ACCT 2k WILEY QUESTIONS CH. 1

A revenue account is increased by credits. is increased by debits. is decreased by credits. has a normal balance of a debit.

A

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 $140,000 $70,000 $150,000

A

Accounts with normal credit balances include assets and liabilities. liabilities and stockholders' equity. revenues and expenses. revenues and assets.

B

Which one of the following does not affect retained earnings? Dividends Issuance of common stock Net income Net loss

B

A company can change to a new method of accounting if management can justify that the new method results in terms of less likelihood of clerical errors. a lower net income for tax purposes. more meaningful financial information. a higher net income.

C

If cash is received in advance from a customer retained earnings will increase. stockholders' equity will decrease. assets will decrease. liabilities will increase.

D

Partnerships generally receive more favorable tax treatment than sole proprietorships and corporations. T or F?

False

The monetary unit assumption assures that all important information needed by investors, creditors, and managers is contained in the financial statements. True False

False

The notes to the financial statements are not required if a company presents all four financial statements. True False

False

The statement of cash flows reports net income, investing, and financing activities. T or F

False

Interest expense is classified under operating activities on the statement of cash flows. T or F

True

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? $1,816,000 $2,552,000 $2,454,000 $1,914,000

A

At September 1, 2017, Five-O Inc. reported retained earnings of $136,000. During the month, Five-O generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the balance in retained earnings at September 30, 2017? $142,000 credit $8,000 credit $136,000 debit $137,000 credit

A

During 2017, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity increased $40,000. increased $140,000. decreased $140,000. decreased $40,000

A

Earnings per share is computed by dividing net income less preferred stock dividends by the average common shares outstanding. less preferred stock dividends by the ending common shares outstanding. by the average common shares outstanding. by the ending common shares outstanding.

A

If a company has the ability to pay obligations that are expected to become due within the next year or operating cycle whichever is longer, what is the term that describes this measure? Liquidity Profitability Solvency Working capital

A

If an expense is paid with cash assets will decrease. retained earnings will increase. liabilities will increase. expenses will decrease.

A

In 2017, Bombay Corporation had cash receipts of $21,000 and cash disbursements of $12,000. The company's ending cash balance at December 31, 2017 was $33,000. What was the beginning cash balance? $24,000 $30,000 $45,000 $42,000

A

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

A

The balance sheet reports the assets, liabilities, and stockholders' equity at a specific date. summarizes the changes in total equity for a specific period of time. presents the revenues and expenses for a specific period of time. reports the changes in assets, liabilities, and stockholders' equity over a period of time.

A

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

A

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average current liabilities 110,000 Stockholders' equity 240,000 Average and total assets 600,000 Total current assets 300,000 Average total liabilities 320,000 Total current liabilities 120,000 Cash 100,000 How much is working capital? $180,000 2.50 $280,000 None of the answer choices are correct

A

Verifiability is an ingredient of Faithful Representation Relevance No No Yes No Yes Yes No Yes

A

What is evidence that a transaction has occurred? Source document Anyone of the answer choices can be considered evidence Journal Ledger

A

What is the primary accounting standard-setting body in the United States? Financial Accounting Standards Board IFRS Securities and Exchange Commission Public Company Accounting Oversight Board (PCAOB)

A

When the auditor is satisfied that the financial statements provide a fair representation of the company's financial position and results of operation in accordance with generally accepted accounting principles, the auditor will express unqualified opinion. an adverse opinion. a qualified opinion. a disclaimer of opinion.

A

Which accounts normally have debit balances? AED Assets, dividends, and expenses Assets, expenses, and retained earnings Assets, liabilities, and dividends Assets, expenses, and revenues

A

Which of the following is not a characteristic of relevance? Verifiability Confirmatory value Predictive value Materiality

A

Which of the following ratios measures the ability of the company to survive over a long period of time? Solvency ratios Liquidity ratios Current ratios Profitability ratios

A

For 2017, Stoneland Corporation reported net income, $24,000; net sales, $400,000; and average shares outstanding, 6,000. There were no preferred stock dividends. How much was the 2017 earnings per share? $0.06 $4.00 $16.67 $66.67

B

In a classified balance sheet, how are assets usually classified? Current assets; long-term investments; tangible assets; and intangible assets Current assets; long-term investments; property, plant, and equipment; and intangible assets Current assets; long-term assets; property, plant, and equipment; and intangible assets Current assets; long-term investments; property, plant, and equipment; and common stock

B

Net income will result during a time period when assets exceed revenues. revenues exceed expenses. assets exceed liabilities. expenses exceed revenues.

B

Paying interest expense and receiving interest revenue are examples of A.delivery activities. B. operating activities. C. investing activities. D. financing activities.

B

Stockholders' equity represents economics resources to be used in the future. claims of owners. the difference between revenues and expenses. claims of creditors.

B

The effect on the basic accounting equation of performing services for cash are to increase liabilities and increase stockholders' equity. increase assets and increase stockholders' equity. increase assets and decrease stockholders' equity. increase assets and increase liabilities.

B

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average total assets 2000,000 Stockholders' equity 240,000 Average and total assets 600,000 Total current assets 300,000 Average total liabilities 320,000 Total current liabilities 120,000 Cash 100,000 How much is Ortiz's current ratio? 3.27 2.50 2.38 3.40

B

The payment of dividends is an example of a(n) operating activity. financing activity. investing activity. delivery activity.

B

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 financial statements. auditor's opinion. balance sheet. income statement.

B

What are generally accepted accounting principles? Usually established by the Internal Revenue Service. A set of accounting rules and practices that have authoritative support. The guidelines used to resolve ethical dilemmas. Fundamental truths that can be derived from the laws of nature.

B

What is measured by current assets minus current liabilities? Cash flow Working capital Profitability Solvency

B

What organization issues International Financial Reporting Standards? IFRS International Accounting Standards Board International Auditing Standards Committee Financial Accounting Standards Board

B

Which is an indicator of profitability? Current ratio Earnings per share Debt to total assets ratio Free cash flow

B

Which is not part of the recording process? Analyzing transactions Preparing a trial balance Entering transactions in a journal Posting transactions

B

Which of the following is not a fundamental quality of useful accounting information? Faithful representation Verifiability Neutrality Relevance

B

Which of the following is the correct sequence of events? Record a transaction in the journal; analyze the transaction; post it to the ledger Analyze a transaction; record it in the journal; post it to the ledger None of the answer choices provides the correct sequence Analyze a transaction; post it to the ledger; record it in the journal

B

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

B

Which of these statements about a journal is false? It discloses the complete effect of a transaction in one place. It contains only revenue and expense accounts. It provides a chronological record of transactions. It helps to locate errors because the debit and credit amounts for each entry can be readily compared.

B

Which one of the following is not an alternate means of expressing a ratio? Percentage Dollar amount Proportion Rate

B

Which statement about users of accounting information is incorrect? Taxing authorities are considered external users. Regulatory authorities are considered internal users. Present creditors are considered external users. Management is considered an internal user.

B

Which statement presents information as of a specific point in time? Statement of cash flows Balance sheet Income statement Retained earnings statement

B

CH. 2 BEGINS HERE

Begin

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? $1,000 $2,500 $1,500 $2,000

C

If a company receives cash from a customer before performing services for the customer, then assets increase and liabilities decrease. assets decrease and liabilities increase. assets increase and liabilities increase.

C

If total liabilities decreased by $15,000 and stockholders' equity increased by $5,000 during a period of time, then total assets must change by what amount and direction during that same period? $15,000 decrease $10,000 increase $10,000 decrease $20,000 increase

C

If total liabilities increase by $5,000 then assets decrease by $5,000. stockholders' equity increase by $5,000. assets increase by $5,000, or stockholders' equity decrease by $5,000. assets and stockholders' equity each increase by $2,500.

C

Net income is $200,000, preferred dividends are $20,000, and average common shares outstanding are 50,000. How much is earnings per share? $0.25 $0.28 $3.60 $4.00

C

Retained earnings is decreased by owner's investments. revenues. expenses. assets.

C

Saira's Maid Service began the year with total assets of $120,000 and stockholders' equity 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 are total liabilities at the end of the year? $90,000 $110,000 $105,000 $80,000

C

Saira's Maid Service began the year with total assets of $120,000 and stockholders' equity 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 stockholders' equity at the end of the year? $130,000 $150,000 $110,000 $135,000

C

The ending retained earnings balance appears on the income statement and the retained earnings statement. the retained earnings statement only. both the retained earnings statement and the balance sheet. the balance sheet only.

C

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average current liabilities 110,000 Stockholders' equity 240,000 Total assets 600,000 Total current assets 300,000 Average total assets 320,000 Total current liabilities 120,000 Cash 100,000 How much is the debt to assets ratio? 30% 20% 60% 40%

C

What are the accounting rules that have substantial authoritative support and are recognized as a general guide for financial reporting purposes in the U. S.? Generally accepted accounting standards General accounting principles Generally accepted accounting principles Generally accepted auditing principles

C

What is the primary criterion by which accounting information can be judged? Consistency Predictive value Usefulness for decision making Comparability

C

What kind of classification is cost of goods sold? Liability Asset Expense Revenue

C

Which of the following did not result from the Sarbanes-Oxley Act? A. Auditors cannot provide non-audit services to the same client. B. Penalties for fraudulent activity increased. C. Tax rates on corporations increased. D. Top management must now certify the accuracy of financial information.

C

Which of the following is required as a result of SOX? A. Public companies must present audited financial statements. B. Companies that go bankrupt must repay shareholders for loss investments. C. Top management must certify the financial statements for their company. D. All shareholders now have an oversight role of the company's financial activities.

C

Which of the following would not appear on the retained earnings statement? Dividends Beginning retained earnings balance Service revenue Net income

C

Which statement about an account is true? The right side of an account is the debit side. There are separate accounts for specific assets and liabilities but only one account for stockholders' equity items. An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items. In its simplest form, an account consists of two parts.

C

Which statement is used by most corporations instead of the retained earnings statement? Balance sheet Statement of cash flows Statement of stockholders' equity Statement of owners' equity

C

Accounts with normal debit balances include assets and liabilities. liabilities and expenses. stockholders' equity and revenues. expenses and assets.

D

An account is a part of the financial information system and is described by all except which one of the following? An account has a title. An account has a debit and credit side. An account consists of three parts. An account is a source document.

D

An annual report includes all of the following except a management discussion and analysis section. an auditor's report. notes to the financial statements. a listing of all of the stockholders.

D

An item is ________ if it is likely to influence the decision of an investor or creditor. consistent faithful representation comparable material

D

Cash flows from operating activities are $200,000; cash flows from financing activities are $150,000; capital expenditures are $90,000; and dividends are $20,000. How much is free cash flow? Entry field with correct answer $110,000 $40,000 $180,000 $90,000

D

Debits increase both assets and liabilities. decrease both assets and liabilities. decrease assets and increase liabilities. increase assets and decrease liabilities.

D

Genesis Company buys equipment for $900 machine on credit. This transaction will immediately affect the income statement and retained earnings statement only. income statement only. income statement, retained earnings statement, and balance sheet. balance sheet only.

D

In which of the following sequences are the financial statements usually prepared? Income statement, balance sheet, retained earnings statement, and statement of cash flows. Balance sheet, statement of cash flows, income statement and retained earnings statement. Balance sheet, retained earnings statement, statement of cash flows, and income statement. Income statement, retained earnings statement, balance sheet, and statement of cash flows

D

Payment of a dividend increases retained earnings; increases expenses. increases expenses; decreases cash. decreases cash; increases stockholders' equity. decreases cash; decreases retained earnings.

D

Receipt of an unearned revenue increases an asset; increases a revenue. decreases a liability; increases stockholders' equity. decreases a revenue; increase stockholders' equity. increases an asset; increases a liability.

D

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

D

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Capital expenditures $55,000 Cash provided by operations $ 90,000 Cash 100,000 Net Income 80,000 Cash dividends paid 20,000 How much is free cash flow? $35,000 $5,000 $25,000 $15,00

D

The following ratios are available for Leer Inc. and Stable Inc. Current Ratio Debt to Assets Ratio Earnings Leer Inc. 2:1 75% $3.50 Stable Inc. 1.5:1 40% $2.75 Compared to Stable Inc., Leer Inc. has lower liquidity, higher solvency, and higher profitability. higher liquidity, higher solvency, but profitability cannot be compared based on information provided. higher liquidity, lower solvency, and higher profitability. higher liquidity and lower solvency, but profitability cannot be compared based on information provided.

D

The segment of a corporation's annual report that describes the corporation's accounting methods is the management discussion and analysis. auditor's report. income statement. notes to the financial statements.

D

The sole proprietorship form of business organization a. is classified as a separate legal entity. b. combines the records of the business with the personal records of the owner. c. must have at least two owners in most states. d. generally receives favorable tax treatment relative to a corporation.

D

What effects occur when an account payable is paid with cash? (PAID WITH CASH, SO YOU LOSE ASSETS) Increases assets and decreases liabilities Decreases stockholders' equity and decreases liabilities Decreases assets and increases stockholders' equity Decreases assets and decreases liabilities

D

Which financial statement reports assets, liabilities, and stockholders' equity? Statement of cash flows. Income statement. Retained earnings statement. Balance sheet.

D

Which is an advantage of corporations relative to partnerships and sole proprietorships? a.Increased difficulty of raising funds b. Harder to transfer ownership c. Most common form of organization d. Reduced legal liability for investors

D

Which of the following are constraints that allow a company to modify generally accepted accounting principles without jeopardizing the usefulness of the financial statements? Consistency and comparability Relevance and faithful representation Timeliness and neutrality Cost constraint

D

Which of the following does not properly reflect a financial ratio? 7:1 $0.60 per dollar 18.4% $7,200

D

Which of the following is not an external user of accounting data? Economic planners Labor unions Customers Chief Financial Officer

D

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

D

Which section of the annual report presents highlights of favorable or unfavorable trends and identifies significant events and uncertainties affecting a company's ability to pay near-term obligations, and a company's ability to fund operations and expansion? Financial statements Notes to the financial statements Auditor's report Management discussion and analysis

D

Consistency means that a company uses the same accounting principles and methods as the other companies in the same industry. True False

False

Current assets are economic resources that are expected to be converted to cash or used up by the business within one year or the normal operating cycle, whichever is shorter. True False

False

Going concern is the qualitative characteristic of accounting information that allows a statement reader to compare a company's performance from one year to the next. True False

False

Internal users of accounting information include a company's stockholders. T or F

False

Only Certified Public Accountants may perform audits. True False

True

The balance sheet reports assets and claims to those assets at a specific point in time. T or F

True

The current ratio is a liquidity ratio that is computed as current assets divided by current liabilities. True False

True

Transactions are recorded in chronological order in the journal. True False

True