ACT Exam 1 with complete solutionsACT Exam 1 with complete solutions
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....
•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
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