Accounting: Chp 1 &2 Practice questions

Practice Q1: As of December 31, 2017, Stoneland Corporation has assets of $3,500 and stockholders' equity of $2,000. How much are the liabilities for Stoneland Corporation as of December 31, 2017? $2,500 $2,000 $1,000 $1,500

$1,500

Q 1.23: Which of the following statements is true? A : Publicly traded U.S. companies must provide an annual report to their shareholders every time operating conditions change significantly. B : The management discussion and analysis section does not have to highlight unfavorable trends or present uncertainties that will affect its ability to fund operations. C : Notes to the financial statements need not be included in the annual report because that information is only for internal users. D : An independent auditor's report must be included in the annual report.

An independent auditor's report must be included in the annual report.

Q 1.10: Which of the following represents an alternative expression of the basic accounting equation? A : Assets + Liabilities = Stockholders' Equity B : Assets - Liabilities = Stockholders' Equity C : Assets + Stockholders' Equity = Liabilities D : Assets = Liabilities - Stockholders' Equity

Assets - Liabilities = Stockholders' Equity

Q 3.11: The usual sequence of steps in ________ is analyze, journalize, post to the ledger. A searching for fraudulent activity B analyzing source documents C balancing accounts D recording transactions

D

Q 3.2: Assets decrease when expenses are A left unpaid. B increased. C placed on account. D paid in cash.

D

Q 3.5: What happens when services are performed on account? A : Liabilities increase. B : Assets decrease. C : Liabilities decrease. D : Stockholders' equity Increases.

D

Practice Q1: At December 31, 2017, Shorts Company had retained earnings of $2,184,000. During 2017, the company issued stock for $98,000, and paid dividends of $34,000. Net income for 2017 was $402,000. How much was the retained earnings balance at the beginning of 2017? $2,552,000 $1,914,000 $2,454,000 $1,816,000

$1,816,000

Practice Q1: Saira's Maid Service began the year with total assets of $120,000 and begining retained earnings of $40,000. During the year the company earned $90,000 in net income and paid $20,000 in dividends. Total assets at the end of the year were $215,000. How much was retained earnings at the end of the year? $110,000 $150,000 $130,000 $135,000

$110,000

Practice Q1: Current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings totals $70,000. How much is total stockholders' equity? $120,000 $150,000 $140,000 $70,000

$120,000(Common stock and retained earnings are both elements of stockholders' equity. Common stock of $50,000 plus retained earnings of $70,000 equals $120,000 in stockholders' equity.)

Q 1.9: If total liabilities increased by $90,000 and stockholders' equity increased by $35,000 during a period of time, then total assets must change by what amount and direction during that same period? A : $125,000 decrease B : $45,000 decrease C : $125,000 increase D : $45,000 increase

$125,000 increase

Q 1.14: Maxwell Flooring started the year with total assets of $160,000 and total liabilities of $75,000. During the year, the business recorded $250,000 in revenues, $100,000 in expenses, and dividends of $30,000. The net income reported by Maxwell Flooring for the year was A : $150,000. B : $125,000. C : $85,000. D : $90,000.

$150,000.

Q 1.13: Smith Corporation began the year with retained earnings of $300,000. During the year, the company issued $500,000 of common stock, recorded expenses of $2,000,000, and paid dividends of $200,000. If Smith's ending retained earnings was $425,000, what was the company's revenue for the year? A : $2,325,000 B : $2,250,000 C : $1,750,000 D : $2,580,000

$2,325,000

*Q 1.12: Simon Properties began the year with retained earnings of $420,000. During the year, the company issued $400,000 of common stock, recorded expenses of $2,200,000, and paid dividends of $100,000. If Simon's ending retained earnings was $520,000, what was the company's revenue for the year? A : $2,400,000 B : $2,200,000 C : $2,100,000 D : $2,820,000

$2,400,000

*Q 1.15: 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 : $210,000. B : $520,000. C : $270,000. D : $455,000.

$210,000.

Q 1.16: If total liabilities decreased by $60,000 and stockholders' equity increased by $20,000 during a period of time, then total assets must change by what amount and direction during that same period? A : $80,000 increase B : $40,000 increase C : $80,000 decrease D : $40,000 decrease

$40,000 decrease

Practice Q1: The financial statements for Harold Corporation contained the following information: Accounts receivable: $ 5,000 Sales revenue: 75,000 Cash: 15,000 Salaries and wages expense: 20,000 Rent expense: 10,000 How much was Harold's net income? $60,000 $65,000 $45,000 $15,000

$45,000

Q 1.11: Johnson Mechanics started the year with total assets of $250,000 and total liabilities of $180,000. During the year, the business recorded $410,000 in revenues, $250,000 in expenses, and dividends of $45,000. The net income reported by Johnson Mechanics for the year was A : $160,000. B : $70,000. C : $180,000. D : $175,000.

160,000

Q 2.11: Anders Industries currently holds two debts: an $11,000 debt due in 12 months and a $16,000 debt due in 18 months. Anders prepares a classified balance sheet using an 18-month operating cycle. How should these debts be classified? A All $27,000 in debt should be classified as current liabilities. B $11,000 should be classified as a current liability, and $16,000 should be classified as a long-term liability. C All $27,000 in debt should be classified as long-term liabilities. D $16,000 should be classified as a current liability, and $11,000 should be classified as a long-term debt.

A

Q 3.12: Evidence for a transaction comes in the form of A : source documents. B : a ledger. C : a balance sheet. D : a journal.

A

Q 3.1: Assets and stockholders' equity increase when A : stockholders make an investment in the business. B : cash is borrowed. C : the business hires new employees. D : the business incurs expenses.

A

Q 3.4: What is the purpose of transaction analysis? A : to identify the type of account involved, and then to determine whether to make a debit or a credit to the account B : to help financial accountants produce year to date analyses C : to determine how a journal entry was posted in the past D : to help managerial accountants analyze month over month variances

A

Q 1.19: Which of the following statements are true? Select all that apply. A : The balance sheet enables creditors to determine the likelihood that they will be repaid. B : The balance sheet presents the company's financial position as of a specific date. C : The balance sheet reports the assets, liabilities, and stockholders' equity at a specific date. D : The balance sheet presents the revenues and expenses for a specific period of time.

A The balance sheet enables creditors to determine the likelihood that they will be repaid. B The balance sheet presents the company's financial position as of a specific date. C The balance sheet reports the assets, liabilities, and stockholders' equity at a specific date.

Q 2.21: Martin Industries owns a parcel of land adjacent to its factory. In approximately 18 months, Martin intends to build a parking lot on this parcel. Martin prepares a classified balance sheet and has an operating cycle of less than one year. How would classification of this parcel be different if Martin had a two-year operating cycle? A In the first case, it is classified as property, plant, and equipment, and with a two-year cycle it is still classified as property, plant, and equipment. B In the first case, it is classified as a long-term investment, while with a two-year cycle it is classified as property, plant, and equipment. C In the first case, it is classified as an intangible asset, while with a two-year cycle it is classified as a current asset. D In the first case, it is classified as a current asset, while with a two-year cycle it is classified as an intangible asset.

B

*Q 3.9: Of the following sets of accounting entries, which one correctly records the purchase of a piece of equipment? A a $15,000 increase in cash and a $15,000 decrease in equipment, both entered on the same date B a $14,000 decrease in cash, a $4,000 increase in notes payable, and a $10,000 increase in equipment, all entered on the same date C a $5,000 decrease in cash, a $15,000 increase in notes payable, and a $20,000 increase in equipment, all entered on the same date D a $16,000 decrease in notes payable and a $16,000 increase in equipment, both entered on the same date

C

Q 3.7: What happens when a business receives cash in advance from a customer? A : Assets increase but stockholders' equity decreases. B : Assets and stockholders' equity increase. C : Assets and liabilities increase. D : Assets, liabilities, and stockholders' equity remain unchanged.

C

*Q 3.3: Birch Tree Press issues common stock for $30,000 and uses $10,000 of the cash to purchase a new printer. As a result, A : stockholders' equity will be reduced by $30,000. B : assets will be unchanged. C : assets will be increased by $20,000. D : assets will be increased by $30,000.

D

*Q 3.6: Which of the following events would lead to a decrease in a firm's retained earnings, and why? A : Issuance of a $10,000 note payable in exchange for cash, because notes payable are considered a liability, and an increase in liabilities will reduce a firm's retained earnings B : Issuance of a $10,000 note payable in exchange for cash, because notes payable are considered an expense, and an increase in expenses will reduce a firm's retained earnings C : Payment of $10,000 in employee salaries, because salaries are considered a liability, and an increase in liabilities will reduce a firm's retained earnings D : Payment of $10,000 in employee salaries, because salaries are considered an expense, and an increase in expenses will reduce a firm's retained earnings

D

To show how successfully your business performed during a period of time, you report its revenues and expenses in an..

Income statement

*Q 2.7: Intangible assets of Francis Group include copyrights, trademarks, and goodwill. Currently, Francis' copyrights have accumulated amortization of $6,500. How should Francis reflect this on its classified balance sheet? A : It should itemize trademarks and goodwill at cost and copyrights at cost less the $6,500 in amortization. B : It should itemize trademarks and goodwill at cost and copyrights at cost plus the $6,500 in amortization. C : It should itemize all assets at cost, then add the $6,500 in amortization on a separate line. D : It should itemize all assets at cost, then subtract the $6,500 in amortization from the copyrights on a separate line.

It should itemize all assets at cost, then subtract the $6,500 in amortization from the copyrights on a separate line.

*Q 2.10: Property, plant, and equipment of Barnes Corp includes office furniture, computer equipment, and buildings. Each asset has accumulated $2,000 in depreciation since purchase. How should Barnes reflect this on its classified balance sheet to provide the best disclosure? A : It should itemize the assets at cost less the $2,000 per asset in depreciation on the same line. B : It should itemize the assets at cost, and then subtract the total $6,000 in depreciation on a separate line. C : It should itemize the assets at cost, and subtract from each the $2,000 depreciation per asset. D : It should total the value of assets, and then subtract the total $6,000 in depreciation on a separate line.

It should itemize the assets at cost, and subtract from each the $2,000 depreciation per asset.

Q 1.18: Which of the following is true? A : The balance sheet should be prepared first to ensure that the accounts are in balance and that debits equal credits. B : Net income from the income statement flows into the retained earnings statement. The ending retained earnings balance then flows into the balance sheet. C : The statement of cash flows should be prepared first because it determines the sources of cash. That information is then used in preparing the income statement. D : Financial statements can be prepared in any order.

Net income from the income statement flows into the retained earnings statement. The ending retained earnings balance then flows into the balance sheet.

Q 2.9: Stockholders' equity of Eden Industries totals $63,000 in combined common stock and retained earnings. Assuming common stock and retained earnings of Eden are equal, how should Eden reflect this on its classified balance sheet? A : It should include itemized common stock and retained earnings on separate lines but need not include the total amount. B : It should include itemized common stock and retained earnings on separate lines and then include the total amount on a subsequent line. C : It should include itemized retained earnings and the total on a separate line but need not itemize common stock. D : It should include itemized common stock and the total on a separate line but need not itemize retained earnings.

Q 2.9: Stockholders' equity of Eden Industries totals $63,000 in combined common stock and retained earnings. Assuming common stock and retained earnings of Eden are equal, how should Eden reflect this on its classified balance sheet? A : It should include itemized common stock and retained earnings on separate lines but need not include the total amount. B : It should include itemized common stock and retained earnings on separate lines and then include the total amount on a subsequent line. C : It should include itemized retained earnings and the total on a separate line but need not itemize common stock. D : It should include itemized common stock and the total on a separate line but need not itemize retained earnings.

Q 1.7: On which financial statement are dividends reported? A : retained earnings statement B : both the income statement and balance sheet C : income statement D : balance sheet

RES

A _________ is the basic form of an account.

T-account

Q 3.16: When writing the title of an account, how is it formatted? Why? A The title is capitalized to indicate that it is an account with a credit balance. B The title is italicized to indicate that it is an account with a debit balance. C The title is italicized to indicate that it is a specific account name. D The title is capitalized to indicate that it is a specific account name.

The title is capitalized to indicate that it is a specific account name.

Q 3.18: During the month of June, Arlen Inc. incurred $2,500 in expenses. What effect will these expenses have on the firm's accounts for the month if the expenses were paid with cash? A These expenses will necessitate that Arlen record a $2,500 credit to an expense account and an offsetting $2,500 credit to an asset account. B These expenses will necessitate that Arlen record a $2,500 debit to an expense account and an offsetting $2,500 credit to an asset account. C These expenses will necessitate that Arlen record a $2,500 debit to an expense account and an offsetting $2,500 debit to an asset account. D These expenses will necessitate that Arlen record a $2,500 credit to an expense account and an offsetting $2,500 debit to an asset account.

These expenses will necessitate that Arlen record a $2,500 debit to an expense account and an offsetting $2,500 credit to an asset account.

*Q 2.6: Hollis Incorporated owns an office building adjacent to its factory. In approximately 14 months, Hollis intends to begin using the building to house its accounting department. Hollis prepares a classified balance sheet using an 18-month operating cycle. How would classification of this building be different if Hollis had an operating cycle of less than one year? A With the 18-month cycle it is classified as property, plant, and equipment, while with the shorter cycle it is classified as a long-term investment. B With the 18-month cycle it is classified as a current asset, while with the shorter cycle it is classified as an intangible asset. C With the 18-month cycle it is classified as an intangible asset, while with the shorter cycle it is classified as a current asset. D With the 18-month cycle it is classified as a long-term investment, while with the shorter cycle it is classified as property, plant, and equipment.

With the 18-month cycle it is classified as property, plant, and equipment, while with the shorter cycle it is classified as a long-term investment.

Auditor:

an accounting professional who conducts an independent examination of a company's financial statements. Only accountants who meet certain criteria and thereby attain the designation certified public accountant (CPA) may perform audits.

Q 1.8: Amounts received from issuing stock _________ revenues. are are not

are not

To present a picture at a point in time of what your business owns (its assets) and what it owes (its liabilities), you prepare a...

balance sheet

Practice Q1: In what order are current assets listed? By liquidity By longevity By importance Alphabetically

by liquidity

Practice Q1: The correct order of presentation in a classified balance sheet for the following current assets is accounts receivable, cash, prepaid insurance, inventories. cash, accounts receivable, inventories, prepaid insurance. inventories, cash, accounts receivable, prepaid insurance. cash, inventories, accounts receivable, prepaid insurance.

cash, accounts receivable, inventories, prepaid insurance.

*Q 3.19: Because dividends reduce stockholders' equity, the normal balance of the Dividends account is ___________ balance.

credit

Practice Q1: Which of these measures is an evaluation of a company's ability to pay current liabilities? Earnings per share Current ratio Both earnings per share and current ratio None of these answer choices are correct

current ratio

Practice Q1: Which of the following would not appear on the income statement? Net income Interest expense Service revenue Dividends paid

dividends paid

Q 1.6: Net income may be distributed to stockholders in the form of ________ and/or reinvested by the company as

dividends; retained earnings.

Practice Q1: An income statement... reports the assets, liabilities, and stockholders' equity at a specific date. reports the changes in assets, liabilities, and stockholders' equity over a period of time. summarizes the changes in retained earnings for a specific period of time. presents the revenues and expenses for a specific period of time.

presents the revenues and expenses for a specific period of time.

To indicate how much of previous income was distributed to you and the other owners of your business in the form of dividends, and how much was retained in the business to allow for future growth, you present a...

retained earnings statement

To show where your business obtained cash during a period of time and how that cash was used, you present a...

statement of cash flow

Q 1.1: ________ must receive an annual report from publicly traded U.S. companies. A :Creditors B :Stockholders C :Auditors D :Managers

stockholders

Q 2.3: What is the operating cycle of a company? A : the average time it takes to go from cash to inventory in producing revenues B : the average time it takes to go from cash to sales in producing revenues C : the average time it takes to go from cash to accounts receivable in producing revenues D : the average time it takes to go from cash to cash in producing revenues

the average time it takes to go from cash to cash in producing revenues

Q 1.2: When stockholders read the annual report, their complete analysis of a company's financial situation and performance is possible only when they review (select all that apply) A : cash flow statements. B : the management discussion and analysis section. C : notes to the financial statements. D : the auditor's report.

the management discussion and analysis section. notes to the financial statements.

Q 1.20: The time period covered by the retained earnings statement is A the period before the income statement. B a specific period that is not correlated to other financial statements. C the same period as the income statement. D the period after the income statement.

the period after the income statement.

Q 1.5: What is the main function of an auditor?

to conduct an independent examination of the accounting data presented by a company

Q 2.1: Long-term investments are NOT used in the current operations of the business. A : True B : False

true