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1 | |
Who are the two primary groups of financial resource providers for a corporation? (LO 1) |
| | A) | Accountants and CPAs |
| | B) | Suppliers and vendors |
| | C) | Investors and creditors |
| | D) | Lenders and suppliers |
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2 | |
Accountants establish measurement and reporting rules that business people use to facilitate communication of financial information. The financial accounting measurement rules used in the United States are referred to as (LO 1) |
| | A) | FASB |
| | B) | GAAP |
| | C) | The accounting equation |
| | D) | Accrual accounting |
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3 | |
Business entities communicate information to the public through the financial reporting process. The information reported in financial statements is organized into categories known as elements. Which of the following categories is not a financial statement element? (LO 3) |
| | A) | Cash flow |
| | B) | Contributed capital |
| | C) | Assets |
| | D) | Distributions |
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4 | |
State the accounting equation. (LO 4) |
| | A) | Assets + Liabilities = Equity |
| | B) | Assets + Equity = Liabilities |
| | C) | Assets = Liabilities – Equity |
| | D) | Assets = Liabilities + Equity |
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5 | |
On which of the following financial statements would you expect to find revenues and expenses? (LO 8) |
| | A) | Balance sheet |
| | B) | Income statement |
| | C) | Statement of cash flows |
| | D) | Statement of changes in equity |
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6 | |
On which of the following financial statements would you expect to find financing, operating, and investing activities? (LO 8) |
| | A) | Balance sheet |
| | B) | Income statement |
| | C) | Statement of cash flows |
| | D) | Statement of changes in equity |
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7 | |
On which of the following financial statements would you expect to find assets, liabilities, and stockholders’ equity? (LO 8) |
| | A) | Balance sheet |
| | B) | Income statement |
| | C) | Statement of cash flows |
| | D) | Statement of changes in equity |
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8 | |
Bulldog Company purchased land for $50,000 cash. A financial statement impact of this transaction is (LO 5) |
| | A) | Assets decreased |
| | B) | Equity increased |
| | C) | Cash decreased |
| | D) | Liabilities increased |
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9 | |
Bulldog Company purchased land for $50,000 cash. Which of the following best describes this transaction type? (LO 5, 7) |
| | A) | Asset source transaction |
| | B) | Asset use transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
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10 | |
Maroon Company borrowed $100,000 from the First State Bank. A financial statement impact of this transaction is (LO 5) |
| | A) | Assets decreased |
| | B) | Equity increased |
| | C) | Cash decreased |
| | D) | Liabilities increased |
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11 | |
Maroon Company borrowed $100,000 from the First State Bank. How should this transaction be classified on the statement of cash flows? (LO 8) |
| | A) | Financing activity |
| | B) | Operating activity |
| | C) | Investing activity |
| | D) | It would not be shown on the statement of cash flows. |
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12 | |
Maroon Company issued its common stock for $80,000 cash. A financial statement impact of this transaction is (LO 5) |
| | A) | Assets decreased |
| | B) | Equity increased |
| | C) | Cash decreased |
| | D) | Liabilities increased |
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13 | |
Home Landscaping provided services and received $50,000 cash. Using the horizontal financial statements model, determine which of the following is not impacted by this transaction. (LO 9) |
| | A) | Balance sheet assets |
| | B) | Balance sheet liabilities |
| | C) | Income statement |
| | D) | Statement of cash flows |
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14 | |
Home Landscaping paid $5,000 of cash dividends to the owners. Using the horizontal financial statements model, determine which of the following is not impacted by this transaction. (LO 9) |
| | A) | Balance sheet assets |
| | B) | Balance sheet equity |
| | C) | Income statement |
| | D) | Statement of cash flows. |
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15 | |
Which of the following statements is false? (LO 1, 2, 6) |
| | A) | Land that increases in value is reported at its increased value on the balance sheet. |
| | B) | Information is reliable if it can be independently verified. |
| | C) | A reporting entity is a business or entity for which financial statements are prepared. |
| | D) | Financial accounting focuses on the needs of the external users. |
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16 | |
Crimson Company paid $8,000 cash to its employees for salaries expense during the current accounting period. Which of the following best describes this transaction type? (LO 5, 7) |
| | A) | Asset source transaction |
| | B) | Asset use transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
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17 | |
Crimson Company paid $8,000 cash for to its employees for salaries expense during the current accounting period. How should this transaction be classified on the statement of cash flows? (LO 8) |
| | A) | Financing activity |
| | B) | Operating activity |
| | C) | Investing activity |
| | D) | It would not be shown on the statement of cash flows |
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18 | |
Which of the following statements is false? (LO 5, 8) |
| | A) | The general ledger is a collection of a company’s financial accounts. |
| | B) | The term articulation is used to describe the interrelationship among the various elements of the financial statements. |
| | C) | All transactions that affect retained earnings also impact the income statement. |
| | D) | The information in the ledger accounts is used to prepare the financial statements. |
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19 | |
Which of the following transactions does not affect retained earnings? (LO 5) |
| | A) | Paying of a cash dividend |
| | B) | Issuing common stock for cash |
| | C) | Providing services to customers for cash |
| | D) | Paying cash for office rent for the current accounting period |
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20 | |
Which of the following transactions impacts the investing activities section of the statement of cash flows? (LO 8) |
| | A) | Issued common stock for cash |
| | B) | Paid cash dividends |
| | C) | Purchased a building for cash |
| | D) | Repaid a bank loan |
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21 | |
White Company had an $8,000 beginning balance in Retained Earnings and a $20,000 beginning balance in Common Stock. During the accounting period, White Company earned $45,000, borrowed $10,000 from the bank, and paid $6,000 in cash dividends. What is ending balance for the statement of changes in stockholders’ equity (i.e., the ending amount of stockholders’ equity)? (LO 8) |
| | A) | $20,000 |
| | B) | $47,000 |
| | C) | $67,000 |
| | D) | $77,000 |
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22 | |
Northern Company has a price-earnings ratio (P/E ratio) of 15 and Southern Company has a P/E ratio of 10. Based upon these ratios, which of the following statements do you believe to be true? (LO 10) |
| | A) | Investors expect Northern Company to grow faster than Southern Company. |
| | B) | Northern Company has a higher market price per share of stock than Southern Company. |
| | C) | Northern Company has a higher earnings per share than Southern Company. |
| | D) | Northern Company has more net income than Southern Company. |
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23 | |
Which of the following business entities is a merchandising business? (LO 11) |
| | A) | City Dry Cleaners |
| | B) | Smith and Smith, CPAs |
| | C) | J.C. Penny |
| | D) | International Paper Company |
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24 | |
What is the “Percentage Growth Rate in Earnings” for Johnson Company based upon the company’s 2005 and 2006 income statements? (LO 10)
| | 2005 | | 2006 | | Sales | | $100,000 | | $200,000 | | Cost of goods sold | | ( 35,000 | ) | ( 80,000 | ) | Expenses | | ( 45,000 | ) | ( 90,000 | ) | Net income | | $ 20,000 | | $ 30,000 | |
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| | A) | 30% |
| | B) | 50% |
| | C) | 85% |
| | D) | 100% |
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25 | |
Golden Corporation paid $6,000 in cash dividends to its owners. Which of the following answers reflects how this payment of cash dividends would affect Golden Corporation’s financial statements? (LO 5, 9) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | | N. Pay | + | C. Stk. | + | Ret. Ear. | | | | | | | | | | a. | | (6,000) | = | n/a | + | n/a | + | (6,000) | | n/a | – | 6,000 | = | (6,000) | | (6,000) IA | | b. | | (6,000) | = | (6,000) | + | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (6,000) FA | | c. | | (6,000) | = | n/a | + | n/a | + | (6,000) | | n/a | – | n/a | = | n/a | | (6,000) FA | | d. | | (6,000) | = | n/a | + | (6,000) | + | n/a | | n/a | – | n/a | = | n/a | | (6,000) IA | | | | | | | | | | | | | | | | | | | |
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| | A) | a. | | (6,000) | = | n/a | + | n/a | + | (6,000) | | n/a | – | 6,000 | = | (6,000) | | (6,000) IA |
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| | B) | b. | | (6,000) | = | (6,000) | + | n/a | + | n/a | | n/a | – | n/a | = | n/a | | (6,000) FA | |
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| | C) | c. | | (6,000) | = | n/a | + | n/a | + | (6,000) | | n/a | – | n/a | = | n/a | | (6,000) FA | |
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| | D) | d. | | (6,000) | = | n/a | + | (6,000) | + | n/a | | n/a | – | n/a | = | n/a | | (6,000) IA | |
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26 | |
Frazier Company provided services for $25,000 cash. Which of the following answers accurately reflects how this event would affect the company’s financial statements? (LO 5, 9)
| | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | a. | | + | | n/a | | + | | + | | n/a | | + | | + OA | | b. | | + | | n/a | | + | | n/a | | n/a | | n/a | | + OA | | c. | | + | | n/a | | + | | + | | n/a | | + | | n/a | | d. | | n/a | | – | | + | | + | | n/a | | + | | n/a | | | | | | | | | | | | | | | | | |
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| | A) | |
| | B) | b. | | + | | n/a | | + | | n/a | | n/a | | n/a | | + OA | |
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| | C) | |
| | D) | |
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