Accounting Exam 1

During the year, a corporation reported the following: Issued common stock $98,000 Declared and paid dividends $34,000 Net income $402,000 At the end of the current. year, the company's retained earnings balance is $2,384,000. What was its retained earnings at the beginning of the current year? a) $2,016,000 b) $2,820,000 c) $2,114,000 d) $2,752,000 e) $2,654,000

$2,016,000 (2,384,000-402,000+34,000 = 2,016,000)

At the end of the year, a corporation has liabilities of $3,500 and equity of $2,000. How much are the company's assets at the end of the year? a) $4,000 b) $7,500 c) $5,500 d) $1,000 e) $0

$5,500 (Assets = liabilities + equity Assets = $3,500 +$2,000 = $5,500)

A corporation has current assets of $3,210,000, current liabilities of $2,350,000, total assets of $10,000,000 and total liabilities of $6,000,000. If it pays $200,000 of its accounts payable what will its current ratio be? (rounded) a) 1.28 b) 1.49 c) 1.44 d) 1.51 e) 1.40

1.40 (Current ratio = ($3,210,000 - $200,000)/($2,350,000 - $200,000 current ratio = 1.40)

A corporation reports the following balances and amounts Accounts payable 35k cash provided by operations 90k accounts receivable 37.5k net income 36k average number of common shares 20k salaries and wages payable 8k avg. current liabilities 110k stockholders' equity 240k average total assets current assets 600k average total liabilities 300k current liabilities 120k dividends paid to preferred shareholders 10k Determine its earnings per share? a) $1.30 b) 1.50 c) 2.33 d) 4.00 e) 1.80

a) $1.30 (Earnings per share = (36k-10k)/20k = 1.30/shares

A corporation has accounts and balances: Accounts payable 40,000 accounts receivable 30,000 accumulated depreciation 50,000 buildings 500,000 cash 100,000 common stock 710,000 equipment 150,000 inventory 200,000 investments in bonds 20,000 land 130,000 notes payable 250,000 patents 20,000 prepaid insurance 10,000 retained earnings 150,000 trademarks 40,000 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) $340,000 and (ii) $730,000 b) (i) $380,000 and (ii) $740,000 c) (i) $390,000 and (ii) $790,000 d) (i) $400,000 and (ii) $760,000

a) (i) $340,000 and (ii) $730,000 (Current assets = 30,000 + 100,000 + 200,000 + 10,000 = 340,000 Property, plant and equipment = 500,000 + 150,000 +130,000 - 50,000 = 730,000

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) auditor's opinion b) financial statements c) income statement d) balance sheet e) management discussion and analysis

a) auditor's opinion

which of the following is an example of an intangible asset? a) goodwill b) land c) cash d) accounts receivable e) prepaid expenses

a) goodwill

A short term creditor is primarily interested in the ______________ of the borrower. a) liquidity b) profitability c) solvency d) consistency e) compatibility

a) liquidity

Which of the following ratios measures the ability of the company to survive over a long period of time? a) solvency ratios b) liquidity ratios c) working capital d) profitability ratios e) current ratios

a) solvency ratios

The notion that the life of a business can be divided into artificial time periods for financial reporting purposes is known as a) the periodicity assumption b) the historical cost principle assumption c) the going concern assumption d) the monetary unit assumption e) the economic entity assumption

a) the periodicity assumption

Which of the following is not a characteristic of relevance? a) verifiability b) materiality c) predictive valye d) all of these are characteristics of relevance e) confirmatory value

a) verifiability

A company purchased common stock of another corporation. The company expects to hold the other corporation's stock for more than one year. On its classified balance sheet, the company should report the common stock as a) a current asset b) a long-term investment c) stockholders' equity d) an intangible asset e) property, plant, and equipment

b) a long-term investment

Resources owned by a business are referred to as a) revenues b) assets c) stockholders' equity d) liabilities e) expenses

b) assets

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) Auditor's report b) General ledger c) notes to the financial statements d) balance sheet e) management discussion and analysis

b) general ledger

Which of the following statements concerning internal and external users of accounting information is not correct? a) taxing authorities are considered external users b) regulatory authorities are considered internal users c) the company's investors are considered external users d) creditors are considered external users e) management is considered an internal user

b) regulatory authorities are considered internal users

Which financial statement is used by most corporations to compute year-end retained earnings? a) balance sheet b) statement of stockholders' equity c) statement of cash flows d) statement of sources and uses e) none of these

b) statement of stockholders' equity

Which of the following best describes stockholders' equity? a) stockholders' equity are the claims of creditors b) stockholders' equity are the claims of owners c) stockholders' equity is the cash collected from owners d) stockholders' equity is the difference between revenues and expenses e) stockholders' equity are the economic resources of the firm

b) stockholders' equity are the claims of owners

Which of the following would decrease the company's current ratio? a) buying supplies, such as office supplies, in exchange for cash b) using excess cash to buy long-term investments c) selling services to customers on account d) Issue common stock in exchange for cash e) selling machinery previously used in operating the business in exchange for cash

b) using excess cash to buy long term investments

Based on the following data, what is the working capital? Accounts payable 65k accounts receivable 50k accumulated depreciation 30k buildings 115k cash 35k comon stock 115k inventory 35k investments in bonds 120k land 70k notes payable 90k prepaid insurance 95k salaries and wages payable. 90k trademarks 70k a) $80,000 b) 120,000 c) 130,000 d) 210,000 e) 370,000

b). $120,000 (Current assets = accounts receivable + cash +inventory + prepaid insurance Current assets = 50,000 + 35,000 + 70,000 + 40,000 = 195,000 Current liabilities = accounts payable + salaries and wages payable = 65,000 + 10,000 = 75,000 working capital =. current asset - current liabilities workings capital = 195,000 - 75,000 = 120,000

Which of the following occurs when an account payable is paid with cash? a assets increase and liabilities increase b assets increase and liabilities decrease c assets decreases and liabilities decrease d assets decrease and stockholders equity increases

c assets decreases and liabilities decrease

During the year, a company did the following Recognized revenues. $370,000 Incurred expenses. $320,000 Issued common stock $10,000 Declared and paid dividends. $40,000 Its ending retained earnings is $400,000. What was the company beginning retained earnings? a) $370,000 b) $350,000 c) $390,000 d) $380,000 e) $360,000

c) $390,000 (Beginning retained earnings= ending retained earnings - revenue + expenses + dividends Ending retained earnings= beginning + revenue - expenses - dividends BRE= $400,000 - $370,000 + $320,000 + $40,000 = $390,000

Resources owned by a business are referred to as a) stockholders' equity b) expenses c) assets d) liabilities e) revenues

c) assets

Net income results when a) assets exceeds liabilities b) amounts received from issuing stock exceed dividends paid c) revenues are greater than expenses d) liabilities decrease e) equities are greater than dividends

c) revenues are greater than expenses

Which of the following best defines accounting? a) the organization and coordination of the activities of a business in order to achieve defined objectives b) the management of large amounts of money especially by governments or large companies c) the information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information d) the processing system and regulatory rules for determining the fair market value of a business organization

c) the information system that identifies, measures, and communicates economic information to permit informed judgements and decisions by the users of the information

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) $135,000 b) $155,000 c) $320,000 d) $180,000 e) $125,000

d) $180,000 (320,000-140,000=180,000)

Net income is $200,000, preferred dividends are $20,000, and total assets are $1,000,000. and average common shares outstanding are 50,000. How much is earnings per share? a) $0.28 b) $4.40 c) $4.00 d) $3.60 e) $0.25

d) $3.60 Earnings per share = ($200,000 - $20,000)/$50,000 shares = $3.60/share

Which of the following financial statements is concerned with the company at a point in time? a) income statement b) statement of stockholders' equity c) statement of cash flows d) balance sheet e) all of the above

d) balance sheet

Which of the following would not be reported among property, plant, and equipment on a classified balance sheet? a) equipment b) accumulated depreciation c) land d) cash e) delivery vehicles

d) cash

Each form of business organization has certain characteristics. Which form of the following is a disadvantage of the corporate form of business organization? a) Corporation allow for an easy transfer of ownership b) Corporations survive the death of their owners c) corporations can attract large amounts of capital investment d) corporations are subject to double taxation e) corporations provide their owners with limited liability

d) corporations are subject to double taxation

On a classified balance sheet assets are subdivided into categories and the categories are reported in a certain order. Which category of assets is usually listed first? a) stockholders' equity b) long-term assets c) property, plant, and equipment d) current assets e) intangible assets

d) current assets

Which of the following is an indicator of profitability? a) working capital b) current ratio c) debt total assets ratio d) earnings per share e) all of these

d) earnings per share

retained earnings is a) an asset account b) equal to stockholders' equity c) equal to revenues minus expenses d) equal to the amount of net income minus dividends paid since the company began operations e) equal to cash

d) equal to the amount of net income minus dividends paid since the company operations

The rules and practices that are recognized as general guides for financial reporting are called: a) accounting bulletins and procedures b) public company accounting rules c) certified accounting rules d) generally accepted accounting principles e) accounting principles

d) generally accepted accounting principles

Which of the following is an asset? a) interest expense b) retained earnings c) dividends d) inventory e) notes payable

d) inventory

A company has assets of $2,400,000, common stock of $620,000, and liabilities of $380,000. What is the company's retained earnings? a) $2,640,000 b) $3,400,000 c) $2,160,000 d) $1,000,000 e) $1,400,000

e) $1,400,000 (Equity = Assets - liabilities Equity = $2,400,000 - $380,000 Equity = $2,020,000 Retained earnings = Equity - common stock Retained earnings = $2,020,000 - $620,000 Retained earnings = $1,400,000)

The financial records for a corporation included the following information: Accounts receivable $60,000 Accounts payable $5,000 Cash $30,000 Common stock $5,000 Dividends $20,000 Insurance expense $10,000 Salaries and wages expense $40,000 Sales revenue $150,000 Retained earnings is not given. Based on this information, how much is its net income? a) $70,000 b $80,000 c) $120,000 d) $50,000 e) $100,000

e) $100,000 (Net income = revenue - expenses) Net income= $150,000-$40,000-$10,000= $100,000

A company reprted $150,000 cash inflow provided by operating activities. additional data for the current year shows the following: It paid 30k for equipment it paid 5k in dividends it paid 20k in notes payable Shortly before year-end, it received 25k by issuing additional shares of its stock. What is its free cash flow? a) $120,000 b) $140,000 c) $95,000 d) $145,000 e) $115,000

e) $115,000 (Free cash flow = $150,000 - $30,000 - $5,000 = $115,000)

A corporation had the following accounts and balances Accounts payable $6,000 Accounts receivable $8,000 Cash $7,000 Common Stock $15,000 Equipment $44,000 Notes payable $8,000 Prepaid insurance $4,000 retained earnings ? Supplies $2,000 Unearned service revenue $3,000 What is the balance of the company's retained earning account? a) $26,000 b) $34,000 c) $28,000 d) $46,000 e) $33,000

e) $33,000 (Assets = accounts receivable + cash + equipment + prepaid insurance + supplies = $8,000 +$7,000 + $44,000 + $4,000 + $2,000 = $65,000 Liabilities = accounts payable + notes payable + unearned revenue = $6,000 + $8,000 + $3,000 = $17,000 Assets = liabilities + stockholders' equity Stockholders' equity = assets - liabilities = $65,000 - $17,000 = $48,000 Stockholders' equity= common stock + retained earnings Retained earnings = stockholders' equity - common stock = $48,000 - $15,000 = $33,000)

Which of the following is not one of the three primary business activities listed on the statement of cash flows? a) financing activities b) all of these are activities listed on the statement of cashflows c) operating activities d) investing activities e) advertising activities

e) Advertising activities

Which of the following did not result from the Sarbanes-Oxley Act (SOX)? a) SOX increased independent auditors' independence b) the Sarbanes-Oxley act caused all of these to occur c) penalties for fraudulent activity increased d) top management must now certify the accuracy of financial information e) it decreased the oversight role of boards of directors

e) it decreased the oversight role of boards of directors

Which of the following would appear on an income statement? a) cash b) retained earnings c) accounts payable d) net cash flows from operations e) service revenue

e) service revenue