Chapter 2 Financial Quiz

Which of the following is not a principal form of business organization? A) Sole proprietorship. B) Limited unregistered business. C) Corporation. D) Partnership. E) None of the above.

B) Limited unregistered business.

On January 31, an entity's balance sheet showed total assets of $2,250 and liabilities of $750. Stockholders' equity at January 31 was: A) $750 B) $1,500 C) $1,250 D) $3,000

B) $1,500 $2,250 - $750 = $1,500

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76.Liabilities at the end of the year totaled: A) $1,820 B) $1,056 C) $980 D) $1,672

C) $980 $1,056 at beginning of year - $76 = $980 at end of year

On January 31, an entity's balance sheet showed net assets of $3,075 and liabilities of $675. Stockholders' equity on January 31 was: A) $2,400 B) $3,750 C) $675 D) $3,075

D) $3,075

Retained Earnings represents: A) par value of common stock outstanding. B) cash that is available for dividends. C) the amount invested in the entity by the stockholders. D) cumulative net income that has not been distributed to stockholders as dividends.

D) cumulative net income that has not been distributed to stockholders as dividends.

Matching revenues and expenses refers to: A) accurately reflecting the results of operations for a fiscal period. B) recording revenues when a product is sold or a service is rendered. C) having revenues equal expenses. D) recording revenues when cash is received.

A) accurately reflecting the results of operations for a fiscal period.

The Statement of Changes in Stockholders' Equity shows: A) net income and dividends for the period. B) paid-in capital and long-term debt at the end of the period. C) revenues, expenses, and liabilities for the period. D) the change in cash during a year.

A) net income and dividends for the period.

The purpose of the income statement is to show the: A) net income or net loss for the period covered by the statement. B) change in the fair value of the assets from the prior income statement. C) market value per share of stock at the date of the statement. D) revenues collected during the period covered by the statement.

A) net income or net loss for the period covered by the statement.

The income statement shows amounts for: A) revenues, gains, expenses and losses. B) revenues, expenses, gains, and fair value per share. C) revenues, expenses, losses, and liabilities. D) revenues, assets, gains, and losses.

A) revenues, gains, expenses and losses.

Stockholders' equity refers to which of the following? A)The ownership right of the stockholder(s) of the entity. B)A listing of the organization's assets and liabilities. C)Probable future sacrifices of economic benefits. D)All of the above. E)None of the above.

A)The ownership right of the stockholder(s) of the entity.

The principle of consistency means that: A)the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto. B)the same accounting methods are used by all firms in an industry. C)there are no alternative methods of accounting for the same transaction. D)the accounting methods used by an entity never change.

A)the effect of any change in an accounting method will be disclosed in the financial statements or notes thereto.

At the end of the year, retained earnings totaled $5,100. During the year, net income was $750, and dividends of $360 were declared and paid. Retained earnings at the beginning of the year totaled: A) $3,990 B) $4,710 C) $6,210 D) $3,690

B) $4,710 ? + $750 - $360 = $5,100.Solve for the missing number: $5,100 - $750 + $360 = $4,710

Current U.S. Generally Accepted Accounting Principles and auditing standards require the financial statements of an entity for the reporting period to include: A) Current fair values of all assets at the end of the period. B) Financial position at the end of the period. C) Projected earnings for the subsequent period. D) Earnings and gross receipts of cash for the period.

B) Financial position at the end of the period.

The balance sheet might also be called: A) Statement of Assets. B) Statement of Financial Position. C) Statement of Changes in Financial Position. D) None of the above.

B) Statement of Financial Position.

The principle of full disclosure pertains to: A) The entity fully discloses all client data. B) The entity fully discloses all necessary information to prevent a reasonably astute user of financial statements from being misled. C) The entity fully discloses all necessary information to prevent all users of financial statements from being misled. D) The entity fully discloses all proprietary information. E) All of the above.

B) The entity fully discloses all necessary information to prevent a reasonably astute user of financial statements from being misled.

Transactions are summarized in: A) The notes for the financial statements. B) The entity's accounts. C) The independent auditor's opinion letter. D) None of the above.

B) The entity's accounts.

Consolidated financial statements report financial position, results of operations, and cash flows for: A) two corporations that are owned by the same individual. B) a parent corporation and its subsidiaries. C) a parent corporation and its 100% owned subsidiaries only. D) a parent corporation alone.

B) a parent corporation and its subsidiaries.

A concept or principle that relates to transactions is: A) consistency. B) original cost. C) materiality. D) full disclosure.

B) original cost.

The balance sheet of an entity: A) reports plant and equipment at its opportunity cost. B) shows amounts that are not adjusted for changes in the purchasing power of the dollar. C) shows the fair value of the assets at the date of the balance sheet. D) reflects the impact of inflation on the replacement cost of the assets.

B) shows amounts that are not adjusted for changes in the purchasing power of the dollar.

A) shows the dividends that will be paid in the future. B) shows how cash changed during the period. C) shows the change in the fair value of the entity's common stock during the period. D) is an optional financial statement.

B) shows how cash changed during the period.

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders' equity of $1,672. During the year, assets increased $148 and liabilities decreased $76.Stockholders' equity at the end of the year totaled: A) $1,744 B) $1,896 C) $1,672 D) $2,876

B) $1,896 End of year total assets = $2,728 + $148 = $2,876;End of year liabilities + stockholder's equity must also equal $2,876.Liabilities = $1,056 at beginning of year - $76 = $980 at end of year.Stockholder's equity = $2,876 - $980 = $1,896

Which of the following is not a limitation of financial statements? A) It is possible that two firms operating in the same industry may follow different accounting methods for the exact same transaction. B) Financial statements are not adjusted to show the impact of inflation. C) Full disclosure requires that the financial statements and notes include all necessary information to prevent a reasonably astute user of the financial statements from being misled. D) Financial statements do not reflect opportunity cost, which is an economic concept relating to income forgone because an opportunity to earn income was not pursued.

C) Full disclosure requires that the financial statements and notes include all necessary information to prevent a reasonably astute user of the financial statements from being misled.

Paid-in Capital represents: A) net assets of the entity at the date of the statement. B) earnings retained for use in the business. C) the amount invested in the entity by the stockholders. D) fair value of the entity's common stock.

C) the amount invested in the entity by the stockholders.

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Total stockholders' equity at the end of the year was: A) $164 B) $212 C) $316 D) $188

C) $316 paid-in capital + retained earnings = total stockholders' equity$164 + $48 + $104 = $316

Revenues are: A) increases in net assets from occasional sales of equipment. B) cash receipts. C) increases in net assets from selling a product. D) increases in net assets from selling common stock.

C) increases in net assets from selling a product.

The distinction between a current asset and other assets: A) is based on amounts that will be paid to other entities within a year. B) is based on how long the asset has been owned. C) is based on when the asset is expected to be converted to cash, or used to benefit the entity. D) is based on the ability to determine the current fair value of the asset.

C) is based on when the asset is expected to be converted to cash, or used to benefit the entity.

The going concern concept refers to a presumption that: A) the entity will be profitable in the coming year. B) the entity will not be involved in a merger within a year. C) the entity will continue to operate in the foreseeable future. D) top management of the entity will not change in the coming year.

C) the entity will continue to operate in the foreseeable future.

Which of the following accounting methods accomplishes much of the matching of revenues and expenses? A) Match accounting. B) Full disclosure accounting. C) Cash accounting. D) Accrual accounting.

D) Accrual accounting.

The balance sheet equation can be represented by: A) Net Assets = Stockholders' Equity B) Assets = Liabilities + Stockholders' Equity C) Assets - Liabilities = Stockholders' Equity D) All of the above.

D) All of the above.

Additional paid-in-capital represents: A) The summation of the total amount invested by the stockholders and the par or stated value of the stock. B) Distributions of earnings that have not been made to the stockholders. C) Distributions of earnings that have been made to the stockholders. D) The difference between the total amounts invested by the stockholders and the par or stated value of the stock.

D) The difference between the total amounts invested by the stockholders and the par or stated value of the stock.

Expenses are: A) decreases in net assets from dividends to stockholders. B) cash disbursements. C) decreases in net assets from uninsured accidents. D) decreases in net assets resulting from usual operating activities.

D) decreases in net assets resulting from usual operating activities.

Accrual accounting: A) results in the balance sheet showing the fair value of the entity's assets. B) means that expenses are recorded when they are paid. C) cannot result in the entity having net income unless cash is received from customers. D) is designed to match revenues and expenses.

D) is designed to match revenues and expenses.

A fiscal year: A) must end on the last day of a month. B) is always the same as the calendar year. C) must always end on the same date each year. D) is frequently selected based on the firm's operating cycle.

D) is frequently selected based on the firm's operating cycle.

At the beginning of the year, paid-in capital was $164 and retained earnings was $94. During the year, the stockholders invested $48 and dividends of $12 were declared and paid. Retained earnings at the end of the year were $104.Net income for the year was: A) $20 B) $30 C) $40 D) $22

D) $22 Beginning RE + NI - DIV = Ending RE, or $94 + ? - $12 = $104.Solve for the missing net income = $104 - $94 + $12 = $22

Accumulated depreciation on a balance sheet: A)represents cash that will be used to replace worn out equipment. B)recognizes the economic loss in value of an asset because of its age or use. C)is part of stockholders' equity. D)represents the portion of the cost of an asset that is assumed to have been "used up" in the process of operating the business.

D)represents the portion of the cost of an asset that is assumed to have been "used up" in the process of operating the business.

Which of the following is not included in a corporation's annual report? A) Notes to the financial statements and key financial data for at least the past five years. B) A detailed Management's Discussion and Analysis section. C) The reporting firm's financial statements for the fiscal year. D) The report of the external auditor's examination of the financial statements. E) All of the above are included in a corporation's annual report.

E) All of the above are included in a corporation's annual report.

Which of the following is not a limitation of financial statements? A) Net income from the income statement is added to the Retained Earnings account balance in the balance sheet. B) The cost principle requires assets to be recorded at their original cost; thus, the balance sheet does not generally reflect the fair values of most assets and liabilities. C) Estimates are used in many areas of accounting; when the estimate is made, about the only fact known is that the estimate is probably not equal to the "true" amount. D) Financial statements report quantitative economic information; they do not reflect qualitative economic variables.

A) Net income from the income statement is added to the Retained Earnings account balance in the balance sheet.

Which of the following is not a transaction to be recorded in the accounting records of an entity? A) Receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive. B) Sale of product to customers. C) Receipt of services from a "quick-print" shop in exchange for the promise to provide advertising design services of equivalent value. D) Investment of cash by the owners.

A) Receipt of a plaque recognizing the firm's encouragement of employee participation in the United Way fund drive.

The time frame associated with an income statement is: A) a past period of time. B) a point in time in the past. C) a function of the information included in it. D) a future period of time.

A) a past period of time.

The time frame associated with a balance sheet is: A) a point in time in the past. B) a single date in the future. C) a one-year past period of time. D) a function of the information included in it.

A) a point in time in the past.