ACCT 2010 1st Edition Exam 1 Study Guide Mock Exam 1 Chapters 1 2 Answers in Blue 1 What is the primary purpose of financial accounting a Determine the amount of tax liability owed to the government b Communicate business transactions to internal management c Measure business transactions and communicate those measures to external users to make decisions d Measure the profitability of the company in order to assist employees with making decisions 2 Which statement below best describes the accounting equation a The change in retained earnings equals net income less dividends b Equality of revenue and expense transactions over time c Resources of the company equal creditors and owners claims to those resources d Financing activities equal investing and operating activities 3 Johnson had the following final balances after the first year of operations Assets 26 000 stockholders equity 10 000 dividends 2 000 and net income 6 000 What is the amount of Johnson s liabilities a 36 000 b 20 000 c 16 000 d 10 000 4 Transactions related to the primary business activities of the company such as selling goods and services to customers are referred to as a Investing activities b Management activities c Operating activities d Financing activities 5 Which business form has the advantage of limited liability a Corporation b Sole proprietorship c Partnership d All business forms share equal limited liability 6 The costs of providing goods and services to customers are referred to as a Assets b Expenses c Liabilities d Revenues 7 The owners interest in a corporation is called a Dividends b Assets c Liabilities d Stockholders equity 8 Liabilities are best defined as a Amounts the company expects to collect in the future from customers b Debts or obligations the company owes resulting from past transactions c The amounts that owners have invested in the business d Payments to stockholders 9 Use the following amounts to calculate net income Revenues 14 000 Liabilities 6 000 Expenses 5 800 Assets 21 000 Dividends 1 200 a 29 200 b 15 200 c 5 800 d 8 200 10 Which of the following accounts appears in the statement of stockholders equity a Prepaid rent b Cash c Unearned revenue d Retained earnings 11 Which of the following is the correct order for preparing the financial statements a Balance sheet statement of stockholders equity and income statement b Balance sheet income statement and statement of stockholders equity c Statement of stockholders equity income statement and balance sheet d Income statement statement of stockholders equity and balance sheet 12 DW has an ending retained earnings balance of 52 000 If during the year DW paid dividends of 5 000 and had net income of 22 000 then what was the beginning retained earnings balance a 69 000 b 35 000 c 25 000 d 30 000 13 The major underlying assumptions of accounting include all of the following except a Economic entity b Monetary unit c Legal liability d Going concern 14 When a company incurs workers salaries but does not pay them how will the basic accounting equation be affected a Stockholders equity decreases b Revenues decrease c Expenses decrease d Liabilities decrease 15 Pumpkin Inc sold 500 in pumpkins to a customer on account on January 1 On January 11 Pumpkin collected the cash from that customer What is the impact on Pumpkin s accounting equation from the collection of cash a No net effect to the accounting equation b Decrease assets and increase liabilities c Increase assets and increase liabilities d Decrease assets and decrease liabilities 16 A company receives a 50 000 cash deposit from a customer on October 15 but will not provide services until November 20 Which of the following statements is true a The company records service revenue on October 15 b The company records cash collection November 20 c The company records an unearned revenue on October 15 d The company records nothing on October 15 17 An expense has what effect on the accounting equation a Decrease liabilities b Decrease stockholders equity c Increase assets d No effect 18 Providing services and receiving cash will a Increase assets and increase stockholders equity b Increase assets and increase liabilities c Decrease assets and increase liabilities d Decrease liabilities and increase stockholders equity 19 Dividends normally carry a balance and are shown in the a Debit Statement of stockholders equity b Debit Income statement c Credit Balance sheet d Debit Balance Sheet 20 Which of the following accounts would normally have a credit balance a Accounts payable service revenue common stock b Salaries payable unearned revenue telephone expense c Income taxes payable service revenue dividends d Cash maintenance expense dividends 21 Xenon Corporation borrows 75 000 from First Bank Xenon Corporation records this transaction with a a Debit to investments b Credit to retained earnings c Credit to liabilities d Credit to expenses 22 A company received a bill for newspaper advertising services received 400 The bill will be paid in 10 days How would the transaction be recorded today a Debit advertising expense 400 credit accounts payable 400 b Debit accounts payable 400 credit advertising expense 400 c Debit accounts payable 400 credit cash 400 d Debit advertising expense 400 credit cash 400 23 Assume that cash is paid for rent to cover the next year The appropriate debit and credit are a Debit rent expense credit cash b Debit prepaid rent credit rent expense c Debit prepaid rent credit cash d Debit cash credit prepaid rent 24 Styleson Inc performed cleaning services for their customers for cash These transactions would be recorded as a Debit service revenue credit cash b Debit cash credit service revenue c Debit cash credit accounts receivable d Debit accounts receivable credit service revenue 25 On December 1 2010 Bears Inc signed a contract with a retailer to supply stuffed animal toys for the next calendar year How should this transaction be recorded on December 1 2010 a Debit cash credit sales revenue b Debit cash credit accounts receivable c Debit accounts receivable credit sales revenue d No transaction should be recorded on December 1 2010 26 The body primarily responsible for establishing a single set of global accounting standards is the a IASB b SEC c FASB d IOSCO