ACCOUNTING 110 FINAL EXAM QUESTIONS AND
ANSWERS
Accrue Interest - ANSWER Accounting expense recognized in the books
before it is paid for
Principal - ANSWER The amount of money borrowed
Sales tax is ... - ANSWER a liability to the retailer until paid to the state
Remitting the tax - ANSWER Paying the cash to the state tax authority
Sale of Merchandise - ANSWER HSC sells $7,000 of merchandise for cash.
The merchandise had a cost of $4,000. Thus a $3000 profit.
Warranty Obligations - ANSWER Increase Liabilities and Expenses
Decrease Retained Earnings and Net Income
Long-term Installment Notes - ANSWER Liabilities that usually have terms of
multiple years (2 to 5 is common)
Company/Lender Relationship - ANSWER Lender--Principal--> Company
Company--Payments-->Lender
Interest/Principal Relationship - ANSWER With each payment, the amount
applied to the principal increases and the amount applied to interest decreases.
Lines of Credit - ANSWER Pre-approved financing plans that allow companies
to borrow and repay funds as needed up to the maximum credit line set by the
creditor.
,Normally used for relatively short-term borrowing to finance seasonal business
needs.
Sole Proprietorship - ANSWER Owned by a single individual
Partnership - ANSWER Owned by two or more individuals
* Partnerships require clear agreements about authority, risks, and the sharing of
profits and losses.
Corporation - ANSWER A separate legal entity created by the authority of a
state government.
Each state has separate laws governing establishing corporations.
Corporation Regulations - ANSWER Large, publicly traded corporations are
much more heavily regulated than smaller closely held corporations.
- SEC Acts of 1933 and 1934
- Sarbanes-Oxley Act of 2002
- Exchange listing requirements.
Corporate Advantages/Disadvantages - ANSWER Advantages:
- Separate legal Entity
- Limited liability of stockholders
- Continuous life
- Managerial Structure
- Easily transferable ownership rights
- Ability to raise capital
Disadvantages:
- Gov't regulation
- Corporate double taxation
Corporate Management Structure - ANSWER Stockholders
Board of Directors
, President
- VP (Production)
- VP (Marketing)
- VP (Finance)
- VP (Personnel)
Ownership interest (Equity) - ANSWER 1. Owner/Investor Contributions
2. Retained Earnings
Ownership Interest/Distributions for:
Sole Proprietorships - ANSWER Single capital account for the owner
Distributions: Withdrawals
Ownership Interest/Distributions for:
Partnerships - ANSWER Capital account for each partner
Distributions: Withdrawals
Ownership Interest/Distributions for: Corporations - ANSWER 1. Capital stock
consisting of common stock and preferred stock
2. Separate retained earnings account
Distributions: Dividends
Common Stock - ANSWER Common stockholders have the rights to:
- Buy and sell stock.
- Share in the distribution of profits.
- Share in the distribution of assets in the case of liquidation.
- Vote on significant matters that affect the corporate charter.
ANSWERS
Accrue Interest - ANSWER Accounting expense recognized in the books
before it is paid for
Principal - ANSWER The amount of money borrowed
Sales tax is ... - ANSWER a liability to the retailer until paid to the state
Remitting the tax - ANSWER Paying the cash to the state tax authority
Sale of Merchandise - ANSWER HSC sells $7,000 of merchandise for cash.
The merchandise had a cost of $4,000. Thus a $3000 profit.
Warranty Obligations - ANSWER Increase Liabilities and Expenses
Decrease Retained Earnings and Net Income
Long-term Installment Notes - ANSWER Liabilities that usually have terms of
multiple years (2 to 5 is common)
Company/Lender Relationship - ANSWER Lender--Principal--> Company
Company--Payments-->Lender
Interest/Principal Relationship - ANSWER With each payment, the amount
applied to the principal increases and the amount applied to interest decreases.
Lines of Credit - ANSWER Pre-approved financing plans that allow companies
to borrow and repay funds as needed up to the maximum credit line set by the
creditor.
,Normally used for relatively short-term borrowing to finance seasonal business
needs.
Sole Proprietorship - ANSWER Owned by a single individual
Partnership - ANSWER Owned by two or more individuals
* Partnerships require clear agreements about authority, risks, and the sharing of
profits and losses.
Corporation - ANSWER A separate legal entity created by the authority of a
state government.
Each state has separate laws governing establishing corporations.
Corporation Regulations - ANSWER Large, publicly traded corporations are
much more heavily regulated than smaller closely held corporations.
- SEC Acts of 1933 and 1934
- Sarbanes-Oxley Act of 2002
- Exchange listing requirements.
Corporate Advantages/Disadvantages - ANSWER Advantages:
- Separate legal Entity
- Limited liability of stockholders
- Continuous life
- Managerial Structure
- Easily transferable ownership rights
- Ability to raise capital
Disadvantages:
- Gov't regulation
- Corporate double taxation
Corporate Management Structure - ANSWER Stockholders
Board of Directors
, President
- VP (Production)
- VP (Marketing)
- VP (Finance)
- VP (Personnel)
Ownership interest (Equity) - ANSWER 1. Owner/Investor Contributions
2. Retained Earnings
Ownership Interest/Distributions for:
Sole Proprietorships - ANSWER Single capital account for the owner
Distributions: Withdrawals
Ownership Interest/Distributions for:
Partnerships - ANSWER Capital account for each partner
Distributions: Withdrawals
Ownership Interest/Distributions for: Corporations - ANSWER 1. Capital stock
consisting of common stock and preferred stock
2. Separate retained earnings account
Distributions: Dividends
Common Stock - ANSWER Common stockholders have the rights to:
- Buy and sell stock.
- Share in the distribution of profits.
- Share in the distribution of assets in the case of liquidation.
- Vote on significant matters that affect the corporate charter.
