and D)

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Question 42

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Which of the following is not an asset?

A) Investments
B) Cash
C) Inventory
D) Owner's Equity

E) A) and B)
F) B) and C)

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Question 43

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The assets and liabilities of S&P Day Spa at December 31, 2014 and its revenue and expenses for the year are listed below. The capital of the owner is $68,000 at December 31, 2014. The owner invested an additional $10,000 during the year. Determine the capital of the owner at January 1, 2014 (Hint: Calculate the increase/decrease in owner's equity first.). Prepare a statement of owner's equity for the current year ended December 31, 2014.

The assets and liabilities of Amos Moving Services at March 31, 2014, the end of the current year, and its revenue and expenses for the year are listed below. The capital of the owner was $180,000 at April 1, 2013, the beginning of the current year. Mr. Amos invested an additional $25,000 in the business during the year. Prepare a statement of owner's equity for the current year ended March 31, 2014.

Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the companies where they work.

A summary of cash flows for Lopez Wedding Planning for the year ended December 31, 2011 is shown below. Prepare a statement of cash flows for Lopez Wedding Planning for the year ended December 31, 2011.

The following data were taken from Harrison Company's balance sheet: Dec. 31, 2012 Dec. 31, 2011 Total liabilities $150,000 $105,000 Total owner's equity 75,000 60,000 a. Compute the ratio of liabilities to owner's equity. b. Has the creditors' risk increased or decreased from December 31, 2011, to December 31, 2012?

Which type of accountant typically practices as an individual or as a member of a public accounting firm?

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

All of the following are general-purpose financial statements except:

Companies like Enron, WorldCom, and Tyco International, Ltd. have been caught in the midst of ethical lapses that led to fines, firings, and criminal and/or civil prosecution. List and briefly describe three factors that are responsible for what went wrong in these companies.

The Sarbanes-Oxley Act of 2002 prohibits employment of auditors by their clients for what period after their last audit of the client?

The business entity concept means that

Jonathan Martin is the owner and operator of Martin Consultants. At December 31, 2011, Martin Consultants has assets of $430,000 and liabilities of $205,000. Using the accounting equation and considering each case independently, determine the following: a. Jonathan Martin, capital, as of December 31, 2011. b. Jonathan Martin, capital, as of December 31, 2012, assuming that assets increased by $12,000 and liabilities increased by $15,000 in 2012. c. Jonathan Martin, capital, as of December 31, 2012, assuming that assets decreased by $8,000 and liabilities increased by $14,000 during 2012.

The objectivity concept requires that

Which of the following is not true of accounting principles?

A business is an organization in where basic resources or inputs, like materials and labor, are assembled and processed to provide outputs in the form of goods or services to customers.

Which of the items below is not a business entity?

Proper ethical conduct implies that you only consider what's in your best interest.

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