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

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133 Test Bank for Accounting Tools for Business Decision Making 5th

Edition by Kimmel

Multiple Choice Questions

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.

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

A business organized as a separate legal entity is a

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

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 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

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 would not be considered an internal user ofaccounting 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 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?

Jack and Jill form a partnership Jack runs the business in New York, while Jill vacations in Hawaii During the time Jill is away from the business, Jack increases the debts of the business by

$20,000 Which of the following statements is true regarding this debt?

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 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

Which of the following groups uses accounting information to determine whether the company’s net income will result in a stockprice increase?

1 a.Investors in common stock

2 b.Marketing managers

3 c.Creditors

4 d.Chief Financial Officer

Which of the following is not one of the three forms of business organization?

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 of the following would not be considered an external user

of accounting data for the Julian Company?

1 a.Internal Revenue Service agent

2 b.Management

3 c.Creditors

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 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 group of users of accounting information charged with

achieving the goals of the business is its

1 a.auditors.

3 c.Merchandise inventory clerk

4 d.President of the employees' labor union

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

Which of the following groups uses accounting information

primarily to insure the entity is operating within prescribed rules?

1 a.A financial adviser

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.

Which of the following statements concerning users of accountinginformation 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.

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.

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.Reduced legal liability for investors

2 b.Harder to transfer ownership

3 c.Lower taxes

4 d.Most common form of organization

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.

Most business enterprises in the United States are

1 a.proprietorships and partnerships.

Choice Questions - Page 2

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

4 d.future economic benefit.

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

Collected $310,000 from customers What was Gibson’s net cashprovided by operating activities?

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 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.

Which of the following is an asset?

1 a.Mortgage payable

2 b.Forecast of cash needs for the upcoming year

3 c.Cash provided by investing activities

4 d.Beginning cash balance

The statement of cash flows would disclose the payment of a dividend

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.

The best definition of assets is the

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

1 a.accounts payable.

2 b.notes receivable.

3 c.taxes payable.

4 d.bonds payable.

Which of the following is not a liability?

dividends Collected $245,000 from customers What was

Jackson’s net cash provided by operating activities?

3 c.Investing

4 d.Operating

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

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?

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

The liability created by a business when it purchases coffee

beans and coffee cups on credit from suppliers is termed a(n)

Choice Questions - Page 3

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 Stockholders’ equity at the end of the year was

1 a.$100,000 increase

2 b.$50,000 decrease

3 c.$50,000 increase

4 d.$75,000 decrease

Lankston Company began the year by issuing $90,000 of

common stock for cash The company recorded revenues of

$825,000, expenses of $720,000, and paid dividends of $45,000 What was Lankston’s net income for the year?

3 c.$105,000

Which of the following statements is true?

1 a.Amounts received from issuing stock are revenues.

2 b.Amounts paid out as dividends are not expenses.

3 c.Amounts paid out as dividends are reported on the income statement.

4 d.Amounts received from issued stock are reported on the income

4 d.decrease retained earnings.

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

1 a.Balance sheet

2 b.Income statement

3 c.Retained earnings statement

4 d.Statement of cash flows

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.

Which financial statement is prepared first?

1 a.Balance sheet

2 b.Income statement

3 c.Retained earnings statement

4 d.Statement of cash flows

Net income results when

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.

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.

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

1 a.$80,000.

2 b.$100,000.

3 c.$130,000.

4 d.$110,000.

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 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?

3 c.retained earnings statement.

4 d.statement of cash flows.

Gilkey Corporation began the year with retained earnings of

$465,000 During the year, the company issued $630,000 of

common stock, recorded expenses of $1,800,000, and paid

dividends of $120,000 If Gilkey’s ending retained earnings was

$495,000, what was the company’s revenue for the year?

1 a.$1,830,000

2 b.$1,950,000

3 c.$2,460,000

4 d.$2,580,000

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 The net income reported by Jimmy’s Repair Shop for the year was

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.Which of the following is not a satisfactory statement of the

accounting equation?

1 a.Assets = Stockholders’ Equity – Liabilities

2 b.Assets = Liabilities + Stockholders’ Equity

3 c.Assets - Liabilities = Stockholders’ Equity

4 d.Assets - Stockholders’ Equity = Liabilities

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.

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.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.

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?

2 b.$410,000

3 c.$790,000

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.

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?

2 b.$650,000

3 c.$1,030,000

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.

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.

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

1 a.balance sheet.