Chapter 1 Back of Book Questions

1-1 Which of the following statements is false concerning forms of business organization? a. A corporation has tax advantages over the other forms of business organization. b. It is easier for a corporation to raise large sums of money than it is for a sole proprietorship or partnership. c. A sole proprietorship is an easy type of business to form. d. Owners of sole proprietorships and partnerships have personal liability for the debts of the business while owners of corporations have limited legal liability.

a

1-3 At December 31, Pitt Inc. has assets of $12,900 and liabilities of $6,300. What is the stockholders' equity for Pitt at December 31? a. $6,600 b. $6,300 c. $18,100 d. $19,200

a

1-9 Which of the following statements regarding the income statement is true? a. The income statement provides information about the profitability and growth of a company. b. The income statement shows the results of a company's operations at a specific point in time. c. The income statement consists of assets, expenses, liabilities, and revenues. d. Typical income statement accounts include sales revenue, unearned revenue, and cost of goods sold.

a

10. Accounts receivable a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

a

3. Inventory a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

a

5. Government a. Determines whether the company paid the proper amount of taxes b. Decides if a factory is profitable or should be closed c. Determines if a company will be able to repay its obligations d. Decides if the reported net income will cause the stock price to rise or fall e. Estimates the amount of a possible bonus

a

6. Cash a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

a

The liabilities of Dent Company are $82,000, and its stockholders' equity is $120,000. What is the amount of Dent's total assets?

$202,000

The total assets of Wayne Inc. are $55,000, and its stockholders' equity is $22,500. What is the amount of Wayne's total liabilities?

$32,500

Sole proprietorship Partnership Corporation a. Most complex to organize

Corporation

Sole proprietorship Partnership Corporation d. Limited personal liability for the debt of the organization

Corporation

Sole proprietorship Partnership Corporation e. Easier to raise large amounts of capital

Corporation

Sole proprietorship Partnership Corporation g. Owners generally pay higher taxes than owners of other forms of business organizations

Corporation

Operating, investing, or financing activity? a. Received $100,000 cash from the sale of stock

Financing

Operating, investing, or financing activity? g. Repaid $10,000 of principal relating to a loan

Financing

Gordon Company's total assets increased by $60,000 during the year, and its liabilities decreased by $35,000. Did Gordon's stockholders' equity increase or decrease? By how much?

Increase, $95,000

Operating, investing, or financing activity? c. Purchased $30,000 of kitchen equipment for its restaurants

Investing

Operating, investing, or financing activity? b. Purchased $20,000 of inventory from J&J Wholesale Company

Operating

Sole proprietorship Partnership Corporation c. Access to the individual skills of each of the owners

Partnership

Sole proprietorship Partnership Corporation f. The greatest percentage of businesses are organized in this manner

Sole proprietorship

Sole proprietorship Partnership Corporation b. Owner(s) have personal responsibility for the debt of the organization

Sole proprietorship, Partnership

1-13 Which of the following statements is true? a. The auditor's opinion is typically included in the notes to the financial statements. b. The notes to the financial statements are an integral part of the financial statements. c. The management's discussion and analysis section does not convey any information that cannot be found in the financial statements themselves. d. The annual report is required to be filed with the New York Stock Exchange.

b

1-2 Which of the following statements regarding business activities is true? a. Operating activities involve buying the long-term assets that enable a company to generate revenue. b. Financing activities include obtaining the funds necessary to begin and operate a business. c. Investing activities center around earning interest on a company's investments. d. Companies spend a relatively small amount of time on operating activities.

b

1. Manager a. Determines whether the company paid the proper amount of taxes b. Decides if a factory is profitable or should be closed c. Determines if a company will be able to repay its obligations d. Decides if the reported net income will cause the stock price to rise or fall e. Estimates the amount of a possible bonus

b

2. Machinery a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

b

9. Accumulated depreciation a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

b

1-8 At December 31, Marker reported the following items: cash, $7,500; inventory, $3,900; accounts payable, $5,900; accounts receivable, $3,100; common stock, $6,000; property, plant, and equipment, $10,500; interest payable, $1,600; retained earnings, $11,500. Refer to the information for Marker above. What is Marker's stockholders' equity? a. $7,500 b. $17,500 c. $19,100 d. $25,000

b (common stock, retained earnings)

1-10 For the most recent year, Grant Company reported revenues of $182,300, cost of goods sold of $108,800, inventory of $8,500, salaries expense of $48,600, rent expense of $12,000, and cash of $12,300. What was Grant's net income? a. $9,400 b. $12,900 c. $21,400 d. $24,900

b (revenues - COGS - salaries expense - rent expense)

What financial statement would ASSETS be on?

balance sheet

What financial statement would LIABILITIES be on?

balance sheet

What financial statement would STOCKHOLDERS' EQUITY be on?

balance sheet

1-11 Which of the following statements concerning retained earnings is true? a. Retained earnings is the difference between revenues and expenses. b. Retained earnings is increased by dividends and decreased by net income. c. Retained earnings represents accumulation of the income that has not been distributed as dividends. d. Retained earnings is reported as a liability on the balance sheet.

c

1-12 Which of the following sentences regarding the statement of cash flows is false? a. The statement of cash flows describes the company's cash receipts and cash payments for a period of time. b. The statement of cash flows reconciles the beginning and ending cash balances shown on the balance sheet. c. The statement of cash flows reports cash flows in three categories: cash flows from business activities, cash flows from investing activities, and cash flows from financing activities. d. The statement of cash flows may be used by creditors to assess the creditworthiness of a company.

c

4. Creditor a. Determines whether the company paid the proper amount of taxes b. Decides if a factory is profitable or should be closed c. Determines if a company will be able to repay its obligations d. Decides if the reported net income will cause the stock price to rise or fall e. Estimates the amount of a possible bonus

c

7. Copyright a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

c

1-7 At December 31, Marker reported the following items: cash, $7,500; inventory, $3,900; accounts payable, $5,900; accounts receivable, $3,100; common stock, $6,000; property, plant, and equipment, $10,500; interest payable, $1,600; retained earnings, $11,500. Refer to the information for Marker above. What is the total of Marker's CURRENT assets? a. $12,100 b. $13,700 c. $14,500 d. $25,000

c (cash, inventory, accounts receivable)

1-6 Which of the following is not shown in the heading of a financial statement? a. The title of the financial statement b. The name of the company c. The time period covered by the financial statement d. The name of the auditor

d

1-4 Which of the following is not one of the four basic financial statements? a. Balance sheet b. Income statement c. Statement of cash flows d. Auditor's report

d

1-5 What type of questions do the financial statements help to answer? a. Is the company better off at the end of the year than at the beginning of the year? b. What resources does the company have? c. For what did a company use its cash during the year? d. All of the above.

d

1. Accounts payable a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

d

3. Investor a. Determines whether the company paid the proper amount of taxes b. Decides if a factory is profitable or should be closed c. Determines if a company will be able to repay its obligations d. Decides if the reported net income will cause the stock price to rise or fall e. Estimates the amount of a possible bonus

d

2. Employee a. Determines whether the company paid the proper amount of taxes b. Decides if a factory is profitable or should be closed c. Determines if a company will be able to repay its obligations d. Decides if the reported net income will cause the stock price to rise or fall e. Estimates the amount of a possible bonus

e

5. Notes payable (due in 5 years) a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

e

4. Common stock a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

f

8. Net income less dividends a. Current assets b. Property, plant, and equipment c. Intangible assets d. Current liabilities e. Long-term liabilities f. Contributed capital g. Retained earnings

g

What financial statement would EXPENSES be on?

income statement

What financial statement would REVENUE be on?

income statement

What financial statement would DIVIDENDS be on?

retained earnings statement

What financial statement would CASH FLOW FROM OPERATING ACTIVITIES be on?

statement of cash flows

What financial statement would NET CHANGE IN CASH be on?

statement of cash flows