3-Short Answer Questions
3-Short Answer Questions
3-Short Answer Questions
Questions:
➢ Accounting has often been called the language of business. In what respects would you
agree with this description? How might you argue that this description is deficient?
➢ Define asset, liability, and stockholders’ equity.
➢ How do liabilities and stockholders’ equity differ? How are they similar?
➢ How do accounts payable and notes payable differ? How are they similar?
➢ Define revenues. How are revenues measured?
➢ Define expenses. How are expenses measured?
➢ What is a balance sheet? On what aspect of a business does the balance sheet provide
information?
➢ What is an income statement? On what aspect of a business does this statement provide
information?
➢ What information does the statement of retained earnings provide?
➢ Identify the three types of activities shown in a statement of cash flows.
➢ What is a transaction? What use does the accountant make of transactions? Why?
➢ What is the accounting equation? Why must it always balance?
➢ Give an example from your personal life that illustrates your use of accounting information in
reaching a decision.
➢ You have been elected to the governing board of your church. At the first meeting you
attend, mention is made of building a new church. What accounting information would the board
need in deciding whether or not to go ahead?
➢ A company purchased equipment for $ 2,000 cash. The vendor stated that the equipment
was worth $ 2,400. At what amount should the equipment be recorded?
➢ What is meant by money measurement?
➢ Of what significance is the exchange-price (or cost) concept? How is the cost to acquire an
asset determined?
➢ What effect does the going-concern (continuity) concept have on the amounts at which long-
term assets are carried on the balance sheet?
➢ Of what importance is the periodicity (time periods) concept to the preparation of financial
statements?
➢ Describe a transaction that would:
Increase both an asset and capital stock.
Increase both an asset and a liability.
Increase one asset and decrease another asset.
Decrease both a liability and an asset.
Increase both an asset and retained earnings.
Decrease both an asset and retained earnings.
Increase a liability and decrease retained earnings.
Decrease both an asset and retained earnings.
Identify the causes of increases and decreases in stockholders’ equity
B) Accounting Exercises:
Exercise 1. Applying Basic Accounting Equation
Royals Palm, Inc. reports the following assets and liabilities. Compute the totals that would
appear in the corporation’s basic accounting equation (Assets = Liabilities + Stockholders’
Equity (Capital Stock)).
Cash………………………….$55,000
Accounts Payable……………25,000
Office Supplies………………. 1, 500
Loan Payable…………………..7,000
Accounts Receivable………….10,000
Answer:
Exercise 2. Applying Basic Accounting Equation
Dan and Den, Inc. reports the following assets and liabilities. Compute the totals that would
appear in the corporation’s basic accounting equation (Assets = Liabilities + Stockholders’
Equity (Capital Stock)).
Cash………………………….$37,000
Accounts Payable……………15,000
Supplies……………………….1, 800
Loan Payable…………………..9,000
Inventory……………………….12,000
Answer:
Exercise 3. Complete missing amounts in fundamental accounting equation for
several businesses:
578,000 152,000
25,000 180,500
127,000 17,000
269,000 45,000
850,000 675,000
250,000 657,450