TRUE-FALSE STATEMENTS
1. Owners of business firms are the only people who need accounting information.
2. Transactions that can be measured in dollars and cents are recorded in the financial
information system.
3. The hiring of a new company president is an economic event recorded by the financial
information system.
4. Management of a business enterprise is the major external user of information.
5. Accounting communicates financial information about a business enterprise to both
internal and external users.
6. Accounting information is used only by external users with a financial interest in a
business enterprise.
7. Financial statements are the major means of communicating accounting information to
interested parties.
8. Bookkeeping and accounting are one and the same because the bookkeeping function
includes the accounting process.
9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
10. The study of accounting will be useful only if a student is interested in working for a profitoriented
business firm.
11. Private accountants are accountants who are not employees of business enterprises.
12. The study of accounting is not useful for a business career unless your career objective is
to become an accountant.
13. A working knowledge of accounting is not relevant to a lawyer or an architect.
14. Expressing an opinion as to the fairness of the information presented in financial
statements is a service performed by CPAs.
15. Accountants rely on a fundamental business concept—ethical behavior—in reporting
financial information.
16. The primary accounting standard-setting body in the United States is the International
Accounting Standards Board.
17. The Financial Accounting Standards Board is a part of the Securities and Exchange
Commission.
18. The Securities and Exchange Commission oversees U.S. financial markets and
accounting standard-setting bodies.
19. The cost and fair market value of an asset are the same at the time of acquisition and in
all subsequent periods.
20. Even though a partnership is not a separate legal entity, for accounting purposes the
partnership affairs should be kept separate from the personal activities of the owners.
21. A partnership must have more than one owner.
22. The economic entity assumption requires that the activities of an entity be kept separate
and distinct from the activities of its owner and all other economic entities.
23. The monetary unit assumption states that transactions that can be measured in terms of
money should be recorded in the accounting records.
24. In order to possess future service potential, an asset must have physical substance.
25. Owners' claims to total business assets take precedence over the claims of creditors
because owners invest assets in the business and are liable for losses.
26. The basic accounting equation states that Assets = Liabilities.
27. Accountants record both internal and external transactions.
28. Internal transactions do not affect the basic accounting equation because they are
economic events that occur entirely within one company.
29. The purchase of store equipment for cash reduces the owner's equity by an equal
amount.
30. The purchase of office equipment on credit increases total assets and total liabilities.
31. The primary purpose of the statement of cash flows is to provide information about the
cash receipts and cash payments of a company during a period.
32. Net income for the period is determined by subtracting total expenses and drawings from
total revenues.
Additional True-False Questions
33. Identifying is the process of keeping a chronological diary of events measured in dollars
and cents.
34. Management consulting includes examining the financial statements of companies and
expressing an opinion as to the fairness of their presentation.
35. Accountants do not have to worry about issues of ethics.
36. At the time an asset is acquired, cost and value should be the same.
37. The monetary unit assumption requires that all dollar amounts be rounded to the nearest
dollar.
38. The basic accounting equation is in balance when the creditor and ownership claims
against the business equal the assets.
39. External transactions involve economic events between the company and some other
enterprise or party.
40. In the owner's equity statement, revenues are listed first, followed by expenses, and net
income (or net loss).
MULTIPLE CHOICE QUESTIONS
41. Accountants refer to an economic event as a
a. purchase.
b. sale.
c. transaction.
d. change in ownership.
42. The process of recording transactions has become more efficient because
a. fewer events can be quantified in financial terms.
b. computers are used in processing business events.
c. more people have been hired to record business transactions.
d. business events are recorded only at the end of the year.
43. Communication of economic events is the part of the accounting process that involves
a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.
44. Which of the following events cannot be quantified into dollars and cents and recorded as
an accounting transaction?
a. The appointment of a new CPA firm to perform an audit.
b. The purchase of a new computer.
c. The sale of store equipment.
d. Payment of income taxes.
45. The use of computers in recording business events
a. has made the recording process more efficient.
b. does not use the same principles as manual accounting systems.
c. has greatly impacted the identification stage of the accounting process.
d. is economical only for large businesses.
46. The accounting process involves all of the following except
a. identifying economic transactions that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording nonquantifiable economic events.
d. analyzing and interpreting financial reports.
47. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
48. Which of the following techniques are not used by accountants to interpret and report
financial information?
a. Graphs
b. Special memos for each class of external users
c. Charts
d. Ratios
49. Which of the following would not be considered an internal user of accounting data for the
GHI Company?
a. President of the company
b. Production manager
c. Merchandise inventory clerk
d. President of the employees' labor union
50. Which of the following would not be considered an external user of accounting data for the
GHI Company?
a. Internal Revenue Service Agent
b. Management
c. Creditors
d. Customers
51. Which of the following would not be considered internal users of accounting data for a
company?
a. The president of a company
b. The controller of a company
c. Creditors of a company
d. Salesmen of the company
52. Which of the following is an external user of accounting information?
a. Labor unions
b. Finance directors
c. Company officers
d. Managers
53. Which one of the following is not an external user of accounting information?
a. Regulatory agencies
b. Customers
c. Investors
d. All of these are external users
54. Bookkeeping differs from accounting in that bookkeeping primarily involves which part of
the accounting process?
a. Identification
b. Communication
c. Recording
d. Analysis
a55. All of the following are services offered by public accountants except
a. budgeting.
b. auditing.
c. tax planning.
d. consulting.
a56. Which list below best describes the major services performed by public accountants?
a. Bookkeeping, mergers, budgets
b. Employee training, auditing, bookkeeping
c. Auditing, taxation, management consulting
d. Cost accounting, production scheduling, recruiting
a57. Preparing tax returns and engaging in tax planning is performed by
a. public accountants only.
b. private accountants only.
c. both public and private accountants.
d. IRS accountants only.
a58. A private accountant can perform many activities in a business organization but would not
work in
a. budgeting.
b. accounting information systems.
c. external auditing.
d. tax accounting.
59. The origins of accounting are generally attributed to the work of
a. Christopher Columbus.
b. Abner Doubleday.
c. Luca Pacioli.
d. Leonardo da Vinci.
60. Financial accounting provides economic and financial information for all of the following
except
a. creditors.
b. investors.
c. managers.
d. other external users.
61. The final step in solving an ethical dilemma is to
a. identify and analyze the principal elements in the situation.
b. recognize an ethical situation.
c. identify the alternatives and weigh the impact of each alternative on stakeholders.
d. recognize the ethical issues involved.
62. The first step in solving an ethical dilemma is to
a. identify and analyze the principal elements in the situation.
b. identify the alternatives.
c. recognize an ethical situation and the ethical issues involved.
d. weigh the impact of each alternative on various stakeholders.
63. Ethics are the standards of conduct by which one's actions are judged as
a. right or wrong.
b. honest or dishonest.
c. fair or unfair.
d. all of these.
64. Generally accepted accounting principles are
a. income tax regulations of the Internal Revenue Service.
b. standards that indicate how to report economic events.
c. theories that are based on physical laws of the universe.
d. principles that have been proven correct by academic researchers.
65. The cost principle requires that when assets are acquired, they be recorded at
a. appraisal value.
b. historical cost.
c. market price.
d. exchange price paid.
66. The cost of an asset and its fair market value are
a. never the same.
b. the same when the asset is sold.
c. irrelevant when the asset is used by the business in its operations.
d. the same on the date of acquisition.
67. The body of theory underlying accounting is not based on
a. physical laws of nature.
b. concepts.
c. principles.
d. definitions.
68. The private sector organization involved in developing accounting principles is the
a. Feasible Accounting Standards Body.
b. Financial Accounting Studies Board.
c. Financial Accounting Standards Board.
d. Financial Auditors' Standards Body.
69. The SEC and FASB are two organizations that are primarily responsible for establishing
generally accepted accounting principles. It is true that
a. they are both governmental agencies.
b. the SEC is a private organization of accountants.
c. the SEC often mandates guidelines when no accounting principles exist.
d. the SEC and FASB rarely cooperate in developing accounting standards.
70. GAAP stands for
a. Generally Accepted Auditing Procedures.
b. Generally Accepted Accounting Principles.
c. Generally Accepted Auditing Principles.
d. Generally Accepted Accounting Procedures.
71. Which of the following is not a characteristic of the cost principle?
a. Reliability
b. Subjectivity
c. Objectivity
d. Verifiability
72. The Duce Company has five plants nationwide that cost $100 million. The current market
value of the plants is $500 million. The plants will be recorded and reported as assets at
a. $100 million.
b. $600 million.
c. $400 million.
d. $500 million.
73. All of the following are advantages cost has over other valuations except that it
a. is reliable.
b. can be objectively measured.
c. can be verified.
d. is relevant.
74. The proprietorship form of business organization
a. must have at least three owners in most states.
b. represents the largest number of businesses in the United States.
c. combines the records of the business with the personal records of the owner.
d. is characterized by a legal distinction between the business as an economic unit and
the owner.
75. The economic entity assumption requires that the activities
a. of different entities can be combined if all the entities are corporations.
b. must be reported to the Securities and Exchange Commission.
c. of a sole proprietorship cannot be distinguished from the personal economic events of
its owners.
d. of an entity be kept separate from the activities of its owner.
76. A business organized as a corporation
a. is not a separate legal entity in most states.
b. requires that stockholders be personally liable for the debts of the business.
c. is owned by its stockholders.
d. terminates when one of its original stockholders dies.
77. The partnership form of business organization
a. is a separate legal entity.
b. is a common form of organization for service-type businesses.
c. enjoys an unlimited life.
d. has limited liability.
78. Which of the following is not an advantage of the corporate form of business organization?
a. Limited liability of stockholders
b. Transferability of ownership
c. Unlimited personal liability for stockholders
d. Unlimited life
79. A small neighborhood barber shop that is operated by its owner would likely be organized
as a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.
80. John and Sam met at law school and decide to start a small law practice after graduation.
They agree to split revenues and expenses evenly. The most common form of business
organization for a business such as this would be a
a. joint venture.
b. partnership.
c. corporation.
d. proprietorship.
81. Which of the following is true regarding the corporate form of business organization?
a. Corporations are the most prevalent form of business organization.
b. Corporate businesses are generally smaller in size than partnerships and proprietorships.
c. The revenues of corporations are greater than the combined revenues of partnerships
and proprietorships.
d. Corporations are separate legal entities organized exclusively under federal law.
82. A basic assumption of accounting that requires activities of an entity be kept separate
from the activities of its owner is referred to as the
a. stand alone concept.
b. monetary unit assumption.
c. corporate form of ownership.
d. economic entity assumption.
83. Don Jones is the proprietor (owner) of Donny's, a retailer of golf apparel. When recording
the financial transactions of Donny's, Don does not record an entry for a car he purchased
for personal use. Don took out a personal loan to pay for the car. What accounting
concept guides Don's behavior in this situation?
a. Pay back concept
b. Economic entity assumption
c. Cash basis concept
d. Monetary unit assumption
84. A basic assumption of accounting assumes that the dollar is
a. unrelated to business transactions.
b. a poor measure of economic activities.
c. the common unit of measure for all business transactions.
d. useless in measuring an economic event.
85. The assumption that the unit of measure remains sufficiently constant over time is part of
the
a. economic entity assumption.
b. cost principle.
c. historical cost principle.
d. monetary unit assumption.
86. A business that enjoys limited liability is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
87. A problem with the monetary unit assumption is that
a. the dollar has not been stable over time.
b. the dollar has been stable over time.
c. the dollar is a common medium of exchange.
d. it is impossible to account for international transactions.
88. The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
89. Owner's equity is best depicted by the following:
a. Assets = Liabilities.
b. Liabilities + Assets.
c. Residual equity + Assets.
d. Assets – Liabilities.
90. The basic accounting equation may be expressed as
a. Assets = Equities.
b. Assets – Liabilities = Owner's Equity.
c. Assets = Liabilities + Owner's Equity.
d. all of these.
91. Liabilities
a. are future economic benefits.
b. are existing debts and obligations.
c. possess service potential.
d. are things of value used by the business in its operation.
92. Liabilities of a company would not include
a. notes payable.
b. accounts payable.
c. wages payable.
d. cash.
93. Liabilities of a company are owed to
a. debtors.
b. benefactors.
c. creditors.
d. underwriters.
94. Owner's equity can be described as
a. creditorship claim on total assets.
b. ownership claim on total assets.
c. benefactor's claim on total assets.
d. debtor claim on total assets.
95. Owner's equity is often referred to as
a. residual equity.
b. leftovers.
c. spoils.
d. second equity.
96. When an owner withdraws cash or other assets from a business for personal use, these
withdrawals are termed
a. depletions.
b. consumptions.
c. drawings.
d. a credit line.
97. Capital is
a. an owner's permanent investment in the business.
b. equal to liabilities minus owner's equity.
c. equal to assets minus owner's equity.
d. equal to liabilities plus drawings.
98. Revenues would not result from
a. sale of merchandise.
b. initial investment of cash by owner.
c. performance of services.
d. rental of property.
99. Sources of increases to owner's equity are
a. additional investments by owners.
b. purchases of merchandise.
c. withdrawals by the owner.
d. expenses.
100. The basic accounting equation cannot be restated as
a. Assets – Liabilities = Owner's Equity.
b. Assets – Owner's Equity = Liabilities.
c. Owner's Equity + Liabilities = Assets.
d. Assets + Liabilities = Owner's Equity.
101. Owner's equity is decreased by all of the following except
a. owner's investments.
b. owner's withdrawals.
c. expenses.
d. owner's drawings.
102. A net loss will result during a time period when
a. liabilities exceed assets.
b. drawings exceed investments.
c. expenses exceed revenues.
d. revenues exceed expenses.
103. If total liabilities increased by $15,000 and owner’s equity increased by $5,000 during a
period of time, then total assets must change by what amount and direction during that
same period?
a. $20,000 decrease
b. $20,000 increase
c. $25,000 increase
d. $30,000 increase
104. If total liabilities decreased by $15,000 and owner’s equity increased by $5,000 during a
period of time, then total assets must change by what amount and direction during that
same period?
a. $20,000 increase
b. $10,000 decrease
c. $10,000 increase
d. $15,000 decrease
105. If total liabilities decreased by $25,000 and owner’s equity increased by $5,000 during a
period of time, then total assets must change by what amount and direction during that
same period?
a. $20,000 decrease
b. $20,000 increase
c. $25,000 increase
d. $30,000 increase
106. If total liabilities decreased by $15,000 and owner’s equity decreased by $5,000 during a
period of time, then total assets must change by what amount and direction during that
same period?
a. $20,000 increase
b. $10,000 increase
c. $20,000 decrease
d. $10,000 decrease
107. If total liabilities increased by $14,000 during a period of time and owner’s equity
decreased by $6,000 during the same period, then the amount and direction (increase or
decrease) of the period’s change in total assets is a(n)
a. $14,000 increase.
b. $20,000 increase.
c. $8,000 decrease.
d. $8,000 increase.
108. The accounting equation for Gudgeyes Enterprises is as follows:
Assets Liabilities Owner’s Equity
$120,000 = $60,000 + $60,000
If Gudgeyes purchases office equipment on account for $12,000, the accounting equation
will change to
Assets Liabilties Owner’s Equity
a. $120,000 = $60,000 + $60,000
b. $132,000 = $60,000 + $72,000
c. $132,000 = $66,000 + $66,000
d. $132,000 = $72,000 + $60,000
109. As of June 30, 2009, Dallas Company has assets of $100,000 and owner’s equity of
$5,000. What are the liabilities for Dallas Company as of June 30, 2009?
a. $85,000
b. $90,000
c. $95,000
d. $100,000
110. Owner's equity is increased by
a. drawings.
b. revenues.
c. expenses.
d. liabilities.
111. Owner's equity is decreased by
a. assets.
b. revenues.
c. expenses.
d. liabilities.
112. If total liabilities increased by $4,000, then
a. assets must have decreased by $4,000.
b. owner's equity must have increased by $4,000.
c. assets must have increased by $4,000, or owner's equity must have decreased by
$4,000.
d. assets and owner's equity each increased by $2,000.
113. Collection of a $500 Accounts Receivable
a. increases an asset $500; decreases an asset $500.
b. increases an asset $500; decreases a liability $500.
c. decreases a liability $500; increases owner's equity $500.
d. decreases an asset $500; decreases a liability $500.
114. Revenues are
a. the cost of assets consumed during the period.
b. gross increases in owner's equity resulting from business activities.
c. the cost of services used during the period.
d. actual or expected cash outflows.
115. If an individual asset is increased, then
a. there must be an equal decrease in a specific liability.
b. there must be an equal decrease in owner's equity.
c. there must be an equal decrease in another asset.
d. none of these is possible.
116. If services are rendered for credit, then
a. assets will decrease.
b. liabilities will increase.
c. owner's equity will increase.
d. liabilities will decrease.
117. If expenses are paid in cash, then
a. assets will increase.
b. liabilities will decrease.
c. owner's equity will increase.
d. assets will decrease.
118. If an owner makes a withdrawal of cash from a proprietorship, then
a. there has been a violation of accounting principles.
b. owner's equity will increase.
c. owner's equity will decrease.
d. there will be a new liability showing the owner owes money to the business.
119. If supplies that have been purchased are used in the course of business, then
a. a liability will increase.
b. an asset will increase.
c. owner's equity will decrease.
d. owner's equity will increase.
120. As of December 31, 2009, Sievers Company has assets of $35,000 and owner's equity of
$20,000. What are the liabilities for Sievers Company as of December 31, 2009?
a. $15,000
b. $10,000
c. $25,000
d. $20,000
121. Which of the following events is not a business transaction?
a. Investment of cash by the owner
b. Hired employees
c. Incurred utility expenses for the month
d. Earned revenue for services provided
122. Net income results when
a. Assets > Liabilities.
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues < Expenses.
123. Owner's capital at the end of the period is equal to
a. owner's capital at the beginning of the period plus net income minus liabilities.
b. owner's capital at the beginning of the period plus net income minus drawings.
c. net income.
d. assets plus liabilities.
124. A balance sheet shows
a. revenues, liabilities, and owner's equity.
b. expenses, drawings, and owner's equity.
c. revenues, expenses, and drawings.
d. assets, liabilities, and owner's equity.
125. An income statement
a. summarizes the changes in owner's equity for a specific period of time.
b. reports the changes in assets, liabilities, and owner's equity over a period of time.
c. reports the assets, liabilities, and owner's equity at a specific date.
d. presents the revenues and expenses for a specific period of time.
126. If the owner's equity account increases from the beginning of the year to the end of the
year, then
a. net income is less than owner drawings.
b. a net loss is less than owner drawings.
c. additional owner investments are less than net losses.
d. net income is greater than owner drawings.
Use the following information for questions 127–129.
Carla’s Computer Repair Shop started the year with total assets of $270,000 and total liabilities of
$180,000. During the year, the business recorded $450,000 in computer repair revenues,
$255,000 in expenses, and Carla withdrew $45,000.
127. Carla's Capital balance at the end of the year was
a. $240,000.
b. $225,000.
c. $285,000.
d. $195,000.
128. The net income reported by Carla's Computer Repair Shop for the year was
a. $150,000.
b. $195,000.
c. $90,000.
d. $405,000.
129. Carla's Capital balance changed by what amount from the beginning of the year to the
end of the year?
a. $45,000
b. $195,000
c. $90,000
d. $150,000
130. The balance sheet is frequently referred to as
a. an operating statement.
b. the statement of financial position.
c. the statement of cash flows.
d. the statement of owner's equity.
131. The primary purpose of the statement of cash flows is to report
a. a company's investing transactions.
b. a company's financing transactions.
c. information about cash receipts and cash payments of a company.
d. the net increase or decrease in cash.
132. All of the financial statements are for a period of time except the
a. income statement.
b. owner's equity statement.
c. balance sheet.
d. statement of cash flows.
133. The ending owner's equity amount is shown on
a. the balance sheet only.
b. the owner's equity statement only.
c. both the income statement and the owner's equity statement.
d. both the balance sheet and the owner's equity statement.
134. Benito Company began the year with owner’s equity of $175,000. During the year, the
company recorded revenues of $250,000, expenses of $190,000, and had owner
drawings of $20,000. What was Benito’s owner’s equity at the end of the year?
a. $255,000
b. $215,000
c. $405,000
d. $235,000
135. Frank Ito began the Ito Company by investing $20,000 of cash in the business. The
company recorded revenues of $185,000, expenses of $160,000, and had owner
drawings of $10,000. What was Ito’s net income for the year?
a. $15,000
b. $35,000
c. $25,000
d. $45,000
136. Marilu Company began the year with owner’s equity of $15,000. During the year, Marilu
received additional owner investments of $21,000, recorded expenses of $60,000, and
had owner drawings of $4,000. If Marilu’s ending owner’s equity was $46,000, what was
the company’s revenue for the year?
a. $70,000
b. $74,000
c. $91,000
d. $95,000
137. Nguyen Company began the year with owner’s equity of $217,000. During the year,
Nguyen received additional owner investments of $294,000, recorded expenses of
$840,000, and had owner drawings of $56,000. If Nguyen’s ending owner’s equity was
$531,000, what was the company’s revenue for the year?
a. $860,000
b. $916,000
c. $1,154,000
d. $1,210,000
Saira’s Service Shop started the year with total assets of $100,000 and total liabilities of $80,000.
During the year, the business recorded $210,000 in revenues, $110,000 in expenses, and owner
drawings of $20,000.
138. Owner’s equity at the end of the year was
a. $120,000.
b. $100,000.
c. $80,000.
d. $90,000.
139. The net income reported by Saira’s Service Shop for the year was
a. $80,000.
b. $100,000.
c. $60,000.
d. $190,000.
140. Metzger’s assets on December 31, 2009 are
a. $235,000.
b. $170,000.
c. $80,000.
d $95,000.
141. Metzger’s owner’s equity on December 31, 2009 is
a. $70,000.
b. $60,000.
c. $75,000.
d. $85,000.
142. Copper Company’s owner’s equity at the beginning of August 2009 was $300,000. During
the month, the company earned net income of $60,000 and owner’s drawings were
$20,000. At the end of August 2009, what is the balance in owner’s equity?
a. $260,000
b. $300,000
c. $340,000
d. $380,000
143. On January 1, 2009, Affleck Company reported owner’s equity of $470,000. During the
year, the owner withdrew cash of $20,000. At December 31, 2009, the balance in owner’s
equity was $500,000. What amount of net income or net loss would the company report
for 2009?
a. Net income of $30,000
b. Net loss of $50,000
c. Net income of $10,000
d. Net income of $50,000
Use the following information for questions 144–146.
Stahl Consulting started the year with total assets of $20,000 and total liabilities of $5,000. During
the year, the business recorded $16,000 in catering revenues and $8,000 in expenses. Stahl
made an additional investment of $3,000 and withdrew cash of $5,000 during the year.
144. The owner’s equity at the end of the year was
a. $21,000.
b. $18,000.
c. $8,000.
d. $2,000.
145. The net income reported by Stahl Consulting for the year was
a. $16,000.
b. $11,000.
c. $8,000.
d. $3,000.
146. Owner’s equity changed by what amount from the beginning of the year to the end of the
year?
a. $15,000
b. $14,000
c. $6,000
d. $3,000
147. During the year 2009, Diego Company earned revenues of $45,000, had expenses of
$25,000, purchased assets with a cost of $5,000 and had owner drawings of $3,000. Net
income for the year is
a. $45,000.
b. $20,000.
c. $17,000.
d. $15,000.
148. At October 1, Smithson Enterprises reported owner’s equity of $35,000. During October,
no additional investments were made and the company earned net income of $4,000. If
owner’s equity at October 31 totals $32,000, what amount of owner drawings were made
during the month?
a. $0
b. $1,000
c. $3,000
d. $7,000
149. At October 1, Smithson Enterprises reported owner’s equity of $35,000. During October,
no additional investments were made and the company posted a net loss of $3,000. If
owner’s equity at October 31 totals $32,000, what amount of owner drawings were made
during the month?
a. $0
b. $1,000
c. $3,000
d. $7,000
150. At October 1, Smithson Enterprises reported owner’s equity of $35,000. During October,
the owner made additional investments of $2,000 and the company earned net income of
$6,000. If owner’s equity at October 31 totals $40,000, what amount of owner drawings
were made during the month?
a. $0
b. $3,000
c. $4,000
d. $5,000
151. At October 1, Smithson Enterprises reported owner’s equity of $35,000. During October,
the owner made additional investments of $5,000 and the company posted a net loss of
$3,000. If owner’s equity at October 31 totals $35,000, what amount of owner drawings
were made during the month?
a. $0
b. $2,000
c. $3,000
d. $5,000
Additional Multiple Choice Questions
152. Which of the following is not part of the accounting process?
a. Recording
b. Identifying
c. Financial decision making
d. Communicating
153. The first part of the accounting process is
a. communicating.
b. identifying.
c. processing.
d. recording.
154. Keeping a systematic, chronological diary of events that are measured in dollars and
cents is called
a. communicating.
b. identifying.
c. processing.
d. recording.
155. Auditing is
a. the examination of financial statements by a CPA in order to express an opinion on
their fairness.
b. a part of accounting that involves only recording of economic events.
c. an area of accounting that involves such activities as cost accounting, budgeting, and
accounting information systems.
d. conducted by the Securities and Exchange Commission to ensure that registered
financial statements are presented fairly.
156. Internal users of accounting information include all of the following except
a. company officers.
b. investors.
c. marketing managers.
d. production supervisors.
157. The organization(s) primarily responsible for establishing generally accepted accounting
principles is(are) the
FASB SEC
a. no no
b. yes no
c. no yes
d. yes yes
158. The primary accounting standard-setting body in the United States is the
a. Financial Accounting Standards Board.
b. International Accounting Standards Board.
c. Internal Revenue Service.
d. Securities and Exchange Commission.
159. A proprietorship is a business
a. owned by one person.
b. owned by two or more persons.
c. organized as a separate legal entity under state corporation law.
d. owned by a governmental agency.
160. A net loss will result during a time period when
a. assets exceed liabilities.
b. assets exceed owner's equity.
c. expenses exceed revenues.
d. revenues exceed expenses.
161. The Roy’s Downtown Diner received a bill of $400 from the Emeril Advertising Agency.
The owner, Roy James, is postponing payment of the bill until a later date. The effect on
specific items in the basic accounting equation is
a. a decrease in Cash and an increase in Accounts Payable.
b. a decrease in Cash and an increase in R. James, Capital.
c. an increase in Accounts Payable and a decrease in R. James, Capital.
d. a decrease in Accounts Payable and an increase in R. James, Capital.
162. Ryder Company purchases $600 of equipment from Montez Inc. for cash. The effect on
the components of the basic accounting equation of Ryder Company is
a. an increase in assets and liabilities.
b. a decrease in assets and liabilities.
c. no change in total assets.
d. an increase in assets and a decrease in liabilities.
163. Fontaine Fox Company buys a $12,000 van on credit. The transaction will affect the
a. income statement only.
b. balance sheet only.
c. income statement and owner's equity statement only.
d. income statement, owner's equity statement, and balance sheet.
BRIEF EXERCISES
BE 164
Match the following external users of financial accounting information with the type of decision
that user will make with the information.
a. Creditor
b. Investor
c. Regulatory Agency
d Internal Revenue Service
_______ (1) Is the company operating within prescribed guidelines?
_______ (2) Is the company complying with tax laws?
_______ (3) Is the company able to pay its debts?
_______ (4) Is the company a good investment?
BE 165
Match the following terms and definitions.
a. Accounts receivable c. Accounts payable
b. Creditor d. Note payable
_______ (1) Amounts due from customers
_______ (2) Amounts owed to suppliers for goods and services purchased
_______ (3) Amounts owed to bank
_______ (4) Party to whom money is owed
BE 166
Indicate which of these items is an asset (A), liability (L) or owner’s equity (OE) account.
_______ (1) Supplies
_______ (2) Klein, Drawing
_______ (3) Building
_______ (4) Note Payable
_______ (5) Taxes Payable
BE 167
Use the accounting equation to answer the following questions.
1. Force 10 Sails Co. has total assets of $120,000 and total liabilities of $35,000. What is
owner’s equity?
2. Marcy Fun Center has total assets of $225,000 and owner’s equity of $105,000. What are
total liabilities?
3. Franco’s Restaurant has total liabilities of $40,000 and owner’s equity of $95,000. What are
total assets?
BE 168
Determine the missing items.
Assets = Liabilities + Owner’s Equity
$75,000 $52,000 (a)
(b) $28,000 $34,000
$84,000 (c) $55,000
Solution 168
a. $23,000
b. $62,000
c. $29,000
BE 169
Classify each of these items as an asset (A), liability (L), or owner’s equity (OE).
_____ 1. Accounts receivable
_____ 2. Accounts payable
_____ 3. Mantle’s, Capital
_____ 4. Office supplies
BE 169 (cont.)
_____ 5. Utilities expense
_____ 6. Cash
_____ 7. Note payable
_____ 8. Equipment
BE 170
Identify the impact on the accounting equation of each of the following transactions.
1. Purchase office supplies on account.
2. Paid secretary weekly salary.
3. Purchased office furniture for cash.
4. Received monthly utility bill to be paid at later time.
BE 171
Balance sheet amounts as of December 31, 2009 for Lori’s Learning Service are listed below.
Prepare a balance sheet in good form.
Accounts Payable $ 200
Accounts Receivable 1,000
Cash 500
Lori’s, Capital ?
BE 172
Identify whether the following items would be reported on the income statement (IS) or balance
sheet (BS).
1. Cash
2. Service Revenue
3. Notes Payable
4. Interest Expense
5. Accounts Receivable
BE 173
Use the following information to calculate for the year ended December 31, 2009 (a) net income
(net loss), (b) ending owner’s equity, and (c) total assets.
Supplies $ 1,000 Revenues $23,000
Operating expenses 12,000 Cash 15,000
Accounts payable 9,000 Drawings 1,000
Accounts receivable 3,000 Notes payable 1,000
Beginning Capital 5,000 Equipment 6,000
BE 174
Listed below in alphabetical order are the balance sheet items of Rowan Company at December
31, 2009. Prepare a balance sheet and include a complete heading.
Accounts payable $ 6,000
Accounts receivable 15,000
Building 96,000
Cash 11,000
Rowan, Capital 121,000
Office equipment 5,000
EXERCISES
Ex. 175
Below is a list of important abbreviations widely used in business. For each abbreviation give the
full designation.
1. CPA _____________________________________________
2. IRS _____________________________________________
3. FBI _____________________________________________
4. FASB _____________________________________________
5. GAAP _____________________________________________
6. SEC _____________________________________________
Ex. 176
Determine the missing amount for each of the following.
Assets = Liabilities + Owner's Equity
1. (a) $50,000 $95,000
2. $125,000 (b) $85,000
3. $140,000 $65,000 (c)
Ex. 177
For the items listed below, fill in the appropriate code letter to indicate whether the item is an
asset, liability, or owner's equity item.
Code
Asset A
Liability L
Owner's Equity OE
_____ 1. Rent Expense _____ 6. Cash
_____ 2. Office Equipment _____ 7. Accounts Receivable
_____ 3. Accounts Payable _____ 8. Dan Pine, Drawing
_____ 4. Dan Pine, Capital _____ 9. Service Revenue
_____ 5. Insurance Expense _____ 10. Notes Payable
Ex. 178
At the beginning of the year, Keats Company had total assets of $550,000 and total liabilities of
$200,000. Answer the following questions viewing each situation as being independent of the
others.
(1) If total assets increased $200,000 during the year, and total liabilities decreased $75,000,
what is the amount of owner's equity at the end of the year?
(2) During the year, total liabilities increased $230,000 and owner's equity decreased $90,000.
What is the amount of total assets at the end of the year?
(3) If total assets decreased $40,000 and owner's equity increased $130,000 during the year,
what is the amount of total liabilities at the end of the year?
Ex. 179
Jill's Car Cleaning has the following balance sheet items:
Van Notes Payable
Accounts Payable J. Hill, Capital
Cash J. Hill, Drawing
Cleaning Supplies Equipment
Accounts Receivable
Identify which items are (1) Assets
(2) Liabilities
(3) Owner's Equity
Ex. 180
On June 1, 2009, Bush Company prepared a balance sheet that shows the following:
Assets (no cash).............................................................. $100,000
Liabilities.......................................................................... 70,000
Owner's Equity ................................................................ 30,000
Ex. 180 (cont.)
Shortly thereafter, all of the assets were sold for cash. How would the balance sheet appear
immediately after the sale of the assets for cash for each of the following cases?
Cash Received for Balances Immediately After Sale
the Assets Assets – Liabilities = Owner's Equity
Cash A $110,000 $________ $________ $________
Cash B 100,000 ________ ________ ________
Cash C 90,000 ________ ________ ________
Ex. 181
At the beginning of 2008, Bonds Company had total assets of $550,000 and total liabilities of
$330,000. Answer each of the following questions.
1. If total assets increased $60,000 and owner's equity decreased $90,000 during the year,
determine the amount of total liabilities at the end of the year.
2. During the year, total liabilities decreased $75,000 and owner's equity increased $50,000.
Compute the amount of total assets at the end of the year.
3. If total assets decreased $100,000 and total liabilities increased $55,000 during the year,
determine the amount of owner's equity at the end of the year.
Ex. 182
Compute the missing amount in each category of the accounting equation.
Assets Liabilities Owner's Equity
(a) $349,000 $ ? $143,000
(b) $223,000 $ 79,000 $ ?
(c) $ ? $253,000 $325,000
Ex. 183
From the following list of selected accounts taken from the records of McDreamy Homeopathic
Center, identify those that would appear on the balance sheet.
a. D. McDreamy, Capital f. Accounts Payable
b. Patient Revenue g. Cash
c. Land h. Rent Expense
d. Wages Expense i. Medical Supplies
e. Notes Payable j. Utilities Expense
Ex. 184
Selected transactions for Tall Timber Tree Service are listed below.
1. Made cash investment to start business.
2. Paid for monthly advertising.
3. Purchased supplies on account.
4. Billed customers for services performed.
5. Withdrew cash for owner’s personal use.
6. Received cash from customers billed in (4).
7. Incurred utilities expense on account.
8. Purchased additional supplies for cash.
9. Received cash from customers when service was performed.
Instructions
List the numbers of the above transactions and describe the effect of each transaction on assets,
liabilities, and owner’s equity. For example, the first answer is: (1) Increase in assets and
increase in owner’s equity.
Ex. 185
Lawrence Legal Eagles Company entered into the following transactions during
March 2010.
1. Purchased office equipment for $21,500 from Business Equipment, Inc. on account.
2. Paid $4,000 cash for March rent on office furniture.
3. Received $15,000 cash from customers for legal work billed in February.
4. Provided legal services to Amy Construction Company for $3,000 cash.
5. Paid Northern States Power Co. $11,000 cash for electric usage in March.
6. Lawrence invested an additional $32,000 in the business.
7. Paid Business Equipment, Inc. for the office equipment purchased in (1) above.
8. Incurred advertising expense for March of $1,200 on account.
Instructions
Indicate with the appropriate letter whether each of the transactions above results in:
(a) an increase in assets and a decrease in assets.
(b) an increase in assets and an increase in owner’s equity.
(c) an increase in assets and an increase in liabilities.
(d) a decrease in assets and a decrease in owner’s equity.
(e) a decrease in assets and a decrease in liabilities.
(f) an increase in liabilities and a decrease in owner’s equity.
(g) an increase in owner’s equity and a decrease in liabilities.
Ex. 186
Two items are omitted from each of the following summaries of balance sheet and income
statement data for two proprietorships for the year 2010, Holly Enterprises and Craig Stevens.
Holly Enterprises Craig Stevens
Beginning of year:
Total assets $ 98,000 $129,000
Total liabilities 85,000 (c)
Total owner’s equity (a) 85,000
End of year:
Total assets 160,000 180,000
Total liabilities 120,000 50,000
Total owner’s equity 40,000 130,000
Changes during year in owner’s equity:
Additional investment (b) 25,000
Drawings 25,000 (d)
Total revenues 215,000 100,000
Total expenses 185,000 65,000
Instructions
Determine the missing amounts.
Ex. 187
An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is
shown below. Each increase and decrease in owner’s equity is explained.
Accounts Office Accounts Owner’s Equity
Cash + Receivable + Supplies + Equipment = Payable + K. T. Lang, Capital
1. +$15,000 +$15,000 Investment
2. - 2,000 +$5,000 +$3,000
3. - 750 +$750
4. + 2,500 +$3,600 + 6,100 Service Revenue
5. - 1,500 - 1,500
6. - 2,500 - 2,500 Drawings
7. - 650 - 650 Rent Expense
8. + 550 - 550
9. - 3,500 - 3,500 Salaries Expense
10. + 500 - 500 Utilities Expense
Instructions
(a) Determine how much owner’s equity increased for the month.
(b) Compute the amount of net income for the month.
Ex. 188
The Lim Company had the following assets and liabilities on the dates indicated.
December 31 Total Assets Total Liabilities
2008 $480,000 $250,000
2009 $460,000 $210,000
2010 $590,000 $300,000
Lim began business on January 1, 2008, with an investment of $100,000.
Instructions
From an analysis of the change in owner’s equity during the year, compute the net income (or
loss) for:
(a) 2008, assuming Lim’s drawings were $25,000 for the year.
(b) 2009, assuming Lim made an additional investment of $60,000 and had no drawings in
2009.
(c) 2010, assuming Lim made an additional investment of $15,000 and had drawings of
$40,000 in 2010.
Ex. 189
For each of the following, indicate whether the transaction affects revenue (R), expense (E),
owner's drawing (D), owner's investment (I), or no effect on owner's equity (NOE).
1. Made an investment to start the business.
2. Billed customers for services performed.
3. Purchased equipment on account.
4. Paid monthly rent.
5. Withdrew cash for personal use.
Ex. 190
Presented below is a balance sheet for Jim Henson Yard Service at December 31, 2008.
JIM HENSON YARD SERVICE
Balance Sheet
December 31, 2009
Assets Liabilities and Owner's Equity
Cash $13,000 Liabilities
Accounts receivable 6,000 Accounts payable $ 8,000
Supplies 9,000 Notes payable 15,000
Equipment 11,000 Owner's equity
Jim Henson, Capital 16,000
Total assets $39,000 Total liabilities & owner’s equity $39,000
The following additional data are available for the year which began on January 1: All expenses
(excluding supplies expense) total $6,000. Supplies on January 1, were $11,000 and $5,000 of
supplies were purchased during the year. Net income for the year was $8,000 and drawings were
$6,000.
Instructions
Determine the following: (Show all computations.)
1. Supplies used during the year.
2. Total expenses for the year.
3. Service revenues for the year.
4. Jim Henson's capital balance on January 1.
Ex. 191
Analyze the transactions of a business organized as a proprietorship described below and
indicate their effect on the basic accounting equation. Use a plus sign (+) to indicate an increase
and a minus sign (–) to indicate a decrease.
Assets = Liabilities + Owner's Equity
1. Received cash for services rendered. _______ ______ _______
2. Purchased office equipment on credit. _______ ______ _______
3. Paid employees' salaries. _______ ______ _______
4. Received cash from customer in payment
on account. _______ ______ _______
5. Paid telephone bill for the month. _______ ______ _______
6. Paid for office equipment purchased in
transaction 2. _______ ______ _______
7. Purchased office supplies on credit. _______ ______ _______
8. Owner withdrew cash for personal
expenses. _______ ______ _______
9. Obtained a loan from the bank. _______ ______ _______
10. Billed customers for services rendered. _______ ______ _______
Ex. 192
For each of the following, indicate whether the transaction increased (+), decreased (-), or had no
effect (NE) on assets, liabilities, and owner's equity using the following format.
Assets = Liabilities + Owner's Equity
1. Made an investment to start the business.
2. Billed customers for services performed.
3. Purchased equipment on account.
4. Withdrew cash for personal use.
5. Paid for equipment purchased in 3. above.
Ex. 193
Bill Phinnes decides to open a cleaning and laundry service near the local college campus that
will operate as a sole proprietorship. Analyze the following transactions for the month of June in
terms of their effect on the basic accounting equation. Record each transaction by increasing (+)
or decreasing (–) the dollar amount of each item affected. Indicate the new balance of each item
after a transaction is recorded. It is not necessary to identify the cause of changes in owner's
equity.
Transactions
(1) Bill Phinnes invests $20,000 in cash to start a cleaning and laundry business on June 1.
(2) Purchased laundry equipment for $5,000 paying $3,000 in cash and the remainder due in
30 days.
(3) Purchased laundry supplies for $1,200 cash.
(4) Received a bill from College News for $300 for advertising in the campus newspaper.
(5) Cash receipts from customers for cleaning and laundry amounted to $1,500.
(6) Paid salaries of $200 to student workers.
(7) Billed the Lion Soccer Team $200 for cleaning and laundry services.
(8) Paid $300 to College News for advertising that was previously billed in Transaction 4.
(9) Bill Phinnes withdrew $900 from the business for living expenses.
(10) Incurred utility expenses for month on account, $400.
Trans- Accounts Laundry Laundry Accounts B. Phinnes
action Cash + Receivable + Supplies + Equipment = Payable + Capital
(1)
——————————————————————————————————————————
Balance
(2)
——————————————————————————————————————————
Balance
(3)
——————————————————————————————————————————
Balance
(4)
——————————————————————————————————————————
Balance
(5)
——————————————————————————————————————————
Balance
(6)
——————————————————————————————————————————
Balance
(7)
——————————————————————————————————————————
Balance
(8)
——————————————————————————————————————————
Balance
Ex. 193 (cont.)
(9)
——————————————————————————————————————————
Balance
(10)
——————————————————————————————————————————
Totals
Ex. 194
For each of the following, describe a transaction that will have the stated effect on the elements of
the accounting equation.
(a) Increase one asset and decrease another asset.
(b) Increase an asset and increase a liability.
(c) Decrease an asset and decrease a liability.
(d) Increase an asset and increase owner's equity.
(e) Increase one asset, decrease one asset, and increase a liability.
Ex. 195
The following transactions represent part of the activities of Tigger Company for the first month of
its existence. Indicate the effect of each transaction upon the total assets of the business by one
of the following phrases: increased total assets, decreased total assets, or no change in total
assets.
(a) The owner invested cash to start the business.
(b) Purchased a computer for cash.
(c) Purchased office equipment with money borrowed from the bank.
(d) Paid the first month's utility bill.
(e) Collected an accounts receivable.
(f) Owner withdrew cash from the business.
.
Ex. 196
Selected transactions for Parton Company are listed below. List the number of the transaction
and then describe the effect of each transaction on assets, liabilities, and owner's equity.
Sample: Made initial cash investment in the business.
The answer would be—Increase in assets and increase in owner's equity.
1. Paid monthly utility bill.
2. Purchased new display case for cash.
3. Paid cash for repair work on security system.
4. Billed customers for services performed.
5. Received cash from customers billed in 4.
6. Withdrew cash for owner's personal use.
7. Incurred advertising expenses on account.
8. Paid monthly rent.
9. Received cash from customers when service was rendered.
Ex. 197
A service proprietorship shows five transactions summarized below. The effect of each
transaction on the accounting equation is shown, and also the new balance of each item in the
equation. For each transaction (a) to (e) write an explanation of the nature of the transaction.
Accounts Equip- Accounts
Cash + Rec. + ment + Land + Building = Payable + Capital
——————————————————————————————————————————
$5,000 $6,500 $10,000 $7,500 $50,000 $3,000 $76,000
a) –2,000 –2,000
3,000 6,500 10,000 7,500 50,000 1,000 76,000
b) +1,000 – 1,000
4,000 5,500 10,000 7,500 50,000 1,000 76,000
Ex. 197 (cont.)
c) + 5,000 +5,000
4,000 5,500 15,000 7,500 50,000 6,000 76,000
d) +2,500 + 2,500
6,500 5,500 15,000 7,500 50,000 6,000 78,500
e) +3,000 + 3,000
$6,500 $8,500 $15,000 $7,500 $50,000 $6,000 $81,500
Ex. 198
There are ten transactions listed below. Match the transactions that have the identical effect on
the accounting equation. You should end up with 5 matches.
a. Receive cash from customers on account.
b. Initial cash contribution by an owner.
c. Pay cash to reduce an accounts payable.
d. Purchase supplies for cash.
e. Pay cash to reduce a notes payable.
f. Purchase supplies on account.
g. Additional cash contribution by an owner.
h. Purchase equipment with a note payable.
i. Pay utilities with cash.
j. Owner withdraws money from the business for personal use.
Ex. 199
An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is
shown below. Each increase and decrease in owner’s equity is explained.
Accounts Office Accounts Owner’s Equity
Cash + Receivable + Supplies + Equipment = Payable + K. T. Lang, Capital
1. +$15,000 +$15,000 Investment
2. - 2,000 +$5,000 +$3,000
3. - 750 +$750
4. + 2,500 +$3,600 + 6,100 Service Revenue
5. - 1,500 - 1,500
6. - 2,500 - 2,500 Drawings
7. - 650 - 650 Rent Expense
8. + 550 - 550
9. - 3,500 - 3,500 Salaries Expense
10. + 500 - 500 Utilities Expense
Instructions
(a) Prepare an income statement for the month ending July 31, 2010.
(b) Prepare an owner’s equity statement for the month ending July 31, 2010.
Ex. 200
An analysis of the transactions made by K. T. Lang & Co., a law firm, for the month of July is
shown below. Each increase and decrease in owner’s equity is explained.
Accounts Office Accounts Owner’s Equity
Cash + Receivable + Supplies + Equipment = Payable + K. T. Lang, Capital
1. +$15,000 +$15,000 Investment
2. - 2,000 +$5,000 +$3,000
3. - 750 +$750
4. + 2,500 +$3,600 + 6,100 Service Revenue
5. - 1,500 - 1,500
6. - 2,500 - 2,500 Drawings
7. - 650 - 650 Rent Expense
8. + 550 - 550
9. - 3,500 - 3,500 Salaries Expense
10. + 500 - 500 Utilities Expense
Instructions
Prepare a balance sheet at July 31, 2010.
Ex. 201
The following information relates to Ty Ringo Co. for the year 2010.
Ty Ringo, Capital, January 1, 2010 $ 47,000 Advertising expense $1,500
Ty Ringo, Drawing during 2010 6,000 Rent expense 9,500
Service revenue 62,500 Utilities expense 3,400
Salaries expense 29,000
Instructions
After analyzing the data, prepare an income statement and an owner’s equity statement for the
year ending December 31, 2010
Ex. 202
Cyn Sclose is the bookkeeper for Ayala Company. Cyn has been trying to get the balance
sheet of Ayala Company to balance. Ayala’s balance sheet is as follows.
AYALA COMPANY
Balance Sheet
December 31, 2010
Assets Liabilities
Cash $17,400 Accounts payable $30,000
Supplies 7,100 Accounts receivable (9,500)
Equipment 45,000 Ayala, Capital 58,200
Ayala, Drawing 9,200 Total liabilities and
Total assets $78,700 owner’s equity $78,700
Instructions
Prepare a correct balance sheet.
Ex. 203
Presented below is information related to the sole proprietorship of Anthony Scalici, consultant.
Consulting service revenue—2010 $340,000
Total expenses—2010 213,000
Assets, January 1, 2010 85,000
Liabilities, January 1, 2010 64,000
Assets, December 31, 2010 165,000
Liabilities, December 31, 2010 80,000
Drawings—2010 ?
Instructions
Prepare the 2010 owner’s equity statement for Anthony Scalici’s consulting company.
Ex. 204
Prepare an income statement, an owner's equity statement, and a balance sheet for the
accupuncture practice of Bi Loi, from the items listed below for the month of September.
Bi Loi, Capital, September 1 $42,000
Accounts payable 7,000
Equipment 30,000
Service revenue 25,000
Bi Loi, Drawings 6,000
Dental supplies expense 3,500
Cash 6,000
Utilities expense 700
Dental supplies 2,800
Salaries expense 9,000
Accounts receivable 14,000
Rent expense 2,000
BI LOI, ACCURPUNCTURIST
Income Statement
For the Month Ended September 30, 2009
——————————————————————————————————————————
Revenues $
Expenses $ $
Total expenses $
Net income $
BI LOI, ACCURPUNCTURIST
Owner's Equity Statement
For the Month Ended September 30, 2009
——————————————————————————————————————————
Bi Loi, Capital, September 1 $
Add:
$
Less:
$
Ex. 204 (cont.)
BI LOI, ACCURPUNCTURIST
Balance Sheet
September 30, 2009
——————————————————————————————————————————
Assets
$
Total assets
$
Liabilities and Owner's Equity
Liabilities
$
Owner's Equity $
Total liabilities and owner's equity $
Ex. 205
Indicate whether the following items would appear on the balance sheet (BS), income statement
(IS), or owner's equity statement (OE).
1. Advertising expense
2. Accounts receivable
3. Jones, drawing
4. Rent revenue
5. Salaries payable
6. Supplies
Ex. 206
Listed below in alphabetical order are the balance sheet items of Pieter Company at December
31, 2009. Prepare a balance sheet and include a complete heading.
Accounts Payable $ 14,000
Accounts Receivable 15,000
Building 46,000
Cash 17,000
Jan Pieter, Capital 120,000
Land 52,000
Office Equipment 4,000
Ex. 207
One item is omitted in each of the following summaries of balance sheet and income statement
data for three different sole proprietorships, X, Y, and Z. Determine the amounts of the missing
items, identifying each proprietorship by letter.
Proprietorship
X Y Z
Beginning of the Year:
Assets $380,000 $150,000 $199,000
Liabilities 250,000 105,000 168,000
End of the Year:
Assets 450,000 185,000 195,000
Liabilities 280,000 95,000 169,000
During the Year:
Additional Investment by the owner ? 79,000 80,000
Withdrawals by the owner 90,000 83,000 ?
Revenue 195,000 ? 187,000
Expenses 170,000 113,000 175,000
Ex. 208
Indicate in the space provided by each item whether it would appear on the Income Statement
(IS), Balance Sheet (BS), or Owner's Equity Statement (OE):
a. ____ Service Revenue g. _____ Accounts Receivable
b. ____ Utilities Expense h. _____ White, Capital (ending)
c. ____ Cash i. _____ Equipment
d. ____ Accounts Payable j. _____ Advertising Expense
e. ____ Office Supplies k. _____ White, Drawing
f. ____ Wage Expense l. _____ Notes Payable
Ex. 209
Pam Sophly was reviewing her business activities at the end of the year (2009) and decided to
prepare an Owner's Equity Statement. At the beginning of the year her assets were $500,000 and
her liabilities were $200,000. At the end of the year the assets had grown to $950,000 but
liabilities had also increased to $350,000. The net income for the year was $420,000. Pam had
withdrawn $120,000 during the year for his personal use.
Prepare an Owner's Equity Statement in good form.
Ex. 210
At September 1, the balance sheet accounts for Stanley’s Restaurant were as follows:
Accounts Payable $ 3,800 Land $33,000
Accounts Receivable 1,600 Stanley, Capital ?
Building 68,000 Notes Payable 48,000
Cash 10,000 Supplies 6,600
Furniture 18,700
The following transactions occurred during the next two days:
Stanley invested an additional $22,000 cash in the business. The accounts payable were paid in
full. (No payment was made on the notes payable.)
Instructions
Prepare a balance sheet at September 3, 2009.
Ex. 211
Presented below are balance sheet items for Wilson Company at December 31, 2009.
Accounts payable $35,000
Accounts receivable 36,000
Cash 27,000
Equipment 52,000
Wilson, capital 30,000
Notes payable 50,000
Compute each of the following:
1. Total assets.
2. Total liabilities.
COMPLETION STATEMENTS
212. Accounting is an information system that identifies, _____________, and _____________
the economic events of an organization.
213. The mere recording of economic events is called ______________, and is just one part of
the _______________ process.
214. The three major services rendered by a certified public accountant are ______________,
________________, and management ________________.
215. Accountants who are employees of business enterprises are referred to as
________________ accountants.
216. A common set of standards that provides guidelines to accountants and indicates how to
report economic events is called _________________.
217. The ________________ principle states that assets should be recorded at the value
exchanged at the time the asset is acquired.
218. The _________________ assumption requires that the activities of an entity be kept
separate from the activities of its owner.
219. The residual claim on total assets of a business is known as ________________ and is
equal to total assets minus total liabilities.
220. Drawings ________________ owner's equity but are not expenses.
221. The ________________ reports the assets, liabilities, and owner's equity of a business
enterprise at a specific date.
MATCHING
222. Match the items below by entering the appropriate code letter in the space provided.
A. CPA F. Corporation
B. Budgeting G. Assets
C. SEC H. Equities
D. Proprietorship I. Expenses
E. Economic Entity Assumption J. Transaction
____ 1. Activities of an entity must be kept separate from its owner’s activities.
____ 2. Consumed assets or services.
____ 3. Ownership is limited to one person.
____ 4. Offers expert accounting service to the general public.
____ 5. Creditor and ownership claims against the assets of the business.
____ 6. A separate legal entity under state laws.
____ 7. Government agency that can mandate accounting rules.
____ 8. Quantifying goals and objectives.
____ 9. Future economic benefits.
____ 10. Economic events recorded by accountants.
SHORT-ANSWER ESSAY QUESTIONS
S-A E 223
The accounting profession provides many career opportunities for individuals. Identify the major
fields that exist in accounting and comment on the major functions performed by individuals in
each of these areas.
S-A E 224
The framework used to record and summarize the economic activities of a business enterprise is
referred to as the accounting equation. State the basic accounting equation and define its major
components. How are business transactions and financial statements related to the accounting
equation?
S-A E 225
Your friend, James, made this comment:
My major is biology and I plan to research for cures for major illnesses. Thus, I have
no need to study accounting.
What is your response to James?
.
S-A E 226
The information needs of a specific user of financial accounting information depends upon the
kinds of decisions that user makes. Identify the major users of accounting information and
discuss what questions financial accounting information answers for each group of users.
S-A E 227 (Ethics)
Sam Dryer owns and operates Sam's Burgers, a small fast food store, located at the edge of City
College campus in Newton, Ohio. After several very profitable years, Sam's Burgers began to
have problems. Most of the problems were related to Sam's expansion of the eating area in the
restaurant without corresponding increases in the food preparation area. Sam does not have the
cash or financial backing to expand further. He has therefore decided to sell his business.
Jerry Finney is interested in purchasing the business. However, he is located in another city and
is unfamiliar with Newton. He has asked Sam why he is selling Sam's Burgers. Sam replies that
his elderly mother requires extra care, and that his brother needs help in his manufacturing
business. Both are true, but neither is his primary reason for selling. Sam reasons that Jerry
should not have asked him anyway, since profitable businesses don't come up for sale.
Required:
1. Identify the stakeholders in this situation.
2. Did Sam act ethically in not revealing fully his reasons for selling the business? Why or why
not?
S-A E 228 (Communication)
Sue Havens is a friend of yours from high school. She decided to become a beautician after
leaving high school, rather than to attend college. She recently opened her own shop, and has
contracted her services to a local hospital. She is paid a monthly fee for her services, and
receives a small gratuity from each of the patients.
She has just received her first set of financial statements from her accountant. She is quite upset.
The statements show a cash balance of $3,600 at the end of the month, but a net income of only
$500. She has written you a letter, asking you whether such a situation is possible, or whether
she should find another accountant.
Required:
Write a short letter to your friend. Use proper form. Answer her question completely, but briefly.