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ACCNTG Ch. 1 Practice Questions

Accounting is an information and measurement system that identifies records and communicates financial information to users.
True
Bookkeeping is the sole purpose of accounting.
False
Accounting is one way important information about businesses are reported to decision makers.
True
Managerial accounting is an area of accounting that provides internal reports to assist the decision making needs of internal users.
True
The internal operating functions of businesses include research and development, distribution and human resources.
True
The primary objective of financial accounting is to provide general-purpose financial statements to help external users analyze and interpret an organization’s activities.
True
An external audit report is a professional opinion about whether the financial statements are prepared according to generally accepted accounting principles.
True
Internal users of accounting information include lenders, shareholders, brokers and managers.
False
Auditors are banned from direct investments with their clients.
False
Ownership of a corporation is divided into units called shares or stock.
True
The Financial Accounting Standards Board is a private group that sets both broad and specific accounting principles.
True
Generally accepted accounting principles are the basic assumptions, concepts and guidelines for preparing financial statements.
True
The business entity assumption requires that a business be accounted for separately from other business entities, including its owner or owners.
True
Unlimited liability is an advantage of all sole proprietorships.
False
Understanding generally accepted accounting principles is not necessary when using and interpreting financial statements.
False
The International Accounting Standards Board (IASB) has the authority to impose its standards on companies around the world.
False
According to the cost principle, it is preferable for managers to report the most current estimate of an asset’s value.
False
The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue stock to the public.
False
The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices.
True
The Securities and Exchange Commission (SEC) is an agency of the federal government that establishes reporting requirements for companies that issue stock to the public.
True
The three major activities of a business are operating, investing and financing.
True
Planning refers to defining an organization’s ideas, goals and actions.
True
Investing activities are the acquiring and selling of resources that an organization uses in its everyday operations.
True
. Owner financing refers to resources contributed by creditors or lenders.
False
Revenues are increases in retained earnings from a company’s earnings activities.
True
A net loss arises when revenues exceed expenses.
False
A net loss arises when revenues exceed expenses.
Expenses decrease retained earnings and are the costs acquired to earn revenues.
True
Assets are the resources owned or controlled by a business.
True
Dividends are expenses of a business.
False
The accounting equation can be restated as: Assets – Equity = Liabilities.
True
The accounting equation implies that: Assets + Liabilities = Equity.
False
The legitimate claims of a business’s creditors take precedence over the claims of its stockholders.
True
Every business transaction should leave the accounting equation in balance.
TRUE
True
The Retained earnings is increased when cash is received from customers in payment of previously recorded accounts receivable.
False
An owner’s investment in a business always creates an asset (cash), a liability (note payable) and an equity (common stock).
False
Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits and in planning activities.
True
Reebok’s net income of $119 million and average assets of $1,400 million results in a return on assets of 8.5%.
True
Risk is the amount of uncertainty about the return we expect to earn in the future.
True
The balance sheet shows whether or not the firm achieved its primary objective of earning a profit.
False
The four basic financial statements include the balance sheet, income statement, statement of retained earnings and statement of cash flows.
True
A balance sheet covers a period of time, such as a month or year.
False
The income statement is a financial statement that shows revenues earned and expenses incurred during a specified period of time.
True
The statement of cash flows shows the net effect of revenues and expenses for a reporting period.
False
The income statement shows the financial position of a business on a specific date.
False
The first section of the income statement reports cash from operations.
False
The balance sheet is based on the accounting equation.
True
Owner’s investments and dividends are reported on the income statement.
False
Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.
True
Operating activities include long-term borrowing and repaying cash from lenders and cash investments by owners or dividends to the owner.
False
The purchase of supplies must appear on the statement of cash flows as an investing activity because it involves the purchase of assets.
False
The income statement reports on operating activities at a specific point in time.
False
The statement of cash flows reports on cash flows separated into operating, investing and financing activities over a period of time.
True
Chuck Taylor invested $175,000 in cash in Fast-Forward. This amount would be reported in the statement of cash flows under financing activities.
True
Fast-Forward paid $6,000 in dividends. This amount should be included as an expense on the income statement.
False
Which of the following is the primary purpose of accounting?
A. To establish a business
B. To identify, record and communicate business transactions
C. To deceive stockholders
D. To keep from paying taxes
E. To establish credit for a company
B
Technological advancement
A. Has replaced accounting
B. Has not changed the work that accountants do
C. Has freed accounting professionals to concentrate more on the analysis and interpretation of information
D. In accounting has replaced the need for decision makers
E. In accounting is only available to large corporations
C
Identifying business activities requires selecting transactions and events relevant to an organization. Which of the following events would be recorded in the accounting records of Acme Car Wash?
A. Acme washes 500 cars
B. J.B. Smith, a customer, buys lunch at the restaurant next door to Acme while waiting for her car to be washed
C. Clean Company, a supplier, sells 50 pounds of soap to ABC Company
D. Sudsey Company, a supplier, goes out of business
E. Acme hires Andrea as a receptionist
A
Internal users of accounting information include:
A. Shareholders
B. Customers
C. Creditors
D. Government regulators
E. Line Supervisor
E
The primary objective of financial accounting is:
A. To serve the decision-making needs of internal users
B. To provide financial statements to help external users analyze and interpret an organization’s activities
C. To monitor and control company activities
D. To provide information on both the costs and benefits of managing products and services
E. To know what, when and how much to produce
B
Internal users of accounting information always include:
A. Shareholders
B. Managers
C. Lenders
D. Suppliers
E. Customers
B
The area of accounting aimed at serving the decision making needs of internal users is:
A. Financial accounting
B. Managerial accounting
C. External auditing
D. SEC reporting
E. Governmental accounting
B
The financing functions of a business include:
A. Research and development
B. Purchasing
C. Marketing
D. Distribution
E. Selling common stock
E
Which of the following statements is true of external information users?
A. They are directly involved in managing the organization
B. Their needs are met by the managerial area of accounting
C. They have limited access to an organization’s accounting information
D. They use accounting information to help improve the efficiency and effectiveness of an organization
E. They are the only users of accounting information who rely on internal controls to monitor company activities
C
Which accounting assumption assumes that all accounting information is reported monthly or yearly?
A. Business entity assumption
B. Monetary unit assumption
C. Value assumption
D. Cost assumption
E. Time period assumption
E
Which of the following accounting principles dictates when expenses are recognized?
A. Revenue recognition principle
B. Monetary unit principle
C. Business entity principle
D. Matching principle
E. Full disclosure principle
D
Which of the following is the correct sequence for the heading for ABC Company’s 2010 Balance Sheet?
A. ABC Company, For the year ended 12/31/10, Balance Sheet
B. For the year ended 12/31/10, Balance Sheet, ABC Company
C. Balance Sheet, 12/31/10, ABC Company
D. 12/31/10, ABC Company, Balance Sheet
E. ABC Company, Balance Sheet, 12/31/10
E
Which of the following elements are found on the income statement?
A. Cash
B. Accounts Receivable
C. Common Stock
D. Retained Earnings
E. Salaries Expense
E
An Asset is:
A. only acquired with cash
B. something the company owns
C. only contributed by stockholders
D. a company’s obligation to pay
E. is also called contributed capital
B
Ethical behavior requires:
A. That an auditors’ pay not depend on the figures in the client’s reports
B. Auditors to invest in businesses they audit
C. Analysts to report information favorable to their companies
D. Managers to use accounting information to benefit themselves
E. That an auditor provides a favorable opinion
A
Social responsibility:
A. Is a concern for the impact of one’s actions on society as a whole
B. Is a code that helps in dealing with confidential information
C. Is required by the SEC
D. Requires that all businesses conduct social audits
E. Is mandated by the federal government
A
Which of the following elements are found on the Balance Sheet?
A. Service Revenue
B. Net Income
C. Operating Activities
D. Utilities Expense
E. Retained Earnings
E
The accounting guideline prescribing that financial statement information be supported by independent, unbiased evidence other than someone’s belief or opinion is the:
A. Business entity principle
B. Monetary unit principle
C. Going-concern principle
D. Cost principle
E. Measurement principle
E
Businesses can take all of the following forms except:
A. Sole proprietorship
B. Common stock
C. Partnership
D. Corporation
E. Limited Liability Corporation
B
A corporation:
A. Is a legal entity separate and distinct from its owners
B. Must have many owners
C. Has shareholders who have unlimited liability for the acts of the corporation
D. Is the same as a limited liability partnership
E. Does not have to pay taxes
A
Generally Accepted Accounting Principles:
A. Focus on the review of a situation
B. Does not require financial statements
C. Never change
D. Intend to make information on the financial statements relevant, reliable and comparable
E. Oversees Security and Exchange Commission
D
The organization that attempts to create more harmony among the accounting practices of different countries by identifying preferred practices and encouraging their worldwide acceptance is the:
A. AICPA
B. FASB
C. CAP
D. SEC
E. IASB
E
The private board that currently has the authority to establish U.S. generally accepted accounting principles is the:
A. APB
B. FASB
C. AAA
D. AICPA
E. SEC
B
Which of the following statements best describes the relationship of U.S. GAAP and IFRS?
A. They are identical
B. They are entirely different conceptual frameworks
C. They are similar but not identical
D. Neither has anything to do with accounting
E. They both relate only to publicly traded companies
C
The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue is the:
A. Going-concern principle
B. Business entity principle
C. Objectivity principle
D. Cost Principle
E. Monetary unit principle
A
A parcel of land is: offered for sale at $150,000, assessed for tax purposes at $95,000, recognized by its purchasers as being worth $140,000 and purchased for $137,000. The land should be recorded in the purchaser’s books at:
A. $95,000
B. $137,000
C. $138,500
D. $140,000
E. $150,000
B
To include the personal assets and transactions of a business’s owner in the records and reports of the business would be in conflict with the:
A. Objectivity principle
B. Realization principle
C. Business entity principle
D. Going-concern principle
E. Revenue recognition principle
C
The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash-equivalent given in exchange is the:
A. Accounting equation
B. Cost principle
C. Going-concern principle
D. Realization principle
E. Business entity principle
B
Recording the items on the financial statements in dollars is:
A. Objectivity principle
B. Monetary unit principle
C. Revenue recognition principle
D. Going-concern principle
E. Cost principle
B
The objectivity principle:
A. Means that information is supported by independent, unbiased evidence
B. Means that information can be based on what the preparer thinks is true
C. Means that financial statement should contain information that is optimistic
D. Means that a business may not recognize revenue until cash is received
E. Means the assets acquired must be recorded and what the company paid for them
A
The principle that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash and (3) measures the amount of revenue as the cash plus the cash equivalent value of any non-cash assets received from customers in exchange for goods or services is called the:
A. Going-concern principle
B. Cost principle
C. Revenue recognition principle
D. Objectivity principle
E. Business entity principle
C
The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the:
A. Revenue recognition principle
B. Going-concern principle
C. Objectivity principle
D. Business entity principle
E. Cost principle
A
The International Accounting Standards Board (IASB)
A. Hopes to create harmony among accounting practices of different countries
B. Is the government group that establishes reporting requirements for companies that issue stock to the public
C. Has the authority to impose its standards on companies
D. Is the only source of U.S. generally accepted accounting principles (GAAP)
E. Applies only to companies that are members of the European Union
A
The Maximum Experience Company acquired a building for $500,000. Maximum Experience had an appraisal done and found that the building was worth $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would prescribe that Maximum Experience record the building on its records at $500,000?
A. Monetary unit principle
B. Going-concern principle
C. Cost principle
D. Business entity principle
E. Revenue recognition principle
C
On December 15, 2010, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in 2011. Which accounting principle would require Myers Legal Services to record the legal fees revenue in 2011 and not 2010?
A. Monetary unit principle
B. Going-concern principle
C. Cost principle
D. Business entity principle
E. Revenue recognition principle
E
Marian Mosely is the owner of Mosely Accounting Services. Which accounting assumption requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services?
A. Monetary unit assumption
B. Going-concern assumption
C. Cost assumption
D. Business entity assumption
E. None of these. Since Marian is a sole proprietor, she is not required to separate her personal financial information from the financial information of Mosely Accounting Services
D
Congress passed the Sarbanes-Oxley Act to
A. Provide jobs to U.S. accountants and limit the number of jobs sent outside the country
B. Impose penalties on CEO’s and CFO’s who knowingly sign off on bogus accounting reports, although at this time the penalties are token amounts
C. Help curb financial abuses at companies that issue their stock to the public
D. Force auditors to attest to the absolute accuracy of the financial statements
E. Require that all companies publicly disclose their internal control plans
C
A limited partnership:
A. Includes a general partner with unlimited liability
B. Is subject to double taxation
C. Has owners called stockholders
D. Is the same as a corporation
E. Must only have two partners
A
A partnership:
A. Is also called a sole proprietorship
B. Has unlimited liability
C. Has to have a written agreement in order to be legal
D. Is a legal organization separate from its owners
E. Has owners called shareholders
B
According to generally accepted accounting principles, a company’s balance sheet should show the company’s assets at:
A. The cash equivalent value of what was given up
B. The current market value of the assets at the balance sheet date
C. The cash paid to acquire them, even if something other than cash was given in the exchange
D. The best estimate from a certified internal auditor
E. The objective value to external users
A
The amounts reported in the accounts for assets used in operations are based on their costs. This practice is best justified by the:
A. Cost principle
B. Going-concern principle
C. Objectivity principle
D. Business entity principle
E. Revenue recognition principle
A
Which of the following accounting principles would prescribe that all goods and services purchased is recorded at cost?
A. Going-concern principle
B. Continuing-concern principle
C. Cost principle
D. Business entity principle
E. Consideration principle
C
Revenue is properly recognized:
A. When the customer’s order is received
B. Only if the transaction creates an account receivable
C. At the end of the accounting period
D. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sale price
E. When cash from a sale is received
D
An example of a financing activity is:
A. Buying office supplies
B. Obtaining a long-term loan
C. Buying office equipment
D. Selling inventory
E. Buying land
B
An example of an operating activity is:
A. Paying wages
B. Purchasing office equipment
C. Borrowing money from a bank
D. Selling stock
E. Paying off a loan
A
Planning activities:
A. Are the means organizations must use to pay for resources
B. Involve the acquiring and disposing of resources that an organization uses to acquire and sell its products or services
C. Involve defining the ideas, goals and actions of an organization
D. Are the carrying out of an organization’s plans
E. Involve using resources to research, develop, purchase, produce and market products and services
C
Operating activities:
A. Are the means organizations must use to pay for resources like land, buildings and equipment
B. Involve using resources to research, develop, purchase, produce, distribute and market products and services
C. Involve acquiring and disposing of resources that a business uses to acquire and sell its products or services
D. Are also called asset management
E. Are also called strategic management
B
The major activities of a business include:
A. Operating, Investing, Making a Profit
B. Investing, Making a Profit, Operating
C. Making a Profit, Operating, Borrowing
D. Operating, Investing, Financing
E. Investing, Making a Profit Financing
D
An example of an investing activity is:
A. Paying wages of employees
B. Paying dividends
C. Purchasing land
D. Selling inventory
E. Contribution from owner
C
Net Income:
A. Decreases equity
B. Represents the amount of assets owners put into a business
C. Equals assets minus liabilities
D. Is the excess of revenues over expenses
E. Represents the owners’ claims against assets
D
If equity is $300,000 and liabilities are $192,000, then assets equal:
A. $108,000
B. $192,000
C. $300,000
D. $492,000
E. $792,000
D
Resources owned or controlled by a company that are expected to yield benefits are:
A. Assets
B. Revenues
C. Liabilities
D. Stockholder’s Equity
E. Expenses
A
Increases in retained earnings from a company’s earnings activities are:
A. Assets
B. Revenues
C. Liabilities
D. Stockholder’s Equity
E. Expenses
B
Net income is:
A. Assets minus liabilities
B. The excess of revenues over expenses
C. An asset
D. The same as revenue
E. The excess of expenses over retained earnings
B
The difference between a company’s assets and its liabilities or its net assets is:
A. Net income
B. Expense
C. Equity
D. Revenue
E. Net loss
C
Creditors’ claims on the assets of a company are called:
A. Net losses
B. Expenses
C. Revenues
D. Equity
E. Liabilities
E
Decreases in retained earnings that represent costs of assets or services that are used to earn revenues are called:
A. Liabilities
B. Equity
C. Withdrawals
D. Expenses
E. Contributed Capital
D
The description of the relation between a company’s assets, liabilities and equity, which is expressed as Assets = Liabilities + Equity is known as the:
A. Income statement equation
B. Accounting equation
C. Business equation
D. Return on equity ratio
E. Net income
B
Assets = Liabilities + Equity is known as the:
A. Income statement equation
B. Cost principle
C. Objectivity principle
D. Accounting equation
E. Transaction principle
D
Expenses:
A. Increase retained earnings
B. Are increases in retained earnings from a company’s earning activity
C. Are the costs of assets or services used to earn revenues
D. Occur when retained earnings exceed revenue
E. Are creditor’s claims on assets
C
Net income:
A. Occurs when revenues exceed expenses
B. Is the same as revenue
C. Equals resources owned or controlled by a company
D. Occurs when expenses exceed assets
E. Represents assets taken from a company for an owner’s personal use
A
Revenues are:
A. The same as net income
B. The excess of expenses over assets
C. Resources owned or controlled by a company
D. Increases in retained earnings from a company’s earning activities
E. The costs of assets or services used
D
If liabilities are $51,500 and assets are $173,425, then equity equals:
A. $224,925
B. $51,500
C. $173,425
D. $121,925
E. $103,000
D
If assets are $99,000 and liabilities are $32,000, then equity equals:
A. $32,000
B. $67,000
C. $99,000
D. $131,000
E. $198,000
B
Another name for equity is:
A. Net income
B. Expenses
C. Net assets
D. Revenue
E. Net loss
C
The excess of expenses over revenues for a period is:
A. Net assets
B. Equity
C. Net loss
D. Net income
E. A liability
C
Which of the following statements is not true about assets?
A. They are economic resources owned or controlled by the business
B. They are expected to provide future benefits to the business
C. They appear on the balance sheet
D. They appear on the statement of retained earnings
E. Claims on them are shared between creditors and owners
D
The distribution of assets to stockholders is called a(n):
A. Liability
B. Dividend
C. Expense
D. Contribution
E. Investment
B
Distributions of assets by a business to its stockholders are called:
A. Dividends
B. Expenses
C. Assets
D. Retained earnings
E. Net Income
A
The balance sheet equation is:
A. Revenues minus expenses equal net income
B. Debits equal credits
C. The bookkeeping phase of accounting
D. Another name for the accounting equation
E. Assets minus liabilities and equity
D
The assets of a company total $700,000; the liabilities, $200,000. What are the total claims of the owners?
A. $900,000
B. $700,000
C. $500,000
D. $200,000
E. It is impossible to determine unless the amount of owners’ investment is known
C
$700,000 – $200,000 = $500,000
Our company has three times as many assets as it does liabilities. If total liabilities are $55,000, what is the amount of owners’ equity?
A. $55,000
B. $110,000
C. $165,000
D. $220,000
E. Cannot be determined from the given information
B
Assets = 3 (55,000) = 165,000
Assets 165,000 – Liabilities 55,000 = Owners’ Equity 110,000
A company has twice as much owner’s equity as it does liabilities. If total liabilities are $50,000, what amounts of assets are owned by the company?
A. $50,000
B. $100,000
C. $150,000
D. $200,000
E. Cannot be determined from the given information
C
Owners’ Equity = 2 (50,000) = 100,000
Assets = Liabilities 50,000 + Owners’ Equity 100,000
Which of the following statements regarding account classification is true?
A. Assets and revenues are the same thing
B. If employees have not yet been paid for their work, the company has wages payable
C. Retained earnings equal cash which the company has earned and kept
D. Revenue is another term for profit
E. Revenue minus expense equals retained earnings
B
If assets are $365,000 and equity is $120,000, then liabilities are:
A. $120,000
B. $245,000
C. $365,000
D. $485,000
E. $610,000
B
Liabilities = $365,000 – $120,000 = $245,000
Assets created by selling goods and services on credit are:
A. Accounts payable
B. Accounts receivable
C. Liabilities
D. Expenses
E. Equity
B
An exchange of value between two entities is called:
A. The accounting equation
B. Recordkeeping or bookkeeping
C. A business transaction
D. An asset
E. Net Income
C
Photometer Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?
A. Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase
B. Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect
C. Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect
D. Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase
E. Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease
B
How would the accounting equation of Boston Company be affected by the billing of a client for $10,000 of consulting work completed?
A. +$10,000 accounts receivable, -$10,000 accounts payable
B. +$10,000 accounts receivable, +$10,000 accounts payable
C. +$10,000 accounts receivable, +$10,000 cash
D. +$10,000 accounts receivable, +$10,000 consulting revenue
E. +$10,000 accounts receivable, -$10,000 consulting revenue
D
Apatha Company has assets of $600,000, liabilities of $250,000 and equity of $350,000. It buys office equipment on credit for $75,000. The effects of this transaction include:
A. Assets increase by $75,000 and expenses increase by $75,000
B. Assets increase by $75,000 and expenses decrease by $75,000
C. Liabilities increase by $75,000 and expenses decrease by $75,000
D. Assets decrease by $75,000 and expenses decrease by $75,000
E. Assets increase by $75,000 and liabilities increase by $75,000
E
Viscount Company collected $42,000 cash on its accounts receivable. How does this transaction affect the company’s accounting equation?
A. Assets decrease and equity increases
B. Both assets and liabilities decrease
C. Assets, liabilities and equity are unchanged
D. Both assets and equity are unchanged and liabilities increase
E. Assets increase and equity decreases
C
If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:
A. Decreased $105,000
B. Decreased $45,000
C. Increased $30,000
D. Increased $45,000
E. Increased $105,000
D
Change in Assets = Change in Liabilities + Change in Equity
Change in Assets = $75,000 + (-$30,000) = + $45,000
If the assets of a business increased $89,000 during a period of time and its liabilities increased $67,000 during the same period, equity in the business must have:
A. Increased $22,000
B. Decreased $22,000
C. Increased $89,000
D. Decreased $156,000
E. Increased $156,000
A
Change in Assets = Change in Liabilities + Change in Equity
Change in Assets = + $89,000 – $67,000 = + $22,000
If the assets of a business increased $15,000 during a period of time and its equity decreased $4,000 during the same period, liabilities in the business must have:
A. Increased $11,000
B. Decreased $11,000
C. Increased $19,000
D. Decreased $19,000
E. Increased $61,000
C
Change in Assets = Change in (Liabilities + Equity) +15,000 = x – 4,000 x = + 19,000
Beta Corporation purchased $100,000 worth of land by paying 10,000 cash and signing a $90,000 mortgage. Immediately prior to this transaction the corporation had assets, liabilities and owners’ equity in the amounts of $150,000; $30,000; and $120,000 respectively. What is the total amount of Beta Corporation’s assets after this transaction has been recorded?
A. $240,000
B. $250,000
C. $160,000
D. $40,000
E. $260,000
A
150,000 (assets prior to transaction) + 100,000 (land) – (10,000) cash = 240,000
A corporation purchased a $40,000 delivery truck by paying 4,000 cash and signing a $36,000 note payable. Immediately prior to this transaction the corporation had assets, liabilities and owners’ equity in the amounts of $75,000; $52,000; and $23,000 respectively. What is the total amount of the corporation’s assets after this transaction has been recorded?
A. $115,000
B. $111,000
C. $79,000
D. $71,000
E. $75,000
B
75,000 (assets prior to transaction) + 40,000 (truck) – 4,000 (cash) = 111,000
Return on assets is:
A. Also called rate of return
B. Computed by dividing net income by beginning assets plus ending assets divided by two
C. Computed by multiplying net income by total assets
D. Used in helping evaluate expenses
E. Found on the balance sheet
B
Reebok had income of $150 million and average assets of $1,800 million. Its return on assets is:
A. 8.33%
B. 83.3%
C. 12.0%
D. 120%
E. 16.7%
A
$150 million/$1,800 million = 8.33%
Nike had income of $350 million and average assets of $2,000 million. Its return on assets is:
A. 1.8%
B. 35%
C. 17.5%
D. 5.7%
E. 3.5%
C
$350 million/$2,000 million = 17.5%
Fast-Forward has net income of $18,955 and assets at the beginning of the year of $200,000. Its assets at the end of the year total $246,000. Compute its return on assets.
A. 7.7%
B. 8.5%
C. 9.5%
D. 11.8%
E. 13.0%
B
$18,955/[($200,000 + $246,000)/2] = $18,955/$223,000 = 8.5%
Compute return on assets given net income of $13,764, beginning assets of $120,000 and ending assets of $176,000.
A. 4.65%
B. 7.82%
C. 9.3%
D. 11.47%
E. 21.51%
C
$13,764/[($120,000 + $176,000)/2] = $13,764/$148,000 = 9.3%
U.S. government bonds are:
A. High-risk and high-return investments
B. Low-risk and low-return investments
C. High-risk and low-return investments
D. Low-risk and high-return investments
E. High risk and no-return investments
B
Risk is:
A. Net income divided by average total assets
B. The reward for investment
C. The uncertainty about the expected return that will be earned from an investment
D. Unrelated to expected return
E. Derived from the idea of getting something back from an investment
C
Consider the risk of the following investments. Choose the answer that lists the investments in order from highest expected return to lowest expected return.
A. Drilling exploration to discover oil, stock in a secure “blue chip” corporation, government bonds
B. Stock in a secure “blue chip” corporation, government bonds, drilling exploration to discover oil
C. Government bonds, drilling exploration to discover oil, stock in a secure “blue chip” corporation
D. Drilling exploration to discover oil, government bonds, stock in a secure “blue chip” corporation
E. Government bonds, stock in a secure “blue chip” corporation, drilling exploration to discover oil
A
The statement of cash flows reports on cash flows for:
A. Operating activities
B. Revenue activities
C. Expense activities
D. Planning activities
E. Equity activities
A
A company purchases supplies on account, what is the effect on the accounting equation?
A. assets decrease; equity increases
B. assets decrease; equity decreases
C. liabilities decrease; equity decreases
D. liabilities increase; equity increases
E. liabilities increase; assets increase
E
The statement of cash flows reports information on:
A. Revenue activities
B. Expense activities
C. Financing activities
D. Equity activities
E. Asset activities
C
The statement of retained earnings:
A. Reports how retained earnings changes at a point in time
B. Reports how retained earnings changes over a period of time
C. Reports on cash flows for operating, financing and investing activities over a period of time
D. Reports on cash flows for operating, financing and investing activities at a point in time
E. Reports on amounts for assets, liabilities and equity at a point in time
B
The financial statement that reports whether the business earned a profit and also lists the types and amounts of the revenues and expenses is called a(n):
A. Balance sheet
B. Statement of retained earnings
C. Statement of cash flows
D. Income statement
E. Statement of financial position
D
A balance sheet lists:
A. The types and amounts of the revenues and expenses of a business
B. Only the information about what happened to retained earnings during a time period
C. The types and amounts of assets, liabilities and equity of a business as of a specific date
D. The cash inflows and outflows during the period
E. The assets and liabilities of a company, but not the equity
C
A financial statement providing information that helps users understand a company’s financial status and which lists the types and amounts of assets, liabilities and equity as of a specific date is called a(n):
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
E. Financial status statement
A
The financial statement that describes where a company’s cash came from and where it went during the period is the:
A. Statement of financial position
B. Statement of cash flows
C. Balance sheet
D. Income statement
E. Statement of retained earnings
B
The financial statement that shows: beginning and ending retained earnings balances and the effects of net income (loss) and a dividend for the period is the:
A. Statement of financial position
B. Statement of cash flows
C. Balance sheet
D. Income statement
E. Statement of retained earnings
E
Cash investments by owners in exchange for stock are listed on which of the following statements?
A. Balance sheet
B. Income statement
C. Statement of retained earnings
D. Statement of cash flows
E. Statement of Cash Received
D
Accounts payable appear on which of the following statements?
A. Balance sheet
B. Income statement
C. Statement of retained earnings
D. Statement of cash flows
E. Transaction statement
A
The income statement reports all of the following except:
A. Revenues earned by a business
B. Expenses incurred by a business
C. Assets owned by a business
D. Net income or loss earned by a business
E. The time period over which the earnings occurred
C
A company acquires equipment for $75,000 cash. This represents a(n):
A. Operating activity
B. Investing activity
C. Financing activity
D. Revenue activity
E. Expense activity
B
. A company borrows $125,000 from the Eastside Bank and receives the loan proceeds in cash. This represents a(n):
A. Revenue activity
B. Operating activity
C. Expense activity
D. Investing activity
E. Financing activity
E
Fast-Forward had cash inflows from operations of $62,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:
A. $40,500 increase
B. $40,500 decrease
C. $134,500 decrease
D. $134,000 increase
E. $9,500 increase
A
$62,500 – $47,000 + $25,000 = $40,500 increase
Fast-Forward has beginning equity of $257,000, net income of $51,000, dividends of $40,000 and investments by owners in exchange for stock of $6,000. Its ending equity is:
A. $223,000
B. $240,000
C. $268,000
D. $274,000
E. $208,000
D
$257,000 + $51,000 – $40,000 + $6,000 = $274,000
Acme Company had equity of $55,000 at the end of the current year. During the year the company had a $2,000 net loss and investments by owners in exchange for stock of $7,000. Compute equity as of the beginning of the year.
A. $5,000
B. $46,000
C. $50,000
D. $52,000
E. $64,000
C
x – $2,000 + $7000 = 55,000
x = 50,000
Rent expense that is paid with cash appears on which of the following statements?
A. Balance sheet
B. Income statement
C. Statement of retained earnings
D. Schedule of Accounts Receivable
E. Statement of Cash Received
B
Fees earned (but not yet received in cash) by a business in exchange for services that it has provided appear on which of the following statements?
A. Balance sheet
B. Statement of Cash Received
C. Statement of retained earnings
D. Statement of cash flows
E. Schedule of Accounts Receivable
A
A company’s balance sheet shows: cash $22,000, accounts receivable $16,000, office equipment $50,000 and accounts payable $17,000. What is the amount of equity?
A. $17,000
B. $29,000
C. $71,000
D. $88,000
E. $105,000
C
Assets = $22,000 + $16,000 + $50,000 = $88,000
Liabilities = $17,000
Equity = $88,000 – $17,000 = $71,000
. If Beginning Retained Earnings was $184,300, the company distributed $46,000 in dividends and Ending Retained Earnings was $345,000, what was the net income for the period?
A. $154,700
B. $206,700
C. $114,700
D. $575,300
E. $160,700
B
345,000 + 46,000 – 184,300 = 206,700
If Beginning Retained Earnings was $184,300, net income for the period was $200,000 and Ending Retained Earnings was $322,000, what was the total amount of dividend distributed for the period?
A. $62,300
B. $306,300
C. $337,700
D. $706,300
E. $137,700
A
184,300 + 200,000 – 322,000 = 62,300
If net income for the period was $134,250, dividends distributed were $76,530 and Ending Retained Earnings was $862,520, what was the Beginning Retained Earnings for the period?
A. $1,073,300
B. $651,740
C. $804,800
D. $920,240
E. $728,270
C
862,520 + 76,530 – 134,250 = 804,800
Beginning Assets were $437,600, Beginning Liabilities were $262,560, Common Stock sold during the year totaled $45,000, Revenue for the year was $414,250, Expenses for the year were $280,000, Dividends declared was $22,700, and Ending Liabilities is $350,000.
What was the Beginning Equity for the year?
A. $700,160
B. $787,600
C. $187,600
D. $612,560
E. $175,040
E
437,600 – 262,560 = 175,040
Beginning Assets were $437,600, Beginning Liabilities were $262,560, Common Stock sold during the year totaled $45,000, Revenue for the year was $414,250, Expenses for the year were $280,000, Dividends declared was $22,700, and Ending Liabilities is $$350,000.
What is the Ending Equity for the year?
A. $700,160
B. $331,590
C. $134,250
D. $612,560
E. $175,040
B
(437,600 – 262,560) + 45,000 + 414,250 – 280,000 – 22,700 = 331,590
Beginning Assets were $437,600, Beginning Liabilities were $262,560, Common Stock sold during the year totaled $45,000, Revenue for the year was $414,250, Expenses for the year were $280,000, Dividends declared was $22,700, and Ending Liabilities is $$350,000.
What is Net Income for the year?
A. $700,160
B. $331,590
C. $134,250
D. $612,560
E. $175,040
C
414,250 – 280,000 = 134,250
Beginning Assets were $437,600, Beginning Liabilities were $262,560, Common Stock sold during the year totaled $45,000, Revenue for the year was $414,250, Expenses for the year were $280,000, Dividends declared was $22,700, and Ending Liabilities is $$350,000.
What are the Ending Assets for the year?
A. $,700,160
B. $,612,560
C. $,787,600
D. $,681,590
E. $1,159,410
D
(437,600 – 262,560) + 45,000 + 414,250 – 280,000-22,700 = 331,590 (end. Equity) + 350,000 = 681,590
Beginning Assets were $700,000, Beginning Equity was $225,000, Revenue for the year was $523,000, Common Stock sold during the year totaled $320,000, Expenses for the year were $392,000, Ending Equity is $751,000, and Ending Assets are $963,000.
What is Net Income for the year?
A. $475,000
B. $998,000
C. $131,000
D. $203,000
E. $308,000
C
523,000 – 392,000 = 131,000
. Beginning Assets were $700,000, Beginning Equity was $225,000, Revenue for the year was $523,000, Common Stock sold during the year totaled $320,000, Expenses for the year were $392,000, Ending Equity is $751,000, and Ending Assets are $963,000.
What were the total dividends declared?
A. $75,000
B. $998,000
C. $131,000
D. $203,000
E. $308,000
A
751,000 + 392,000 – 523,000 – 320,000 – 225,000 = 75,000
Beginning Assets were $700,000, Beginning Equity was $225,000, Revenue for the year was $523,000, Common Stock sold during the year totaled $320,000, Expenses for the year were $392,000, Ending Equity is $751,000, and Ending Assets are $963,000.
What were the Beginning Liabilities for the year?
A. $738,000
B. $998,000
C. $131,000
D. $203,000
E. $475,000
E
700,000 – 225,000 = 475,000
Beginning Assets were $700,000, Beginning Equity was $225,000, Revenue for the year was $523,000, Common Stock sold during the year totaled $320,000, Expenses for the year were $392,000, Ending Equity is $751,000, and Ending Assets are $963,000.
What are the Ending Liabilities for the year?
A. $738,000
B. $998,000
C. $212,000
D. $203,000
E. $475,000
C
963,000 – 751,000 = 212,000
Ending Liabilities are 67,000, Beginning Equity was $87,000, Common Stock sold during year totaled $31,000, Expenses for the year were $22,000, Dividends declared totaled $13,000, Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000.
What are the Ending Assets for the year?
A. $154,000
B. $134,000
C. $212,000
D. $248,000
E. $155,000
D
67,000 + 181,000 = 248,000
Ending Liabilities are 67,000, Beginning Equity was $87,000, Common Stock sold during year totaled $31,000, Expenses for the year were $22,000, Dividends declared totaled $13,000, Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000.
What was Beginning Liabilities for the year?
A. $154,000
B. $155,000
C. $212,000
D. $248,000
E. $135,000
E
222,000 – 87,000 = 135,000
Ending Liabilities are 67,000, Beginning Equity was $87,000, Common Stock sold during year totaled $31,000, Expenses for the year were $22,000, Dividends declared totaled $13,000, Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000.
What was Revenue for the year?
A. $154,000
B. $155,000
C. $53,000
D. $98,000
E. $135,000
D
181,000 + 13,000 + 22,000 – 31,000 – 87,000 = 98,000
Ending Liabilities are 67,000, Beginning Equity was $87,000, Common Stock sold during year totaled $31,000, Expenses for the year were $22,000, Dividends declared totaled $13,000, Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000.
What was Net Income for the year?
A. $41,000
B. $76,000
C. $53,000
D. $98,000
E. $35,000
B
181,000 + 13,000 + 22,000 – 31,000 – 87,000 = 98,000 (rev.) – 22,000 = 76,000

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