Multiple Choice 1-1

Which of the following is not included in the definition of accounting?

a. Identifying economic information

b. Measuring economic information

c. Developing economic information

d. Communicating economic information

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Multiple Choice 1-2

Which assumption states that an economic entity will continue its operations indefinitely?

a. Monetary unit

b. Time period

c. Going concern

d. Economic entity

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Multiple Choice 1-3

Net income is created in a time period when:

a. assets exceed liabilities.

b. revenues exceed expenses.

c. revenues are less than expenses.

d. liabilities are greater than assets.

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Multiple Choice 1-4

Which financial statement reports revenues and expenses?

a. Statement of retained earnings

b. Balance sheet

c. Statement of cash flows

d. Income statement

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Multiple Choice 1-5

The revenue recognition principle states that:

a. assets are recorded and maintained at their historical costs.

b. revenues are recorded when they are earned.

c. the dollar, unadjusted for inflation, is the best means of accounting in the U.S.

d. revenues are recorded when cash is received.

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Multiple Choice 1-6

During the year, Callie's Bagel Shop had revenues of $125,000. Rent expense was $12,000. Salaries expense was $25,000. Short-term investments were $35,000. Other expenses totaled $40,000. What was Callie's net income?

a. $85,000

b. $13,000

c. $48,000

d. $60,000

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Multiple Choice 1-7

Which of the following accurately describes the matching principle?

a. Matches assets and liabilities

b. Matches income and dividends

c. Matches retained earnings and income

d. Matches revenues and expenses

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Multiple Choice 1-8

The basic accounting equation states:

a. assets and liabilities equal equity.

b. assets equal liabilities plus equity.

c. liabilities equal equity plus assets.

d. revenues minus expenses equals net income.

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Multiple Choice 1-9

Which financial statement reports assets, liabilities, and equity?

a. Statement of cash flows

b. Balance sheet

c. Income statement

d. Statement of retained earnings

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Multiple Choice 1-10

Retained earnings is defined as:

a. the difference between assets and liabilities.

b. equity generated from profitable operations and retained in the business.

c. a decrease in assets resulting from selling a good or providing a service.

d. equity resulting from contributions from owners.

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Multiple Choice 1-11

As of December 31, Lurie Company has assets of $18,400 and equity of $6,500. What are the liabilities for Lurie Company as of December 31?

a. $24,900

b. $11,900

c. $14,200

d. $8,600

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Multiple Choice 1-12

Maker's Company had the following account totals: cash $25,000; inventory $15,000; accounts payable $15,000; retained earnings $25,000; equipment $80,000; investments $10,000; and other assets $40,000. What is Maker's total assets?

a. $170,000

b. $190,000

c. $85,000

d. $210,000

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Multiple Choice 1-13

The statement of retained earnings links which two financial statements?

a. The income statement and the balance sheet

b. The balance sheet and the statement of cash flows

c. The income statement and the statement of cash flows

d. The statement of retained earnings does not link any statements

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Multiple Choice 1-14

A company begins a period with a $5,000 retained earnings balance. The company generates $12,000 of revenues and $10,000 of expenses during the period and pays $1,000 of dividends. What is the retained earnings balance at the end of the period?

a. $7,000

b. $5,000

c. $6,000

d. $1,000

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Multiple Choice 1-15

Which of the following is not one of the sections on the statement of cash flows?

a. Investing activities

b. Financing activities

c. Operating activities

d. Income activities

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Multiple Choice 1-16

Which of the following is not a qualitative characteristic of accounting?

a. Understandability

b. Relevance

c. Pertinence

d. Consistency

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Exercise 1-11 Accounting Terms

Required:

Classify each of the items below according to whether it appears on the income statement or balance sheet and whether it is classified as a revenue, expense, asset, liability, or equity.

Item	Appears On	Classified As
1. Salaries expense	_________________	_________________
2. Equipment	_________________	_________________
3. Cash	_________________	_________________
4. Accounts payable	_________________	_________________
5. Buildings	_________________	_________________
6. Contributed capital	_________________	_________________
7. Retained earnings	_________________	_________________
8. Interest revenue	_________________	_________________
9. Advertising expense	_________________	_________________

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Exercise 1-13 Classify Cash Flows

A company entered into the following cash transactions:

Required:

Indicate the section of the statement of cash flows in which each item would appear: operating activities (O), investing activities (I), or financing activities (F).

1. Cash paid to suppliers	_________________
2. Cash received from issuing new common stock	_________________
3. Cash paid to purchase new office furniture	_________________
4. Cash paid in dividends to owners	_________________
5. Cash received from customers	_________________

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Exercise 1-14 Accounting Terms

Required:

Indicate whether you would find each of the items listed below on the income statement (IS), the balance sheet (BS), the statement of retained earnings (SRE), or the statement of cash flows (SCF).

a. Revenues during the period	_________________
b. Supplies on hand at the end of the year	_________________
c. Cash received from borrowings during the year	_________________
d. Total liabilities at the end of the period	_________________
e. Dividends paid during the year	_________________
f. Cash paid for a building	_________________
g. Cost of buildings owned at year end	_________________

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Exercise 1-15 Financial Statements

Listed below are questions posed by various users of a company's financial statements.

Required:

Select the financial statement(s) (income statement, balance sheet, statement of retained earnings, and/or statement of cash flows) the user would most likely use to find this information.

User	Questions	Financial Statement
1.Stockholder	How did this year's sales figures compare with last year's sales figures?	_________________
2.Banker	How much in borrowings does the company currently owe?	_________________
3.Supplier	How much does the company owe its suppliers in total?	_________________
4.Stockholder	Did the company have any dividends in the prior year?	_________________
5.Advertising agent	How much advertising did the company incur in order to generate sales?	_________________
6.Banker	What was the company's total interest cost last year?	_________________

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Exercise 1-21 Links Between Financial Statements

Below are incomplete financial statements for Sterling Inc.:

Required:

Calculate the missing amounts.

(a)	$ _________________
(b)	$ _________________
(c)	$ _________________
(d)	$ _________________
(e)	$ _________________

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Exercise 1-23 Qualitative Characteristics

The following qualitative characteristics of accounting were discussed in the chapter:

• Consistency
• Relevance
• Understandability
• Comparability
• Conservatism
• Materiality
• Reliability

Required:

Select the appropriate characteristic for the following sentences.

1. The ability of accounting information to be comprehensible to those who have a reasonable understanding of business and are willing to study the information with reasonable diligence. _________________

2. The capacity to affect business decisions. _________________

3. The dependability of accounting information. _________________

4. The ability to compare and contrast the financial activities of the same company over a period of time. _________________

5. The threshold over which an item begins to affect decision making. _________________

6. The way in which accountants deal with uncertainty. _________________

7. The ability to compare and contrast the financial activities of different companies. _________________

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Exercise 1-24 Assumptions and Principles

Harbor Corp. had the following situations during the year:

Required:

In each situation, identify the assumption or principle that has been violated.

a. Inventory with a cost of $186,400 is reported at its market value of $235,600. _________________

b. Harbor added four additional weeks to its fiscal year so that it could make its income look stronger. Past years were 52 weeks. _________________

c. Harbor's CEO purchased a yacht for personal use and charged it to the company. _________________

d. Revenues of $25,000 earned in the prior year were recorded in the current year. _________________

Discuss how Harbor should have handled the situation.

The input in the box below will not be graded, but may be reviewed and considered by your instructor. _________________