133 test bank for accounting tools for business decision making 5th edition

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133 Test Bank for Accounting Tools for Business

Decision Making 5th Edition by Kimmel

Multiple Choice Questions

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

1 a.President of the company

2 b.Production manager

3 c.Merchandise inventory clerk

4 d.President of the employees' labor union

A corporation has which of the following set of characteristics?

1 a.Shared control, tax advantages, increased skills and resources

2 b.Simple to set up and maintains control with founder

3 c.Easier to transfer ownership and raise funds, no personal liability

4 d.Harder to raise funds and gives owner control

Which of the following groups uses accounting information primarily

to insure the entity is operating within prescribed rules?

3 c.corporation.

4 d.proprietorship.

Which of the following is not a step for solving an ethical dilemma?

1 a.Identifying the alternatives and weighing the impact of each alternative on various stakeholders.

2 b.Certifying the ethical accuracy of the financial information.

3 c.Identifying and analyzing the principal elements in the situation.

4 d.Recognizing the ethical situation and issues involved.

Which type of corporate information is readily available to

investors?

1 a.Financial comparison of operating alternatives

2 b.Marketing strategies for a product that will be introduced in eighteen months

3 c.Forecasts of cash needs for the upcoming year

4 d.Amount of net income retained in the business

The group of users of accounting information charged with

achieving the goals of the business is its

Which of the following groups uses accounting information to

determine whether the company’s net income will result in a stock price increase?

1 a.Investors in common stock

2 b.Marketing managers

3 c.Creditors

4 d.Chief Financial Officer

Which of the following groups uses accounting information to

determine whether a marketing proposal will be cost effective?

1 a.Investors in common stock

2 b.Marketing managers

3 c.Creditors

4 d.Chief Financial Officer

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.

Which of the following is the best definition of an internal user of accounting information?

1 a.Investors who use accounting information to decide whether to buy or sell stock.

2 b.Creditors like banks that use accounting information to evaluate the risk of lending money.

3 c.Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits.

4 d.Managers who use accounting information to plan, organize, and run a business.

Which of the following is the most appropriate and modern 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

1 a.Only Jack is personally liable for the debt, since he has been the managing partner during that time.

2 b.Only Jill is personally liable for the debt of the business, since Jack has been working and she has not.

3 c.Both Jack and Jill are personally liable for the business debt.

4 d.Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.

Which one of the following questions is most likely asked by an

internal human resources director for the company?

1 a.Which product line is most profitable?

2 b.What price for our product will maximize the company income?

3 c.What average pay raise is affordable for employees this year?

4 d.Should any product lines be eliminated?

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

1 a.The president of a company

2 b.The controller of a company

3 c.Creditor of a company

4 d.Salesperson of a company

Which of the following statements concerning users of accounting information is incorrect?

1 a.Management is considered an internal user.

2 b.Present creditors are considered external users.

3 c.Regulatory authorities are considered internal users.

4 d.Taxing authorities are considered external users.

Most business enterprises in the United States are

1 a.proprietorships and partnerships.

Which of the following statements is not true regarding the

Sarbanes-Oxley Act (SOX)?

1 a.The Act calls for increased oversight responsibilities for boards of directors.

2 b.The Act has resulted in increased penalties for financial fraud by top

1 a.Internal Revenue Service agent

2 b.Management

3 c.Creditors

4 d.Customers

Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

1 a.Reduced legal liability for investors

2 b.Harder to transfer ownership

3 c.Lower taxes

4 d.Most common form of organization

Which of the following is not an advantage of the corporate form of business organization?

1 a.No personal liability

2 b.Easy to transfer ownership

3 c.Favorable tax treatment

4 d.Easy to raise funds

An advantage of the corporate form of business is that

1 a.it has limited life.

2 b.its owner’s personal resources are at stake.

3 c.its ownership is easily transferable via the sale of shares of stock.

4 d.it is simple to establish.

All of the following are advantages for choosing a proprietorship for

a business except

1 a.a proprietorship is a simple form of business to set up.

2 b.a proprietorship gives the owner control of the business.

3 c.proprietorship receive more favorable tax treatment.

4 d.transfer of ownership is easily achieved through stock sales.

A business organized as a corporation

1 a.is not a separate legal entity in most states.

2 b.requires that stockholders be personally liable for the debts of the business.

3 c.is owned by its stockholders.

4 d.has tax advantages over a proprietorship or partnership.

A local retail shop has been operating as a sole proprietorship The business is growing and now the owner wants to incorporate Which

of the following is not a reason for this owner to incorporate?

1 a.Ability to raise capital for expansion

2 b.Desire to limit the owner’s personal liability

3 c.The prestige of operating as a corporation

4 d.The ease in transferring shares of the corporation’s stock

Which of the following are internal reports that accounting provides

to internal users?

1 a.Forecasts of cash needs for next year.

2 b.Financial comparisons of operating activity alternatives.

3 c.Both forecasts of cash needs and financial comparisons are internal reports.

4 d.Neither forecasts of cash needs or financial comparisons is an internal report.

External users of accounting information, like the Internal Revenue Service, are most commonly known as

1 a.taxing authorities.

2 b.labor unions.

3 c.customers.

4 d.regulatory agencies.

The proprietorship form of business organization

1 a.must have at least two owners in most states.

2 b.generally receives favorable tax treatment relative to a corporation.

3 c.combines the records of the business with the personal records of the owner.

4 d.is classified as a separate legal entity.

Which of the following groups uses accounting information to

determine whether the company can pay its obligations?

1 a.Investors in common stock

2 b.Marketing managers

3 c.Creditors

4 d.Chief Financial Officer

133 Free Test Bank for Accounting Tools for Business Decision Making 5th Edition by Kimmel Multiple Choice Questions - Page 2

Which of the following financial statements is divided into major categories of operating, investing, and financing activities?

1 a.The income statement.

2 b.The balance sheet.

3 c.The retained earnings statement.

4 d.The statement of cash flows.

Jackson Company recorded the following cash transactions for the year: Paid $135,000 for salaries Paid $60,000 to purchase office equipment Paid $15,000 for utilities Paid $6,000 in dividends Collected $245,000 from customers What was Jackson’s net cash provided by operating activities?

1 a.$95,000

2 b.$35,000

3 c.$110,000

4 d.$89,000

Gibson Company recorded the following cash transactions for the year: Paid $180,000 for salaries Paid $80,000 to purchase office equipment Paid $20,000 for utilities Paid $8,000 in dividends Collected $310,000 from customers What was Gibson’s net cash provided by operating activities?

4 d.future economic benefit.

Which of the following is not a liability?

1 a.Unearned Service Revenue

1 a.nowhere on the statement.

2 b.in the operating activities section.

3 c.in the investing activities section.

4 d.in the financing activities section.

When expenses exceed revenues, which of the following is true?

1 a.a net loss results

2 b.a net income results

3 c.assets equal liabilities

4 d.assets are increased

The cost of assets consumed or services used is also known as

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

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?

Expenses are incurred

1 a.only on rare occasions.

2 b.to produce assets.

3 c.to produce liabilities.

4 d.to generate revenues.

Resources owned by a business are referred to as

2 b.Forecast of cash needs for the upcoming year

3 c.Cash provided by investing activities

4 d.Beginning cash balance

Issuing shares of stock in exchange for cash is an example of a(n)

1 a.cash owned by the company.

2 b.collections of resources belonging to the company and the claims on these resources.

3 c.owners’ investment in the business.

4 d.resources belonging to a company that have future benefit to the company.

Debt securities sold to investors that must be repaid at a particular date some years in the future are called

To show how successfully your business performed during a period

of time, you would report its revenues and expenses in the

1 a.balance sheet.

2 b.income statement.

3 c.statement of cash flows.

4 d.retained earnings statement.

The retained earnings statement shows all of the following except

1 a.the amounts of changes in retained earnings during the period.

2 b.the causes of changes in retained earnings during the period.

3 c.the time period following the one shown for the income statement.

4 d.beginning retained earnings on the first line of the statement.

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 stockholders’ equity over a period of time.

3 c.reports the assets, liabilities, and stockholders’ equity at a specific date.

4 d.presents the revenues and expenses for a specific period of time.

Ashley’s Accessory Shop started the year with total assets of

$140,000 and total liabilities of $80,000 During the year the

business recorded $220,000 in revenues, $110,000 in expenses, and dividends of $40,000 The net income reported by Ashley’s Accessory Shop for the year was

recorded $420,000 in revenues, $220,000 in expenses, and

dividends of $40,000 The net income reported by Jimmy’s Repair Shop for the year was

Ending retained earnings for a period is equal to beginning

1 a.Retained earnings + Net income + Dividends

2 b.Retained earnings – Net income – Dividends

3 c.Retained earnings + Net income – Dividends

4 d.Retained earnings – Net income + Dividends

If total liabilities decreased by $75,000 and stockholders’ equity increased by $25,000 during a period of time, then total assets must change by what amount and direction during that same period?

1 a.$100,000 increase

2 b.$50,000 decrease

3 c.$50,000 increase

4 d.$75,000 decrease

Net income will result during a time period when

1 a.assets exceed liabilities.

2 b.assets exceed revenues.

3 c.expenses exceed revenues.

4 d.revenues exceed expenses.

Dividends are reported on the

1 a.income statement.

2 b.retained earnings statement.

3 c.balance sheet.

4 d.income statement and balance sheet.

Pinson Company began the year with retained earnings of

$570,000 During the year, the company recorded revenues of

$600,000, expenses of $380,000, and paid dividends of $140,000 What was Pinson’s retained earnings at the end of the year?

1 a.$930,000

2 b.$650,000

3 c.$1,030,000

4 d.$500,000

Retained earnings at the end of the period is equal to

1 a.retained earnings at the beginning of the period plus net income minus liabilities.

2 b.retained earnings at the beginning of the period plus net income minus dividends.

3 c.net income.

4 d.assets plus liabilities.

An income statement shows

1 a.revenues, liabilities, and stockholders’ equity.

2 b.expenses, dividends, and stockholders’ equity.

3 c.revenues, expenses, and net income.

4 d.assets, liabilities, and stockholders’ equity.

Dividends paid

1 a.increase assets.

2 b.increase expenses.

3 c.decrease revenues.

4 d.decrease retained earnings.

Henson Company began the year with retained earnings of

$330,000 During the year, the company recorded revenues of

$500,000, expenses of $380,000, and paid dividends of $40,000 What was Henson’s retained earnings at the end of the year?

1 a.$490,000

2 b.$410,000

3 c.$790,000

4 d.$450,000

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

1 a.net income is less than dividends.

2 b.there was a net income and no dividends.

3 c.additional investments are less than net losses.

4 d.net income is greater than dividends.

Jimmy’s Repair Shop started the year with total assets of $200,000 and total liabilities of $160,000 During the year the business

recorded $420,000 in revenues, $220,000 in expenses, and

dividends of $40,000 Stockholders’ equity at the end of the year was

1 a.$240,000.

2 b.$200,000.

3 c.$160,000.

4 d.$180,000.

The retained earnings statement would not show

1 a.the retained earnings beginning balance.

2 b.revenues and expenses.

3 c.dividends.

4 d.the ending retained earning balance.

Kilmer Corporation began the year with retained earnings of

$620,000 During the year, the company issued $840,000 of

common stock, recorded expenses of $2,400,000, and paid

dividends of $160,000 If Kilmer’s ending retained earnings was

$660,000, what was the company’s revenue for the year?

In a study session, a classmate makes this statement “Dividends are listed as expenses on the income statement.” What is your best response to this statement?

1 a.I’ve been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets.

2 b.You are right Revenues and expenses are shown on the income statement Dividends are a cost of generating revenues and that makes them an expense Why else would a corporation pay dividends?

3 c.Dividends represent a portion of corporate profits that are paid to the

shareholders They belong on the retained earnings statement.

4 d.Dividends are deducted from retained earnings on the balance sheet.

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

1 a.net income is less than dividends.

2 b.a net loss is less than dividends.

3 c.additional investments are less than net losses.

4 d.net income is greater than dividends.

If total liabilities increased by $75,000 and stockholders’ equity

increased by $25,000 during a period of time, then total assets must change by what amount and direction during that same period?

1 a.$100,000 decrease

2 b.$100,000 increase

3 c.$125,000 increase

4 d.$150,000 increase

A balance sheet shows

1 a.revenues, liabilities, and stockholders’ equity.

2 b.expenses, dividends, and stockholders’ equity.

3 c.revenues, expenses, and dividends.

4 d.assets, liabilities, and stockholders’ equity.

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

1 a.balance sheet.

2 b.income statement.

3 c.retained earnings statement.

4 d.statement of cash flows.

Net income results when

1 a.Assets > Liabilities.

2 b.Revenues = Expenses.

3 c.Revenues > Expenses.