Accounting Principles (203) – Dr.
Mishari Alfraih
BRIEF EXERCISES
1. The liabilities of Weber Company are $ 120,000 and owner’s equity is 232,000.
What is the amount of Weber Company’s Total Assets?
2. The total assets of Weber Company are $ 190,000 and its owner’s equity is $
91,000. What is the amount of its total liabilities?
3. The total assets of Weber Company are $ 800,000 and its liabilities are equal to
one-half of its total assets. What is the amount of Weber Company’s owner’s
equity?
4. Presented below are three business transactions. For each transaction, indicate
whether the transactions increased (+), decreased (-), or had no effect (NE) on
assets, liabilities, and owner’s equity.
Assets Liabilities Owner’s Equity
a. Purchased
supplies on
account.
b. Received cash for
performing a
service.
c. Paid expenses in
cash.
d. Invested cash in
the business.
e. Withdrawal of
cash by owner.
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Accounting Principles (203) – Dr. Mishari Alfraih
5. Classify each of the following items as owner’s drawings (D), revenue (R), or
expense (E).
Owner’s Revenue Expense
drawings
a. Advertising
expense
b. Service revenue
c. Insurance
expense
d. Salaries and
wages expense
e. Owner’s
drawings
f. Rent revenue
g. Utilities expense
6. Indicate whether the following items would appear on the income statement
(IS), balance sheet (BS), or owner’s equity statement (OE).
Income Balance Owner’s Equity
Statement Sheet Statement
a. Notes payable
b. Advertising
expense
c. Owner’s capital
d. Cash
e. Service revenue
7. The following are users of financial statements. Identify the users as being
either external users or internal users.
External User Internal User
a. Customers
b. Tax Authority
c. Vice president of finance
d. Suppliers
e. Store manager
f. Capital Market Authority (CMA)
g. Labor unions
h. Marketing manager
i. Production supervisor
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Accounting Principles (203) – Dr. Mishari Alfraih
TRUE-FALSE STATEMENTS
8. Owners of business firms are the only people who need accounting
information.
a. True.
b. False.
9. Transactions that can be measured in dollars and cents are recorded in the
financial information system.
a. True.
b. False.
10. The hiring of a new company president is an economic event recorded by the
financial information system.
a. True.
b. False.
11. Management of a business enterprise is the major external user of information.
a. True.
b. False.
12. Accounting communicates financial information about a business enterprise to
both internal and external users.
a. True.
b. False.
13. Accounting information is used only by external users with a financial interest in
a business enterprise.
a. True.
b. False.
14. Financial statements are the major means of communicating accounting
information to interested parties.
a. True.
b. False.
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Accounting Principles (203) – Dr. Mishari Alfraih
15. The origins of accounting are attributed to Luca Pacioli, a famous
mathematician.
a. True.
b. False.
16. The study of accounting is not useful for a business career unless your career
objective is to become an accountant.
a. True.
b. False.
17. A working knowledge of accounting is not relevant to a lawyer or an architect.
a. True.
b. False.
18. A partnership must have more than one owner.
a. True.
b. False.
19. The economic entity assumption requires that the activities of an entity be kept
separate and distinct from the activities of its owner and all other economic
entities.
a. True.
b. False.
20. The monetary unit assumption states that transactions that can be measured in
terms of money should be recorded in the accounting records.
a. True.
b. False.
21. The basic accounting equation states that Assets = Liabilities.
a. True.
b. False.
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Accounting Principles (203) – Dr. Mishari Alfraih
MULTIPLE CHOICE QUESTIONS
22. The starting point of the accounting process is
a. communicating information to users.
b. identifying economic events.
c. recording economic events.
d. None of these answers are correct.
23. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
24. Which of the following is an external user of accounting information?
a. Labor unions.
b. Finance directors.
c. Company officers.
d. Managers.
25. The historical cost principle requires that when assets are acquired, they be
recorded at
a. appraisal value.
b. cost.
c. market price.
d. book value.
26. The Dulce Company has five plants nationwide that cost a total of $200 million.
The current fair value of the plants is $600 million. The plants will be recorded
and reported as assets at
a. $200 million.
b. $600 million.
c. $400 million.
d. $800 million.
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Accounting Principles (203) – Dr. Mishari Alfraih
27. The fair value principle is applied for
a. all assets.
b. current assets.
c. buildings.
d. investment securities.
28. The common characteristic possessed by all assets is
a. long life.
b. great monetary value.
c. tangible nature.
d. future economic benefit.
29. The basic accounting equation may be expressed as
a. Assets = Equities.
b. Assets – Liabilities = Owner's Equity.
c. Assets = Liabilities + Owner's Equity.
d. All of these answer choices are correct..
30. Liabilities
a. are future economic benefits.
b. are existing debts and obligations.
c. possess service potential.
d. are things of value used by the business in its operation.
31. When an owner withdraws cash or other assets from a business for personal
use, these withdrawals are termed
a. depletions.
b. consumptions.
c. drawings.
d. a credit line.
32. Sources of increases to owner's equity are
a. additional investments by owners.
b. purchases of merchandise.
c. withdrawals by the owner.
d. expenses.
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Accounting Principles (203) – Dr. Mishari Alfraih
33. Owner's equity is decreased by all of the following except
a. owner's investments.
b. owner's withdrawals.
c. expenses.
d. owner's drawings.
34. A net loss will result during a time period when
a. liabilities exceed assets.
b. drawings exceed investments.
c. expenses exceed revenues.
d. revenues exceed expenses.
35. The accounting equation for Cineo Enterprises is as follows:
Assets Liabilities Owner’s Equity
$120,000 = $60,000 + $60,000
If Cineo purchases office equipment on account for $15,000, the accounting
equation will change to
Assets Liabilities Owner’s Equity
a. $120,000 = $60,000 + $60,000
b. $135,000 = $60,000 + $75,000
c. $135,000 = $67,500 + $67,500
d. $135,000 = $75,000 + $60,000
36. As of June 30, 2016, Little Giantz Company has assets of $100,000 and owner’s
equity of $60,000. What are the liabilities for Little Giantz Company as of June
30, 2016?
a. $40,000
b. $60,000
c. $100,000
d. $160,000
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Accounting Principles (203) – Dr. Mishari Alfraih
37. Owner's equity is increased by
a. drawings.
b. revenues.
c. expenses.
d. liabilities.
38. As of December 31, 2016, Cancon Company has assets of $42,000 and owner's
equity of $22,000. What are the liabilities for Cancon Company as of December
31, 2016?
a. $22,000.
b. $20,000.
c. $42,000.
d. $64,000.
39. Which of the following events is not a business transaction?
a. Investment of cash by the owner.
b. Hired employees.
c. Incurred utility expenses for the month.
d. Earned revenue for services provided.
40. Net income results when
a. Assets > Liabilities.
b. Revenues = Expenses.
c. Revenues > Expenses.
d. Revenues < Expenses.
41. Owner's capital at the end of the period is equal to
a. owner's capital at the beginning of the period plus net income minus liabilities.
b. owner's capital at the beginning of the period plus net income minus drawings.
c. net income.
d. assets plus liabilities.
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Accounting Principles (203) – Dr. Mishari Alfraih
42. A balance sheet shows
a. revenues, liabilities, and owner's equity.
b. expenses, drawings, and owner's equity.
c. revenues, expenses, and drawings.
d. assets, liabilities, and owner's equity.
43. An income statement
a. summarizes the changes in owner's equity for a specific period of time.
b. reports the changes in assets, liabilities, and owner's equity over a period of
time.
c. reports the assets, liabilities, and owner's equity at a specific date.
d. presents the revenues and expenses for a specific period of time.
44. Eli’s Electronic Repair Shop started the year with total assets of $300,000 and
total liabilities of $200,000. During the year, the business recorded $400,000 in
electronic repair revenues, $300,000 in expenses, and Eli withdrew $50,000. Eli's
Owner’s Capital balance at the end of the year was
a. $200,000.
b. $100,000.
c. $150,000.
d. $350,000.
45. Eli’s Electronic Repair Shop started the year with total assets of $300,000 and
total liabilities of $200,000. During the year, the business recorded $400,000 in
electronic repair revenues, $300,000 in expenses, and Eli withdrew $50,000. The
net income reported by Eli's Electronic Repair Shop for the year was
a. $100,000.
b. $150,000.
c. $250,000.
d. $250,000.
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Accounting Principles (203) – Dr. Mishari Alfraih
46. Eli’s Electronic Repair Shop started the year with total assets of $300,000 and
total liabilities of $200,000. During the year, the business recorded $400,000 in
electronic repair revenues, $300,000 in expenses, and Eli withdrew $50,000. Eli's
Owner’s Capital balance changed by what amount from the beginning of the
year to the end of the year?
a. $100,000.
b. $ 50,000.
c. $200,000.
d. $250,000.
47. The balance sheet is frequently referred to as
a. an operating statement.
b. the statement of financial position.
c. the statement of cash flows.
d. the statement of owner's equity.
48. The primary purpose of the statement of cash flows is to report
a. a company's investing transactions.
b. a company's financing transactions.
c. information about cash receipts and cash payments of a company.
d. the net increase or decrease in cash.
49. All of the financial statements are for a period of time except the
a. income statement.
b. owner's equity statement.
c. balance sheet.
d. statement of cash flows.
50. The ending owner's equity amount is shown on
a. the balance sheet only.
b. the owner's equity statement only.
c. both the income statement and the owner's equity statement.
d. both the balance sheet and the owner's equity statement.
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Accounting Principles (203) – Dr. Mishari Alfraih
51. Alicia Keyes Company began the year with owner’s equity of $280,000. During
the year, the company recorded revenues of $375,000, expenses of $265,000,
and had owner drawings of $30,000. What was Alicia Keyes’ owner’s equity at
the end of the year?
a. $280,000.
b. $360,000.
c. $390,000.
d. $420,000.
52. Martha Innocenzi began the Innocenzi Company by investing $75,000 of cash in
the business. The company recorded revenues of $555,000, expenses of
$410,000, and had owner drawings of $30,000. What was Innocenzi’s net income
for the year?
a. $115,000.
b. $145,000.
c. $175,000.
d. $190,000.
53. Foxes Service Shop started the year with total assets of $320,000 and total
liabilities of $240,000. During the year, the business recorded $630,000 in
revenues, $450,000 in expenses, and owner drawings of $60,000. The net
income reported by Foxes Service Shop for the year was
a. $140,000.
b. $180,000.
c. $200,000.
d. $270,000.
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Accounting Principles (203) – Dr. Mishari Alfraih
54. Mirah Company compiled the following financial information as of December 31,
2016:
Revenues $340,000
Owner’s Capital (1/1/16) 140,000
Equipment 80,000
Expenses 240,000
Cash 90,000
Owner’s Drawings 20,000
Supplies 20,000
Accounts payable 40,000
Accounts receivable 70,000
Mirah’s assets on December 31, 2016 are
a. $190,000.
b. $260,000.
c. $360,000.
d $480,000.
55. Mirah Company compiled the following financial information as of December
31, 2016:
Revenues $340,000
Owner’s Capital (1/1/16) 140,000
Equipment 80,000
Expenses 240,000
Cash 90,000
Owner’s Drawings 20,000
Supplies 20,000
Accounts payable 40,000
Accounts receivable 70,000
Mirah’s owner’s equity on December 31, 2016 is
a. $100,000.
b. $140,000.
c. $220,000.
d. $260,000.
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Accounting Principles (203) – Dr. Mishari Alfraih
56. Teamboo Company’s owner’s equity at the beginning of August 2016 was
$740,000. During the month, the company earned net income of $175,000 and
owner’s drawings were $80,000. At the end of August 2016, what is the balance
in owner’s equity?
a. $660,000
b. $740,000
c. $820,000
d. $835,000
57. During the year 2016, Dallas Company earned revenues of $90,000, had
expenses of $62,000, purchased assets with a cost of $10,000 and had owner
drawings of $6,000. Net income for the year is
a. $18,000.
b. $22,000.
c. $28,000.
d. $32,000.
58. At October 1, Flambo Company reported owner’s equity of $70,000. During
October, no additional investments were made and the company earned net
income of $18,000. If owner’s equity at October 31 totals $80,000, what amount
of owner drawings were made during the month?
a. $0
b. $8,000
c. $10,000
d. $26,000
59. Which of the following is not part of the accounting process?
a. Recording
b. Identifying
c. Financial decision making
d. Communicating
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Accounting Principles (203) – Dr. Mishari Alfraih
60. The first part of the accounting process is
a. communicating.
b. identifying.
c. processing.
d. recording.
61. Internal users of accounting information include all of the following except
a. company officers.
b. investors.
c. marketing managers.
d. production supervisors.
62. A net loss will result during a time period when
a. assets exceed liabilities.
b. assets exceed owner's equity.
c. expenses exceed revenues.
d. revenues exceed expenses.
63. Mellon Company purchases $1,500 of equipment from Office Equipment Inc. for
cash. The effect on the components of the basic accounting equation of Mellon
Company is
a. an increase in assets and liabilities.
b. a decrease in assets and liabilities.
c. no change in total assets.
d. an increase in assets and a decrease in liabilities.
64. Juggernaut Company buys a $29,000 van on credit. The transaction will affect
the
a. income statement only.
b. balance sheet only.
c. income statement and owner's equity statement only.
d. income statement, owner's equity statement, and balance sheet.
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Accounting Principles (203) – Dr. Mishari Alfraih
65. As of December 31, 2021, Kent company has assets of $ 3,500 and owner’s
equity of $2,000. What are the liabilities for Kent Company as of December 31,
2021?
a. $ 1,500.
b. $ 1,000.
c. $ 2,500
d. $ 2,000.
66. Which of the following events is not recorded in the accounting records?
a. Equipment is purchased on account.
b. An employee is terminated.
c. A cash investment is made into the business.
d. The owner withdraws cash for personal use.
Notes #2 Page 15