Remember the Aggie Honor Code:An Aggie does not lie, cheat, or steal, or tolerate those who do.By signing and turning in your scantron, you are acknowledging your compliance with the honor code.Accounting 209 Name _________________________________Exam #1 FORM A SOLUTIONS AT END OF EXAMRemember the Aggie Honor Code: An Aggie does not lie, cheat, or steal, or tolerate those who do.By signing and turning in your scantron, you are acknowledging your compliance with the honor code.COMPLETION Use the following terms to complete the statements below. NOTE that the same letter is used to identify more than one term. You may use a term once, more than once, or not at all. (2 points each)a. accountingb. accrualc. balance sheetd. cashe. contributed capitala. double entry b. Financial Accounting Standards Boardc. GAAPd. income statemente. matchinga. profitabilityb. retained earningsc. revenue recognitiond. source documentse. stockholders’ equity(1) _______________ is a process of communication. Its purpose is to provide economic information about an organization that will be useful to those who need to make decisions regarding that organization. (2) _____________ is the difference between the assets of an entity and its liabilities, and consists of two distinct elements. (3) _______________, as represented by capital stock, is the original contribution to the company by the owners. (4) _______________ represents the earnings of the company that have not been paid out in dividends.A (5)_____________ is a statement of financial position that is dated at a specific point in time. Its purpose is to show the financial position of an entity as of a particular point in time. The purpose of the (6) _______________ is to summarize the revenues and expenses of a company for a period of time. It is an indicator of a company’s (7) _____________ for that period.The Securities and Exchange Commission has generally allowed the accounting profession, through the (8) _______________, to establish accounting rules in the United States. These rules, or guidelines, are known as (9) _______________. Two important principles in accounting are the (10) _______________ principle, which states that revenue should be reported when it is earned, and the (11) _______________ principle, which states that expenses should be reported in the same period as the revenue that the expense helped generate. Revenues and expenses are not recorded based on whether cash has been received or paid. Together, these two principles define the (12) _______________ basis of accounting. The (13) _______________ system of accounting means that every transaction must be entered into at least two accounts and in such a way that the equality of the balance sheet equation is maintained.(14) omitACCOUNT CLASSIFICATIONClassify each of the following accounts as an asset, liability, or stockholders’ equity item as shown on the balance sheet, or as a non-balance sheet account. Mark your scantron as follows (1 point each):a – asset b – liability c – equity d – not a balance sheet account 15. __________ Retained earnings16. __________ Common stock17. __________ Accounts payable18. __________ Sales19. __________ Accounts receivable20. _________ Prepaid rent21. __________ Machinery 22. __________ Service revenue23. __________ Dividends24. __________ InventoryFINANCIAL STATEMENTSUse the following information to answer the next three (3) questions.While each of the financial statements is likely to aid in any business decision, it is often the case that a particular statement may be best suited to help in a particular situation. Consider each case below independently, and determine which statement is most likely to be of use. You may use each financial statement once, more than once, or not at all. Mark your scantron as follows (2 points each):a – income statementb – balance sheetc – statement of equity or statement of retained earnings25. _____You are trying to determine how much of a firm’s net income it distributes to its stockholders.26. _____You are trying to determine if a specific company is a good investment. You want to invest in a firm that has strong revenue growth.27. _____You are employed as a financial analyst for a large investment firm. You are trying to assess the riskiness of a particular investment opportunity. You understand that the more debt a firm has relative to its stockholders’ equity, the riskier the firm is.MULTIPLE CHOICE Choose the best answer. (4 points each)28. Which of the following statements is false?a. Accounting is the information system that collects and measures business activities, processesthat information into reports, and communicates the results to decision- makers.b. Financial statements report financial information about a business entity to decision-makers.c. Owners of a corporation are personally liable for the debits of the corporation.d. The purpose of financial accounting is to provide information to people outside of the entity, suchas creditors and investors.e. None of the above statements is false.Use the following information to answer the next two (2) questions.Tommy Jones owns a music store called Tommy’s Tunes and More. Tommy rents the building in whichthe store is located, but owns the equipment and fixtures inside of it. Last week, Tommy’s Tunes madesales of $3,000; some of these sales were for cash but some were made to customers who have an account with the store and are billed at the end of each month. Last month, Tommy’s Tunesborrowed $10,000 from the local bank to expand the business.29. Which of the following is not an asset owned by Tommy’s Tunes and More?a. the inventory of musical instrumentsb. the building in which the store is locatedc. the amount owed to Tommy’s Tunes by the customersd. the equipment and fixtures in the storee. none of the above30. Which of the following is true?a. Tommy’s Tunes is too small a business for anyone to care about its financial information.b. The sales Tommy’s Tunes made last week are considered revenue.c. The intent of Tommy’s Tunes to expand his business is an asset.d. The sales Tommy’s Tunes made on account (credit sales) last week cannot be considered revenue until cash is received from the customers.e. none of the aboveUse the following information to answer the next five (5) questions.Several friends started a new business, Aggie, Inc., by investing $70 cash in