A200 Accounting Exam 1

The Going Concern Assumption states that in the absence of information to the contrary, a business entity will continue to operate Multiple choice question. a. for five years b. for one year c. infinitely d. indefinitely.

d. indefinitely

Keepers, Inc.'s balance sheet reported retained earnings as $10,000 at December 31, 2020 and $12,000 at the December 31, 2021. The income statement reported net income of $3,000 for the year ended December 31, 2021. Dividends declared for the year ended December 31, 2021 must equal $______.

$1,000

Dividends Blank______ retained earnings; therefore, to increase dividends, one would Blank______ the dividends account. Multiple choice question. a. decrease; debit b. increase; debit c. decrease; credit d. increase; credit

a. decrease; debit

Which of the following appear on the statement of stockholders' equity? Multiple select question. a. Dividends b. Property, plant, and equipment c. Net income d. Beginning balance of retained earnings e. Cash received during the accounting period

a. dividends c. net income d. beginning balance retained earnings

Adjustments help to ensure that all Blank______ are recorded in the period in which they are incurred. Multiple choice question. a. expenses b. journal entries c. cash transactions d. closing entries

a. expenses

Most assets are reported at historical cost rather than at liquidating values. The assumption or principle that supports this treatment is: Multiple choice question. a. going concern b. full disclosure c. periodicity d. materiality

a. going concern

The difference between total revenues and cost of goods sold is reported as Multiple choice question. a. gross profit b. operating income c. net income d. income before income taxes

a. gross profit

Financial accounting should provide information that: Multiple select question. a. helps to predict cash flows b. predicts a company's future tax obligation c. is useful to investors and creditors in making decisions d. tells about economic resources, claims to resources, and changes in e. resources and claims accurately predicts future income

a. helps to predict cash flows c. is useful to investors and creditors in making decisions d. tells about economic resources, claims to resources, and changes in

The type of analysis used to analyze trends in financial statement data over time is called Multiple choice question. a. horizontal analysis. b. vertical analysis.

a. horizontal analysis.

Which of the following is included with the annual report to help evaluate a firm's financial performance and financial health? Multiple choice question. a. marketing data b. press releases c. proxy statements d. note disclosures

d. note disclosures

An inflow of resources resulting from providing goods or services to customers is a(n) Blank______. Multiple choice question. a. loss b. expense c. gain d. revenue

d. revenue

After year-end adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies: Multiple choice question. a. purchased, but not yet paid for, at the end of the accounting period b. purchased during the accounting period c. on hand at the end of the accounting period d. used during the accounting period

d. used during the accounting period

The requirement that the economic activities of a business owner should be separated from the activities of the business is an example of which accounting assumption? Multiple choice question. a. Going concern b. Revenue recognition c. Monetary unit d. Matching e. Economic entity

e. economic entity

One of the most important objectives of financial accounting is that it should provide information useful to Blank______ and Blank______ in making decisions. Multiple choice question. a. managers; employees b. investors; creditors c. taxing authorities; managers d. investors; regulators

b. investors; creditors

Mark wants to determine whether a specific company has become more profitable over time. Mark should compare the company's performance to: Multiple choice question. a. its main competitor b. its prior years' performance c. its industry

b. its prior years' performance

A debit is on the Blank______ side of the account. Multiple choice question. a. A debit can be either side of the account depending on effect. b. left c. right

b. left

The type of income statement that reports a series of subtotals such as gross profit, operating income, nonoperating income, and pre-tax income is a Blank______ income statement. Multiple choice question. a. classified b. multiple-step c. current d. single-step

b. multiple-step

Revenues minus expenses equals Multiple choice question. a. total assets. b. net income. c. total liabilities. d. stockholders' equity.

b. net income

When should supplies be recorded as an expense? Multiple choice question. a. In the period cash is paid for the supplies, regardless of when the supplies were received b. In the period the supplies are purchased, regardless of when cash is paid c. In the period the supplies are used, regardless of when they were purchased

c. In the period the supplies are used, regardless of when they were purchased

Why are inventories reported as current assets? Multiple choice question. a. They are matched with current liabilities. b. They are directly related to revenues. c. They are normally sold within the operating cycle. d. They may become obsolete.

c. They are normally sold within the operating cycle.

Which of the following scenarios is consistent with a high current ratio? Multiple choice question. a. low level of inventory b. relatively small amount of long-term debt c. a high level of inventory d. relatively high level of accounts payable

c. a high level of inventory

When cash is received in advance for services to be performed at a later date, an asset is increased and Multiple choice question. a. stockholders' equity is decreased. b. stockholders' equity is increased. c. a liability is increased. d. another asset is decreased.

c. a liability is increased.

The income statement, statement of stockholders' equity, and balance sheet are prepared by using Blank______ account balances. Multiple choice question. a. unadjusted b. post-closing c. adjusted

c. adjusted

Basic earnings per share is calculated as net income available to common shareholders divided by Multiple choice question. a. average stockholders' equity. b. average total assets. c. weighted average common shares outstanding. d. ending retained earnings.

c. weighted average common shares outstanding.

A trial balance is used for internal purpose to check that debits equal credits. True False

True

Financial information that is immaterial in amount or nature need not be reported in accordance with GAAP. True False

True

Which of the following prepayments requires an adjustment at the end of the accounting period on December 31? Multiple choice question. a. On December 31, the company pays next year's fire insurance. b. On November 1, the company pays rent for the next six months. c. On December 20, the company pays its liability insurance; coverage starts January 1.

b. On November 1, the company pays rent for the next six months.

Which of the following is a limitation of the income statement? Multiple choice question. a. The difference between book value and market value. b. The inclusion of recurring and non-recurring items. c. The classification of current and long-term maturities.

b. The inclusion of recurring and non-recurring items.

The accounting equation must always remain in balance. True False

true

Rank the following steps applied in ethical decision making in the proper order beginning with the first step. - Make a decision - Evaluate the courses of action in terms of their impact on stakeholders - identify the ethical decision at hand - Specify the alternative courses of action

- identify the ethical decision at hand - specify the alternative courses of action - evaluate the courses of action in terms of their impact on stakeholders - make a decision

Milton Corp. has beginning retained earnings of $800. During the year Milton had $2,000 of revenues and $900 in expenses. Milton paid a dividend of $100. What is retained earnings at year-end? Multiple choice question. a. $1,800 b. $2,000 c. $1,100 d. $1,000

a. $1,800

Torrence purchases supplies for cash. Which of the following is used to record this transaction? Multiple choice question. a. Debit supplies; credit cash. b. Debit supplies; credit accounts payable. c. Debit cash; credit supplies. d. Debit accounts receivable; credit supplies.

a. Debit supplies; credit cash.

When a company purchases inventory with cash, which of the following occur? Multiple select question. a. Decrease in Cash b. Decrease in Accounts Receivable c. Increase in Accounts Payable d. Increase in Inventory

a. Decrease in Cash d. Increase in Inventory

Janex Company manufactures refrigerators. Which of the following items would likely be included in the determination of nonoperating income on Janex's income statement? Multiple choice question. a. Interest expense b. Rent expense c. General and administrative expenses d. Cost of goods sold

a. Interest expense

Which of the following disclosure notes is always included in quarterly financial statements? Multiple choice question. a. Management's discussion & analysis b. Summary of significant accounting policies c. Executive compensation

a. Management's discussion & analysis

A simplified version of the general ledger account that is used informally for analysis is referred to as a: Multiple choice question. a. T-account b. credit account c. journal account d. debit account

a. T-account

Which of the following types of analysis allows for the comparison of financial statement items between companies of different size? Multiple choice question. a. Vertical approach b. Horizontal approach c. Diagonal approach

a. Vertical approach

A(n) Blank______ is maintained for each financial statement item, whereas a(n) Blank______ contains all of the accounts of the company. Multiple choice question. a. account; general ledger b. account; journal c. general ledger; journal d. journal; general ledger

a. account; general ledger

The group of ratios that measures a company's ability to meet short-term and long-term obligations is known as Multiple choice question. a. credit risk management b. profitability c. asset management d. return to shareholders

a. credit risk management

The balance sheet shows that a company's resources equal Blank______ claims to those resources. Multiple choice question. a. creditors claims plus owners' b. creditors claims minus owners' c. creditors d. owners'

a. creditors claims plus owners'

Inventories held for sale in the normal course of business are classified in the balance sheet as Multiple choice question. a. current assets b. noncurrent liabilities c. noncurrent assets d. current liabilities

a. current assets

The main priority in the hierarchy of qualitative characteristics of financial reporting information is Multiple choice question. a. decision usefulness. b. conservatism. c. faithful representation. d. neutrality.

a. decision usefulness

On April 1, Carnegie Fitness collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Carnegie should: Multiple choice question. a. increase Service Revenue by $1,800 b. increase Deferred Revenue by $1,800 c. increase Service Revenue by $600 d. increase Deferred Revenue by $600

a. increase Service Revenue by $1,800

Ramirez purchases $50,000 of equipment by signing a note payable. The effects are Multiple select question. a. increase in liabilities. b. increase in assets. c. increase in stockholders' equity.

a. increase in liabilities. b. increase in assets.

A chronological record of all economic events affecting a firm are recorded in a(n) Multiple choice question. a. journal b. ledger c. trial balance d. balance sheet

a. journal

Which of the following contains a list of transactions affecting each account and the account's balance? Multiple choice question. a. ledger b. Journal c. Account

a. ledger

The going concern assumption is critical to the measurement of assets because if a business were going to cease operations, its assets would be measured at their Multiple choice question. a. liquidation values. b. historical cost. c. future value. d. depreciated value.

a. liquidation values

Which of the following is a decrease in equity due to an incidental transaction? Multiple choice question. a. Loss b. Revenue c. Gain d. Expense

a. loss

The two sources of stockholders' equity are amounts Blank______. Multiple select question. a. paid in from shareholders b. earned by the corporation c. borrowed from related companies d. borrowed from banks

a. paid in from shareholders b. earned by the corporation

Predictive value and confirmatory value are components of which fundamental qualitative characteristic? Multiple choice question. a. Relevance b. Faithful representation c. Neutrality d. Completeness

a. relevance

The hierarchy of qualitative characteristics of financial information require that, in order to be useful for decision making, information should possess the fundamental characteristics of Multiple choice question. a. relevance and faithful representation. b. cost and benefit. c. materiality and consistency. d. neutrality and materiality.

a. relevance and faithful representation.

Which of the following line items appear on an income statement? Multiple select question. a. Supplies expense b. Cash c. Accounts payable d. Supplies inventory e. Salaries expense f. Service revenue

a. supplies expense e. salaries expense f. service revenue

Multiple Choice Question To calculate a year-to-year percentage change in any financial statement line item, you should take Blank______, then divide by the prior year's amount, and finally multiply the result by 100. Multiple choice question. a. the current year's financial statement amount minus the prior year's amount b. the average of the current year's financial statement amount and the prior year's amount c. the prior year's financial statement amount minus the current year's amount

a. the current year's financial statement amount minus the prior year's amount

If revenues equal $100,000 and expenses equal $120,000, then net income (loss) must equal Blank______. Multiple choice question. a. $20,000 b. $(20,000) c. $220,000 d. expenses cannot be greater than revenues

b. $(20,000)

Quartz Instruments had retained earnings of $145,000 at December 31, 2020. Net income for 2021 was $90,000, and dividends for 2021 were $30,000. What amount of retained earnings should be reported at December 31, 2021? Multiple choice question. a. $235,000 b. $205,000 c. $140,000 d. $175,000

b. $205,000

Which of the following statements describes the effect that period-end adjustments may have on liabilities? Multiple choice question. a. Adjusting entries do not have any effect on liabilities, since cash is not included in the adjusting entries. b. Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period. c. Adjusting entries reduce liabilities for the amount of any accrued and unpaid expenses at the end of the period.

b. Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

Which of the following opinions is necessary when the auditor finds exceptions that are so material that the financial statements may be misleading? Multiple choice question. a. unqualified b. adverse c. qualified d. disclaimer

b. adverse

The group of ratios that measures a company's ability to use assets to generate sales is known as Multiple choice question. a. profitability b. asset management c. return to shareholders d. credit risk management

b. asset management

At the end of the accounting period, Supplies should be Blank______ and Supplies Expense should be Blank______ for the cost of supplies used up during the period. Multiple choice question. a. decreased; decreased b. decreased; increased c. increased; decreased d. increased; increased

b. decreased; increased

The financial statement that is most useful in explaining a company's stock price performance is the Multiple choice question. a. statement of stockholders' equity. b. income statement. c. balance sheet.

b. income statement

On January 1, Lorna pays $36,000 of rent in advance. The effects of this transaction are to Multiple select question. a. decrease accounts payable. b. increase prepaid rent. c. decrease cash. d. increase liabilities.

b. increase prepaid rent. c. decrease cash.

For a manufacturing company, which of the following items is not an operating expense? Multiple choice question. a. depreciation expense b. interest expense c. salaries expense d. rent expense

b. interest expense

The purchase of equipment used in business operations is an example of what type of cash flow? Multiple choice question. a. Income b. Investing c. Operating d. Financing

b. investing

In a multiple-step income statement, which measure of income represents the company's profits from normal operations? Multiple choice question. a. net income b. operating income c. gross profit d. income before income taxes

b. operating income

The objective of financial accounting is to: Multiple choice question. a. assure the future success of a company b. provide useful information for external decision makers c. accurately measure the future tax obligation

b. provide useful information for external decision makers

To perform a vertical analysis of an income statement, you would divide each line item on the statement by Blank______. Multiple choice question. a. cost of goods sold b. sales c. net income d. total assets e. operating expenses

b. sales

There is a cause-and-effect relationship between revenues and expenses that dictates: Multiple choice question. a. the ordering of assets and liabilities in the balance sheet b. when costs are recognized as expenses in the income statement c. where in the income statement expenses should be presented d. when revenues are recognized in the income statement

b. when costs are recognized as expenses in the income statement

The last step for analyzing the effect of transactions on the accounting equation is: Multiple choice question. a. Determine a second account in the accounting equation that will increase or decrease b. Determine one account in the accounting equation that will increase or decrease c. Confirm that assets are equal to liabilities plus stockholders' equity

c. Confirm that assets are equal to liabilities plus stockholders' equity

On December 27, Milligan Cleaning provided services to a customer. As of December 31, Milligan has not yet collected cash or billed the customer, but expects to receive cash in January. What are the effects of the necessary adjustment on December 31 for cash to be received in the future? Multiple choice question. a. assets decrease; revenues decrease b. assets increase; revenues decrease c. assets increase; revenues increase d. assets decrease; revenues increase

c. assets increase; revenues increase

An analyst who wants to compare two companies based on their income statement information should prepare a Blank______ income statement. Multiple choice question. a. single-step b. contribution margin c. common-size d. multiple-step

c. common-size

The accounting equation is Assets = Liabilities + Stockholders' Equity. Accounts on the right side of the equal sign in this equation are increased with Multiple choice question. a. both debits and credits depending on the account. b. debits. c. credits.

c. credits

How are accounts receivable classified on the balance sheet? Multiple choice question. a. noncurrent liability b. current liability c. current asset d. noncurrent asset

c. current asset

Because dividends reduce retained earnings, a Blank______ to dividends is essentially a Blank______ to retained earnings. Multiple choice question. a. credit; debit b. credit; credit c. debit; debit d. debit; credit

c. debit; debit

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) Blank______ in the asset account and a(n) Blank______ in the expense account. Multiple choice question. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

c. decrease; increase

When a company declares and pays cash dividends, stockholders' equity Blank______. Multiple choice question. a. increases b. does not change c. decreases

c. decreases

The issuance of common stock is an example of what type of cash flow? Multiple choice question. a. Investing b. Operating c. Financing d. Income

c. financing

A company owes employees $10,000 for work performed in the previous period. The adjustment for salaries owed but not yet paid includes a(n) Multiple choice question. a. increase in cash b. decrease in cash c. increase in salaries expense d. decrease in salaries expense

c. increase in salaries expense

Revenues will Blank______ retained earnings, and expenses will Blank______ retained earnings. Multiple choice question. a. decrease; increase b. increase; increase c. increase; decrease d. decrease; decrease

c. increase; decrease

A high inventory turnover ratio indicates that Multiple choice question. a. inventory was purchased more frequently during the year. b. the average collection period has increased. c. inventory was sold frequently during the year. d. sales increased relative to the previous year.

c. inventory was sold frequently during the year.

An asset that can quickly be turned into cash has the characteristic of Multiple choice question. a. operational b. currency c. liquidity d. superior

c. liquidity

Who has the responsibility to apply accounting standards when communicating with investors and creditors? Multiple choice question. a. The SEC b. Auditors c. Management d. The FASB

c. managment

The impact of financial accounting information on investors' and creditors' decisions is closely related to the concept of: Multiple choice question. a. faithful representation b. confirmatory value c. materiality d. predictive value

c. materiality

A company's claims to the future collection of cash, other assets, or services is called a Blank______. Multiple choice question. a. guarantee b. payable c. receivable d. transaction

c. receivable

Lim Corporation purchases $10,000 of equipment for cash. The effect of this transaction is Multiple choice question. a. total assets will remain the same. b. total assets will decrease. c. total assets will increase.

c. total assets will increase.

Barsky Corp. has the following items: Cash $5,000 Prepaid expenses 2,000 Building 40,000 Land 20,000 Inventory 15,000 Total noncurrent assets on the balance sheet is a. $75,000 b. $35,000 c. $62,000 d. $60,000

d. $60,000

What are increases or decreases in equity from peripheral or incidental transactions? Multiple choice question. a. Assets and Liabilities b. Interest income and expense c. Revenues and Expenses d. Gains and Losses

d. Gains and Losses

If a company incorrectly records cash received for services to be provided in the future by increasing Service Revenue, how will this error affect net income for the current period? Multiple choice question. a. Net income will be too high in the following period. b. Net income will not be affected by this error. c. Net income will be too low. d. Net income will be too high.

d. Net income will be too high.

Which of the following financial statements typically is prepared last? Multiple choice question. a. Income statement b. Statement of stockholders' equity c. Balance sheet d. Statement of cash flows

d. Statement of cash flows

Which of the following is not a limitation of the income statement? Multiple choice question. a. The inclusion of operating and nonoperating items. b. The inclusion of recurring and non-recurring items. c. The potential misuse of estimates and judgments. d. The difference between book value and market value.

d. The difference between book value and market value.

An "unqualified" audit opinion represents which of the following? Multiple choice question. a. The financial statements are free from errors and irregularities. b. The financial statements are certified to be accurate. c. The financial statements are qualified by the auditor to have certain errors. d. The financial statements are fairly presented in conformity with generally accepted accounting principles.

d. The financial statements are fairly presented in conformity with generally accepted accounting principles.

What is the purpose of additional financial disclosures in an annual report? Multiple choice question. a. To describe the business plan of the firm. b. To provide users with information regarding nonmaterial items. c. To explain management's strategies for the future. d. To assist in understanding the financial statements.

d. To assist in understanding the financial statements.

Which of the following statements most accurately describes the purposes of the closing process? Multiple choice question. a. To bring the balances in the revenue and expense accounts up to date b. To establish zero balances in the balance sheet accounts c. To bring the balances in the asset and liability accounts up to date d. To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings

d. To establish zero balances in the income statement and dividend accounts and to transfer net income and dividends into retained earnings

Which of the following is a probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events? Multiple choice question. a. retained earnings b. stockholders' equity c. liability d. asset

d. asset

If investors or lenders were interested in the amount of debt a company currently has, which financial statement would they need? Multiple choice question. a. Statement of Stockholders' Equity b. Income statement c. Statement of Cash Flows d. Balance sheet

d. balance sheet

The receivables turnover ratio offers an indication of how quickly a company is able to Multiple choice question. a. generate revenue. b. pay for its inventory. c. generate cash from financing activities. d. collect its accounts receivable.

d. collect its accounts receivable.

The process of allocating the cost of an asset to expense over the useful life of the asset is called Multiple choice question. a. contra accounting. b. asset valuation. c. book value. d. depreciation.

d. depreciation.

Stockholders' equity arises primarily from amounts invested by shareholders and amounts Blank______. Multiple choice question. a. received by customers b. borrowed from banks c. borrowed from investors d. earned by the corporation

d. earned by the corporation

What represents the costs of providing goods and services to customers? Multiple choice question. a. Gains b. Revenues c. Losses d. Expenses

d. expenses

Which of the following is the first measure of profitability that is presented in a multiple-step income statement? Multiple choice question. a. Nonoperating income b. Net income c. Operating income d. Gross profit

d. gross profit

A company overestimates the useful life of equipment in order to report lower depreciation expense and higher profits. This example illustrates a limitation of which financial statement? Multiple choice question. a. statement of cash flows b. statement of stockholders' equity c. balance sheet d. income statement

d. income statement