ACG 2021 Exam 1 Study Guide with
Questions and Solutions
Which of the following is true with regards to the forms of business organization?
✅Partnerships and their owners generally receive more favorable tax treatment than
corporations
Which statement about users of accounting information is correct? ✅Creditors are
considered external users
Which of the following best defines accounting? ✅The information system that
identifies, measures, and communicates economic information to permit informed
judgements and decisions by the users of the information
Which of the following statements is true regarding the Sarbanes-Oxley Act (SOX)?
✅SOX required company management to certify the accuracy of the company's
financial statements
The cost of assets consumed or services used in the process of generating revenues is
also known as ✅an expense
What type of account or account classification is retained earnings? ✅Equity
Buying property, plant, and equipment (such as delivery trucks) needed to operate a
business is and example of a(n) ✅Investing activity
Amounts earned on the sale of products or services to customers is known as
✅revenue
Which of the following would not appear on an income statement? ✅Dividends
To prepare financial statements, you must understand the sequence in which amounts
are determined and how each statement impacts the next. All of the following are
interrelationships that are important to understand when preparing financial statements
except ✅The total expenses on the income statement should be equal to the cash
payments for operating activities on the statement of cash flows
Retained earnings at the end of the year is equal to which of the following?
✅beginning retained earnings + net income - dividends
A company recorded the following cash transactions for the year:
Collected $350,000 from customers
, Collected $40,000 from issuing a note to a bank
Paid $20,000 to purchase office equipment
Paid $100,000 for salaries
Paid $10,000 for dividends
Paid $80,000 for rent
What was the company's net cash provided by operating activities for the year?
✅$170,000 because net cash flow provided by operating activities = $350,000 -
100,000 - 80,000 = $170,000
The financial records for a corporation included the following information:
Accounts receivable 60,000
Accounts payable 20,000
Cash 25,000
common stock 10,000
Dividends 10,000
Insurance expense 5,000
salaries and wages expense 50,000
Sales revenue 120,000
Retained earnings is not given. Based on this information, how much is its net income?
✅$65,000 because net income = revenue - expenses
net income = 120,000 - 50,000 - 5,000 = 65,000
During the year, a company did the following
Recognized revenues of 800,000
Incurred expenses of 620,000
Issued common stock for 90,000
Paid dividends of 60,000
Its end retained earnings is $500,000. What was the company beginning retained
earnings? ✅$380,000 because Beginning retained earnings = Ending retained
earnings - revenue + expenses + dividends
500,000 - 800,000 + 620,000 + 60,000 = 380,000
In which of the following sequences are these three financial statements usually
prepared? ✅(i)Income statement
(ii)Statement of stockholders equity
(iii)Balance sheet
A corporation had the following accounts and balances
Accounts payable 10,000
Accounts receivable 15,000
Buildings 40,000
Cash 5,000
Common stock 25,000
Equipment 30,000
Retained earnings NOT GIVEN
Unearned service revenue 4,000
