Questions and Answers of Essentials Accounting

Equity consists of capital obtained from sources that are not liabilities.As Exhibit 1 indicates, there are two sources of equity capital:(1) $13,578,000, which is labeled Total P ____________ - i
In Garsden’s industry, assume that research shows that a current ratio of at least 2 to 1 is desirable. Garsden Company [does / does not] pass this test.
Liabilities are claims against all the assets. The $6,077,000 of accounts payable on the Garsden Company balance sheet is a claim against[the current assets of $22,655,000 / the total assets of
As we have seen, Garsden Company has obtained funds by borrowing, and $ ________ ____________ of this debt is not due to be repaid until after December 31, . This amount is therefore a[current /
In Exhibit 1, the first category of liabilities is liabilities. As you might expect from the discussion of current assets, current liabilities are claims that become due within a [short / long]time,
The right-hand side of the Garsden Company balance sheet lists the company’s liabilities and equity. These can be regarded either as c _____ against the assets or as the s _____ from which the
As the name suggests, assets that are expected to be useful for longer than 1 future year are called [current / noncurrent] assets.
Current assets consist of c __ and of assets that are expected to be converted into c __ or used up within a short period, usually within (how long?).
Current assets are cash and other assets that are expected to be converted into cash or used up in the near future, usually within 1 year.Groceries on the shelves of a grocery store [are / are not]
To summarize, for an item to be listed as an asset, it must meet three requirements:1. It must be __ ed or c ______ ed by the entity.2. It must be v ______ to the entity.3. It must have been acquired
By contrast, if Jones Company has built up an excellent reputation because of the consistently high quality of its products, this reputation[is / is not] an asset in accounting, even though it may be
The third requirement is that the item must have been acquired at a measurable cost . Jones Company bought a trademark from another company for $1 million; this trademark [is / is not] an asset of
The second requirement is that the item must be valuable to the entity.Which of these would qualify as assets of a company that sells dresses?A. The company’s right to collect amounts owed by
In accounting, the employees of an entity are not assets because the entity does not them. However, if a baseball club owns a contract in which a player agrees to provide services, the contract[is /
The first requirement is that the item must be controlled by the entity. Usually this means that the entity must own the item. If Able Company rents a building owned by Baker Company, this
Assets are valuable resources. Let’s make this idea more specific.In order to count as an ____ in accounting, an item must pass three tests.
Most items on a balance sheet are summaries of more detailed accounts. For example, the cash is probably located in a number of separate bank accounts, in cash registers, and in petty cash boxes. The
Recall also that the total of the assets always equals the total of the liabilities plus equity. Total assets were $ , and total liabilities plus equity were $ .
Remember that the note “($000 omitted)” means that the numbers are reported in thousands of dollars. For example, the number reported for Cash, $1,676, means that the amount of cash was$ . This
Refer to Exhibit 1. This is the balance sheet we introduced earlier. It reports the amounts of a ____ , l _________ , and e ____ of Garsden Company as of .
The asset-measurement concept is the fifth of the nine fundamental accounting concepts. The first five are:1. dual-aspect concept 2. money-measurement concept 3. entity concept 4. going-concern
Accounting does not report what many of the individual assets are worth, that is, their f __ v ___ . Accounting therefore[does / does not] report what the whole entity is worth. Those who criticize
Monetary assets are those that have a claim on a specified amount of money. Cash, securities, and bonds mentioned earlier are [monetary /nonmonetary] assets. Land, buildings, equipment, and inventory
The decision of whether an asset is accounted for at fair value or at cost is usually made at the time the asset is acquired. For example, if a shoe retailer purchased an inventory of shoes for $800,
To summarize, the two reasons that accounting focuses on costs, rather than on fair values for some assets, are:1. Costs are easy to estimate; that is, they are [objective / subjective], whereas fair
Second, many assets are not going to be sold in the near future;they will be used in ongoing operations. The entity and those who use its balance sheet therefore [do / do not] need to know the fair
There are two reasons for measuring some assets at cost. First, estimating fair value of each asset may be expensive and unreliable. If you bought a pair of shoes for $100 in 2011 and asked two
The asset-measurement concept combines both types of assets illustrated above. It is: If reliable information is available, the amount of an asset is measured at its ___ ____ . Otherwise the
In general, land, buildings, equipment, and inventories have this characteristic: their fair value [can/cannot] be reliably measured except at the time they were acquired. They are reported at ___ or
If on December 31, 2012, Garsden owned machinery that it had purchased 5 years earlier for $80,000 with an estimated life of 10 years, it would probably report the asset amount as [$80,000 / less
Because it doesn’t know the fair value of the land on December 31, 2012, Garsden would report the amount at $100,000, which was its ___ .
The fair value of most assets is known on the date the asset was acquired because the buyer and the seller agreed on the amount. If Garsden Company purchased a plot of land in 2002 for $100,000, this
In general, an asset is reported at its fair value when reliable information as to its market value is available. Usually, this information is obtained from an outside party. Thus, the concept is: If
Also, we can be reasonably certain that the ___ ____ of marketable securities was $246,000 because a stock exchange publishes a reliable record of the value as of December 31, 2012, for each security
Readers of the balance sheet want to know what the reported assets are worth. In accounting, the name for what an asset is “worth” is its fair value (also called market value ). The Garsden
Because of the going-concern concept, accounting [does / does not]report what the assets could be sold for if the entity ceases to exist.
Specifically, the g ___ - c _____ concept states that accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary.
Accounting assumes that an entity, or concern , normally will keep on going from one year to the next. This assumption is therefore called the g ___ - concern concept.
Every year some entities go bankrupt or cease to operate. Most entities, however, keep on going from one year to the next. Accounting must assume either that (a) entities are about to cease
John and Ellen own the John and Ellen Laundry, a partnership.Each takes $2,500 cash from the partnership entity and deposits it into a personal bank account. An accounting report of the financial
Owners of some small retail stores (called “mom and pop” stores)may not identify the cost of merchandise they withdraw for personal use, personal telephone calls, and the like. If this is so,
The fact that accounts are kept for entities as distinguished from the persons associated with those entities is called the e ____ concept.
What about Green Company? It now has [$300 more / the same amount / $300 less] in assets.
Sue Smith withdraws $300 from Green Company, of which she is the sole owner. Smith now has $300 more cash, but she has $300 less equity in Green Company. Smith is [better off / worse off / no better
Because accounting reports include only facts that can be stated in monetary amounts, accounting is necessarily a(n) [complete / incomplete]record of the status of a business and [does / does not]
If facts cannot be expressed in monetary terms, they cannot be reported on a balance sheet. Which of the following facts could be learned by reading a balance sheet of Able Company?A. How much cash
The money-measurement concept states that accounting reports only those facts that can be stated as m ______ a _____ .
The facts that appear in an accounting report are stated in units of money—that is, dollars and cents (in the United States and Canada). This is the money-measurement concept. By converting
Can you add the amounts of apples and oranges if they are stated in terms of money? [Yes / No]
To add together objects as different as apples, oranges, automobiles, shoes, cash, supplies, and so on, they must be stated in [different /similar] units.
If a fruit store had $200 in cash, 100 dozen oranges, and 200 apples, could you add up its total assets from this information? [Yes / No]
The term “net assets” is sometimes used instead of “equity.” It refers to the fact that equity is always the difference between a ____ and l _________ . (We shall describe the details in a
If Dowling Company prepared a balance sheet as of the beginning of business the next day, January l, 2012, would it be different from the one you prepared above? [Yes / No]
Suppose a business had liabilities totaling $25,000 and equity totaling $28,600. Evidently, its assets were $ ____________.
This equality leads to what is called the dual-aspect concept. The two aspects to which this concept refers are (1) and(2) plus , and the concept states that these two aspects are always . (In what
The fact that total assets must equal, or balance, total liabilities plus equity is why the statement is called a ______ _____ . This equality tells nothing about the entity’s financial condition;
This is another way of saying that total assets must always equal total __________ plus _____ .
(1) Any assets not claimed by creditors will be claimed by equity investors, and (2) the total amount of claims (liabilities 1 equity) cannot exceed what there is to be claimed. Therefore, the total
Whatever assets remain after the liabilities are taken into account will be claimed by the equity investors. Consider the case of an entity whose assets total $13,500, and whose liabilities total
Creditors can sue the entity if the amounts due them are not paid.Equity investors have only a residual claim; if the entity is dissolved, they get whatever is left after the liabilities have been
Equity funds also come from a second source, the profits or earnings generated by the entity. The amount of these earnings that has not been paid to equity investors in the form of dividends is
The other source of the funds that an entity uses to acquire its assets is called equity. In Garsden Company, equity investors provided funds for which they received common stock. The total amount
Because an entity will use its assets to pay its claims, the claims are claims against _____ . They are claims against all the assets, not any particular asset.
Creditors have a claim against the assets in the amount shown as the liability. For example, a bank has loaned funds to Garsden Company, and therefore has a current claim of $1,250,000 of this
Liabilities are the entity’s obligations to outside parties who have furnished resources. These parties are generally called creditors because they have extended credit to the entity. As Exhibit 1
The right side of the balance sheet shows the sources of funds that provided the entity’s assets. As the heading indicates, there are two general types of sources, l _________ and e ____ .
Assets are resources o wned by Garsden Company. Its employees, although usually its most valuable resource, [are / are not] accounting assets.
Assets are valuable resources owned by the entity. An entity needs cash, equipment, and other resources in order to operate. These resources are its a ____ . The balance sheet shows the amounts of
The Garsden Company balance sheet has two sides. The heading of the left side is A ____ , and the heading of the right side is L _________ and E ____ . We shall describe the meaning of each side.
The date December 31, 2012, means [circle A or B]A. it was prepared on December 31, 2012.B. it reports the entity’s financial position as of December 31, 2012.
The balance sheet is a snapshot of the financial position of the entity as of one moment in time. As indicated by the heading in Exhibit 1, the balance sheet for Garsden Company reports its financial
An entity is any organization for which financial statements are prepared. A business is an _____ ; a college, a government, a church, and a synagogue are also _______ .
A balance sheet gives financial information about an entity. The name of the entity that this balance sheet refers to is ______ ______ .
Accounting is a language. The purpose of any language is to convey information. Accounting information is provided by reports called financial statements. This program helps you understand what the
10. The extension added to files that have been restored is .MOA, Microsoft Office Accounting.
9. When backing up, files are compressed or made smaller.
8. The Navigation Pane is shown at the top of the home page.Northwind Traders–A Product Company 37 The McGraw-Hill Companies, Inc., Computer Accounting with Microsoft Office Accounting 2007
7. The default location for Company data is My Documents\Small Business Accounting\Backups.
6. It is a good idea to regularly copy backups to external media such as a USB drive.
5. You can close the application you are working with if you single click with your mouse on the close button ( ).
4. In this book, the greater and lesser signs are used to indicate individual keys on the keyboard; for example .
3. Shortcut keys enable you to use Microsoft Office Accounting’s mouse.The McGraw-Hill Companies, Inc., Computer Accounting with Microsoft Office Accounting 2007
2. The menu items that have an arrow next to them indicate that there is another submenu with additional selections.
1. If there is an underlined letter in the menu or option you want to select, hold down the key and the underlined letter to make the selection.
To review how to use Microsoft Office Accounting, create flashcards. For example, for installing MOA, write Installation on one side of the card; on the other side, write the steps for software
3. List five career opportunities in accounting and finance.
2. What is the preferred educational background for an accountant?
1. What three skills are essential for those seeking careers in accounting and finance?
What kind of activity is described by each of the events of the transactions below?(a) Trude Co. buys a piece of equipment for$40,000. [operating / investing / financing](b) Trude Co. borrows $50,000
Complete the “cash flow from operating activities”section of XYZ Corp.’s statement of cash flows. Assume accounts receivable decreased by$5,000, accounts payable decreased by $3,000, and
To adjust XYZ Corp.’s net income to a cash basis, the $2,000 in depreciation expense should be[added to net income / subtracted from net income /ignored].
XYZ Corp. had $2,000 in depreciation expense in 2012. This [was / was not] a cash flow during that year.
The change in XYZ Corp.’s cash balance from the end of 2011 to the end of 2012 [is / is not] part of the changes in current assets used to calculate “cash flow from operating activities.”
Accounts payable for XYZ Corp. decreased by$3,000 between December 31, 2011 and December 31, 2012. This change [decreased / had no effect on /increased] net income adjusted to a cash basis.
At December 31, 2011, XYZ Corp. had accounts receivable of $70,000. At December 31, 2012, the company’s accounts receivable balance was$65,000. This $5,000 decrease of accounts receivable[decreased
The three sections of the statement of cash flows are:cash flow from cash flow from cash flow from
The income statement reports net income on a(n)basis. The statement of cash flows adjusts net income to a(n) basis.
The preparation of a statement of cash flows is[recommended / required] by U.S. accounting rules.
Bonnie Company’s income statement reported revenue of $1,000,000, of which $10,000 was sales to Charlie Company. Charlie Company’s income statement reported revenue of $500,000, of which$20,000
Bonnie Company owns 51 percent of the stock of Charlie Company, 50 percent of the stock of Gus Company, and 49 percent of the stock of Ted Company. Bonnie is the company. The accounts of and would be

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