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100 Test Bank for Cornerstones of Financial

Accounting 1st

Edition by Rich Multiple Choice Questions

On January 1, a company reported assets of $1,000,000 and liabilities of $600,000 During the year, assets decreased by

$100,000 and shareholders’ equity decreased $200,000 What is the amount of liabilities at December 31?

1 a.$200,000

2 b.$500,000

3 c.$600,000

4 d.$700,000

Which of the following describes “revenues”?

1 a.decreases in assets resulting from the sale of goods or services

2 b.increases in equity resulting from the sale of products or services

3 c.assets used or consumed in the sale of products or services

4 d.increases in the financing activities

Which of the following is a correct fundamental accounting

equation?

1 a.assets + liabilities = shareholders’ equity

2 b.assets + retained earnings = shareholders’ equity

3 c.assets + shareholders’ equity = liabilities

4 d.assets = liabilities + shareholders’ equity

Which of the following is NOT a form of business entity?

1 a.sole proprietorship

2 b.partnership

3 c.cooperative

4 d.corporation

This company’s end-of-year balance sheet consisted of the

following amounts: Cash $75,000 Accounts receivable $250,000; Property, plant, and equipment 350,000 Long-term debt 200,000; Common shares500,000Accounts payable 100,000; Retained earnings? Inventory175,000 What amount should the company report on its balance sheet for total assets?

4 d.statement of cash flows

Which of the following assets are noncurrent?

1 a.machinery and equipment

1 a.Balance Sheet – For the Year Ended June 30

2 b.Income Statement – At December 31

3 c.Income Statement – For the Year Ended December 31

4 d.Statement of Retained Earnings – At December 31

Which of the following terms best describes a distribution of the net income of a corporation to its owners?

1 a.retained earnings

1 a.financing, investing, operating

2 b.cash, credit, noncash

3 c.financing, crediting, operating

4 d.financing, managing, operating

The company reported the following items on its financial

statements for the year ended December 31: Sales$780,000Cost

of sales$700,000; Selling, general and administrative

expense20,000Other expense15,000; Dividends5,000Income tax expense12,500 What is the company’s net income for the currentyear?

information you need to evaluate your concern?

1 a.balance sheet

2 b.income statement

3 c.statement of retained earnings

4 d.statement of public accounting

What are the resources used to earn revenues during a period called?

1 a.net income

4 d.statement of cash flows

In which form of organization are the owners’ legal responsibilitiesfor the debts of the business limited to the amount they invested

1 a.statement of cash flows

2 b.statement of retained earnings

3 c.balance sheet

4 d.income statement

Which one of the following is an internal user of financial

statements?

1 a.Canada Revenue Agency

1 a.income statement and statement of retained earnings

2 b.balance sheet and statement of cash flows

3 c.statement of retained earnings and statement of cash flows

4 d.balance sheet and statement of retained earnings

Which of the following items appears on a balance sheet?

1 a.service revenue

2 b.unearned revenue

3 c.dividends

4 d.cash flow from operations

What is the term for the branch of accounting concerned with providing outside decision makers with information to assess the amounts, timing, and uncertainties of the company’s future cash flows?

1 a.the amount of total profits earned by a company since it began operations

2 b.the amount of claim that the owners have on the assets of the company

3 c.the future economic resources of a company

4 d.the accumulated net income that has not been distributed to owners as dividends

What is another term for “short-term investments”?

3 c.Retained earnings is reported on the balance sheet.

4 d.There is no such link, as each statement contains different accounts and provides different information.

What type of account is unearned revenue?

1 a.shareholders’ equity

2 b.liability

3 c.asset

4 d.expense

Which of the following correctly represents one of the basic

financial statement models?

1 a.assets - liabilities = net income

2 b.assets + liabilities = total assets

3 c.revenues + expenses = net income

4 d.beginning retained earnings + net income - dividends = ending retained earnings

Which account is a liability?

1 a.cash

2 b.retained earnings

3 c.accounts receivable

4 d.accounts payable

What is the term for a person who lends funds to a business entity and expects repayment with interest?

4 d.statement of public accounting

Which of the following is a classification on the classified balance sheet?

1 a.operating accounts

2 b.shareholders’ equity

3 c.revenues and expenses

4 d.net income and dividends

Which type of business activity is purchasing new equipment?

1 a.financing

2 b.operating

3 c.investing

4 d.measuring

Which of the following describes the term “current assets”?

1 a.the amount of total assets earned by a business since it began operations plus all other resources

2 b.the amount of claim that the owners have in the business in the current year

3 c.assets expected to be converted into cash within one year or one

operating cycle, whichever is longer

4 d.the cumulative profits earned by a business less any dividends distributed

in the current period

This company’s end-of-year balance sheet consisted of the

following amounts: Cash $75,000 Accounts receivable $250,000; Property, plant, and equipment350,000Long-term debt200,000; Common shares500,000Accounts payable 100,000; Retained earnings? Inventory175,000 What is the retained earnings

balance at the end of the current year?

1 a.$50,000

2 b.$550,000

3 c.$800,000

4 d.$850,000

Which of the following best describes the term “expenses”?

1 a.the cost of assets used in the investing activities of a business

2 b.the amount of interest or claim that the owners have in the business

3 c.the future economic resources of a business entity

4 d.the cost of assets used in the operations of a business

Which of the following is considered an internal user of financial statements?

1 a.a supplier considering selling to the company on credit

2 b.a labour union representing employees of a company in labour

100 Free Test Bank for Cornerstones of Financial

Accounting 1st Canadian Edition by Rich Multiple

Choice Questions - Page 2

The following balances are provided: Cash$234,000Accounts payable$ 97,000; Inventories121,000Notes payable (due

2018)211,000; Land453,000Accounts receivable46,000 How much is current assets?

1 a.as property, plant, and equipment

2 b.as current assets

3 c.as intangible assets

4 d.as current liabilities

What is the total sales for a company that reported a net loss of

$1,500,000 and total expenses of $2,900,000?

1 a.$1,400,000

2 b.$1,600,000

3 c.$2,400,000

4 d.$4,400,000

Which of these items is reported as a current shareholders’ equity

on a classified balance sheet?

1 a.net income

2 b.accounts payable

3 c.land

4 d.common shares

What is distinguished on a classified balance sheet?

1 a.assets and liabilities

2 b.current and noncurrent items

3 c.liabilities and shareholders’ equity

4 d.resources invested by the owners and amounts borrowed from creditors

For the most recent year, a company’s current ratio was

significantly lower than its industry’s average What is the best possible explanation for this situation?

1 a.The company’s competitors were profitable.

2 b.The company’s liquidity improved.

3 c.The company had less equity than the rest of the industry.

4 d.The company’s liquidity was worse than the industry.

A company has $10,500,000 of revenues, declares and pays

$550,000 in dividends, and has net income of $1,600,000 How much were expenses for the year?

1 a.$1,050,000

2 b.$2,150,000

3 c.$8,900,000

4 d.$9,950,000

What is the primary objective of financial reporting?

1 a.to help investors make credit decisions

2 b.to help management assess cash flows

3 c.to protect users from fraudulent financial information

4 d.to provide useful information for decision making

Which financial statement(s) does net income appear on?

1 a.a balance sheet only

2 b.an income statement only

3 c.a balance sheet, income statement, and statement of cash flows using the indirect method

4 d.an income statement, statement of cash flows using the indirect method, and statement of retained earnings

Which of the following are current assets?

1 a.accounts receivable, net income, inventory, and dividends

2 b.cash, accounts receivable, common shares, and sales

3 c.net income, cash, office supplies, and inventory

4 d.cash, accounts receivable, inventory, and office supplies

The company reported the following information for the year ended December 31, Year 2:Revenues$2,500,000;

Expenses2,000,000; Retained earnings at December 31, Year 1100,000; Retained earnings at December 31, Year 2450,000 How much was paid out in dividends in Year 2?

1120,000 What was the economic effect of the dividend

payment?

1 a.It reduced net income.

2 b.It increased net income.

3 c.It reduced total retained earnings.

4 d.It reduced liabilities.

Which of the following are considered tangible assets?

Dividends6,000 Retained earnings at December 31, Year

1120,000 What was the balance of retained earnings at January

Land290,000Accounts payable180,000; Cash129,000Unearned revenue110,000; Prepaid rent33,000Common shares312,000; Retained earnings220,000Long-term notes payable200,000 Howmuch is the total current assets?

A company reports the following information at December 31, Year 1: Sales$15,000,000; Cash3,000,000; Unearned revenue 400,000; Dividends1,000,000; Cost of sales8,500,000 What is the company’s gross profit?

1 a.$5,500,000

2 b.$6,100,000

3 c.$6,500,000

4 d.$12,000,000

Beginning retained earnings$550,000; Ending retained

earnings700,000; Dividends paid100,000; Revenue525,000 What is the company’s net income?

1 a.accounts payable and prepaid insurance

2 b.interest payable and interest receivable

3 c.income taxes payable and salaries payable

4 d.common shares and accounts payable

The company reported the following items on its financial

statements for the year ended December 31: Sales$780,000Cost

of sales$700,000; Selling, general and administrative

expense20,000Other expense15,000; Dividends5,000Income tax expense12,500 What amount will be reported as retained

earnings on the balance sheet at December 31, assuming this is the first year of operations?

1 a.$22,500

2 b.$27,500

3 c.$42,500

4 d.$80,000

The company reported the following information for the year

ended December 31, Year 2:Revenue $14,000,000;

Expenses11,500,000; Dividends1,000,000; Retained earnings at December 31, Year 21,750,000 What was the retained earnings balance at December 31, Year 1?

$100,000, and dividends were paid in the amount of $300,000

No other transactions occurred except revenues and expenses How much is net income for the year?

1 a.They need detailed records of the business to make informed decisions.

2 b.They are primarily responsible for the preparation of financial statements.

3 c.They rely on the financial statements to make informed decisions.

4 d.They rely on management to tell them whether the company is a good investment.

A company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000 How much is total

Beginning retained earnings$550,000; Ending retained

earnings700,000; Dividends paid100,000; Revenue 525,000 What are the company’s expenses?

2 b.liabilities and shareholders’ equity

3 c.owners’ equity and shareholders’ equity

100 Free Test Bank for Cornerstones of Financial

Accounting 1st Canadian Edition by Rich Multiple

Choice Questions - Page 3

Which of the following equations represents the statement of retained earnings activity?

1 a.beginning retained earnings + net income + dividends = ending retained earnings

2 b.beginning retained earnings + cash inflows - cash outflows = ending retained earnings

3 c.beginning retained earnings + dividends - net income = ending retained earnings

4 d.beginning retained earnings + net income - dividends = ending retained earnings

Which of the following best relates to the “notes to the financial statements”?

1 a.It should be shown at the bottom of the income statement.

2 b.It should be excluded, as they are not an integral part of the financial statements.

3 c.It should be included as an integral part of the financial statements.

4 d.It should be considered an optional part of the financial statements.

Barrett Oil Company reported the following balances as of

December 31, Year 1: Accounts receivable $125,000Unearned revenue $5,000; Cash 150,000 Notes payable (due in 6 months) 115,000; Land 200,000 Accounts payable 70,000

Building400,000Equipment 165,000; Inventories105,000Notes payable (due 07/01/2020)600,000 What is the company’s currentratio?

1 a 48 to 1

2 b.2.00 to 1

3 c.2.55 to 1

4 d.2.86 to 1

Which of the following is working capital and current ratio most useful for evaluating?

1 a.a company’s liquidity

2 b.a company’s solvency

3 c.a company’s profitability

4 d.a company’s revenues

A company has current assets of $100,000, total assets of

$250,000, current liabilities of $20,000, and long-term liabilities of

$50,000 How much of its existing cash can the company use to acquire equipment without allowing its current ratio to decline below 2.0 to 1?

1 a.The company is more liquid than its competitors.

2 b.The company has more long-term assets than its competitors.

3 c.The company is bankrupt.

4 d.The company is more profitable than its competitors.

In which section of the annual report would you find the following:

“The financial statements, in our opinion, present fairly the

financial position, operating results, and cash flows, in conformity with generally accepted accounting principles”?

1 a.Management Report

2 b.Notes to the Financial Statements

3 c.Management’s Discussion and Analysis

4 d.Report of the Independent Auditor

The company reports the following balances: Other

revenue$180,000General and administrative expense$320,000; Dividends paid$220,000Operating revenues$700,000; Selling expenses$280,000Income tax expense$60,000 By what amount will net income on a single-step income statement differ from net income on a multiple-step income statement if the company

prepares both formats?

1 a.$0

2 b.$2,000

3 c.$6,000

4 d.$8,000

Which of the following is NOT one of the activities on the

statement of cash flows?

1 a.operating activities

2 b.investing activities

3 c.business activities

4 d.financing activities

The company reports the following balances: Other

revenue$180,000General and administrative expense$320,000; Dividends paid$220,000Operating revenues$700,000; Selling expenses$280,000Income tax expense$60,000 What is the company’s net income?

1 a.$40,000

2 b.$100,000

3 c.$220,000

4 d.$280,000