ACCT 2810 Exam 1

Which of the following is an advantage of a corporation?

A corporation has extensive access to capital.

Which of the following is an example of a form of business based on ownership?

A limited liability company

Identify the financial statements prepared by a company at the end of every accounting period.

Balance sheet, income statement, statement of stockholders' equity

_____ refers to the ability of a company to pay its long-term debts.

Solvency

Which of the following financial statements of a company is prepared using the accounting equation?

Statement of financial condition

The head of the accounting department in a company is called _____.

chief financial officer

Which of the following is the first of the financial statements to be prepared by a company for any given financial year?

income statement

When an asset is pledged as security for a long-term liability, the obligation may be called:

mortgage payable

Which of the following is added to beginning retained earnings in order to calculate ending retained earnings?

net income

Although quick ratios vary by industry, a quick ratio of at least _____ is normal.

1

Which of the following is true of adjustments?

All adjustments affect the balance sheet and income statement.

Mimosa Inc., a retail business, purchased merchandise worth $500,000 from White Inc. for cash. Under which of the following activities will Mimosa Inc. include this activity in its statement of cash flows?

Cash flows from operating activities

Under the revenue recognition principle, revenue is recorded when:

Cash is received

Which of the following is true of dividends?

Dividends do not represent assets consumed in earning revenues.

Revenues received from providing services are referred to as _____.

Fees Earned

The total assets of Gunther Inc. increased by $4,650 during the year. However, there was no change in its liabilities. Which of the following statements is true in the current scenario?

Gunther's total stockholders' equity must have increased by $4,650.

Which of the following is the correct order in which financial statements should be prepared?

Income statement, statement of stockholders' equity, balance sheet, and statement of cash flows

Which of the following is the reason for reporting net cash flows from operating activities before any other activity on the statement of cash flows?

It is a primary focus of the company's stakeholders.

Which of the following statements is true about the business entity concept?

It limits the economic data recorded in an accounting system to data related to the activities of that company.

On July 1, Alex consulted a dentist and got a visit scheduled for a later date. He was treated on July 5. However, he paid the fee on July 6. If the dentist uses the accrual basis of accounting, when will the revenue be recognized in the dentist's books of account?

July 5

Which of the following assets is least liquid?

Office Equipment

The Sarbanes-Oxley Act of 2002 (SOX) established a new supervision and control body for the accounting profession called the _____.

Public Company Accounting Oversight Board (PCAOB)

_____ are the portion of a corporation's net income kept in the business instead of being distributed to the stockholders.

Retained Earnings

Which of the following statements is true about a partnership?

The owners of a partnership have unlimited liability to creditors for the debts of the company.

Which of the following is a disadvantage of a partnership?

The partners have unlimited liability for the debts of the partnership.

As per the business entity concept, which of the following transactions should be excluded from the books of accounts of a business entity?

The purchase of a car by the owner for personal use

Which of the following is true of the quick ratio of a company?

The quick ratio is a better metric than quick assets for comparing among companies.

Which of the following is true of quick assets?

They exclude inventories and include accounts receivable.

Which of the following is a major objective of financial accounting?

To report changes in the financial condition of a business over a period of time

Which of the following statements best describes the accrual basis of accounting?

Under the accrual basis of accounting, adjusting entries are required to properly match revenues and expenses.

Which of the following assets is most liquid?

a marketable security

Shine invested $6,000 in a business in exchange for common stock. This transaction results in:

an increase in stockholders' equity and an increase in cash flows from financing activities.

Which of the following statements is the cumulative total of an entity's assets, liabilities, and stockholders' equity since the company's inception?

balance sheet

Which of the following is an example of a financing activity?

borrowing money from a bank

_____ provide the financing for a company to begin and continue its operations.

capital market stakeholders

A balance sheet begins with the ending balances of the earlier period because:

it is the cumulative total of an entity's assets, liabilities and stockholders' equity from the company's inception.

The quick ratio is computed as:

quick assets divided by current liabilities.

Identify the correct order in which land, accounts receivable, cash, and inventory are listed in the assets section of a balance sheet.

Cash, accounts receivable, inventory, land

Which of the following indicates a change in the retained earnings for a given period?

Net income minus dividends

_____ report a company's performance for each period, independent of other periods.

The statement of cash flows and the income statement

Which of the following is a true statement about the integration of financial statements?

The statement of stockholders' equity and balance sheet are integrated.

Which of the following is true of the cash basis of accounting?

Under the cash basis of accounting, a company records only transactions involving increases or decreases of cash.

Jaden Inc. borrows $15,000 by signing a note payable with a bank. Which of the following is true about the effect of this transaction on Jaden's financial statements?

no effect on the income statement

The _____ concept requires that entries in the accounting records and the data reported on financial statements be based on verifiable or fair evidence.

objectivity

Under the cash basis of accounting, cash flow from _____ reported on the statement of cash flows equals net income on the income statement.

operating activities

Expenses not related to the primary operations of a business are reported as:

other expenses in the income statement

When comparing operating performance across companies within the same industry, common-sized income statements are often prepared only through operating income rather than through net income because:

other income is influenced by a variety of factors that are independent of operations.

Elite Inc. purchased $6,500 of office equipment. It paid $1,250 cash as a down payment, with the remaining $5,250 ($6,500 - $1,250) due in five monthly installments of $1,050 ($5,250 ÷ 5) beginning January 1, 20Y6. Which of the following is the effect of this transaction on the financial statements?

there are no entries in the income statement

A common-sized balance sheet is prepared by expressing each asset as a percent of _____.

total assets