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Current Assets Chapter 1

The Kelly Company purchased a building for $75,000 in cash. What is the effect on current assets?

  1. Increase in current assets
  2. Decrease in current assets
  3. No effect on current assets
  4. Unable to determine

Matching Basic Vocabulary Chapter 1

Match the following accounting principles, accounting assumptions, and qualitative characteristics with their descriptions.

  1. Separate Entity Assumption
  2. Unit of Measure Assumption
  3. Conservatism
  4. Comparability
  5. Consistency
  6. Materiality
  7. Relevance
  8. Reliability
  9. Matching Principle
  10. Historical Cost Principle
  11. Time Period Assumption
  • Matching Principle - ___________ Recognizes expenses in the same period when they are incurred in generating revenues
  • Comparability - ___________ The quality that allows decision makers to analyze two or more companies within an industry and look for similarities and differences.
  • Consistency - ___________ The quality that means that similar accounting methods have been applied over time within a company.
  • Conservatism - ___________ The guideline that suggests accountants should take special care to not overstate revenues.

Retained Earnings Chapter 1

Which of the following would increase retained earnings?

  1. an increase to an expense account.
  2. an increase to a revenue account.
  3. a cash dividend being declared and paid to stockholders.
  4. issuance of additional shares of common stock.

An increase in a Revenue account increases Net Income, which in turn would increase Retained Earnings.

Account Classifications Chapter 1

For each account listed below, choose its classification:

Account Classification
1 Accounts Payable
Correct Incorrect
2 Accounts Receivable
Correct Incorrect
3 Advertising Expense
Correct Incorrect
4 Bonds Payable
Correct Incorrect
5 Building
Correct Incorrect
6 Capital Stock
Correct Incorrect
7 Cash
Correct Incorrect
8 Common Stock
Correct Incorrect
9 Cost of Goods Sold
Correct Incorrect
10 Depreciation Expense
Correct Incorrect
11 Dividends
Correct Incorrect
12 Service Fees Earned
Correct Incorrect
13 Income Tax Expense
Correct Incorrect
14 Interest Expense
Correct Incorrect
15 Interest Payable
Correct Incorrect
16 Interest Revenue
Correct Incorrect
17 Inventory
Correct Incorrect
18 Investments
Correct Incorrect
19 Land
Correct Incorrect
20 Notes Payable
Correct Incorrect
21 Notes Receivable
Correct Incorrect
22 Preferred Stock
Correct Incorrect
23 Prepaid Advertising
Correct Incorrect
24 Prepaid Insurance
Correct Incorrect
25 Prepaid Rent
Correct Incorrect
26 Rent Expense
Correct Incorrect
27 Retained Earnings
Correct Incorrect
28 Salaries Payable
Correct Incorrect
29 Sales Revenue
Correct Incorrect
30 Service Revenue
Correct Incorrect
31 Supplies
Correct Incorrect
32 Unearned Revenue
Correct Incorrect
33 Utilities Payable
Correct Incorrect
34 Wages Expense
Correct Incorrect

Solving for Missing Amounts Chapter 1

A company had the following account balances at the end of its first year of operations. Find the missing amounts.


Cash 1,300 Accounts receivable ?
Inventory 400 Property and equipment 1200
Accounts payable 500 Salaries payable 800
Common Stock 1475 Retained earnings 525
Revenue 2500 Expenses ?
Net Income 570 Dividends ?
  1. Determine Accounts Receivable
  2. Determine Expenses
  3. Determine Dividends
  1. Accounts Receivable - 400
  2. Expenses - 1,930
  3. Dividends - 45

Solving for Net Income Chapter 1

December 31 Total Assets Total Liabilities
Year 1 135,000 88,000
Year 2 177,000 92,000

Determine Net Income (or Loss) for Year 2 assuming that dividends paid during the year amounted to $3,000.

Net Income is $41,000.

Tying the Statements Together Chapter 1

A company had the following account balances at the end of its first year of operations. Find the missing amounts.

Net Income 560 Common Stock 1,600
Accounts Payable 500 Retained Earnings 550
Inventory ? Revenue ?
Equipment 1,200 Expenses 1,760
Accounts receivable 700 Cash 1,000
Dividends ? Wages Payable 900
  1. Determine Inventory
  2. Determine Revenue
  3. Determine Dividends
  1. Inventory is 650
  2. Revenue is 2,320
  3. Dividends are 10

Account Classifications Chapter 1

Accounts payable $12,000 Accounts Receivable 20,900
Furniture 5,000 Accumulated Depreciation 6,500
Building 82,000 Cash 21,500
Common Stock ? Sales Revenue 90,700
Cost of Goods Sold 51,500 Depreciation Expense 1,450
Dividends 6,600 Note Payable (due 3/1 Year 4) 20,000
Marketable Securities 1,400 Prepaid Expenses 18,000
Salaries Payable 2,800 Land 38,000
Note Payable (due 5/30 Year 2) 12,400 Service Revenue 22,550
Retained Earnings (1/1 Year 1 ) 39,700 Salary Expense 18,000
Accrued Expenses Payable 1,500 Unearned Revenue 30,500
Utilities Expense 5,400
  1. Determine Total assets on December 31, Year 1
  2. Determine Current Liabilities on December 31, Year 1
  3. Determine Net Income for the year ended December 31, Year 1
  4. Determine the total amount of Common Stock on December 31, Year 1
  1. Total Assets - 180,300
  2. Current Liabilities - 59,200
  3. Net Income - 36,900
  4. Common Stock - 31,100

Calculating Operating Income Chapter 1

A company began operations at the start of Year 1.

During the year, it had cash sales of $50,000 and credit sales of $450,000. The company collected $420,000 in cash from the credit sales. The company purchased inventory costing $250,000 and paid $18,000 in dividends. The company incurred the following expenses:

Cost of goods sold 210,000 Rent expense 6,000
Salary expense 80,000 Depreciation expense 4,000
Interest expense 5,000 Income tax expense 57,000

Using this information, answer the following questions.

  1. What would Operating Income on the Dec. 31, Year 1 Income Statement be reported as?
  2. As of Dec. 31, Year 1, determine the ending balance in the Accounts Receivable
  3. Determine Ending Retained Earnings as of December 31, Year 1
  1. Operating Income - 200,000
  2. Ending Accounts Receivable - 30,000
  3. Ending Retained Earnings - 120,000

Solving for Retained Earnings Chapter 1

At the end of Year 2, a company has a retained earnings balance of 5,700. Compute the missing amounts in the following table.

Year 1 Year 2
Beginning retained earnings 4,500 A
Revenues for the year 16,300 15,200
Expenses for the year B 13,300
Dividends declared 1,000 1,500
(B) Year 1 Expenses (A) Year 2 Beginning retained earnings
1. 13,700 2,300
2. 14,500 5,300
3. 17,500 5,700
4. 19,500 6,100
5. None of the above
Year 1 Expenses Year 2 Beginning retained earnings
2. 14,500 5,300