Introducing Financial Accounting - CCSN Computer Graphics Program

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Chapter 1 Introducing Financial Accounting 33
Assume the following role and describe a situation in which ethical considerations play an important part
in guiding your decisions and actions:
a. You are a student in an introductory accounting course.
b. You are an accounting professional with audit clients that are competitors in business.
c. You are an accounting professional preparing tax returns for clients.
d. You are a manager with responsibility for several employees.
Match each of the numbered descriptions with the term or phrase it best reflects. Indicate your answer by
writing the letter for the term or phrase in the blank provided.
A. Audit C. Ethics E. SEC G. Net income
B. GAAP D. Tax accounting F. Public accountants H. IASB
1. Amount a business earns after paying all expenses and costs associated with its sales and
revenues.
2. An examination of an organization’s accounting system and records that adds credibility to
financial statements.
3. Principles that determine whether an action is right or wrong.
4. Accounting professionals who provide services to many clients.
5. An accounting area that includes planning future transactions to minimize taxes paid.
Match each of the numbered descriptions with the principle or assumption it best reflects. Enter the letter
for the appropriate principle or assumption in the blank space next to each description.
A. Cost principle E. General accounting principle
B. Matching principle F. Business entity assumption
C. Specific accounting principle G. Revenue recognition principle
D. Full disclosure principle H. Going-concern assumption
1. Revenue is recorded only when the earnings process is complete.
2. Information is based on actual costs incurred in transactions.
3. Usually created by a pronouncement from an authoritative body.
4. Financial statements reflect the assumption that the business continues operating.
5. A company reports details behind financial statements that would impact users’ decisions.
6. A company records the expenses incurred to generate the revenues reported.
7. Derived from long-used and generally accepted accounting practices.
8. Every business is accounted for separately from its owner or owners.
The following describe several different business organizations. Determine whether the description refers
to a sole proprietorship, partnership, or corporation.
a. A-1 pays its own income taxes and has two owners.
b. Ownership of Zeller Company is divided into 1,000 shares of stock.
c. Waldron is owned by Mary Malone, who is personally liable for the company’s debts.
d. Micah Douglas and Nathan Logan own Financial Services, a financial services provider. Neither
Douglas nor Logan has personal responsibility for the debts of Financial Services.
e. Bailey and Kay own Squeaky Clean, a cleaning service. Both are personally liable for the debts of the
business.
f. Plasto Products does not pay income taxes and has one owner.
g. Ian LLC does not have separate legal existence apart from the one person who owns it.
Answer the following questions. (Hint: Use the accounting equation.)
a. Office Mart has assets equal to $123,000 and liabilities equal to $53,000 at year-end. What is the total
equity for Office Mart at year-end?
b. At the beginning of the year, Logan Company’s assets are $200,000 and its equity is $150,000. During the
year, assets increase $70,000 and liabilities increase $30,000. What is the equity at the end of the year?
c. At the beginning of the year, Keller Company’s liabilities equal $60,000. During the year, assets increase
by $80,000, and at year-end assets equal $180,000. Liabilities decrease $10,000 during the
year. What are the beginning and ending amounts of equity?
Exercise 1-4
Identifying ethical concerns
C3
Exercise 1-5
Learning the language
of business
C1 – C3
Exercise 1-6
Identifying accounting principles
and assumptions
C4
Exercise 1-7
Distinguishing business
organizations
C4
Exercise 1-8
Using the accounting
equation
A1 P1
Check (c) Beg. equity, $40,000