ACT Exam 1
Basic Accounting Equation - Answer Assets = Liabilities + Owner's Equity
•The liabilities of Platt Company are $90,000. Owner's capital is $150,000; drawings are
$40,000; revenues, $450,000; and expenses, $340,000. What is the amount of Platt
Company's total assets? - Answer $310,000
•The total assets of Sierra Company are $57,000. Owner's capital is $35,000; drawings
are $7,000; revenues, $52,000; and expenses, $35,000. What is the amount of the
company's total liabilities? - Answer $12,000
•The total assets of Birch Co. are $660,000 and its liabilities are equal to two-thirds of its
total assets. What is the amount of Birch Co.'s owner's equity? - Answer $220,000
Ethics - Answer standards of conduct by which actions are judged as right or wrong,
honest or dishonest, fair or not fair.
Historic Cost Principle - Answer Dictates that companies record assets at their cost
Fair Value Principle - Answer States that assets & liabilities should be reported at fair
value (only used when an asset is actively traded).
Relevance - Answer Financial information that is capable of making a difference in a
decision.
Faithful Representation - Answer Number & descriptions match what really existed or
happened.
Monetary Unit Assumption - Answer Transactions that can be expressed in terms of
money.
Economic Entity Assumption - Answer Requires that the activity of the entity be kept
separate & distinct from activities of its owners & all other economic entities.
Sole Proprietorship - Answer -Doesn't require much capital to start business
-personally liable for all debts
Partnership - Answer -Doesn't require much capital to start business
-Generally unlimited personal liability.
Corporation - Answer -Limited liability
-Ownership is transferable
-Can have unlimited life
-Double taxation
Basic Accounting Equation - Answer Assets = Liabilities + Owner's Equity
•The liabilities of Platt Company are $90,000. Owner's capital is $150,000; drawings are
$40,000; revenues, $450,000; and expenses, $340,000. What is the amount of Platt
Company's total assets? - Answer $310,000
•The total assets of Sierra Company are $57,000. Owner's capital is $35,000; drawings
are $7,000; revenues, $52,000; and expenses, $35,000. What is the amount of the
company's total liabilities? - Answer $12,000
•The total assets of Birch Co. are $660,000 and its liabilities are equal to two-thirds of its
total assets. What is the amount of Birch Co.'s owner's equity? - Answer $220,000
Ethics - Answer standards of conduct by which actions are judged as right or wrong,
honest or dishonest, fair or not fair.
Historic Cost Principle - Answer Dictates that companies record assets at their cost
Fair Value Principle - Answer States that assets & liabilities should be reported at fair
value (only used when an asset is actively traded).
Relevance - Answer Financial information that is capable of making a difference in a
decision.
Faithful Representation - Answer Number & descriptions match what really existed or
happened.
Monetary Unit Assumption - Answer Transactions that can be expressed in terms of
money.
Economic Entity Assumption - Answer Requires that the activity of the entity be kept
separate & distinct from activities of its owners & all other economic entities.
Sole Proprietorship - Answer -Doesn't require much capital to start business
-personally liable for all debts
Partnership - Answer -Doesn't require much capital to start business
-Generally unlimited personal liability.
Corporation - Answer -Limited liability
-Ownership is transferable
-Can have unlimited life
-Double taxation
