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