ACG EXAM 1
Several accounts are listed below. On which financial statement(s) would each of the following accounts appear?
BALANCE SHEET: cash, accounts payable, unearned revenues, common stock, retained earnings INCOME STATEMENT: revenue, cost of goods sold CASH FLOWS: cash, dividends STOCK EQUITY: retained earnings, dividends, common stock
Retained earnings at the end of the year is equal to which of the following?
Beginning retained earnings + net income - dividends
Which of the following is not a liability?
Cost of goods sold explanation: liabilities are accounts payable and a note payable. cost of goods is an expense.
Which of the following is a result of the Sarbanes-Oxley Act (SOX) passed into law in 2002?
SOX increased independent auditors' independence. explanation: SOX increased the oversight role of board directors, increased independence of outside auditors who review financial statements, and top management must certify financial statements for their company.
Which of the following best defines accounting?
The information system that identifies, measures, and communicates the economic events of an organization to interested users
A corporation reported net income of $28,000; net sales $400,000; beginning common shares outstanding of 12,000 and ending common shares outstanding of 20,000. There were no preferred dividends. What is its earnings per share (rounded to two decimal places)?
a) $0.57 b) $1.88 c) $1.40 d) $0.07 e) $1.75 answer: e) 1.75 explanation: earnings per share = net income less dividends to preferred shareholders / average number of outstanding shares of common stock (28,000-0)/(12,000+20,000)/2) = 28,000/16,000 = 1.75 per share
A company has assets of $2,300,000, common stock of $550,000, and retained earnings of $1,250,000. It has liabilities of
a) $1,750,000. b) $4,200,000. c) $500,000. d) $1,900,000. e) $2,800,000. answer: c) 500,000 explanation: 1. SOLVE FOR EQUITY: common stock + retained earnings (550,000 + 1,250,000 = 1,800,000) 2. SOLVE FOR LIABILITIES: assets = liabilities + equity (2,300,000 = x + 1,800,000 ; x = 500,000)
A corporation reports the following balances and amounts Accounts payable, $35,000 Cash provided by operations, $90,000 Accounts receivable, $37,500 Net income, $36,000 Average number of common shares, 20,000 Salaries and wages payable, $8,000 Average current liabilities, $110,000 Stockholders' equity, $240,000 Average total assets, $600,000 Current assets, $300,000 Average total liabilities, $320,000 Current liabilities, $120,000 Dividends paid to preferred shareholders, $10,000 Determine its earnings per share?
a) $1.30 b) $1.50 c) $4.00 d) $2.33 e) $1.80 answer: a) 1.30 explanation: earnings per share = net income - preferred dividends / average number of shares outstanding (36,000 - 10,000) / 20,000) = 1.30 per share
A corporation reports the following balances and amounts: Accounts payable, $50,000 Cash provided by operations, $100,000 Accounts receivable, $35,000 Net income, $40,000 Average number of common shares, 15,000 Salaries and wages payable, $40,000 Average current liabilities, $225,000 Stockholders' equity, $200,000 Average total assets, $600,000 Current assets, $300,000 Average total liabilities, $320,000 Current liabilities, $250,000 Dividends paid to preferred shareholders, $5,000 Determine its earnings per share?
a) $1.50 b) $4.00 c) $2.33 d) $1.80 e) $1.30 answer: c) 2.33 explanation: earnings per share = net income - preferred dividends / average number of shares outstanding (40,000 - 5,000)/15,000 = 2.33 per share
For the current year, a company reported a net cash inflow from operating activities of $140,000. It also reported the following: It issued $10,000 of common stock It paid a $5,000 note payable It paid $25,000 for equipment It paid $15,000 as dividends What is the company's free cash flow?
a) $105,000 b) $135,000 c) $95,000 d) $100,000 e) $110,000 answer: d) 100,000 explanation: free cash flow = net cash from operation activities - capital expenditures - cash dividends paid (140,000 - 25,000 -15,000 = 100,000)
A company recorded the following cash transactions for the year: Paid $140,000 for salaries. Paid $45,000 to purchase office equipment. Borrowed $25,000 from a bank. Collected $320,000 from customers. What is the company's net cash from operating activities for the year?
a) $155,000 b) $180,000 c) $135,000 d) $320,000 e) $125,000 answer: b) 180,000 explanation: net cash equation: cash collected from customers - payments to employee salaries ( 320,000-140,000-180,000)
A company began the year with $112,000 in its common stock account and a debit balance in retained earnings of $20,000. During the year, the company earned net income of $43,000 and declared and paid $8,000 of dividends. In addition, the company sold additional common stock amounting to $35,000. Based on this information, what is the ending retained earnings?
a) $162,000 b) $147,000 c) $160,000 d) $23,000 e) $15,000 answer: e) 15,000 explanation: ERE = BRE + net income - dividends (20,000 debit balance + 43,000 credit retained earnings - 8,000 debit retained earnings = 15,000 )
At the end of the year, a corporation has assets of $3,000 and equity of $2,000. How much are the company's liabilities at the end of the year?
a) $2,000 b) $1,000 c) $1,500 d) $5,000 e) $2,500 answer: b) 1,000 explanation: assets = liabilities + equity (3,000 = x + 2,000 = 1,000)
A company has assets of $2,400,000, common stock of $620,000, and retained earnings of $380,000. It has liabilities of
a) $2,640,000. b) $1,000,000. c) $3,400,000. d) $1,400,000. e) $2,160,000. answer: d) 1,400,000 explanation: 1. SOLVE FOR EQUITY: paid in capital + retained earnings (620,000 + 380,000 = 1,000,000) 2. SOLVE FOR LIABILITIES: assets = liabilities + equity (2,4000,000 = x + 1,000,000 = 1,400,000 )
The following information is available for a certain corporation: (in millions) Year 2022 2021 Preferred dividends 20 30 Common dividends 0 0 Net income 500 520 Common shares outstanding at the end of the year 200 160 Common shares outstanding at the beginning of the year 160 140 Based on this information, what is the company's earnings per share (rounded to two decimals) for 2022?
a) $2.78 b) $2.67 c) $3.00 d) $2.40 e) $2.50 answer: b) 2.67 explanation: 1. SOLVE FOR AVERAGE COMMON SHARES OUTSTANDING: beginning common shares + ending common shares/ 2 (160 + 200)/2 = 180) 2. SOLVE FOR EARNINGS PER SHARE: net income - preferred dividends / average common share (500-20)/180 = 2.67 per share)
A company began the year with total assets of $200,000 and total liabilities of $160,000. During the year, the company did the following: Recognized revenues, $400,000 Incurred expenses, $220,000 Declared and paid dividends, $40,000 Issued common stock. $20,000 What is the stockholders' equity at the end of the year?
a) $200,000 b) $240,000 c) $210,000 d) $190,000 e) $170,000 answer: a) 200,000 explanation: begin by solving for equity using basic accounting formula: assets= liabilities + equity (200,000= 160,000 - equity; equity = 40,000).
During the current year, a company's total liabilities increased by $75,000 and total stockholders' equity decreased by $25,000. How much did its total assets increase or decrease during the current year?
a) $25,000 increase b) $100,000 decrease c) $100,000 increase d) $50,000 increase e) $50,000 decrease answer: d) 50,000 increase explanation: subract liabilities from equity to get total asset increase/ decrease (75,000 - 25,000 = 50,000)
During the year, a company did the following: Recognized revenues of $800,000 Incurred expenses of $570,000 Issued common stock for $50,000 Paid dividends of $40,000 Its ending retained earnings is $440,000. What was the company beginning retained earnings?
a) $250,000 b) $300,000 c) $240,000 d) $200,000 e) $290,000 answer: a) 250,000 explanation: BRE = ERE - revenue + expenses + dividends (440,000 - 800,000 + 570,000 + 40,000 = 250,000)
A corporation had the following accounts and balances: Accounts payable 4,000 Accounts receivable 8,000 Cash 9,000 Common stock 16,000 Equipment 45,000 Retained earnings Not given Supplies 2,000 Unearned service revenue 4,000 What is the balance of the company's retained earnings account?
a) $26,000 b) $38,000 c) $34,000 d) $42,000 e) $40,000 answer: e) 40,000 explanation: 1. SOLVE FOR ASSETS: accounts receivable + cash + equipment + supplies (8,000 + 9,000 + 45,000 + 2,000 = 64,000) 2. SOLVE FOR LIABILITIES: accounts payable + unearned revenue (4,000 + 4,000 = 8,000) 3. SOLVE FOR STOCK EQ: assets - liabilities ( 64,000 - 8,000 = 56,000) 4. SOLVE FOR RETAINED EARNING: stock eq - common stock (56,000 - 16,000 = 40,000)
A corporation had beginning retained earnings of $2,442,000 and ending retained earnings of $2,749,000. During the year, it reported the following: Issued common stock, $141,000 Declared and paid dividends, $40,000 What was its net income for the year?
a) $267,000 b) $488,000 c) $307,000 d) $297,000 e) $347,000 answer: e) 347,000 explanation: 1. SOLVE FOR NET INCOME: ERE = BRE + net income - dividends (2,749,000 = 2,442,000 + x - 40,000 ; x = 347,000)
What is the total dollar amount of intangible assets reported on the classified balance for the following company. Accounts payable$ 60,000 Goodwill 160,000 Accounts receivable 80,000 Inventory 120,000 Accumulated depreciation 40,000 Land 190,000 Buildings 230,000 Prepaid insurance 30,000 Cash 90,000 Retained earnings 150,000 Common stock 650,000 The land is used as a parking lot.
a) $310,000 b) $150,000 c) $160,000 d) $190,000 e) $90,000 answer: c) 160,000 explanation: intangibles = goodwill (160,000)
A corporation had beginning retained earnings of $2,242,000 and ending retained earnings of $2,499,000. During the year, it reported the following: Issued common stock, $141,000 Declared and paid dividends, $40,000. What was its net income for the year?
a) $438,000 b) $257,000 c) $217,000 d) $347,000 e) $297,000 answer: e) 297,000 explanation: ending retained earnings = beginning retain earnings + net income - dividends (2,499,000 = 2,242,000 + x - 40,000 ; x = 297,000)
The financial records for a corporation included the following information: Accounts receivable, $55,000 Accounts payable, $20,000 Cash, $25,000 Common stock, $25,000 Dividends, $15,000 Sales revenue, $90,000 Salaries and wages expense, $30,000 Supplies expense, $10,000 Retained earnings is not given. Based on this information, how much is its net income?
a) $50,000 b) $35,000 c) $65,000 d) $80,000 e) $55,000 answer: a) 50,000 explanation: net income= revenues - expenses (90,000- 30,000-10,000 = 50,000)
Based on the following data (in dollars), what is the working capital? Accounts payable$ 110,000. Investments in bonds 170,000 Accounts receivable 80,000 Land 190,000 Accumulated depreciation 40,000. Notes payable 180,000 Buildings 226,000 Prepaid insurance 60,000 Cash 84,000 Salaries and wages payable 20,000 Common stock 240,000. Trademarks 140,000. Inventory 140,000
a) $740,000 b) $234,000 c) $254,000 d) $505,000 e) $174,000 answer: b) 234,000 explanation: 1. SOLVE FOR CURRENT ASSETS: accounts receivable + cash + inventory + prepaid insurance (80,000 + 84,000 + 140,000 + 60,000 = 364,000) 2. SOLVE FOR CURRENT LIABILITIES: accounts payable + salaries and wages payable (110,000 + 20,000 = 130,000) 3. SOLVE FOR WORKING CAPITAL: current assets - current liabilities (364,000 - 130,000 = 234,000)
A company recorded the following cash transactions for the year: Paid $150,000 for salaries. Paid $45,000 to purchase inventory. Borrowed $10,000 from a bank. Collected $265,000 from customers. What is the company's net cash from operating activities for the year?
a) $80,000 b) $125,000 c) $265,000 d) $115,000 e) $70,000 answer: e) 70,000 explanation: net cash = cash colletected from customers - payments for employee salaries (265,000 - 150,000 = 70,000)
A company has the following accounts and balances: Accounts payable$ 40,000 Investments in bonds 20,000 Accounts receivable 70,000 Land 150,000 Accumulated depreciation 50,000 Notes payable 300,000 Buildings 500,000 Patents 10,000 Cash 100,000 Prepaid insurance 20,000 Common stock 690,000 Retained earnings 150,000 Equipment 120,000 Trademarks 40,000 Inventory 200,000 The land is used as a parking lot. The bonds are expected to be held long-term. What are its (i) current assets and (ii) property, plant & equipment?
a) (i) $190,000 and (ii) $820,000 b) (i) $390,000 and (ii) $720,000 c) (i) $400,000 and (ii) $740,000 d) (i) $320,000 and (ii) $770,000 e) None of these answer: b) (I) 390,000 and (ii) 720,000 explanation: 1. current assets include accounts receivable, cash, inventory, and prepaid insurance (70,000 + 100,000 + 200,000 + 20,000 = 390,000) 2. property, plant, and equipment include buildings, equipment, and land - accumulated depreciation (500,000 + 120,000 + 150,000 - 50,000 = 720,000)
A corporation has current assets of $3,750,000, current liabilities of $2,050,000, total assets of $10,000,000 and total liabilities of $6,000,000. If it pays $500,000 of its accounts payable what will the current ratio be? (rounded)
a) 1.51 b) 2.10 c) 1.80 d) 2.51 e) 2.42 answer: b) 2.10 explanation: current ratio = current assets/current liabilities (3,750,000-500,000)/(2,050,000-500,000) = 2.097 = 2.10
A corporation has current assets of $3,010,000, current liabilities of $2,050,000, total assets of $10,000,000 and total liabilities of $6,000,000. If it pays $100,000 of its accounts payable what will its current ratio be? (rounded)
a) 1.54 b) 1.49 c) 1.51 d) 1.40 e) 1.44 answer: b) 1.49 explanation: current ratio = current assets / current liabilities (3,010,000 - 100,000) / (2,050,000 - 100,000) = 1.49, 1.49 to 1, 1.49:1
Which of the following events is not recorded in a company's accounting records?
a) A cash investment is made into the business. b) A company provides services to a customer for cash. c) Equipment is purchased on account. d) The owner withdraws cash for personal use. e) An employee is terminated. answer: e) an employee is terminated
Which of the following statements is true?
a) All of these b) Amounts received from issuing stock are revenues. c) Amounts paid out as dividends are not expenses. d) Amounts received from issuing stock are reported on the income statement. e) Net income appears on both the income statement and the statement of cash flows. answer: c) amounts paid out as dividends are not expenses explanation: dividends paid by a company are neither revenue nor an expense of the company paying dividends
Which of the following statements is true? #1. The Securities Exchange Commission is the organization that makes all of the accounting standards or rules in the United States. #2. Generally Accepted Accounting Principles are rules and practices that are recognized as a general guide for financial reporting purposes.
a) Both statements are true b) Statement #1 is true but statement #2 is false c) Neither statement #1 nor #2 is true d) Statement #1 is false but statement #2 is true answer: d) Statement 1 is false but statement 2 is true
Which of the following would not be reported among property, plant, and equipment on a classified balance sheet?
a) Buildings b) Accumulated depreciation c) Equipment d) Inventory e) Land answer: d) inventory
In what order are current assets listed on a classified balance sheet?
a) By longevity b) By importance c) Alphabetically d) By their size measured in dollars e) By liquidity answer: e) by liquidity explanation: liquidity means how quickly current assets are expected to be converted into cash or used by the business
What is the primary criterion by which accounting information is judged?
a) Cost b) Predictive value c) Usefulness for decision making d) Comparability e) Consistency answer: c) usefulness for decision making
In the annual report, where would a financial statement reader find out if the company's financial statements give a fair depiction of its financial position and operating results?
a) Cover page b) Balance sheet c) Auditor's report d) Management discussion and analysis e) Notes to the financial statements answer: c) auditor's report
Which of the following describes a company's ability to pay its obligations that are expected to become due within the next year or operating cycle whichever is longer?
a) Economy b) Working capital c) Solvency d) Profitability e) Liquidity answer: e) liquidity
What type of account or account classification is prepaid insurance?
a) Equity b) Asset c) Revenue d) Expense e) Liability answer: b) asset
Which of the following is a financial ratio classification that measures short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash?
a) Financial ratios b) Solvency ratios c) Analysis ratios d) Profitability ratios e) Liquidity ratios answer: e) liquidity ratios explanation: liquidity ratios measure short term ability of a company to pay its maturing obligations and to meet unexpected needs for cash
Which one of the following does not affect retained earnings?
a) Incurring a net loss b) Issuing of common stock to stockholders c) Declaring and paying a dividend d) Renting a warehouse to store the company's inventory e) Recognizing revenue from a sale to a customer answer: b) issuing of common stock to stockholders explanation: retained earnings increase because of net income and decrease because of dividends
Which of the following would not appear on an income statement?
a) Interest expense b) Revenue c) Net income d) Prepaid rent e) Cost of goods sold answer: d) prepaid rent explanation: income statements report revenues and expenses. It also reports net income.
The agency of the United States Government that oversees and regulates the U.S. financial markets is the
a) International Auditing Standards Committee. b) Financial Accounting Standards Board. c) Security Exchange Commission. d) Internal Revenue Service. e) Public Company Accounting Oversight Board answer: c) security exchange commision
Which of the following questions is important to internal users of a company's accounting information?
a) Is cash sufficient to pay dividends to stockholders? b) What selling price for our product will maximize the company's net income? c) Which product line is most profitable? d) None of these e) All of these answer: e) all of these explanation: questions tend to emphasize the profitability and the company's potential well-being.
Which of the following is an example of a financing activity?
a) Issuing additional shares of common stock in exchange for cash b) All of these c) Buying a delivery truck in exchange for cash d) Selling goods on account e) Buying inventory on account answer: a) issuing additional shares of common stock in exchange for cash
Which of the following would appear on a balance sheet?
a) Net cash flows from operating activities b) Service revenue c) Retained earnings d) Salaries and wages expense e) Dividends answer: c) retained earnings
Which of the following is true with regard to the auditor's report that is included in the annual report given to shareholders?
a) None of these b) All of these c) The auditor's report is prepared by the company's internal auditors who are employees of the company. d) The auditor's report states the auditor's opinion as to the fairness of the financial position and results of operations and their conformance with accounting rules. e) The auditor's report guarantees that the company followed correct accounting rules in all of its transactions. answer: d) The auditor's report states the auditor's opinion as to the fairness of the financial position and results of operations and their conformance with accounting rules.
Publicly traded U.S. companies must provide shareholders with an annual report. Which of the following is not part of the annual report provided to shareholders?
a) Notes to the financial statements b) General ledger c) Balance sheet d) Auditor's report e) Management discussion and analysis answer: b) general ledger explanation: the annual report includes the financial statement, a management discussion/analysis, and an auditors report.
Which of the following would increase a company's current ratio?
a) Pay a dividend to shareholders. b) Collect outstanding accounts receivable. c) Use cash to buy new equipment. d) None of these e) Negotiate with a creditor to reclassify a note payable in 3 months into a note payable due in 2 years. answer: e) Negotiate with a creditor to reclassify a note payable in 3 months into a note payable due in 2 years. explanation: current ratio = current assets / current liabilities. changing a current liability Into a long-term liability lowers total current liabilities which increases the current ratio.
Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?
a) Periodicity assumption b) Economic entity assumption c) Going concern assumption d) Full disclosure principle e) Monetary unit assumption answer: c) going concern assumption explanation: the going concern assumption states that businesses will remain in operation for the foreseeable future
Which of the following is an example of an intangible asset?
a) Prepaid expenses b) Accounts receivable c) Cash d) Goodwill e) Land answer: d) goodwill explanation: intangible assets include goodwill, patents, copywrites, and trademarks
Which of the following is not classified as a current asset?
a) Prepaid expenses b) Inventory c) Accounts receivable d) Cash e) Patents answer: e) patents
Which of the following would appear on an income statement?
a) Retained earnings b) Net cash flows from operations c) Accounts payable d) Service revenue e) Cash answer: d) service revenue explanation: the income statement reports all of a companies revenues, net income, and expenses.
Which of the following is an equity account?
a) Revenue b) Accounts payable c) Retained earnings d) Unearned revenue e) Cash answer: c) retained earnings
What type of account or account classification is accounts payable?
a) Revenue b) Equity c) Expense d) Liability e) Asset answer: d) liability
Which types of accounts normally have credit balances?
a) Revenues, liabilities, and assets b) All accounts normally have credit balances c) Revenues, liabilities, and expenses d) Revenues, liabilities, and dividends e) Revenues, liabilities, and equities answer: e) revenues, liabilities, and equities
Which of the following would decrease the company's current ratio?
a) Selling services to customers on account. b) Using excess cash to buy long-term investments. c) Selling machinery previously used in operating the business in exchange for cash. d) Buying supplies, such as office supplies, in exchange for cash. e) Issue common stock in exchange for cash answer: b) using excess cash to buy long-term investments explanation: the decrease in cash lowers the total current assets and lowers the current ratio
Which financial statement is used by most corporations to compute year-end retained earnings?
a) Statement of sources and uses b) None of these c) Statement of cash flows d) Statement of stockholders' equity e) Balance sheet answer: d) statement of stockholders' equity
Which of the following financial statements is concerned with the company at a point in time?
a) Statement of stockholders' equity b) Statement of cash flows c) Income statement d) All of these e) Balance sheet answer: e) balance sheet explanation: balance sheets are the only financial statements that report for a specific period of time.
Which of the following best describes stockholders' equity?
a) Stockholders' equity is the difference between revenues and expenses. b) Stockholders' equity is the economic resources of the firm. c) Stockholders' equity is the claims of owners. d) Stockholders' equity is the claims of creditors. e) Stockholders' equity is the cash collected from owners. answer: c) stockholders equity is the claims of owners explanation: assets are resources owned by the firm, liabilities are the claims of creditors, and equity is the claims of the owners.
An account is a part of a company's financial information system and is described by all except which one of the following?
a) The credit side is the right side of the account's T-account. b) The debit side is the left side of the account's T-account. c) An account has a debit and credit side. d) An account is a source document. e) An account consists of three parts with one part being the account's title answer: d) an account is a source document
Which of the following would not appear on a statement of stockholders' equity?
a) The ending retained earnings balance b) The beginning retained earnings balance c) Service revenue d) Net income e) Dividends answer: c) service revenue
Which of the following describes that sequence in which financial statements are prepared?
a) The financial statements are independent and the order they are prepared is not important. b) None of these c) The balance sheet is prepared before the income statement. d) All of these e) The statement of stockholders' equity is prepared before the balance sheet. answer: e) The statement of stockholders' equity is prepared before the balance sheet.
A retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a valid reason for this owner to incorporate?
a) The owner wants to decrease the taxes paid by the business. b) The owner wants to raise capital for expansion. c) The owner wants to limit his or her personal liability. d) All of these are good reasons to change a sole proprietorship into a corproation. e) The owner want to be able to more easily transfer ownership of the business. answer: a) The owner wants to decrease the taxes paid by the business.
Which of the following best identifies a company's ability to pay its obligations that will become due within the next year or operating cycle.
a) Total liabilities divided by total equity b) Net income for this year c) Current assets divided by current liabilities d) Short-term liabilities divided long-term liabilities e) Projected net income for next year answer: c) current assets / current liabilities explanation: an example of a liquidity ratio is the current ratio. the current ratio is current assets / current liabilities
Which of the following does not affect the company's current ratio?
a) Use excess cash to buy long-term investments. b) Sell services to customers in exchange for cash. c) Issue a short-term note in exchange for cash. d) Paying the next month's rent one month in advance. e) Pay a dividend to shareholders answer: d) paying the next month's rent one month in advance explanation: increasing one current asset and decreasing another does not affect total current assets or the current ratio
Which of the following ratios measures the ability of the company to survive over a long period of time?
a) Working capital b) Liquidity ratios c) Current ratios d) Profitability ratios e) Solvency ratios answer: e) solvency ratios explanation: solvency ratios are a good indicator of a companies ability to survive over a period of time
Paying cash to buy stocks or bonds of another company is an example of
a) a financing activity. b) an operating activity. c) a capital activity. d) an investing activity. e) a merchandising activity. answer: c) investing activity explanation: paying cash to purchase and sell property, plant, and equipment is investing activity. Buying and selling stocks of another company is too.
If the auditor issuing the auditor's report is satisfied that the financial statements provide a fair representation of the company's financial position and results of operation, the auditor expresses
a) a qualified opinion. b) a satisfactory opinion. c) an adverse opinion. d) a positive opinion. e) an unqualified opinion. answer: e) an unqualified opinion
The right to receive money in the future is called a(n)
a) account payable. b) liability. c) account receivable. d) unearned revenue. e) revenue. answer: c) account receivable
If a company buys supplies on account, then
a) assets increase and stockholders' equity increases. b) assets increase and liabilities increase. c) liabilities increase and liabilities decrease. d) assets increase and assets decrease. e) assets decrease and liabilities increase answer: b) assets increase and liabilities increase
A company receives cash in advance from customers. This transaction will immediately affect the
a) balance sheet and cash flows statement only. b) income statement and cash flows statement only. c) income statement, balance sheet, and retained earnings statement only. d) income statement, retained earnings statement, cash flows statement, and balance sheet. e) income statement only. answer: a) balance sheet and cash flows statement only
The financial statement that summarizes the changes in retained earnings for a specific period of time is the
a) balance sheet. b) trial balance. c) income statement. d) statement of stockholders' equity e) statement of cash flows. answer: d) statement of stockholders' equity
Net income will result during a time period when
a) cash increases. b) revenues exceed the prior year's revenues. c) equities are greater than dividends. d) assets exceed liabilities. e) revenues exceed expenses answer: e) revenues exceed expenses explanation: net income = revenues - expenses. net income results when revenues > expenses and a net loss results when revenues < expenses
An item is ________ if it is likely to influence the decision of an investor or creditor
a) comparable b) material c) measurable d) consistent e) faithful representation answer: b) material
A short-term creditor is primarily interested in the __________ of the borrower.
a) consistency b) comparability c) profitability d) liquidity e) solvency answer: d) liquidity
The principle that indicates that assets should be reported at the price received to sell an asset is the
a) consistency principle. b) historical cost principle. c) fair value principle. d) cost-benefit principle. e) full disclosure principle. answer: c) fair-value principle
Liabilities are generally classified on a balance sheet as
a) current liabilities and long-term liabilities. b) tangible liabilities and intangible liabilities. c) present liabilities and future liabilities. d) certain liabilities and probably liabilities. e) small liabilities and large liabilities answer: a) current liabilities and long-term liabilities
Payments to a corporation's stockholders are called
a) debits. b) expenses. c) revenues. d) dividends. e) liabilities. answer: d) dividends
The effects of receiving cash in advance from a customer on the basic accounting equation are to
a) decrease assets and decrease stockholders' equity. b) increase assets and increase stockholders' equity. c) decrease assets and decrease liabilities. d) increase assets and increase liabilities. e) increase liabilities and increase stockholders' equity. answer: d) increase assets and increase liabilities explanation: an increase in cash which is an asset and an increase in unearned revenue which is a liability increase the basic accounting equation
Stockholders of a corporation are considered to be
a) external users of a company's accounting information. b) internal users of a company's accounting information. c) primary users of a company's accounting information. d) preferred users of a company's accounting information. e) priority users of a company's accounting information. answer: a) external users of a company's accounting information
The segment of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the
a) financial statements. b) balance sheet. c) management discussion and analysis. d) auditor's opinion. e) income statement. answer: d) auditor's opinion
Issuing new shares of common stock will
a) increase common stock. b) increase liabilities. c) decrease retained earnings. d) decrease common stock. e) increase retained earnings. answer: a) increase common stock explanation: issuance of common stock increases the stock account, it doesn't affect retained earnings
If a previously unrecorded expense is recorded when it is paid with cash recording the the transaction will
a) increase expenses and decrease assets. b) increase expenses and increase liabilities. c) decrease expenses and increase liabilities. d) increase expenses and decrease expenses by an equal amount. e) increase expenses and increase retained earnings answer: a) increase expenses and decrease assets
A transaction that increases an unearned revenue
a) increases a liability and decreases stockholders' equity. b) increases an asset and increases a liability. c) decreases a revenue and increases stockholders' equity. d) decreases a liability and increases stockholders' equity. e) increases an asset and increases a revenue. answer: increase an asset and increase a liability
The purchase of an asset, such as supplies, on account
a) increases the purchaser's assets and stockholders' equity. b) increases the purchaser's assets and liabilities. c) decreases the purchaser's assets and increases liabilities. d) leaves the purchaser's total assets unchanged. e) increases the purchaser's assets and decreases stockholders' equity answer: b) increases the purchaser's assets and liabilities
The partnership form of business organization
a) is considered to have an unlimited life. b) is tax disadvantaged in comparison to a corporation. c) is the type of business that is harder to transfer ownership in comparison to a corporation. d) All of these e) is a separate legal entity and its owners are not liable for its debts answer: c) is the type of business that is harder to transfer ownership in comparison to a corporation.
A business organized from a corporation
a) is tax disadvantaged compared to sole proprietorships and partnerships. b) is not considered to be a legal entity that is separate from its owners. c) is owned by its creditors. d) requires that stockholders be personally liable for the debts of the business. e) is disadvantaged in terms of raising funds. answer: a) is tax disadvantaged compared to sole proprietorships and partnerships explanation: corporations are double-taxed
Earnings per share is a
a) liquidity ratio. b) profitability ratio. c) solvency ratio. d) current ratio. e) trending ratio. answer: b) profitability ratio explanation: profitability ratios measure the income or the operating success of a company for a period of time. An example of a PR is an earning per share
The portion of the annual report that presents management's views on the company's near-term debt paying ability and results of operations are found in the
a) management discussion and analysis. b) chief executive's officer's ledger analysis report. c) president's State of the Company report. d) auditor's report. e) notes to the financial statements. answer: a) management discussion and analysis
Free cash flow is computed as net cash provided by operating activities
a) minus capital expenditures and minus salaries expense. b) minus cash dividends and plus issuances of stock. c) minus capital expenditures and minus cash dividends. d) minus long-term investments and minus non-operating expenses. e) minus capital expenditures and minus purchases of long-term investments. answer: c) minus capital expenditures and minus cash dividends
The concept that a business has a reasonable expectation of remaining in business for the foreseeable future is called the
a) monetary unit assumption. b) going concern assumption. c) periodicity assumption. d) economic entity assumption. e) verifiable assumption. answer: b) going concern assumption
On a classified balance sheet, intangible assets are
a) not listed on the balance sheet because they do not have physical substance. b) listed immediately after property, plant, and equipment. c) listed immediately after a long-term investment on the balance sheet. d) listed first on the balance sheet e) listed immediately after current assets on the balance sheet. answer: b) listed immediately after property, plant, and equipment explanation: the 4 categories on a balance sheet are 1. current assets, 2. long-term investments, 3. plant, property, and equipment, and 4. intangible assets
Information is _________ if independent observers, using the same methods, obtain similar results. For example, certified public accountants (CPAs) perform audits of financial statements to confirm or double-check their accuracy
a) relevant b) verifiable c) comparable d) understandable e) consistent answer: b) verifiable explanation: information is verifiable if other observers get similar results
The income statement
a) reports the amounts of changes in retained earnings for a specific period of time such as a year. b) reports the changes in assets, liabilities, and stockholders' equity over a period of time. c) presents the revenues and expenses for a specific period of time. d) summarizes the cash inflows and cash outflows for a period of time partitioned into operating, investing, and financing activities. e) reports the assets, liabilities, and stockholders' equity at a specific date. answer: c) presents the revenues and expenses for a specific period of time.
Amounts earned on the sale of products or services to customers is known as
a) revenue. b) equity. c) expenses. d) liabilities. e) assets. answer: a) revenue
To show how successfully your business performed during a period of time, you would report its revenues and expenses in the
a) statement of stockholders' equity. b) sources and uses statement. c) balance sheet. d) statement of cash flows. e) income statement answer: e) income statement
A company purchased bonds issued by another corporation. The company expects to hold the bonds for more than one year. On its classified balance sheet, the company should report the bonds as
a) stockholders' equity. b) a current asset. c) a long-term investment. d) property, plant, and equipment. e) an intangible asset. answer: c) a long term investment
The annual report provided to shareholders includes an auditor's report. The auditor's report includes an opinion about the fairness of the financial statements. The party expressing that opinion is
a) the Internal Revenue Service. b) the company's internal auditor. c) an independent auditor who is a Certified Public Accountant. d) the company's Chief Operating Officer. e) an independent auditor who is a member of the Government Auditing Accountants. answer: c) an independent auditor who is a Certified Public Accountant.
The cost of assets consumed or services used in the process of generating revenues is also known as
an expense. explanation: expenses are the cost of assets consumed or services used to produce and sell the companies products and services
The sole proprietorship from a business organization
is disadvantaged in terms of being able to raise funds relative to a corporation explanation: corporations can raise capital from any number of owners giving them an advantage in terms of fund raising relative to sole proprietorships and partnerships.
Which of the following statements concerning internal and external users of accounting information is not correct?
regulatory authorities are considered internal users explanation: internal users= management, HR personnel, marketing personnel, finance personnel external users= investors (owners), creditors, taxing authorities, customers, labor unions, regulatory authority
