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Exam 1: Accounting and Business

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Question 71

True/False

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The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States.

A) True
B) False

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Question 72

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Which one of the following is the authoritative body in the United States having the primary responsibility for developing accounting principles?

A) FASB
B) IRS
C) SEC
D) AICPA

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

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Question 73

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The cost principle is the basis for entering the purchase price into the accounting records.

Assets that are used up during the process of earning revenue are called expenses.

The stockholders' rights to the assets rank ahead of the creditors' rights to the assets.

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

An account receivable is typically classified as a revenue.

Match each transaction with its effect on the accounting equation. Each letter may be used more than once. -Provided a service to a customer on account

An example of an external user of accounting information is the federal government.

The assets and liabilities of Rocky's Day Spa at December 31 and expenses for the year are listed below. The stockholders' equity was $68,000 ($48,000 in Common Stock and $20,000 in Retained Earnings) at January 1. The shareholders invested in an additional $10,000 of common stock during the year. Net income for the year is $45,625. $\begin{array}{|l|c|l|l|}\hline \text { Accounts payable } & \$ 4,375& \text { Spa operating expense } & \$ 23,760 \\\hline \text { Accounts receivable } &8,490& \text { Office expense } & 2,470 \\\hline \text { Cash } &13,980& \text { Spa supplies } & 9,230 \\\hline \text { Fees earned } & 98,435& \text { Wages expense } & 26,580 \\\hline \text { Spa furniture } \& \text { equipment } & 56,000&\text { Dividends } & 38,170 \\\hline \text { Computers } & 2,130 & \\\hline\end{array}$ ? Prepare a statement of stockholder's equity for Rocky's Day Spa for the current year ended December 31.

Match the following characteristics with the form of business entity that best describes it. Each may be used more than once. -Comprises 70% of business entities in the United States

The Financial Accounting Standards Board (FASB) is the authoritative body that has primary responsibility for developing accounting principles.

Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $220,000. The Focus Company initially offered to buy the land for $177,000. The companies settled on a purchase price of $212,000. On the same day, another piece of land on the same block sold for $232,000. Under the cost principle, at what amount should the land be recorded in the accounting records of Focus Company?

Which of the following asset accounts is increased when a receivable is collected?

The assets and liabilities of Thompson Computer Services at March 31, the end of the current year, and its revenue and expenses for the year are listed below. The common stock was $120,000 and the retained earnings was $60,000 at April 1, the beginning of the current year. During the year, shareholders purchased an additional $25,000 in stock. Use this information the answer the questions that follow. $\begin{array} { l r l r } \text { Accounts payable } & \$ 2,000 & \text { Miscellaneous expense } & \$ 1,030 \\\text { Accounts receivable } & 10,340 & \text { Office expense } & 1,240 \\\text { Cash } & 21,420 & \text { Supplies } & 1,670 \\\text { Fees earned } & 73,450 & \text { Wages expense } & 23,550 \\\text { Land } & 47,000 & \text { Dividends } & 16,570 \\\text { Building } & 157,630 & &\end{array}$ ​ -Prepare a balance sheet for the current year ended March 31.

Which of the following best describes accounting?

Match each transaction with its effect on the accounting equation. Each letter may be used more than once. -Purchased equipment for cash

What information does the income statement give to business users?

The first statement prepared

Match the following characteristics with the form of business entity that best describes it. Each may be used more than once.