Match each definition with its related term by entering the appropriate letter in the space provided. There should be only one definition per term (that is, there are more definitions than terms). Term Definition (1) Going concern assumption A. = Liabilities + Stockholders’ Equity. (2) Historical cost B. Reports assets, liabilities, and stockholders’ equity. (3) Credits C. Accounts for a business separate from its owners. (4) Assets D. Increase assets; decrease liabilities and stockholders’ equity. (5) Account E. An exchange between an entity and other parties. F. The concept that businesses will operate into the foreseeable future. G. Decrease assets; increase liabilities and stockholders’ equity. H. The concept that assets should be recorded at the amount paid on the date of the transaction. I. A standardized format used to accumulate data about each item reported on financial statements.
> Which of the following is true regarding the income statement? a. The income statement is sometimes called the statement of operations. b. The income statement reports revenues, expenses, and liabilities. c. The income statement reports only revenue for
> Which of the following is not a typical note included in an annual report? a. A note describing the auditor’s opinion of the management’s past and future financial planning for the business. b. A note providing more detail about a specific item shown in
> Which of the following statements regarding the statement of cash flows is true? a. The statement of cash flows separates cash inflows and outflows into three major categories: operating, investing, and financing. b. The ending cash balance shown on the
> Which of the following is not one of the four items required to be shown in the heading of a financial statement? a. The financial statement preparer’s name. b. The title of the financial statement. c. The unit of measure in the financial statement. d. T
> Which of the following regarding retained earnings is false? a. Retained earnings is increased by net income and decreased by a net loss. b. Retained earnings is a component of stockholders’ equity on the balance sheet. c. Retained earnings is an asset o
> Which of the following is true? a. FASB creates SEC. b. GAAP creates FASB. c. SEC creates AICPA. d. FASB creates U.S. GAAP.
> As stated in the audit report, or Report of Independent Accountants, the primary responsibility for a company’s financial statements lies with a. The owners of the company. b. Independent financial analysts. c. The auditors. d. The company’s management.
> Which of the following is not one of the four basic financial statements? a. Balance sheet b. Audit report c. Income statement d. Statement of cash flows
> Identify whether the following transactions affect cash flow from operating, investing, or financing activities, and indicate the effect of each on cash (+ for increase and − for decrease). If there is no cash flow effect, write â
> Refer to the financial statements of American Eagle Outfitters in Appendix B, Urban Outfitters in Appendix C, and the Industry Ratio Report in Appendix D at the end of this book. Financial statements of American Eagle: Financial statements of Urban Outf
> Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book. Data from Urban Outfitters: Required: 1. Use the company’s balance sheet to determine the amounts in the accounting equation (A = L + SE) as
> Refer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book. Data from American Eagle Outfitters: Required: 1. Is the company a corporation, a partnership, or a sole proprietorship? How do you know? 2. The compan
> Assume that you are the president of Highlight Construction Company. At the end of the first year of operations (December 31), the following financial data for the company are available: Cash ………………………………………………………………………………………$25,600 Receivables from cu
> On January 1 of the current year, three individuals organized Northwest Company as a corporation. Each individual invested $10,000 cash in the business. On December 31 of the current year, they prepared a list of resources owned (assets) and debts owed (
> Huang Trucking Company was organized on January 1. At the end of the first quarter (three months) of operations, the owner prepared a summary of its activities as shown in item (a) of the following table: Required: 1. For items (b) through (g), enter wh
> During the summer between his junior and senior years, James Cook needed to earn sufficient money for the coming academic year. Unable to obtain a job with a reasonable salary, he decided to try the lawn care business for three months. After a survey of
> Explain the equation for the income statement. What are the three major items reported on the income statement?
> Briefly define net income and net loss.
> What information should be included in the heading of each of the four primary financial statements?
> Complete the following matrix by entering either increase or decrease in each cell: Item Debit Credit Revenues Losses Gains Expenses
> Complete the following: Name of Statement Alternative Title a. Income statement a. b. Balance sheet
> The accounting process generates financial reports for both internal and external users. Identify some of the groups of users.
> Briefly distinguish financial accounting from managerial accounting.
> Define accounting.
> (Supplement A) Briefly differentiate between a sole proprietorship, a partnership, and a corporation. Supplement A: Types of Business Entities: This textbook emphasizes accounting for profit-making business entities. The three main types of business ent
> Briefly explain the responsibility of company management and the independent auditors in the accounting communication process.
> Briefly describe the way that accounting measurement rules (generally accepted accounting principles) are determined in the United States.
> The financial statements discussed in this chapter are aimed at external users. Briefly explain how a company’s internal managers in different functional areas (e.g., marketing, purchasing, human resources) might use financial statement information from
> Explain the equation for retained earnings. Explain the four major items reported on the statement of stockholders’ equity related to retained earnings.
> Explain the equation for the statement of cash flows. Explain the three major components reported on the statement of cash flows.
> Complete the following matrix by entering either debit or credit in each cell: Item Increase Decrease Revenues Losses Gains Expenses
> Explain the equation for the balance sheet. Define the three major components reported on the balance sheet.
> Briefly explain the importance of assets and liabilities to the decisions of investors and creditors.
> Explain why the income statement and the statement of cash flows are dated “For the Year Ended December 31,” whereas the balance sheet is dated “At December 31.”
> What are the purposes of (a) the income statement, (b) the balance sheet, (c) the statement of cash flows, and (d) the statement of stockholders’ equity.
> What is an accounting entity? Why is a business treated as a separate entity for accounting purposes?
> Briefly distinguish investors from creditors.
> (Supplement B) List and briefly explain the three primary services that CPAs in public practice provide. Supplement B: Employment in the Accounting Profession Today: Since 1900, accounting has attained the stature of professions such as law, medicine, e
> Apple Inc., headquartered in Cupertino, California, designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players and sells a variety of related software and services. The following is A
> Cougar Plastics Company has been operating for three years. At December 31 of last year, the accounting records reflected the following: Cash $22,000 Accounts payable $15,000 Investments (short-term) 3
> East Hill Home Healthcare Services was organized by four friends who each invested $10,000 in the company and, in turn, was issued 8,000 shares of $1.00 par value stock. To date, they are the only stockholders. At the end of last year, the accounting rec
> Explain why revenues are recorded as credits and expenses are recorded as debits.
> Exxon Mobil Corporation explores, produces, refines, markets, and supplies crude oil, natural gas, and petroleum products in the United States and around the world. The following are accounts from a recent balance sheet of Exxon Mobil Corporation: Requi
> Refer to Problem 5. Data in Problem 5: Apple Inc., headquartered in Cupertino, California, designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players and sells a variety of related s
> For the transactions in Mini Exercise 5 (including the sample), identify each as an investing (I) activity or financing (F) activity on the statement of cash flows. Data from Mini Exercise 5: For each of the following transactions of Dennen, Inc., for th
> Complete the following table by entering either the word debit or credit in each column. Increase Decrease Assets ___________ ___________ Liabilities __________
> Complete the following table by entering either the word increase or decrease in each column. Debit Credit Assets ___________ ___________ Liabilities ___________ ___________ Stockholders’ equity ___________ ___________
> For each of the following events, which one’s result in an exchange transaction for Dittman Company (Y for yes and N for no)? (1) Six investors in Dittman Company sold their stock to another investor. (2) The founding owner, Megan Dittman, purchased addi
> Match each definition with its related term by entering the appropriate letter in the space provided. There should be only one definition per term (that is, there are more definitions than terms). Term Definition (1) Journal entry (2) A = L+ SE, and
> Match each definition with its related term by entering the appropriate letter in the space provided. There should be only one definition per term (that is, there are more definitions than terms). Term Definition (1) Transaction (2) Going concern ass
> You are considering investing the cash you inherited from your grandfather in various stocks. You have received the annual reports of several major companies. Required: For each of the following items, indicate where you would locate the information in
> Explain why stockholders’ equity is increased by revenues and decreased by expenses.
> Starwood Hotels & Resorts Worldwide, Inc., is one of the world’s largest hotel and leisure companies, with more than 1,200 properties in 100 countries. Starwood owns, operates, and franchises hotels, resorts, and residences with the following brands: St.
> Foot Locker, Inc., is a large global retailer of athletic footwear and apparel selling directly to customers and through the Internet. It includes the Foot Locker family of stores, Champs Sports, Footaction, Runners Point, and Sidestep. The following are
> The following T-accounts indicate the effects of normal business transactions: Required: 1. Describe the typical investing and financing transactions that affect each T-account. That is, what economic events occur to make each of these accounts increase
> Waltman Furniture Repair Service, a company with two stockholders, began operations on June 1. The following T-accounts indicate the activities for the month of June. Required: Explain events (a) through (d) that resulted in the entries in the T-account
> Strauderman Delivery Company, Inc., was organized in 2016 in Wisconsin. The following transactions occurred during the year: a. Received cash from investors in exchange for 10,000 shares of stock (par value of $1.00 per share) with a market value of $4 p
> Refer to E2-15. Data given in Exercise 15: Higgins Company began operations last year. You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. At the start of the current year, Higginsâ&#
> Higgins Company began operations last year. You are a member of the management team investigating expansion ideas that will require borrowing funds from banks. At the start of the current year, Higgins’s T-account balances were as follo
> BMW Group, headquartered in Munich, Germany, manufactures several automotive brands including BMW Group, MINI, and Rolls-Royce. Financial information is reported in the euro (€) monetary unit using International Financial Reporting Standards (IFRS) as ap
> Nathanson Corporation was organized on May 1. The following events occurred during the first month. a. Received $70,000 cash from the five investors who organized Nathanson Corporation. Each investor received 100 shares of $10 par value common stock. b.
> During its first month of operations in March, Volz Cleaning, Inc., completed six transactions with the dollar effects indicated in the following schedule: Required: 1. Write a brief explanation of transactions (1) through (6). Explain any assumptions t
> Define accrual accounting and contrast it with cash basis accounting.
> During its first week of operations ending January 7, FastTrack Sports Inc. completed six transactions with the dollar effects indicated in the following schedule: Required: 1. Write a brief explanation of transactions (1) through (6). Explain any assum
> Precision Builders Construction Company was incorporated by Chris Stoschek. The following activities occurred during the year: a. Received from three investors $60,000 cash and land valued at $35,000; each investor was issued 1,000 shares of common stock
> Granger Service Company, Inc., was organized by Ted Granger and five other investors. The following activities occurred during the year: a. Received $70,000 cash from the investors; each was issued 8,400 shares of common stock with a par value of $0.10 p
> Kelsey Baker founded GolfDeals.com at the beginning of February. GolfDeals.com sells new and used golf equipment online. The following events occurred in February. a. Borrowed $30,000 cash from a bank, signing a note due in three years. b. Received inves
> Refer to Exercise 5. Required: 1. For each of the events (a) through (f) in E2-5, prepare journal entries, checking that debits equal credits. 2. Explain your response to event (e).
> Refer to Exercise 4 Required: For each of the events (a) through (e) in E2-4, prepare journal entries, checking that debits equal credits.
> Nike, Inc., with headquarters in Beaverton, Oregon, is one of the world’s leading manufacturers of athletic shoes and sports apparel. The following activities occurred during a recent year. The amounts are rounded to millions. a. Purchased additional bui
> The following events occurred for Johnson Company: a. Received investment of cash by organizers and distributed to them 1,000 shares of $1 par value common stock with a market price of $40 per share. b. Purchased $15,000 of equipment, paying $3,000 in ca
> As described in a recent annual report, Verizon Communications provides wireless voice and data services across one of the most extensive wireless networks in the United States. Verizon now serves more than 100 million customers, making it the largest wi
> The following are independent situations. a. A new company is formed and sells 100 shares of $1 par value stock for $12 per share to investors. b. A company purchases for $18,000 cash a new delivery truck that has a list, or sticker, price of $21,000. c.
> Explain what the time period assumption means.
> How is the current ratio computed and interpreted?
> What criteria must normally be met for revenue to be recognized under accrual basis accounting?
> Explain the difference between a. Revenues and gains. b. Expenses and losses.
> This period a company collects $100 cash on an account receivable from a customer for a sale last period. How would the receipt of cash impact the following two financial statements this period? Income Statement ……………………………………………Statement of Cash Flows
> Cash payments for salaries are reported in what section of the statement of cash flows? a. Operating. b. Investing. c. Financing. d. None of the above.
> Write the income statement equation and define each element.
> You have observed that the net profit margin ratio for a retail chain has increased steadily over the last three years. The most likely explanation is which of the following? a. Salaries for upper management as a percentage of total expenses have decreas
> Which of the following is the entry to be recorded by a law firm when it receives a $2,000 retainer from a new client at the initial client meeting? a. Debit to Cash, $2,000; credit to Legal Fees Revenue, $2,000. b. Debit to Accounts Receivable, $2,000;
> During 2016, CliffCo Inc. incurred operating expenses of $250,000, of which $150,000 was paid in cash; the balance will be paid in January 2017. Transaction analysis of operating expenses for 2016 should reflect only the following: a. Decrease stockholde
> On January 1, 2017, Anson Company started the year with a $300,000 credit balance in Retained Earnings, a $50,000 balance in Common Stock, and a $300,000 balance in Additional Paid-in Capital. During 2017, the company earned net income of $45,000, declar
> When expenses exceed revenues in a given period, a. Retained earnings are not impacted. b. Retained earnings are decreased. c. Retained earnings are increased. d. One cannot determine the impact on retained earnings without additional information.
> The expense recognition principle controls a. Where on the income statement expenses should be presented. b. When costs are recognized as expenses on the income statement. c. The ordering of current assets and current liabilities on the balance sheet. d.
> Which of the following is not one of the criteria that normally must be met for revenue to be recognized according to the revenue recognition principle for accrual basis accounting? a. Cash has been collected. b. Services have been performed. c. Goods ha
> Which of the following is not a specific account in a company’s chart of accounts? a. Gain on Sale of Assets b. Interest Revenue c. Net Income d. Unearned Revenue
> What is a journal entry?
> Briefly explain what is meant by transaction analysis. What are the two steps in transaction analysis?
> Explain the expense recognition principle.
> Explain what debit and credit mean.
> Define a business transaction in the broad sense, and give an example of two different kinds of transactions
> For accounting purposes, what is an account? Explain why accounts are used in an accounting system.
> Refer to Problem 3. Problem 3: Cougar Plastics Company has been operating for three years. At December 31 of last year, the accounting records reflected the following: Cash $22,000 Accounts payable $15,000
> Explain what the following accounting terms mean: a. Separate entity assumption b. Monetary unit assumption c. Going concern assumption d. Historical cost
> Define the following: a. Asset b. Current asset c. Liability d. Current liability e. Additional paid-in capital f. Retained earnings
> What is the primary objective of financial reporting for external users?
> Starting with the beginning balances in Mini Exercise 9 and given the transactions in M2-5 (including the sample), prepare a balance sheet for Dennen, Inc., as of January 31, classified into current and noncurrent assets and liabilities.
> Complete Mini Exercise 9, and then prepare a trial balance for Dennen, Inc., as of January 31.
