Accounting Review for Test Chapter One: Homework Question 1: Business organization a.) Partnership A shared control, unlimited liability, tax advantages, increased skills and resources b.) Corporation Best for raising large amount of funds, double taxation, limited liability, easiest to transfer ownership interests c.) Sole proprietorship Sole ownership, easiest to establish, tax advantages, unlimited liability Question 2: Financial Statement items Assets Balance Sheet Revenue Income Statement Cash Flow from investing activities Statement of Cash Flows (SCF) Stockholders’ Equity Balance Sheet (BS), Statement of stockholders’ Equity (SSE) Expenses Income Statement (IS) Net change in Cash Statement of Cash Flows (SCF) Net Income Income Statement (IS), Statement of Stockholders’ Equity (SSE) Liabilities Balance Sheet (BS) Question 3: Basic Accounting Equation Examples Total Assets = Liabilities + Stockholders’ Equity $175,000 $62,000 $113,000 $78,000 $47,000 $31,000 $115,000 $66,000 $49,000 Question 4: More Basic Accounting Equation Examples a.) Perkins Company has total assets of $150,000 and total liabilities of $90,000. How much is the company’s total stockholders’ equity? Answer : 150,000 – 90,000 = 60,000
b.) Gassol Company has total liabilities of $170,000 and total stockholders’ equity of $95,000. How much total assets does the company have? Answer: 170,000 + 95,000 = 265,000 c.) If Brown Company’s total assets increased by $35,000 during the year, and its total liabilities decreased during the same year by $5,000, what was the change in the company’s total stockholders’ equity? Answer: 35,000 – (- 5,000) = 40,000 Increase Question 5: Financial Statements Expenses for the period Income Statement (IS) Cash at year-end Balance Sheet (BS), Statement of cash flows (SCF) Cash used to purchase new Equipment Statement of cash flows (SCF) Dividends for the period Statement of stockholders’ Equity (SSE), Statement of cash flows (SCF) Question 6: Even More Basic Accounting Questions a.) The stockholders' equity of a corporation that has assets of $550,000 and liabilities of $306,000. Answer: 550,000 – 306,000 = 244,000 b.) The assets of a corporation that has liabilities of $250,000, common stock of $100,000, and retained earnings of $85,000. Answer: 250,000 + 100,000 + 85,000 = 435,000
Chapter 1: Quiz Question 1: Which form of business organization is characterized by the attribute of double taxation? Answer: Corporation Question 2: What is the principal difference between a sole proprietorship and a partnership? Answer: The number of owners Question 3: U.S. GAAP refers to: Answer: A set of accounting standards that form the guidelines for financial accounting Question 4: The Sarbanes-Oxley Act refers to: Answer: U.S. legislation passed in 2002 to restore investor trust in U.S. GAAP Question 5: The three types of business activities undertaken by all enterprises are: Answer: Financing, investing, and operating Question 6: The sale of stock in a business is an example of what type of business activity?