CHAPTER 1 PRACTICE

Question 1

When a business borrows cash from a creditor Blank______ increase.

Answer 1

Assets and liabilities increase because cash (assets) increase, and liabilities(money borrowed) does too

Question 2

In a business liquidation, ______.

Answer 2

liabilities are paid in full before funds are distributed to investors, Yet, creditors may be unable to collect the full amount of the liabilities

Question 3

Three distinct participants: consumers, businesses, and resource owners, are involved in the
_______
for business resources.

Answer 3

market

Question 4

Businesses commonly acquire assets from

Answer 4

Borrowing from creditors, issuing common stock, and earning revenue

Question 5

The amount of cash dividends a company can pay are limited by the amount of the company’s ______.

Answer 5

Retained earnings and cash.
Example: if the company has 600 in retained earnings and 400 in cash, the only amount they can pay for dividens is 400

Example 2: If the company decides to sell the land and the cash increases, and still have 600 in retained earnings, they cannot pay a 700 cash dividend because the company has only retained 600

Question 6

A home builder used $80,000 of materials and $70,000 of labor to build a house that was sold for $160,000. Profit equals

Answer 6

PROFIT = 160000(market value) - 150000 (cost)

Question 7

Companies are required to follow GAAP when preparing ____ accounting reports

Answer 7

Financial only

Question 8

In the market trilogy of resource allocation___ add value

Answer 8

businesses

Question 9

David Harbert recently started a business. During the first few days of operation, Mr. Harbert transferred cash from his personal account into a business account for a company he named Harbert Enterprises. Mr. Harbert’s brother, George, invested cash in Harbert Enterprises for which he received a 25% ownership interest in the company. Harbert Enterprises borrowed cash from First Federal Bank. Harbert Enterprises paid cash to purchase a building from City Properties, Inc. How many reporting entities are mentioned in this scenario?

Answer 9

Reason: The entities include David Harbert, Harbert Enterprises, George Harbert, First Federal Bank, and City Properties, Inc.

Question 10

The amounts in liabilities, common stock, and retained earnings represent Blank______

Answer 10

sources of the company’s assets

Question 11

A business has assets of $500 cash, $800 of liabilities and $400 common stock and ($700) deficit in retained earnings. If the business is liquidated Blank______.

Answer 11

Owners will receive 0 because since there is nothing left after creditors are paid, the owners receive 0
Creditos will receive 500 because creditors are limited to the amount of cash

Question 12

The right side of the accounting equation for a corporation may be viewed as

Answer 12

-Claims of creditors and owners
-Obligations and commitments of the business
-Source of assets

Question 13

Compared to financial accounting, managerial accounting information

Answer 13

-contains more estimates

-provides more detail about the everyday operations of a business

Question 14

In the market trilogy of resource allocation, resource owners are compensated by

Answer 14

Businesses because they compensate resource owners

Question 15

Recognizing cash expenses will cause cash

Answer 15

to and retained earning to decrease because

Question 16

The stakeholder most likely use managerial accounting information is a(n)

Answer 16

Restaurant manager

Question 17

The items presented on the income statement are

Answer 17

Cash, revenue, and net income
NO DIVDENDS AND RETAINED EARNINGS

Question 18

Merchandising businesses are also called Blank______.

Answer 18

-retail companies
-wholesale companies

Question 19

The 10k report is prepared Blank______.

Answer 19

anually

Question 20

In accounting terms, the obligations a business owes to its creditors are called

Answer 20

liabilities

Question 21

Which of the following statements are true?

Answer 21

Many procedures and practices used by accountants are based on a going concern assumption.

The going concern doctrine assumes a business will continue operations into the foreseeable future.

Question 22

Which of the following is normally included in the articles of incorporation?

Answer 22

The expected life which may be listed as in perpetuity
The name and addresses of the members
The corporation’s name and proposed date of incorporation
Provisions for capital stock
Names and addresses of the members

Question 23

A chief advantage of the corporate form of business is

Answer 23

Limited liability: corporate form limits an investor’s potential liability as an owned of a business venture. Creditors cannot claim owners’ personal assets

Question 24

Which of the following items are shown on the selling and administrative expense budget?

Answer 24

Depreciation expense

Salary expense

Utility expense

Question 25

The development of the sales forecast is normally coordinated by

Answer 25

the marketing department

Question 26

Assume Durango Co. has cash sales of $80,000 and sales on account of $120,000 for the month of November. The company expects sales to grow 1% a month. Projected December sales equal Blank______.

Answer 26

$200,000 × 101% = $202,000

Question 27

Which of the following are not part of the cash budget?

Answer 27

Investing activities

Sales

Question 28

The schedule of cash receipts may include Blank______.

Answer 28

current cash sales

collections of accounts receivable

Question 29

Total cash receipts equal $10,000, total cash payments equal $11,000, beginning cash equals $4,000 and ending cash equals $22,000. The total cash available is

Answer 29

$4,000 beginning cash + $10,000 cash receipts = $14,000.

Question 30

Durango Co. maintains an ending inventory equal to 10% of next month’s cost of budgeted sales. Budgeted cost of sales are $100,000 for October and $200,000 for November. Required purchases for the month of October equal ______.

Answer 30

Desired ending inventory $200,000 × 10% + $100,000 budgeted sales - $100,000 × 10% beginning inventory = $110,000.

Question 31

Which of the following are listed on the pro forma income statement?

Answer 31

Sales revenue
Cost of Goods sold
Gross margin
Selling and administrative expenses
Operating income
Interest expense
Net income

Question 32

The sales forecast

Answer 32

generally includes economic analysis

may use statistical techniques

may use data regarding changes in competition

Question 33

Which of the following appear on a cash budget?

Answer 33

Financing activities

Expected cash payments

Expected cash collections

Question 34

Total cash receipts equal $20,000, total cash payments equal $14,000, beginning cash equals $10,000 and ending cash equals $22,000. The total cash available is Blank______.

Answer 34

$10,000 beginning cash + $20,000 total cash receipts = $30,000.

Question 35

Which of the following appear on the pro forma balance sheet?

Answer 35

Total assets

Retained earnings

Question 36

All information for the proforma statement of cash flows comes from the cash budget

Answer 36

True