ACCT 203 Practice Exam 1

Accounting systems:

• are summarized in publicly published reports.

• analyze, record, summarize, and the activities affecting its financial condition and performance.

• monitor business activities only in financial terms.

• capture only the information that is needed by the owners of the company

Financing that individuals or institutions have provided to a corporation is:

• always classified as a liability.

• classified as a liability when provided by creditors and as stockholders' equity when provided by owners.

• always classified as equity.

• classified as a stockholders' equity when provided by creditors and a liability when provided by owners.

Which of the following statements about financial accounting is correct?

• Financial accounting reports are used primarily by employees to make business decisions related to production.

• Financial accounting reports are used primarily by management to understand whether a product line should be discontinued.

• Financial accounting reports are primarily prepared to provide information for external decision makers.

• Financial accounting reports primarily contain detailed internal records of the company.

Expenses are reported on the:

• income statement in the time period in which they are paid.

• income statement in the time period in which they are incurred.

• balance sheet in the time period in which they are paid.

• balance sheet in the time period in which they are incurred.

Cash flows from (used in) investing activities includes amounts:

• received from a company's stockholders for the sale of stock.

• received from the sale of the company’s office building.

• paid for dividends to the company’s stockholders.

• paid for salaries of employees.

Which of the following would not represent a financing activity?

• Paying dividends to stockholders.

• An investment of capital by the owners.

• Borrowing money from a bank to purchase new equipment.

• Buying supplies on account.

The separate entity assumption means:

• a company's financial statements reflect only the business activities of that company.

• each separate owner's finances must be revealed in the financial statements.

• each separate entity that has a claim on a company's assets must be shown in the financial statements.

• if the business is a sole proprietorship, the owners’ personal activities are included in the company’s financial statements.

Assets:

• represent the amounts earned by a company.

• must equal the liabilities of a company.

• must equal the stockholders' equity of the company.

• represent the resources presently controlled by a company.

Your company pays back $2 million on a loan it had obtained earlier from a bank.

• Assets decrease by $2 million; liabilities and stockholders' equity are both unchanged.

• Assets decrease by $2 million, liabilities decrease by $2 million, and stockholders' equity is unchanged.

• Assets decrease by $2 million and liabilities increase by $2 million.

• Assets decrease by $2 million, liabilities are unchanged, and stockholders’ equity decreases by $2 million.

Park & Company was recently formed with a $5,000 investment in the company by stockholders in exchange for common stock. The company then borrowed $2,000 from a local bank, purchased $1,000 of supplies on account, and also purchased $5,000 of equipment by paying $2,000 in cash and signing a promissory note for the balance. Based on these transactions, the company's total assets are:

• $7,000.

• $9,000.

• $10,000.

• $11,000.