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84 Free Test Bank for Financial Accounting Tools for Business Decision Making 6th

Kimmel Multiple Choice Questions - Page 1

Which form of business would have its shares listed on a stock exchange?

1 (a) proprietorship

2 (b) partnership

3 (c) private corporation

4 (d) public corporation

The financial statement that summarizes the changes in common shares and retained earnings for a specific period of time is the

1 (a) statement of financial position

2 (b) income statement

3 (c) statement of cash flows

4 (d) statement of changes in equity

The common characteristic possessed by all assets is

1 (a) long life

2 (b) great monetary value

3 (c) tangible nature

4 (d) future economic benefit

Retained earnings at the end of the period is equal to

1 (a) retained earnings at the beginning of the period plus profit minus liabilities

2 (b) retained earnings at the beginning of the period plus profit minus

dividends

3 (c) profit for the period

4 (d) assets plus liabilities

A small neighbourhood barber shop that is operated by its owner would likely be organized as a

1 (a) public corporation

2 (b) partnership

3 (c) private corporation

4 (d) proprietorship

The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is called a(n)

1 (a) account payable

2 (b) account receivable

3 (c) revenue

4 (d) expense

Liabilities:

1 (a) are future economic benefits

2 (b) are debts and obligations

3 (c) possess service potential

4 (d) are things of value owned by a business

Buying and selling products are examples of

1 (a) operating activities

2 (b) investing activities

3 (c) financing activities

4 (d) manufacturing activities

Liabilities of a company are owed to

1 (a) debtors

2 (b) owners

3 (c) creditors

4 (d) shareholders

An advantage of the corporate form of business is that

1 (a) it has limited life

2 (b) its shareholders’ personal resources are at stake.

3 (c) its ownership is easily transferable via the sale of shares

4 (d) it is simple to establish

The concept that economic activity which can be identified with a particular company must be kept separate and distinct from the owner(s) and from all other economic entities is known as

1 (a) the separation concept

2 (b) the reporting entity concept

3 (c) the economic concept

4 (d) the business organization concept

The world’s economic systems depend on financial reporting that is

1 (a) highly transparent

2 (b) accurate

3 (c) reliable

4 (d) all of the above

A business organized as a separate legal entity is a

1 (a) corporation

2 (b) proprietorship

3 (c) government unit

4 (d) partnership

Which of the following statements is not true?

1 (a) Public corporations must use international financial reporting standards

2 (b) Private corporations can choose to use either international financial

reporting standards (IFRS) or accounting standards for private enterprises (ASPE)

3 (c) Both public and private corporations issue shares

4 (d) All private corporations are small

Allocating the cost of using long-term assets over their useful lives

is called

1 (a) allocation expense

2 (b) depreciation expense.

3 (c) a general expense

4 (d) asset use expense

The partnership form of business organization

1 (a) is a separate legal entity

2 (b) is a common form of organization for service-type businesses

3 (c) enjoys an unlimited life

4 (d) has limited liability

The statement of changes in equity would not show

1 (a) the beginning retained earnings balance

2 (b) revenues and expenses

3 (c) dividends

4 (d) the ending retained earnings balance

The cost of assets consumed or services used is also known as a(n)

1 (a) revenue

2 (b) expense

3 (c) liability

4 (d) asset

A corporation has which of the following set of characteristics?

1 (a) shareholder control, income tax disadvantages, increased skills and resources

2 (b) simple to set up and maintains control with founder

3 (c) harder to raise funds and gives shareholders control

4 (d) Easier to transfer ownership and raise funds, no personal liability

Which of the following uses accounting information to determine whether a company can pay its obligations?

1 (a) shareholders

2 (b) marketing managers

3 (c) creditors

4 (d) Canada Revenue Agency

An income statement

1 (a) summarizes the changes in retained earnings for a specific period of time

2 (b) reports the changes in assets, liabilities, and shareholders’ equity over a period of time

3 (c) reports the assets, liabilities, and shareholders’ equity at a specific date

4 (d) reports the revenues and expenses for a specific period of time

Which financial statement is prepared first?

1 (a) Statement of financial position

2 (b) Income statement

3 (c) Statement of changes in equity

4 (d) Statement of cash flows

Cost of goods sold is a(n)

1 (a) liability

2 (b) financing activity

3 (c) asset

4 (d) expense

Dividends are reported on

1 (a) the income statement

2 (b) the statement of changes in equity

3 (c) the statement of financial position

4 (d) both the income statement and statement of financial position

A business organized as a corporation

1 (a) is not a separate legal entity in most provinces

2 (b) requires that shareholders be personally liable for the debts of the

business

3 (c) is owned by its shareholders

4 (d) has income tax disadvantages over a proprietorship or partnership

Dividends

1 (a) increase assets.

2 (b) increase expenses

3 (c) decrease revenues

4 (d) decrease retained earnings

Resources owned by a corporation are referred to as

1 (a) shareholders’ equity

2 (b) liabilities

3 (c) assets

4 (d) revenues

Debt and obligations of a business are referred to as

1 (a) assets

2 (b) equities

3 (c) liabilities

4 (d) expenses

Kareem’s Rental Ltd started the year with total assets of $70,000 and total liabilities of $40,000 During the year, the business

recorded $100,000 in car repair revenues, $65,000 in expenses, and paid dividends of $5,000 Shareholders’ equity at the end of the year was

1 (a) $60,000

2 (b) $65,000

3 (c) $70,000

4 (d) $75,000

The proprietorship form of business organization

1 (a) in most provinces, must have at least two owners

2 (b) is often chosen for small owner operated businesses

3 (c) is difficult to set up

4 (d) is classified as a separate legal entity

If the retained earnings account increases from the beginning of the year to the end of the year, then

1 (a) profit is greater than dividends.

2 (b) a loss is less than dividends

3 (c) additional investments are less than reported losses

4 (d) dividends were received

Which of the following is not a principal type of business activity?

1 (a) operating

2 (b) investing

3 (c) financing

4 (d) marketing

Expenses are incurred

1 (a) only on rare occasions

2 (b) to produce assets

3 (c) to produce liabilities

4 (d) to generate revenues

Which of the following would not be considered an internal user of accounting data for XYZ Inc.?

1 (a) the company president

2 (b) production manager

3 (c) merchandise inventory clerk

4 (d) receptionist of the employees’ labour union

A company’s policy toward dividends and growth could best be determined by examining the

1 (a) statement of financial position

2 (b) income statement

3 (c) statement of changes in equity

4 (d) statement of cash flows

The accounting equation may be expressed as

1 (a) Assets = Shareholders’ Equity – Liabilities

2 (b) Assets = Liabilities + Shareholders’ Equity

3 (c) Assets + Liabilities = Shareholders’ Equity

4 (d) Assets + Shareholders’ Equity = Liabilities.

The right to receive money in the future is called a(n)

1 (a) account payable

2 (b) account receivable

3 (c) liability

4 (d) revenue

Profit results when

1 (a) Assets > Liabilities

2 (b) Assets < Liabilities

3 (c) Revenues > Expenses

4 (d) Revenues < Expenses

Which of the following is the most appropriate definition of

accounting?

1 (a) The information system that identifies, records, and communicates the economic events of an organization to interested users

2 (b) a means of collecting information

3 (c) The interconnected network of subsystems necessary to operate a

business

4 (d) electronic collection, organization, and communication of vast amounts of information

Buying assets needed to operate a business is an example of a(n)

1 (a) purchasing activity

2 (b) financing activity

3 (c) investing activity

4 (d) operating activity

Which of the following groups uses accounting information primarily

to ensure the company is operating within prescribed rules?

1 (a) taxing authorities

2 (b) regulatory agencies

3 (c) labour unions

4 (d) management

External users want answers to all of the following questions

except

1 (a) Is the company earning satisfactory income?

2 (b) Will the company be able to pay its debts as they come due?

3 (c) Will the company be able to afford employee pay raises this year?

4 (d) How does the company compare in profitability with competitors?

A statement of financial position shows

1 (a) revenues, liabilities, and shareholders’ equity

2 (b) expenses, dividends, and shareholders’ equity

3 (c) revenues, expenses, and dividends

4 (d) assets, liabilities, and shareholders’ equity

Which of the following activities involves raising the necessary funds to support the business?

1 (a) operating

2 (b) investing

3 (c) financing

4 (d) marketing

Which of the following would not be considered an internal user of accounting data?

1 (a) the president of a company

2 (b) the controller of a company

3 (c) a creditor of a company

4 (d) a salesperson of a company

Which of the following would not be considered an external user of accounting data?

1 (a) Canada Revenue Agency

2 (b) management

3 (c) creditors

4 (d) customers

Which of the following uses accounting information to determine whether a company’s profit will result in a share price increase?

1 (a) shareholders

2 (b) marketing managers

3 (c) creditors

4 (d) Chief Financial Officer

Which of the following uses accounting information to determine whether a marketing proposal will be cost effective?

1 (a) shareholders

2 (b) marketing managers

3 (c) creditors

4 (d) Human Resource managers

84 Free Test Bank for Financial Accounting Tools for Business Decision Making 6th Canadian Edition by

Kimmel Multiple Choice Questions - Page 2

Which of the following would not appear directly on the statement of changes in equity?

1 a) beginning retained earnings balance

2 b) dividends

3 c) service revenue

4 d) profit

If total liabilities decreased by $45,000 during a period of time and shareholders’ equity increased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n)

1 (a) $45,000 increase

2 (b) $27,000 increase

3 (c) $18,000 decrease

4 (d) $18,000 increase

Shareholders’ equity can be described as claims of

1 (a) creditors on total assets

2 (b) owners on total assets

3 (c) customers on total assets

4 (d) debtors on total assets

Common shares are reported on

1 (a) the statement of financial position

2 (b) the statement of changes in equity

3 (c) both the statement of financial position and the income statement

4 (d) both the statement of changes in equity and the statement of financial position

The statement of financial position and the statement of changes in equity are interrelated because

1 a) the beginning amount of retained earnings on the statement of changes in equity is reported on the statement of financial position

2 b) the amount of assets on the statement of financial position is reported on the statement of changes in equity

3 c) the ending amount of each of the components of shareholders’ equity on the statement of changes in equity is reported on the statement of financial position

4 d) the amount of liabilities on the statement of financial position is reported on the statement of changes in equity

Kareem’s Rental Ltd started the year with total assets of $70,000 and total liabilities of $40,000 During the year, the business

recorded $100,000 in car repair revenues, $65,000 in expenses, and paid dividends of $5,000.The profit reported for the year was

1 (a) $30,000

2 (b) $35,000

3 (c) $20,000

4 (d) $100,000

Which of the following would appear on the statement of financial position?

1 a) service revenue

2 b) interest expense

3 c) profit

4 d) accounts receivable

Cost of goods sold is classified as a(n)

1 a) asset

2 b) expense

3 c) liability

4 d) revenue

Which of the following is not an external user of accounting data?

1 a) labour unions

2 b) customers

3 c) economic planners

4 d) finance directors

Which of the following financial statements is concerned with the company at a point in time?

1 (a) Statement of financial position

2 (b) Income statement

3 (c) Statement of changes in equity

4 (d) Statement of cash flows

The statement of financial position reports

1 a) assets owned by the business

2 b) claims to assets by creditors

3 c) claims to assets by shareholders

4 d) all of the above

Which of the following financial statements would you use to determine a company’s source(s) of financing?

1 a) statement of financial position

2 b) income statement

3 c) statement of changes in equity

4 d) bank statement

Shareholders’ equity is usually comprised of

1 (a) common shares and dividends

2 (b) common shares and retained earnings

3 (c) dividends and retained earnings

4 (d) profit and retained earnings

Repayment of non-current notes payable is an example of a (an)

1 a) operating activity

2 b) financing activity

3 c) investing activity

4 d) delivery activity

The statement of financial position and statement of changes in equity are related because

1 (a) the total assets on the statement of financial position is reported on the statement of changes in equity

2 (b) the ending amount on the statement of changes in equity is reported on the statement of financial position

3 (c) the ending amount on each statement is transferred to the statement of cash flows

4 (d) both contain information for the corporation

Which financial statement would indicate whether the company relies more on debt or on shareholders’ equity to finance its

assets?

1 (a) Statement of cash flows

2 (b) Statement of changes in equity

3 (c) Income statement

4 (d) Statement of financial position

If total liabilities increased by $15,000 and shareholders’ equity increased by $15,000 during a period of time, then total assets must change by what amount and direction (increase or decrease) during that same period?

1 (a) $15,000 decrease

2 (b) $15,000 increase

3 (c) $30,000 decrease

4 (d) $30,000 increase

Internal users want answers to all of the following questions except

1 a) what is the cost of manufacturing each unit of the product?

2 b) which product line is more profitable?

3 c) is the company earning enough to give me a return on my investment?

4 d) is cash sufficient to pay the bills?

Which of the following would be considered an investing activity?

1 a) the recording of depreciation expense

2 b) the retirement of outstanding debt

3 c) the purchase of inventory for resale

4 d) the construction of a new factory

Common shares represent

1 (a) the creditors’ claims on the company

2 (b) the total profit of the company to date

3 (c) the amount paid by investors for ownership in the company

4 (d) the owners’ claims on the company

Payments to shareholders are called

1 (a) expenses

2 (b) liabilities

3 (c) dividends

4 (d) shares

The statement of financial position