ACCT1101 Lecture Notes - Lecture 8: Asset, Quick Ratio, Net Income

QUESTION 5 Which of the following statements BEST definesfinancial statements? A. Financial statements are plans andforecasts for future time periods. B. Financial statements are theverbal statements made to business news organizations by chieffinancial officers. C. Financial statements are documents thatreport on a business in monetary terms, providing information tohelp people make informed business decisions. D. Financialstatements are the information systems that record and measurebusiness transactions.

QUESTION 6 Which of the following statements is true of a trialbalance? A. A trial balance has the same format as a balance sheet.B. A trial balance presents data in debit and credit format. C. Atrial balance shows total amounts of assets, liabilities, but notequity. D. A trial balance is prepared after the balance sheet.

QUESTION 7 There are relatively few types of revenue. Which ofthe following in NOT a type of revenue? A. Sales B. Service C.Interest D. Unearned Revenue

QUESTION 8 The financial statements should be prepared in whatorder? A. Income statement, statement of owner's equity, balancesheet, statement of cash flows B. Balance sheet, statement ofowner's equity, income statement, statement of cash flows C.Statement of owner's equity, balance sheet, income statement,statement of cash flows D. Balance sheet, income statement,statement of owner's equity, statement of cash flows

QUESTION 9 Which of the following journal entries would berecorded if a business makes a cash payment to a supplier of $600"on account" (the business had purchased supplies on account in theprevious month)? A. Accounts payable 600 Cash 600 B. Accountspayable 600 Supplies 600 C. Cash 600 Supplies 600 D. Cash 600Accounts payable 600

QUESTION 10 Which of the following statements about revenue isCORRECT? A. Revenues increase owner's equity, so a revenueaccount's normal balance is a credit balance. B. Revenues decreaseowner's equity, so a revenue account's normal balance is a debitbalance. C. Revenues increase owner's equity, so a revenueaccount's normal balance is a debit balance. D. Revenues decreaseowner's equity, so a revenue account's normal balance is a creditbalance.

QUESTION 11 From a legal perspective, a proprietorship is: A.not a distinct entity from its proprietor. B. authorized understate charter. C. an entity separate from its proprietor. D.subject to regulation by the SEC.

QUESTION 12 Sharon Samson starts a plumbing service namedReliable Waterworks. Selected transactions are described asfollows: A) Sharon deposits $7,000 into a new checking account forthe business, recording the capital contribution. B) Reliable pays$4,000 cash for equipment to be used for plumbing repairs. C)Reliable borrows $15,000 from a local bank and deposits the moneyin the checking account. D) Reliable pays $600 rent for the firstmonth. E) Reliable pays $400 cash for plumbing supplies to be usedon various jobs in the future. F) Reliable completes a plumbingrepair project for a local lawyer and receives $1,300 cash. G)Sharon takes a cash withdrawal of $2,500. After all of thetransactions, what is the amount of total assets? A. $25,700 B.$20,200 C. $24,200 D. $5,200

QUESTION 13 The Accounts Payable account is a(n) ________account and carries a ________ normal balance. A. liability; debitB. asset; debit C. liability; credit D. asset; credit

QUESTION 14 The following are the ending month's balances forToys Galore. Accounts payable $6,790 Revenue $8,680 Cash $4,500Expenses $1,050 Furniture $8,370 Accounts receivable $ 7,710Capital $930 Notes payable $5,230 What is the total amount ofcredits for the trial balance? A. $30,310 B. $16,400 C. $21,630 D.$20,580

QUESTION 15 The Sarbanes-Oxley Act ("SOX") made it a criminaloffense to: A. steal shareholders' money. B. default on loans fromcreditors. C. declare bankruptcy. D. falsify financialinformation.

QUESTION 16 Which of the following is the order of steps tojournalize an entry? A. Record the transaction, identify eachaccount affected, determine increase or decrease in each account.B. Identify each account affected, determine increase or decreasein each account, record the transaction. C. Identify each accountaffected, record the transaction, determine increase or decrease ineach account. D. Determine increase or decrease in each account,identify each account affected, record the transaction

QUESTION 17 Mitchell Florists had the following total assets,liabilities, and equity as of December 31. Assets $450,000Liabilities 135,000 Equity 315,000 What is Mitchell's debt ratio asof December 31? A. 30% B. 70% C. 100% D. 43%

QUESTION 18 Which of the following financial statements reportsrevenues? A. Statement of cash flows B. Income statement C.Statement of owner's equity D. Balance sheet

QUESTION 19 Following is a list of account balances (except forowner's capital) of Wilson Mowing Service as of December 31 of thefirst year of operation: Accounts receivable $2,500 Accountspayable $3,500 Salary expense $4,500 Repairs expense $800 Truck$8,500 Equipment $6,300 Notes payable $8,200 Cash $6,800 Suppliesexpense $1,600 Service revenue $31,900 Gasoline expense $3,800Salary payable $200 The proprietor, J.D. Wilson, contributed $3,000at the beginning of the year; during the year, the proprietor took$12,000 in drawings. At the end of the year, what is net income? A.$11,900 B. $21,200 C. $24,100 D. $12,200

QUESTION 20 Which of the following is an asset account? A.Salaries Expense B. Accounts Payable C. Service Revenue D. PrepaidExpense

QUESTION 21 A journal entry for a $75 payment for Rent expensewas posted as a debit to Salary expense and a credit to Cash. Thiserror will cause which of the following conditions on the trialbalance? A. The sum of the credits will equal the sum of thedebits. B. The sum of the debits will exceed the sum of the creditsby $75. C. The sum of the credits will exceed the sum of the debitsby $150. D. The sum of the debits will exceed the sum of thecredits by $150.

QUESTION 22 The business receives cash from a customer that isowed to the company "on account," based on services rendered to thecustomer previously. How does the collection of the cash affect theaccounting equation? A. Assets increase; owner's equity increases.B. Assets increase; liabilities increase. C. Assets decrease;owner's equity decreases. D. One asset increases; one assetdecreases

QUESTION 23 A business completes service to a client and sendsout a sales invoice. The amount will be collected from the customerat a later time. Which of the following would be TRUE at the timewhen the invoice is sent out? A. Total assets will decrease. B. Netincome will increase. C. Owner's equity will decrease. D. Totalliabilities will increase.

QUESTION 24 Which of the following accounts increases with adebit? A. Cash B. Interest Payable C. Accounts Payable D. Smith,Capital

QUESTION 25 The Accounts Receivable account of Nuptials Inc. isshown below. Accounts Receivable Dr Cr 26,000 3,500 5,000 Calculatethe ending balance of the account. A. $33,500 debit B. $31,000,debit C. $3,500, credit D. $27,500, debit

QUESTION 26 The following transactions for the month of Marchhave been journalized and posted to the proper accounts. Mar. 1Martinez invested $9,000 cash in his new design services business.Mar. 2 Paid the first month's rent of $800. Mar. 3 Purchasedequipment by paying $3,000 cash and executing a note payable for$5,000. Mar. 4 Purchased office supplies for $750 cash. Mar. 5Billed a client for $10,000 of design services completed. Mar. 6Received $8,000 on account for the services previously recorded.What is the balance in Cash? A. $13,250 B. $12,450 C. $15,450 D.$14,000

QUESTION 27 Which of the following sequences states the order inwhich a trial balance lists accounts? A. Equity → Assets →Liabilities B. Liabilities → Assets → Equity C. Assets → Equity →Liabilities D. Assets → Liabilities → Equity

QUESTION 28 Which of the following statements is FALSE? A. Atrial balance shows total amounts for assets, liabilities, andequity. B. A trial balance is created before the balance sheet isprepared. C. A trial balance presents data in debit and creditformat, but a balance sheet does not. D. A trial balance showstotal debits and total credits.

QUESTION 29 A promise received from a business's customers topay for goods and services that they received from the business iscalled a(n): A. revenue. B. account receivable. C. account payable.D. expense.

QUESTION 30 You can evaluate the economic resources, debt, andoverall financial position of a company in which of the followingfinancial statements? A. Income statement B. Balance sheet C.Statement of owner's equity D. Statement of cash flows

QUESTION 31 A book holding all of the accounts is called the: A.income statement. B. journal. C. ledger. D. balance sheet.

QUESTION 32 Which of the following groups of accounts BOTHnormally have a debit balance? A. Assets and Liabilities B.Liabilities and Owner's equity C. Revenues and Expenses D. Assetsand Expenses

QUESTION 33 A business buys $500 of supplies on account. Whichaccount is debited? A. Supplies B. Cash C. Service revenue D.Accounts payable

AECO 3430 Lab Work #5 Understanding Morgan Cattle's FinancialStatements 1 (20pts) How does opening a $125,000 line of creditwith Farm Credit immediately affect the Balance Sheet? Specificallydemonstrate (with hypothetical numbers) how the relevant sectionsof the balance sheet demonstrate this. 2 (20pts) How can a businessfail while showing accrual profits? Which financial statement(s)are needed to demonstrate the answer? Specifically demonstrate(with hypothetical numbers) how the relevant sections demonstratethis. 3 (20pts) What does it mean for a business to show a decreasein Retained Earnings? Which financial statement(s) are needed todemonstrate the answer? Specifically demonstrate (with hypotheticalnumbers) how the relevant sections demonstrate this. 4 (20pts) Howdoes buying more assets immediately affect equity? Which financialstatement(s) are needed to demonstrate the answer? Specificallydemonstrate (with hypothetical numbers) how the relevant sectionsdemonstrate this. 5 (20pts) How does making a final payment of$45,000 with 5% interest on an equipment loan affect equity? Whichfinancial statement(s) are needed to demonstrate the answer?Specifically demonstrate (with hypothetical numbers) how therelevant sections demonstrate this. 6 (10pts) What did you learnfrom this lab exercise?

1.) If you were to take a $150,000 line of credit through FarmCredit your liabilities and cash would automatically increase onthe balance sheet. Hypothetically speaking if your cash account had$100,000 and your total assets were $1,000,000 prior to taking outthe line of credit, your total assets would increase to $1,150,000and your cash account would increase to $250,000. If you alreadyhad $100,000 in notes payable, after accepting the line of creditthat account would increase to $250,000. With these increases thebalance sheet should still balance out if done correctly.

2.) An income statement could show a net profit but still notreflect the actual financial soundness of a business. Incomestatements show revenue and expenses but do not show the amount ofcash on hand and/or other liquid assets. Making it where it couldnot accurately represent the businesses ability to pay a loan back.It could read a net income of $450,000 but the balance sheet couldread that there is only $100,000 in cash and $250,000 inliabilities. To get an adequate representation of the businessesactual financial standing multiple financial statements must beused.

3.) Retained earnings show the relation between the balancesheet and income statement, events that cause net loss in cash flowwill decrease retained earnings. This is usually the result ofoperating costs/expenses. A decrease in retained earnings representa decrease in owners equity on the balance sheet, this is a resultfrom an increase in expenses. These relates to problem 1 somewhat.If you were to take out a loan of $200,000 and your cash was at$300,000 it would increase to $500,000. Subsequently your notespayable would increase by $200,000 as well. The accounts wouldbalance out in the end the same because they increased the same.However the interest expense would increase causing net farmincrease to decrease. The retained earnings would decrease as aresult of notes payable increasing.

4.) If the assets were purchased using cash your current assetswould increase and cash account would decrease because it waspurchased immediately with cash. If a new truck was purchased for$65,000 dollars your cash would decrease by that amount and yourcurrent assets account would increase by the same amount. If theasset was purchased at market value it doesn’t affect your equity,because nothing was gained or loss in the acquisition of thetruck.

5.) A final payment of $35,000 with 5% interest would decreasecash on the balance sheet and also decrease liabilities. Theinterest payments would increase and the farms net income woulddecrease on income statement. Statement of owners equity would showan increase on retained earnings amount.

6.) On this lab exercise I learned to show with words the thingswe have learned in class. I learned how to put into words thechanges we see in financial statements and how they affect theoutlook on a business. To me it makes more sense to see it in aword explanation than it does to look at it on paper. I feel like Ihave a better understanding of what is going on when it is inwritten form as opposed to when it is on a spreadsheet surroundedby other numbers where I get lost in it all. When it is in words Ithink it is easier to take that and go back to the financialstatement and really see it. I think this is an important part offinancial management whether you are the accountant or the businessowner. It is important to be able to understand financial recordsand how they affect your business or the person you are workingfor. Either way it is necessary to know somewhat of both sides tounderstand it fully.

I just need these answers worded different.