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Exam 1: Accounting and the Business Environment

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Question 1

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Corporations pay their own income tax on corporate income. Stockholders pay personal income tax on the dividends received from corporations. This is an example of ________.

A) double taxation
B) continuous life
C) mutual agency
D) a limited liability company

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Question 2

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Regarding a business organized as a partnership, which of the following is an incorrect statement?

A) Partners pay tax on their share of the partnership earnings.
B) Partners are personally liable for the debts of the business.
C) A partnership's life is not dependent on a specific individual's ownership.
D) Mutual agency is present in a partnership.

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Question 3

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Which of the following is the correct accounting equation?

Which of the following financial statements reports that total assets are equal to total liabilities plus total stockholders' equity?

Montgomery Equipment Rental Company received $1,000 cash from a customer; the amount was owed to the business from the previous month. What is the effect of this transaction on the accounting equation?

A business can be organized as a sole proprietorship, partnership, corporation, or limited-liability company (LLC).

The left side of the accounting equation measures the amount that the business owes to creditors and to the stockholders.

List the steps, in the correct order, that are used when analyzing transactions.

The assets of Star Company are $120,000 and the total liabilities are $10,000. The equity is ________.

Spring Company has assets and equity that amount to $220,000 and $20,000, respectively. Liabilities total ________.

Which of the following financial statements is used to report cash receipts for services provided?

The balance sheet shows whether or not a business is profitable.

By looking at a statement of retained earnings, the effect of dividends on the ending balance of retained earnings can be determined.

What are Generally Accepted Accounting Principles (GAAP)? Which entity is currently responsible for determining GAAP?

Indicate the effects on the accounting equation of the following business transactions of ABC Service Corporation for b) to d) below. Use proper account titles. Transaction a) is answered as a guide. a) Received cash from Mary Johnson; issued common stock to her. b) Purchased equipment; signed a note payable. c) Performed services for a customer on account. d) At the end of the first month, paid office rent.

Which of the following will be categorized as an operating activity on the statement of cash flows?

Define assets. Provide three examples of assets.

Which of the following statements best defines financial statements?

Which of the following statements is true of a corporation?

Prepare an income statement and a statement of retained earnings for the month of May. Also, prepare a balance sheet as of May 31, 2019, for McGuire Corporation. The financial transactions of McGuire Corporation for the month of May, their first month of operations, are as follows: • On May 1, 2019, McGuire Corporation issued common stock in exchange for $20,000 cash from a stockholder, Deborah Merchant. • On May 3, the corporation borrowed $5,000 from a creditor and executed a note payable with the principal and interest to be due in one year. • On May 7, the corporation purchased $15,000 of equipment for cash. • On May 8, McGuire Corporation rendered service to a client and received $3,000 in cash. • On May 12, the corporation incurred a repair expense of $1,800 and promised to pay the repair contractor the following month. • On May 18, the corporation rendered service to a new client in the amount of $8,000 on account, as the client promised to pay the following month. • At the end of May, McGuire Corporation distributed cash dividends of $1,500.