140 test bank for accounting tools for business decision makers 4th edition

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140 Test Bank for Accounting Tools for Business

Decision Makers 4th Edition

by Kimmel

Multiple Choice Questions

-Which of the following would not be considered an external user

of accounting data for the Julian Company?

1 a.Internal Revenue Service Agent

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.

The group of users of accounting information charged with

achieving the goals of the business is its

1 a.auditors.

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 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

4 d.Chief Financial Officer

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.

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.

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 is a primary user of accounting information with a direct financial interest in the business?

1 a.Taxing authority

2 b.Creditor

3 c.Regulatory agency

4 d.Labor union

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

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 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

3 c.corporation.

4 d.proprietorship.

Which of the following groups uses accounting information

primarily to insure the entity is operating within prescribed rules?

4 d.Chief Financial Officer

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

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

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 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.

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 alternative.

3 c.Both a and b are internal reports.

4 d.Neither a or b is an internal report.

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.

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 business organized as a separate legal entity is a

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 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

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 statements is not true regarding the

Sarbanes-Oxley Act (SOX) of 2002?

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

External users of accounting information, like the Internal

Revenue Service, are most commonly known as:

1 a.taxing authorities

2 b.labor unions

4 d.regulatory agencies

Most business enterprises in the United States are

1 a.proprietorships and partnerships.

2 b.Production manager

3 c.Merchandise inventory clerk

4 d.President of the employees' labor union

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 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

140 Free Test Bank for Accounting Tools for Business Decision Makers 4th Edition by Kimmel Multiple

Choice Questions - Page 2

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

1 a.a revenue.

Ending retained earnings for a period is equal to:

1 a.Beginning retained earnings + Net income + Dividends

2 b.Beginning retained earnings – Net income – Dividends

3 c.Beginning retained earnings + Net income – Dividends

4 d.Beginning retained earnings – Net income + Dividends

Which of the following is an asset?

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

1 a.balance sheet.

2 b.income statement.

3 c.statement of cash flows.

4 d.retained earnings statement.

Dividends paid

1 a.increase assets.

2 b.increase expenses.

3 c.decrease revenues.

4 d.decrease retained earnings.

Borrowing money is an example of a(n)

3 c.assets.

4 d.revenues.

Which of the following is not a liability?

2 b.forecast of cash needs for the upcoming year

3 c.cash provided by investing activities

4 d.beginning cash balance

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.

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

1 a.Delivering

2 b.Financing

3 c.Investing

4 d.Operating

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 statement.

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 $225,000 from customers; What was

Jackson’s net cash provided by operating activities?

1 a.$75,000

Expenses are incurred

1 a.only on rare occasions.

2 b.to produce assets.

3 c.to produce liabilities.

4 d.to generate revenues.

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.

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.

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 have future benefit to the company.

Which activities involve acquiring the resources to run the

3 c.Revenues > Expenses.

4 d.Revenues < Expenses.

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.

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

To show how successfully your business performed during a period of time, you would report its revenues and expense in the

1 a.balance sheet.

2 b.income statement.

3 c.statement of cash flows.

4 d.retained earnings statement.

140 Free Test Bank for Accounting Tools for Business Decision Makers 4th Edition by Kimmel Multiple

Choice Questions - Page 3

Payments to stockholders are called

2 b.liabilities.

3 c.dividends.

4 d.distributions.

Jimmy’s Repair Shop started the year with total assets of

$150,000 and total liabilities of $120,000 During the year the business recorded $315,000 in revenues, $165,000 in expenses, and dividends of $30,000 Stockholders’ equity at the end of the year was

1 a.$180,000.

2 b.$150,000.

3 c.$120,000.

4 d.$135,000.

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

$70,000 and total liabilities of $40,000 During the year the

business recorded $110,000 in revenues, $55,000 in expenses,

and dividends of $20,000 Stockholders’ equity at the end of the year was

3 c.Retained Earnings statement.

4 d.Statement of cash flows.

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.

If total liabilities decreased by $45,000 and stockholders’ equity decreased by $15,000 during a period of time, then total assets must change by what amount and direction during that same period?

1 a.$60,000 increase

2 b.$30,000 decrease

3 c.$60,000 decrease

4 d.$30,000 decrease

Liabilities of a company are owed to

1 a.debtors.

3 c.creditors.

4 d.stockholders.

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.

The accounting equation may be expressed as:

1 a.Assets = Stockholders’ Equity – Liabilities.

2 b.Assets = Liabilities + Stockholders’ Equity.

3 c.Assets + Liabilities = Stockholders’ Equity.

4 d.Assets + Stockholders’ Equity = Liabilities.

If total liabilities decreased by $45,000 and stockholders’ equity increased by $15,000 during a period of time, then total assets must change by what amount and direction during that same period?

1 a.$60,000 increase

2 b.$30,000 decrease

3 c.$30,000 increase

4 d.$45,000 decrease

Jimmy’s Repair Shop started the year with total assets of

$150,000 and total liabilities of $120,000 During the year the

business recorded $315,000 in revenues, $165,000 in expenses, and dividends of $30,000 The net income reported by Jimmy’s Repair Shop for the year was

1 a.$120,000.

2 b.$150,000.

3 c.$90,000.

4 d.$285,000.

Lankston Company began the year by issuing $60,000 of

common stock for cash The company recorded revenues of

$550,000, expenses of $480,000, and paid dividends of $30,000 What was Lankston’s net income for the year?

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.Henson Company began the year with retained earnings of

$350,000 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.$430,000

3 c.$810,000

The balance sheet

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.

The retained earnings 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.

If total liabilities decreased by $25,000 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?

1 a.$20,000 decrease

2 b.$20,000 increase

3 c.$25,000 increase