Accounting 100 Adaptive Practice Chapter 1

Flex-Mat started the year with total assets of $160,000 and total liabilities of $90,000. During the year, the business recorded $210,000 in revenues, $120,000 in expenses, and dividends of $35,000. Stockholders' equity at the end of the year was A $125,000. B $195,000. C $90,000. D $210,000.

A $125,000.

If total liabilities increased by $95,000 and stockholders' equity increased by $45,000 during a period of time, then total assets must change by what amount and direction during that same period? A $140,000 increase B $140,000 decrease C $50,000 increase D $50,000 decrease

A $140,000 increase

A CFO is looking at the end-of-year financial statements. His goal is to identify the store that performed the best over the past year so he can give them an award. Which step in the accounting process is most important for helping him make this decision? Why? A All are equally important; an error in any step would affect each subsequent step. B Communication; as the final step, preparation and analysis of financial reports provides the most useful form of the data for making decision. C Identification; as the first step, transactions must be identified correctly in order to record them correctly. D Recording; correct categorization, recording, and summarizing of financial data is vital to accurate financial reports.

A All are equally important; an error in any step would affect each subsequent step.

Which of the following statements is true regarding the Sarbanes-Oxley Act (SOX)? Select all that apply. A The act has resulted in increased penalties for financial fraud by top management. B The act calls for decreased independence of outside auditors reviewing corporate financial statements. C The act calls for increased oversight responsibilities for boards of directors. D The act is meant to decrease the likelihood of unethical corporate behavior.

A The act has resulted in increased penalties for financial fraud by top management. C The act calls for increased oversight responsibilities for boards of directors. D The act is meant to decrease the likelihood of unethical corporate behavior.

Which of the following questions would a creditor most likely ask? A Will the company be able to pay its debts when they come due? B Is the company earning a satisfactory net income? C Does the company have enough cash to pay dividends to shareholders? D How does the company compare in size to similar companies in the same industry?

A Will the company be able to pay its debts when they come due?

If a company announces earnings without completing an audit or certification because the year-end audit of financial results takes much longer than expected, then ________ should be warned that the numbers may be unreliable. A all stakeholders B only auditors C only employees D only accountants

A all stakeholders

An example of unethical financial reporting would be A double-counting revenue. B sharing financial statements with the auditors. C reimbursing an employee for a business expense. D paying a vendor for services performed.

A double-counting revenue.

If a sole proprietor wants to raise money for capital expansion and limit personal liability for business debts, the sole proprietor would be advised to A form a corporation. B form a partnership. C remain a sole proprietorship. D form a joint venture.

A form a corporation.

You have been tasked with looking at the company's financial statements and determining what percentage of raises the employees should receive this year. Based on this, which department do you most likely work in? A human resources B marketing C sales D finance

A human resources

A local design company has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following would be considered disadvantages of forming a corporation? Select all that apply. A increased taxes B accountability to stockholders C no personal liability D difficulty in establishing a corporation

A increased taxes B accountability to stockholders D difficulty in establishing a corporation

If financial reporting is questionable and, consequently, information needed by investors is not credible, then A investors will lose faith in the reliability of financial reports. B this will attract more investment activity in stocks. C the reporting rules will change so companies will report less frequently. D the rules for financial reporting need to be relaxed.

A investors will lose faith in the reliability of financial reports.

If the CEO of a company does not understand a portion of the financial statements prepared by the accounting department, the CEO should A not sign off on the financial statements until the issue is explained adequately. B sign off and fire the CFO. C sign off on the financials and let the CFO handle it. D sign off and tell the auditors to let it go this time

A not sign off on the financial statements until the issue is explained adequately.

Art is an accountant for a financial services company. An employee from the marketing department, Mihir, asks to see a preliminary copy of the next financial report. When Art mentions that it would be unethical, Mihir points out that they work at the same company, and he would be willing to pay $100 for it. Art should A refuse the request and confidentially report the incident. B refuse the question and take no further action. C give Mihir the report, but refuse any payment, as that is unethical. D accept the payment and give Mihir a copy of the report.

A refuse the request and confidentially report the incident.

Corporations provide corporate information about ________ to investors. A the amount of net income retained in the business B financial comparisons of operating alternatives C forecasts of cash needs for the upcoming year D marketing strategies for a product that will be introduced in 18 months

A the amount of net income retained in the business

Gerardi Supply started the year with total assets of $210,000 and total liabilities of $85,000. During the year, the business recorded $275,000 in revenues, $120,000 in expenses, and dividends of $50,000. The net income reported by Gerardi Supply for the year was A $125,000. B $155,000. C $175,000. D $190,000.

B $155,000.

Goodman Auto started the year with total assets of $300,000 and total liabilities of $175,000. During the year, the business recorded $475,000 in revenues, $275,000 in expenses, and dividends of $30,000. The net income reported by Goodman Auto for the year was A $250,000. B $200,000. C $125,000. D $95,000.

B $200,000.

Identify the three steps of solving ethical dilemmas. Select all that apply. A Put yourself in the position of a decision-maker in the ethical dilemma. B Identify and analyze the principal elements in the situation. C Recognize the ethical situation and issues involved. D Identify the alternatives, and weigh the impact of each alternative on various stakeholders.

B Identify and analyze the principal elements in the situation. C Recognize the ethical situation and issues involved. D Identify the alternatives, and weigh the impact of each alternative on various stakeholders.

You are an analyst for a consulting firm and are working on several projects. Which project would MOST effectively use accounting information? A Project 2: Most effective advertising agency for a new product B Project 1: profitability of the firm's client engagements over the last year C Project 4:application of the technology for a patent D Project 3: Items included in a product warranty

B Project 1: profitability of the firm's client engagements over the last year

Joe Keller and Ed Keller are brothers and both are lawyers. They start a personal injury law firm. Over the course of six months, they lose financially, as the settlements reached were not large enough to cover their expenses. The business is in debt. Which is the most likely scenario regarding their debt? A The Keller brothers probably formed a proprietorship, which means they have limited personal liability. B The Keller brothers probably formed a partnership, which means they have unlimited personal liability. C The Keller brothers probably formed a partnership, which means they have limited personal liability. D The Keller brothers probably formed a corporation, which means they have unlimited personal liability.

B The Keller brothers probably formed a partnership, which means they have unlimited personal liability.

All stakeholders should be warned that numbers may be unreliable if A there is a change in stock price after earnings are announced. B a company announces earnings without completing an audit or certification. C the company hired a new CFO after earnings were announced. D the company changed auditors before earnings were announced due to a law suit against the auditor for negligence related to a different company.

B a company announces earnings without completing an audit or certification.

Which of the following would most likely be organized as a sole proprietorship? A a large department store B an auto repair shop C a national chain of hotels D a law firm

B an auto repair shop

Which of the following are NOT characteristics of a corporation? Select all that apply. A easier to transfer ownership and raise funds, no personal liability B best for retail and service-type businesses, controlled by founder C simple to set up and maintains control with founder D shared control, tax advantages, increased skills, and resources

B best for retail and service-type businesses, controlled by founder C simple to set up and maintains control with founder D shared control, tax advantages, increased skills, and resources

Which form of business produces the most annual revenue in the US? A proprietorship B corporation C partnership D special purpose entity

B corporation

Investors will lose faith in the reliability of financial reports if A the reporting rules are changed so companies will report less frequently. B financial reporting is questionable and information needed by investors is not credible. C the rules for financial reporting are tightened. D there is greater investment activity in stocks.

B financial reporting is questionable and information needed by investors is not credible.

The characteristic that most distinguishes a partnership from a corporation is A type of customers. B limited liability. C the economic entity assumption. D multiple owners.

B limited liability.

Businesses may be liable for events caused by their owners or employees. Which forms of business organization do not provide protection for the owner's personal assets from the claim of outside parties? Choose the most correct statement. A proprietorships and corporations B proprietorships and partnerships C special purpose entities and corporations D partnerships and corporations

B proprietorships and partnerships

If a business organization is sued, the owner of a ________ would have to pay out of both business assets and personal assets if necessary. Select all that apply. A corporation B sole proprietorship C partnership D limited corporation

B sole proprietorship C partnership

A small farm that is run by its owner would most likely be a A partnership. B sole proprietorship. C subsidiary of a corporation. D corporation.

B sole proprietorship.

If a business enterprise had to repay debts and obligations, owners of ________ would be personally liable. Select all that apply. A corporations B sole proprietorships C limited liability sole proprietorships D partnerships

B sole proprietorships D partnerships

Patterson Corporation began the year with retained earnings of $325,000. During the year, the company issued $500,000 of common stock, recorded expenses of $1,500,000, and paid dividends of $90,000. If Patterson's ending retained earnings was $350,000, what was the company's revenue for the year? A $700,000 B $1,800,000 C $1,615,000 D $1,525,000

C $1,615,000

Al's Automotive started the year with total assets of $250,000 and total liabilities of $180,000. During the year, the business recorded $375,000 in revenues, $200,000 in expenses, and dividends of $35,000. Stockholders' equity at the end of the year was A $455,000. B $270,000. C $210,000. D $520,000.

C $210,000.

Jane and Sarah are both investors. Jane has invested thousands of dollars into one small company she runs. Sarah has invested hundreds of dollars into several large companies. What is the difference between these two investors? A Jane has invested in a sole proprietorship, whereas Sarah has invested in partnerships. B Jane has invested in a partnership, whereas Sarah has invested in sole proprietorships. C Jane has invested in a sole proprietorship, whereas Sarah has invested in corporations. D Jane has invested in a corporation, whereas Sarah has invested in partnerships.

C Jane has invested in a sole proprietorship, whereas Sarah has invested in corporations.

When a company participates in the communication activity in the accounting process, which of the following have they likely done? A Recorded transactions in the financial journal. B Sold products to customers. C Published financial statements for stockholders to view. D Borrowed money from a bank to expand their facilities.

C Published financial statements for stockholders to view.

An internal user of accounting information would most likely ask which question? A How much can the company afford to pay my client for services rendered? B Does this company comply with all tax laws? C Which supplier is the most cost-effective for the company's raw materials? D Does this company reliably pay off their loans?

C Which supplier is the most cost-effective for the company's raw materials?

When attempting to identify ethical and unethical situations, which of the following will be MOST helpful to company employees? A an international code of ethics B the employee's personal code of ethics C a written code of ethics for the business D society's general code of ethics

C a written code of ethics for the business

s an external user, investors would have financial information about a corporation's A plans to hire more employees. B forecasts of cash needs for the upcoming year. C amount of net income retained in the business. D research and development for a potential product line.

C amount of net income retained in the business.

A company publishes financial statements for various parties to review and reference. This is an example of which accounting process activity? A reconciling B recording C communication D identification

C communication

Characteristics of a corporation include A shared control, tax advantages, increased skills, and resources. B harder to raise funds and gives the owner control. C easier to transfer ownership and raise funds, and no personal liability. D simple to set up and maintains control with the founder.

C easier to transfer ownership and raise funds, and no personal liability.

Antonio is an accountant responsible for approving travel reimbursement requests from company employees. Sheena, a company vice president, has requested a reimbursement for a $315 dinner. However, the reimbursement request does not have proper documentation as outlined in the company policy on business expenses. Antonio should A explain the policy to Sheena and approve the request for reimbursement. B bring the matter to Sheena's boss to handle disciplinary actions. C explain the reimbursement policy and not approve the request until all proper documentation is submitted. D approve the request because of Sheena's executive position.

C explain the reimbursement policy and not approve the request until all proper documentation is submitted.

Which activities in the accounting process focus on identifying, classifying, and summarizing economic events? Select all that apply. A transmitting B communication C identification D calculating E extracting F recording

C indentification F recording

An advantage of the corporate form of business organization is that A it has favorable tax treatment. B it has a limited life span. C ownership is easily transferable through the sale of stock. D owners have control over business decisions and operations.

C ownership is easily transferable through the sale of stock.

Erika recently graduated from college with a business degree and wants to open a small boutique. However, because of her college loans, she does not have the money to purchase any products to sell in her store. Which form of business organization would be most beneficial for Erika to choose? A sole proprietorship B corporation C partnership D limited liability company

C partnership

Which of the following is NOT a step in analyzing ethics cases in financial reporting? A Identify the alternatives, and weigh the impact of each alternative on various stakeholders. B Identify and analyze the principle elements in the situation. C Contact law enforcement regarding any violations of corporate ethics codes. D Recognize an ethical situation and the ethical issues involved.

Contact law enforcement regarding any violations of corporate ethics codes.

Paulson Company began the year with retained earnings of $500,000. During the year, the company issued $720,000 of common stock, recorded expenses of $2,000,000, and paid dividends of $80,000. If Paulson's ending retained earnings was $520,000, what was the company's revenue for the year? A $2,060,000 B $2,700,480 C $2,580,000 D $2,100,000

D $2,100,000

David is examining a company's financial information to determine if he wants to add the company's stock to his portfolio. John is examining a company's financial information to decide if he should approve the company's loan application. What is the difference between David and John? A David is a finance manager, and John works for a regulatory agency. B David is a creditor, and John is an investor. C David works for a regulatory agency, and John is a finance manager. D David is an investor, and John is a creditor.

D David is an investor, and John is a creditor.

Ethics is so important in financial accounting and reporting that the government has passed a law regulating ethical actions of businesses related to their financial reporting practices. Why is ethics in financial reporting so important for the country's economy? A Finance executives will not know how much to pay in dividends to stockholders if their company's financial reporting practices are unethical. B Production managers will not know how many units of each product to make to support customer demands if their company's financial reporting practices are unethical. C Taxing agencies will not know how much to tax companies to support the government if they believe their financial reporting practices are unethical. D Investors and creditors will no longer provide financial backing to companies if they believe their financial reporting practices are unethical.

D Investors and creditors will no longer provide financial backing to companies if they believe their financial reporting practices are unethical.

Francine works in a small office and keeps track of petty cash, which is to be used only for minor business expenses or emergencies. Trevor wants his cost for lunch reimbursed because someone stole his from the break room refrigerator. Francine should A bring the matter to Trevor's boss to initiate disciplinary actions. B explain the purpose of petty cash and reimburse Trevor just this one time. C reimburse Trevor using petty cash because the incident happened on company property. D explain the purpose of petty cash and refuse Trevor's request.

D explain the purpose of petty cash and refuse Trevor's request.

Which of the following external users of a company's financial documents will be MOST concerned about the wages the employees receive? A taxing authority B human resources department C regulatory agency D labor union

D labor union

Which of the following would be most likely to need information about forecasts of cash needs for the next year? A taxing authorities B regulatory agencies C customers D management

D management

According to step 3 of solving ethical dilemmas, ethical dilemmas A should be solved according to which stakeholder will benefit most from the decision. B are seldom solved satisfactorily. C always have one clear right answer or solution. D may have more than one right solution.

D may have more than one right solution.

The characteristic that most distinguishes a partnership from a proprietorship is A unlimited life. B economic entity assumption. C transferability of ownership. D multiple owners.

D multiple owners.

Jim is an accountant who reimburses travel expenses for company employees who have used personal funds for travel. Tom, a company sales rep, has requested a reimbursement for a $200 dinner. However, Tom does not have proper documentation which means the expense cannot be reimbursed. Tom offers to split the reimbursement with Jim, if Jim will approve it without the documentation. Jim should A approve the reimbursement and take half, because it is a small amount of money. B approve the reimbursement, but refuse the Tom's offer as that would be unethical. C reject the reimbursement and take no further action. D reject the reimbursement and confidentially report the incident.

D reject the reimbursement and confidentially report the incident.

Accounting information that is available to external users such as investors includes A financial comparisons of operating alternatives. B marketing strategies for a product that will be introduced in 18 months. C forecasts of cash needs for the upcoming year. D the amount of net income retained in the business.

D the amount of net income retained in the business.

Nathaniel and Hosea have both invested $25,000 in businesses. Now they both want to sell out and recoup their money. If Nathaniel invested in a corporation and Hosea invested in a partnership, which of them is going to have the MOST difficulty selling their investment? Why?

Hosea, because selling ownership of a partnership requires finding an individual or small group willing to invest a large amount in one business.

As the CEO of a small company, you have been asked for several reports. In which of the following reports will it be MOST important to include financial information?

a report to investors about their expected return on investment

If a partnership formed by two individuals has created debts that it cannot pay from its business assets, (both partners/neither partner) would be personally liable for the debt.

both partners

Dieter is meeting with company executives and forwards each of them a copy of an income statement, a statement of cash flows, and a balance sheet in preparation of their meeting. Dieter is engaged in the (identification/communication) step of the accounting process.

communication

The identification and recording of activities in the accounting process focus on identifying, classifying, and summarizing of (management decisions/economic events).

economic events

A CEO did not sign off on financial statements because the CEO did not understand a portion of the financial statements. This is an example of

ethical financial reporting practices.

A cashier at a restaurant is responsible for tallying sales recorded in his cash register at the end of his shift and turning in receipts to the accounting department. Based on this information, which step in the accounting process is the cashier most involved in?

identification

A written code of ethics for a business would be most helpful to company employees:

identifying ethical and unethical situations.

A question such as "should any retail locations be closed?" would be likely asked by an (external/internal) user of accounting information.

internal

Accounting information about the planning, organizing, and running of a company is prepared for (internal/external) users.

internal

The question "Should we add capacity to our manufacturing plant to increase the volume of production?" would best represent a question an (internal/external) user of accounting information would ask.

internal

You are trying to determine how much inventory your company should purchase next quarter. This is an example of using accounting information as an (internal user/external user).

internal user

Investors and creditors both are external users of accounting information, but use the information for different types of decisions. A(n) (investor's/creditor's) focus might be to evaluate the risk of ownership in a company, while a(n) (investor's/creditor's) focus would be to evaluate the risks of lending money to the company.

investor's creditor's

Recognizing and weighing the impact of alternatives on stakeholders is the (first/last)step in solving an ethical dilemma.

last

A corporation form of business organization provides an owner with the (most/least) liability protection.

most

Hector has decided that he wants to open a business in which he sells garden and landscaping plants and provides classes on how to care for flowers and vegetables. Which form of business organization will Hector most likely choose when he initially opens his business?

sole proprietorship

f a corporation had to repay debts and obligations, its investors (would/would not) lose their personal assets.

would not