MGMT 200- Purdue University (Exam 1)| 120
QUESTIONS| WITH COMPLETE SOLUTION
Accounting is a system of maintaining records of a company's operations and communication
that information to decision makers. Correct Answer: True
What makes accounting a valuable discipline? Correct Answer: Provides information to make
decisions
Financial accounting does not deal with which of the following? Correct Answer: Providing
information to internal users
Which of the following groups is not among the external users for whom financial statements are
prepared? Correct Answer: Managers
Product profitability reports for a business are considered Correct Answer: Managerial
accounting
Preparing a budget for a business is considered Correct Answer: Managerial accounting
(Budgets are internal documents and generally not shared outside of the organization)
Which of the following would NOT be an objective of external users reading a company's
financial statements? Correct Answer: Assessing the company's contribution to social politics.
What is the primary purpose of financial accounting? Correct Answer: Measure business
activities and communicate those measures to external users to make decisions.
When a company receives a product previously ordered, a recordable accounting transaction has
occurred Correct Answer: Yes (affects financial position and can be measured in money)
When a company inquires about the availability of inventory, a transaction has occurred Correct
Answer: No
When payment is received for services not yet rendered, no entry is recorded until that service
has been rendered. Correct Answer: False (affects financial position since cash is received)
Which of the following business events is not a transaction recorded in financial accounting?
Correct Answer: Signing an agreement with a supplier
An alternative form of the accounting equation is: Correct Answer: Assets - Liabilities =
Stockholders' Equity
The resources of a company are referred to as: Correct Answer: Assets (assets benefit future
operations. Examples are cash, inventory, supplies, accounts receivable, buildings and
equipment.)
, Liabilities can be best described as: Correct Answer: The amount owed to creditors
What is the best definition of an asset? Correct Answer: Resources that benefit future operations
What is the best definition of an accounts receivable? Correct Answer: Amounts owed by
customers to a company.
Those who lend money or deliver goods and services before being paid are called Correct
Answer: Creditors (Assets = Liabilities( creditors' claims) + Equity (owners' claims))
If total assets increase $30,000 during a period and total liabilities increased $12,000 during the
same period, the amount and direction (increase or decrease) of the change in stockholders'
equity for that period is: Correct Answer: an $18,000 increase.
assets = liabilities + equity
(+$30,000) - (+$12,000) = x
(+$30,000) - (+$12,000) = (+$18,000)
At the end of its year, J&L Services, Inc., a computer services business, had total assets of
$25,000 and equity of $10,000. How much were J&L Services' liabilities? Correct Answer:
$15,000
assets - equity = liabilities
$25,000 - $10,000 = $15,000
The amounts recorded when the company sells products or provided services to customers are
referred to as: Correct Answer: Revenues (revenues are recorded at the time the company
provides products or services to customers)
Which of the following best describes revenue? Correct Answer: Sales of goods and services to
a customer
The cost associated with producing revenues are referred to as: Correct Answer: Expenses
Dividends represent a return of the company's profit to its owners, the stockholders. Correct
Answer: True (not classified as an "expense")
Which of the following items is not a specific account in a company's accounting records?
Correct Answer: Income
Using the information below from the accounting records of Gulf Corporation, stockholders'
claims to the company's resources amount to:
Assets $1,000,000
Liabilities $500,000
Net income $200,000
Retained earnings $200,000 Correct Answer: $500,000
assets - liabilities = stockholders' equity
QUESTIONS| WITH COMPLETE SOLUTION
Accounting is a system of maintaining records of a company's operations and communication
that information to decision makers. Correct Answer: True
What makes accounting a valuable discipline? Correct Answer: Provides information to make
decisions
Financial accounting does not deal with which of the following? Correct Answer: Providing
information to internal users
Which of the following groups is not among the external users for whom financial statements are
prepared? Correct Answer: Managers
Product profitability reports for a business are considered Correct Answer: Managerial
accounting
Preparing a budget for a business is considered Correct Answer: Managerial accounting
(Budgets are internal documents and generally not shared outside of the organization)
Which of the following would NOT be an objective of external users reading a company's
financial statements? Correct Answer: Assessing the company's contribution to social politics.
What is the primary purpose of financial accounting? Correct Answer: Measure business
activities and communicate those measures to external users to make decisions.
When a company receives a product previously ordered, a recordable accounting transaction has
occurred Correct Answer: Yes (affects financial position and can be measured in money)
When a company inquires about the availability of inventory, a transaction has occurred Correct
Answer: No
When payment is received for services not yet rendered, no entry is recorded until that service
has been rendered. Correct Answer: False (affects financial position since cash is received)
Which of the following business events is not a transaction recorded in financial accounting?
Correct Answer: Signing an agreement with a supplier
An alternative form of the accounting equation is: Correct Answer: Assets - Liabilities =
Stockholders' Equity
The resources of a company are referred to as: Correct Answer: Assets (assets benefit future
operations. Examples are cash, inventory, supplies, accounts receivable, buildings and
equipment.)
, Liabilities can be best described as: Correct Answer: The amount owed to creditors
What is the best definition of an asset? Correct Answer: Resources that benefit future operations
What is the best definition of an accounts receivable? Correct Answer: Amounts owed by
customers to a company.
Those who lend money or deliver goods and services before being paid are called Correct
Answer: Creditors (Assets = Liabilities( creditors' claims) + Equity (owners' claims))
If total assets increase $30,000 during a period and total liabilities increased $12,000 during the
same period, the amount and direction (increase or decrease) of the change in stockholders'
equity for that period is: Correct Answer: an $18,000 increase.
assets = liabilities + equity
(+$30,000) - (+$12,000) = x
(+$30,000) - (+$12,000) = (+$18,000)
At the end of its year, J&L Services, Inc., a computer services business, had total assets of
$25,000 and equity of $10,000. How much were J&L Services' liabilities? Correct Answer:
$15,000
assets - equity = liabilities
$25,000 - $10,000 = $15,000
The amounts recorded when the company sells products or provided services to customers are
referred to as: Correct Answer: Revenues (revenues are recorded at the time the company
provides products or services to customers)
Which of the following best describes revenue? Correct Answer: Sales of goods and services to
a customer
The cost associated with producing revenues are referred to as: Correct Answer: Expenses
Dividends represent a return of the company's profit to its owners, the stockholders. Correct
Answer: True (not classified as an "expense")
Which of the following items is not a specific account in a company's accounting records?
Correct Answer: Income
Using the information below from the accounting records of Gulf Corporation, stockholders'
claims to the company's resources amount to:
Assets $1,000,000
Liabilities $500,000
Net income $200,000
Retained earnings $200,000 Correct Answer: $500,000
assets - liabilities = stockholders' equity
