Financial Accounting > QUESTIONS & ANSWERS > ACT Exam 1 with complete solutions (All)

ACT Exam 1 with complete solutions

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Basic Accounting Equation Correct 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? Correct 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? Correct 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? Correct Answer: $220,000 Ethics Correct Answer: standards of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair. Historic Cost Principle Correct Answer: Dictates that companies record assets at their cost Fair Value Principle Correct Answer: States that assets & liabilities should be reported at fair value (only used when an asset is actively traded). Relevance Correct Answer: Financial information that is capable of making a difference in a decision. Faithful Representation Correct Answer: Number & descriptions match what really existed or happened. Monetary Unit Assumption Correct Answer: Transactions that can be expressed in terms of money. Economic Entity Assumption Correct Answer: Requires that the activity of the entity be kept separate & distinct from activities of its owners & all other economic entities. Sole Proprietorship Correct Answer: -Doesn't require much capital to start business -personally liable for all debts Partnership Correct Answer: -Doesn't require much capital to start business -Generally unlimited personal liability. Corporation Correct Answer: -Limited liability -Ownership is transferable -Can have unlimited life -Double taxation -less control -More compliance and set up costs [Show More]

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