Chad Jones is the sole owner and manager of Jones Glass Repair Shop. In 2009, Jones purchases a truck for $30,000 to be used in the business. Which of the following fundamentals requires Jones to record the truck at the price paid to buy it?
A. Separate-entity assumption
B. Revenue principle
C. Full disclosure
D. Historical cost principle
Question 2
Which of the following transactions would cause retained earnings to increase?
A. Collection of payment on a customer's account
B. Loan from a bank
C. Sale of service to a customer on account
D. Wages owed to employees
Question 3
Michael Corporation received $200,000 cash invested by its owners. The effect on the accounting equation was?
A. Stockholders' equity and revenues each increased by $200,000
B. Stockholders' equity and assets each increased by $200,000
C. Assets and revenues each increased by $200,000
D. Assets and liabilities each increased by $200,000
Question 4
Assume a company's January 1, 2009, financial position was: Assets, $150,000 and Liabilities, $60,000. During January 2009, the company completed the following transactions: (A) paid on a note payable $10,000 (no interest was paid); (B) collected an accounts receivable, $9,000; (C) paid an accounts payable, $5,000; and (D) purchased a truck, $5,000 cash, and a $20,000 note payable from a bank.
a. What is the company's January 1, 2009 stockholders' equity?
b. What are the company's January 31, 2009 assets, liabilities and stockholders' equity?
Question 5
When a company buys equipment for $150,000 and pays for one third in cash and the other two thirds is financed by a note payable, the following are the effects on the accounting equation:
A. Cash decreases by $50,000
B. Equipment increases by $100,000
C. Liabilities increase by $150,000
D. Total assets increase by $200,000
Question 6
The principle that requires us to record a transaction when we provide service to a client and bill them is?
A. Historical cost principle
B. Cost principle
C. Full disclosure
D. Revenue recognition
Question 7
Which of the following activities will most likely result in a reported gain on the income statement?
A. The sale of inventory to customers
B. The sale of old equipment
C. The wages and benefits paid to employees
D. The payment of dividends to stockholders
Question 8
A landlord received $5,000 cash for December 2011's rent but the tenant's rent for December is $8,000. Which of the following is true for year ended 2011?
A. $8,000 would be reported on the statement of cash flows
B. $8,000 would appear on the balance sheet as rent receivable
C. $8,000 would appear on the income statement as rent revenue earned
D. $5,000 would appear on the balance sheet as prepaid rent
Question 9
On January 1, 2010, Denmark Inc., started the year with a $200,000 credit balance in its retained earnings account. During 2010, the company earned net income of $70,000 and declared and paid dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by its owners. Therefore, the balance in retained earnings on December 31, 2010, would be?
A. $200,000
B. $270,000
C. $245,000
D. $260,000
Question 10
During 2010, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid in January 2011. Transaction analysis of operating expenses for 2010 should reflect only the following:
A. Decrease stockholders' equity, $75,000; decrease assets, $75,000
B. Decrease assets, $100,000; decrease stockholders' equity, $100,000
C. Decrease assets, $100,000; increase liabilities, $25,000; decrease stockholders' equity, $100,000
D. Decrease stockholders' equity, $100,000; decrease assets, $75,000; increase liabilities, $25,000
11 - Business Transactions and Financial Statement Preparation
While the majority of companies, and their accountants, follow the rules as stated in Generally Accepted Accounting Principles (GAAP), there are always the exceptions that do not. Find an example of a company that has run into trouble because their accounting data was not prepared properly - either intentionally or unintentionally.
- (Post a link to any articles that you reference. In your post describe the issue at hand)
what caused this company to violate accounting principles?
How did this affect the company?
How were others, outside the company, affected by the issues?