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1 | |
Financial statements do not always cover a period of one year. |
| | A) | True |
| | B) | False |
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2 | |
The financial statement that summarizes the assets, liabilities, and owners' equity of an enterprise at a point in time is called a statement of cash flows. |
| | A) | True |
| | B) | False |
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3 | |
The payment of a debt results in a negative cash flow. |
| | A) | True |
| | B) | False |
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4 | |
If assets total $300,000 and owners' equity totals $100,000, then total liabilities must be $200,000. |
| | A) | True |
| | B) | False |
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5 | |
On the balance sheet, permanent assets and their balances appear before liquid assets and their balances. |
| | A) | True |
| | B) | False |
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6 | |
Economic resources owned by an entity are called assets. |
| | A) | True |
| | B) | False |
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7 | |
Assets are always in some physical or tangible form. |
| | A) | True |
| | B) | False |
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8 | |
A toy store, restaurant, shoe store, and a computer repair shop are examples of an economic unit called a business entity. |
| | A) | True |
| | B) | False |
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9 | |
If you purchase equipment at a bargain price and record the purchase of the equipment at the amount of cash used to pay for it, rather than its current market value, you are complying with a widely used principle of accounting for assets known as the cost principle. |
| | A) | True |
| | B) | False |
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10 | |
A decline in the general price level, resulting in an increase in the purchasing power of the monetary unit, is called inflation. |
| | A) | True |
| | B) | False |
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11 | |
The stable-dollar assumption is an assumption by accountants that the monetary unit used in the preparation of financial statements is stable over time or changes at a sufficiently slow rate that the resulting impact on financial statements does not distort the information presented. |
| | A) | True |
| | B) | False |
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12 | |
The balance sheet of a business is prepared on the assumption that the business is a continuing enterprise, or a going concern. |
| | A) | True |
| | B) | False |
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13 | |
Accounts payable and notes payable are called liabilities. |
| | A) | True |
| | B) | False |
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14 | |
Liabilities may represent accrued expenses. |
| | A) | True |
| | B) | False |
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15 | |
A creditor is a person or organization to which debt is owed. |
| | A) | True |
| | B) | False |
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16 | |
If assets total $480,000 and liabilities total $340,000, the owners' equity is $820,000 ($480,000 + $340,000). |
| | A) | True |
| | B) | False |
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17 | |
Owners' equity is a secondary claim to the enterprise's assets. |
| | A) | True |
| | B) | False |
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18 | |
The accounting equation can be expressed as: assets equal the sum of liabilities plus owners' equity. |
| | A) | True |
| | B) | False |
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19 | |
Purchasing an asset for cash will increase owners' equity. |
| | A) | True |
| | B) | False |
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20 | |
Purchasing an asset by making a down payment of 20% of the purchase price and issuing a note payable for the balance will decrease owners' equity. |
| | A) | True |
| | B) | False |
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21 | |
The sale of an asset, at its cost, will not change owners' equity. |
| | A) | True |
| | B) | False |
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22 | |
The payment of a liability will change owners' equity, but the collection of an account receivable will not change owners' equity. |
| | A) | True |
| | B) | False |
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23 | |
The recording of revenues will increase owners' equity. |
| | A) | True |
| | B) | False |
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24 | |
The balance sheet is a reflection of the accounting equation. |
| | A) | True |
| | B) | False |
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25 | |
Increases in the enterprise's assets as a result of profit-oriented activities are called sales. |
| | A) | True |
| | B) | False |
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26 | |
A present reduction in cash required to generate revenues is called an expense. |
| | A) | True |
| | B) | False |
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27 | |
A major category in the statement of cash flows that reflects the results of debt and equity financing transactions is called operating activities. |
| | A) | True |
| | B) | False |
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28 | |
Cash flows from financing activities are the cash effects of revenue and expense transactions that are included in the income statement. |
| | A) | True |
| | B) | False |
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29 | |
Cash flows from investing activities are the cash effects of purchasing and selling assets. |
| | A) | True |
| | B) | False |
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30 | |
The purchase of land, buildings, and equipment are investing activities. |
| | A) | True |
| | B) | False |
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31 | |
Articulation is the close relationship that exists among the financial statements that are prepared on the basis of the same underlying transaction information. |
| | A) | True |
| | B) | False |
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32 | |
A partnership is a form of business ownership in which, among other criteria, two or more persons involuntarily associate for purposes of carrying out business activities. |
| | A) | True |
| | B) | False |
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33 | |
A business organized as a separate legal entity and chartered by a state, with ownership divided into transferable shares of capital stock, is called a corporation. |
| | A) | True |
| | B) | False |
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34 | |
Transferable units of ownership in a corporation are called capital stock. |
| | A) | True |
| | B) | False |
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35 | |
The portion of owners' equity (stockholders' equity) that has accumulated as a result of profitable operations is called retained earnings. |
| | A) | True |
| | B) | False |
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36 | |
Having the financial ability to pay debts as they become due is called solvency. |
| | A) | True |
| | B) | False |
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37 | |
A note to the financial statements describes the uninsured loss to a major portion of the company's manufacturing processes due to a natural disaster. The note to the financial statements is in compliance with an accounting principle called 'disclosure.' |
| | A) | True |
| | B) | False |
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38 | |
Delaying large cash outflows for assets until a subsequent accounting period, so as to draw attention to a large amount of cash at the end of the current period, is an action that is sometimes called window dressing. |
| | A) | True |
| | B) | False |
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39 | |
The body of the balance sheet consists of which of the following? |
| | A) | Two distinct sections |
| | B) | Three distinct sections |
| | C) | Four distinct sections |
| | D) | A varying number of distinct sections |
| | E) | None of the above |
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40 | |
Owners' equity in a business comes from which of the following? |
| | A) | Investments in cash by the owners |
| | B) | Investments in assets other than cash by the owners |
| | C) | Earnings from profitable operation of the business |
| | D) | All of the above |
| | E) | A and C only |
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41 | |
Which of the following will cause decreases in owners' equity? |
| | A) | Payments of cash to the owners |
| | B) | Payment of assets other than cash to the owners |
| | C) | Losses from unprofitable operation of the business |
| | D) | All of the above |
| | E) | A and C only |
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42 | |
The accounting equation can be expressed as which of the following? |
| | A) | Assets plus liabilities equal owners' equity |
| | B) | Assets plus owners' equity equals liabilities |
| | C) | Assets equal liabilities plus owners' equity |
| | D) | Either A or C |
| | E) | None of the above |
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43 | |
Office equipment was purchased for cash. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, increase; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, no change; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, no change; Liabilities, no change; Owners' Equity, increase |
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44 | |
Office equipment was purchased by issuing a check for $5,000 and a note payable for the balance of $45,000. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, increase; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, no change; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, no change; Liabilities, no change; Owners' Equity, increase |
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45 | |
Office supplies of $12,500 were purchased on account. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, increase; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, no change; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, no change; Liabilities, no change; Owners' Equity, increase |
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46 | |
As a gesture of goodwill, office supplies of $1,000 were sold to a neighboring business that paid cash for the supplies. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, increase; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, no change; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, no change; Liabilities, no change; Owners' Equity, increase |
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47 | |
The company collected an account receivable of $4,200. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, increase; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, no change; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, no change; Liabilities, no change; Owners' Equity, increase |
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48 | |
The company paid a $5,000 installment on a note payable of $45,000. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, decrease; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, decrease; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, no change; Liabilities, no change; Owners' Equity, increase |
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49 | |
The company provided computer repair services of $800 to a customer who charged the services on account. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, increase; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, decrease; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, increase; Liabilities, no change; Owners' Equity, increase# |
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50 | |
The company paid its employees their weekly wages of $950. What effect did this transaction have on the financial position of the company? |
| | A) | Assets, no change; Liabilities, no change; Owners' Equity, no change |
| | B) | Assets, decrease; Liabilities, increase; Owners' Equity, no change |
| | C) | Assets, decrease; Liabilities, no change; Owners' Equity, decrease |
| | D) | Assets, increase; Liabilities, increase; Owners' Equity, no change |
| | E) | Assets, increase; Liabilities, no change; Owners' Equity, increase |
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51 | |
Which of the following transactions would appear on the statement of cash flows as an operating activity? |
| | A) | Purchase of land |
| | B) | Payment for the purchase of office supplies |
| | C) | Investment by the owner |
| | D) | Cash paid for expenses |
| | E) | None of the above |
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52 | |
Which of the following transactions would appear on the statement of cash flows as a financing activity? |
| | A) | Purchase of equipment for production |
| | B) | Cash received from revenue transactions |
| | C) | Investment by the owner(s) |
| | D) | Cash paid for expenses |
| | E) | Collection for the sale of equipment used in production |
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53 | |
The beginning balance of cash was $0. The ending balance of cash is $45,600. On the statement of cash flows, cash flows from operating activities were a positive $24,000, and the cash flows from investing activities was a negative cash flow of $6,000. The cash flows from financing activities were which of the following? |
| | A) | A negative cash flow of $28,400 |
| | B) | A positive cash flow of $27,600 |
| | C) | A negative cash flow of $45,600 |
| | D) | A positive cash flow of $18,000 |
| | E) | A negative cash flow of $18,000 |
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54 | |
The company sold a piece of equipment that was used in production for $34,000, collecting a down payment of $10,000 and a note receivable for the balance to be paid in the subsequent accounting period. On the statement of cash flows, the $24,000 balance would be which of the following? |
| | A) | Shown as an investing activity of $34,000 |
| | B) | Shown as an operating activity of $34,000 |
| | C) | Shown as an investment activity of $34,000 |
| | D) | Disclosed as a noncash investing and financing transaction |
| | E) | Shown or disclosed in some other fashion |
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55 | |
Articulation refers to the relationship among the financial statements. What item on the income statement ties that statement to the balance sheet? |
| | A) | Revenues |
| | B) | Expenses |
| | C) | Net income |
| | D) | All of the above |
| | E) | A and C only |
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56 | |
Articulation refers to the relationship among the financial statements. What item on the balance sheet ties that statement to the statement of cash flows? |
| | A) | Revenues |
| | B) | Net income |
| | C) | Beginning cash |
| | D) | Ending cash |
| | E) | Investing activities |
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57 | |
Generally accepted accounting principles can be applied to the financial statements of which of the following? |
| | A) | Sole proprietorships |
| | B) | Partnerships |
| | C) | Corporations |
| | D) | All of the above |
| | E) | Only B and C |
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58 | |
Under which form of business are the owners directly responsible for the debts of the business? |
| | A) | Sole proprietorship |
| | B) | Partnership |
| | C) | Corporation |
| | D) | B and C |
| | E) | A and B |
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59 | |
Which of the following is true about solvency, in the short run? |
| | A) | A company can be both profitable and insolvent |
| | B) | A company can be both unprofitable and solvent |
| | C) | A company can be both unprofitable and insolvent |
| | D) | A company can be both profitable and solvent |
| | E) | All of the above are true |
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60 | |
Notes to the financial statements about law suits, pledged assets, contractual commitments, and due dates on large liabilities that help the users interpret the financial statements are required under an important generally accepted accounting principle (GAAP) known as which of the following? |
| | A) | Window dressing |
| | B) | Disclosure |
| | C) | Cost |
| | D) | Going-concern |
| | E) | None of the above |
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61 | |
Measures taken by management to make the company appear as strong as possible in its financial statements are called which of the following? |
| | A) | Adequate disclosure |
| | B) | Generally accepted accounting principles |
| | C) | Improvements to the accounting equation |
| | D) | Window dressing |
| | E) | All of the above |
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2002 McGraw-Hill Higher Education