107 test bank for financial accounting 4th

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107 Test Bank for Financial Accounting 4th

Multiple Choice Questions-Page 1

Retained earnings at the end of the period is equal to

1 A Retained earnings at the beginning of the period plus net earnings minus liabilities.

2 B Retained earnings at the beginning of the period plus net earnings minus dividends.

3 C Net earnings.

4 D Assets plus liabilities.

Which financial statement for a business would you look at to determine the company's performance during an accounting period?

1 A balance sheet.

2 B statement of retained earnings.

3 C income statement.

4 D cash flow statement.

If total liabilities increased by $25,000 and shareholders' 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

4 D $30,000 increase

For a business, what is an example of an internal decision maker?

1 A A loan officer at a bank.

2 B A supplier who sells goods to the company on account.

3 C One of the business's long-term customers.

4 D One of the business's managers.

What is the primary purpose of the balance sheet?

1 A To measure the net income of a business up to a particular point in time.

2 B To report the difference between cash inflows and cash outflows for the period.

3 C To report the financial position of the reporting entity at a particular point in time.

4 D To report assets at their current market value at a particular point in time.

Which financial statement reports the financial position of a business?

1 A Income statement.

2 B Balance sheet.

3 C Cash flow statement.

4 D Footnotes to the financial statements.

Which of the following might be included in the assets of a particular business?

1 A cash, accounts payable, and notes payable.

2 B cash, retained earnings, and accounts receivable.

3 C cash, accounts receivable, and inventory.

4 D inventories, property and equipment, and share capital.

What form does financial accounting information provided by an entity to decision makers generally take?

1 A Financial statements.

2 B Various forecasts and performance reports.

3 C An analysis of changes in the price of a corporation's shares.

4 D Comparisons between the company and its competitors.

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

1 A Operating

2 B Investing

3 C Financing

4 D Delivering

Brown Corporation reported the following amounts at the end of the first year

of operations, December 31, 20A: share capital $20,000; sales revenue

$95,000; total assets $85,000, no dividends, and total liabilities $35,000 What would shareholders' equity and total expenses be?

1 A Shareholders' equity, $50,000 and expenses $65,000.

2 B Shareholders' equity, $60,000 and expenses $75,000.

3 C Shareholders' equity, $80,000 and expenses $40,000.

4 D Shareholders' equity, $80,000 and expenses $85,000.

What is the accounting equation (balance sheet equation)?

1 A Assets + Liabilities = Shareholders' equity.

2 B Assets + Shareholders' equity = Liabilities.

3 C Assets = Liabilities + Shareholders' equity.

4 D Revenues - Expenses = Net income.

Which financial statement is prepared first?

1 A Balance sheet.

2 B Income statement.

3 C Statement of retained earnings.

4 D Cash flow statement.

What does the separate entity assumption state?

1 A Assets should be recorded at their initial acquisition cost.

2 B Each business is considered to be part of its owners.

3 C The monetary unit should be Canadian dollars.

4 D For measurement purposes, the resources, debts, and activities of a business should be kept separate from those of the owners.

What are the two categories of shareholders' equity usually found on the balance sheet of a corporation?

1 A share capital and long-term liabilities.

2 B share capital and property, plant, and equipment.

3 C retained earnings and notes payable.

4 D share capital and retained earnings.

What is the primary means that a corporation uses to communicate financial information to its shareholders and creditors?

1 A News stories printed in the business press.

2 B Financial statements.

3 C Letters from management sent to the local newspaper editor.

4 D Information circulated by fraud examiners.

The cash flow statement and the balance sheet are interrelated because

1 A the ending amount of cash on the cash flow statement must agree with the amount

in the statement of retained earnings.

2 B the ending amount of cash on the cash flow statement must agree with the amount

in the balance sheet.

3 C both disclose the corporation's net earnings.

4 D the ending amount of cash on the cash flow statement must agree with the amount

on the statement of earnings.

External decision makers want answers to all of the following questions except

1 A Will the company be able to pay its debts as they come due?

2 B Will the company be able to afford employee pay-raises this year?

3 C How does the company compare in profitability with competitors?

4 D Is the company earning satisfactory income?

What is the amount of revenue recognized in the income statement by a company that sells goods to customers?

1 A The cash collected from customers during the current period.

2 B Total sales, both cash and credit sales, for the period.

3 C Total sales minus beginning amount of accounts receivable.

4 D The amount of cash collected plus the beginning amount of accounts receivable.

Carrington Company owes you $500 on account due within 15 days Which of the following amounts on its balance sheet would help you to determine the likelihood that you will be paid in full and on time?

1 A cash and accounts receivable.

2 B cash and property and equipment.

3 C cash and inventory.

4 D share capital and retained earnings.

Why would Parker Bank, in deciding whether to make a loan to Davis

Company, be interested in the amount of liabilities Davis has on its balance sheet?

1 A The liabilities represent resources that could be used to repay the loan.

2 B If Davis already has many other obligations, it might not be able to repay the loan.

3 C Existing liabilities give an indication of how profitable Davis has been in the past.

4 D Parker would be interested in the amount of Davis's assets but not the amount of liabilities.

What is accounting information developed primarily for external decision makers called?

1 A Financial accounting.

2 B Cost accounting.

3 C Auditing.

4 Page 18 of 34D Management accounting.

During 20B, its second year in operation, Banner Company delivered goods to customers for which customers paid or promised to pay $5,850,000 The amount of cash collected from customers was $5,960,000 The amount of accounts receivable at the beginning of 20B was $1,200,000 What is the

amount of sales revenue that Banner should report on its income statement for 20B?

1 A $4,650,000.

2 B $4,760,000.

3 C $5,850,000.

4 D $5,960,000.

If Bender Corporation recently purchased goods from you on account, which

of Bender's financial statements would you look at to determine whether Bender has sufficient resources to be able to pay for the goods when payment

4 D cash flow statement.

During 20B, its second year in operation, Banner Company delivered goods to customers for which customers paid or promised to pay $5,850,000 Assume all sales were on account and the amount of cash collected from customers was $5,960,000 The amount of accounts receivable at the beginning of 20B was $1,200,000 Based on this information, what is the amount of accounts receivable that Banner would report at the end of 20B?

Shareholders' equity at the end of the year was

1 A it identifies all the revenues and expenses of the business.

2 B assets are generally listed on the balance sheet at their historical cost, not their current value.

3 C it gives the results of operations for the current period.

4 D some of the assets and liabilities on the balance sheet may actually be those of another entity.

What are business liabilities?

1 A Amounts it expects to collect in the future from customers.

2 B Debts or obligations resulting from past transactions.

3 C The amounts that owners have invested in the business.

4 D The increases in assets that result from profitable operations.

How do most businesses earn revenues?

1 A When they collect accounts receivable.

2 B Through sales of goods or services to customers.

3 C By borrowing money from a bank.

4 D By selling shares to shareholders.

On January 1, 20A, two individuals invested $150,000 each to form Hornbeck Corporation Hornbeck had total revenues of $15,000 during 20A and $40,000 during 20B Total expenses for the same periods were $8,000 and $22,000, respectively Cash dividends paid out to shareholders totalled $6,000 in 20A and $12,000 in 20B What was the ending balance in Hornbeck's retained earnings account at the end of 20A and 20B?

1 A $1,000 and $6,000 respectively.

2 B $1,000 and $7,000, respectively.

3 C $7,000 and $19,000 respectively.

Which of the following is true about a business' assets?

1 A They are equal to liabilities minus shareholders' equity.

2 B They are the economic resources of the business.

3 C They are reported on the balance sheet at current market value.

4 D They are reported on the income statement.

The BAT Corporation had 20B revenues of $110,000, expenses of $85,000, and

an income tax rate of 20 percent What would net income after taxes be?

1 A $5,000.

2 B $15,000.

3 C $20,000.

4 D $25,000.

Which of the following is true of financial accounting?

1 A It provides information primarily for external decision makers.

2 B It is required for corporations but probably would not be done by other business entities.

3 C It provides information primarily for the use of managers of the company.

4 D It has been practiced in this country for approximately the last 15 years.

67 Free Test Bank for Financial Accounting 4th Canadian Edition by Libby Multiple Choice Questions-Page 2

What section of the cash flow statement do bankers consider to be the most important?

1 A Investing.

2 B Operating.

3 C Financing.

4 D All the sections are equally important.

What is the purpose of an audit?

1 A to prove the accuracy of an entity's financial statements.

2 B to lend credibility to an entity's financial statements.

3 C to endorse the quality of leadership that managers provide for a corporation.

4 D to establish that a corporation's shares are a sound investment.

What is one of the disadvantages of a corporation when compared to a

partnership?

1 A the shareholders have limited liability.

2 B the shareholders are treated as a separate legal entity from the corporation.

3 C the corporation and its shareholders are subject to double taxation.

4 D the corporation provides continuity of life.

At the beginning of 20B, Rodriguez Corporation had assets of $820,000 and liabilities of $340,000 During the year, assets increased by $40,000 and

liabilities decreased by $8,000 What was the total amount of shareholders' equity at the end of 20B?

1 A $2.8 billion.

2 B $3.0 billion.

3 C $5.8 billion.

4 D There is no way to determine net income as not enough information was given.

Which of the following is the amount of rent expense reported on the income statement?

1 A The amount of cash paid for rent in the current period.

2 B The amount of cash paid for rent in the current period less any unpaid rent at the end of the period.

3 C The amount of rent used up in the current period to earn revenue.

4 D An increase in net income.

Which of the following statements regarding private enterprises is TRUE?

1 A Private enterprises must use IFRS for external reporting.

2 B Private enterprises may choose to not follow either IFRS or the accounting

standards prescribed for private enterprises for external reporting.

3 C Private enterprises that are not dependent on significant external sources of financing for their operations must use IFRS for external reporting.

4 D Private enterprises must use the accounting standards prescribed for private enterprises for external reporting.

If you wanted to know how much of its net income a corporation distributed

as dividends, which financial statement would you look at?

1 A balance sheet.

2 B income statement.

3 C cash flow statement.

4 D statement of retained earnings.

What are the categories of cash flows that appear on a cash flow statement?

1 A cash flows from investing, financing, and service activities.

2 B cash flows from operating, production, and internal activities.

3 C cash flows from financing, production, and growth activities.

4 D cash flows from operating, investing, and financing activities.

Which of the following statements is true about a sole proprietorship?

1 A The owner and the business are separate legal entities but not separate accounting entities.

2 B The owner and the business are separate accounting entities but not separate legal entities.

3 C The owner and the business are separate legal entities and separate accounting entities.

4 D Most large businesses in this country are organized as sole proprietorships.

Borrowing money is an example of a(n)

1 A Cash, Accounts Receivable, Inventory, Plant and Equipment.

2 B Cash, Inventory, Accounts Receivable, Plant and Equipment.

3 C Cash, Accounts Receivable, Marketable Securities, Inventory.

4 D Cash, Accounts Receivable, Plant and Equipment, Inventory.

If you wanted to know what accounting rules a company follows related to its inventory, where would you look?

1 A the balance sheet.

2 B the income statement.

3 C the notes to the financial statements.

4 D the headings to the financial statements.

How are the differing claims of creditors and investors recognized by a

corporation?

1 A The claims of creditors are liabilities; those of investors are assets.

2 B The claims of both creditors and investors are liabilities, but only the claims of investors are considered to be long term.

3 C The claims of creditors are liabilities; the claims of investors are recorded as

shareholders' equity.

4 D The claims of creditors and investors are considered to be essentially equivalent.

On January 1, 20A, Taylor Corporation had retained earnings of $6,500,000 During 20A, Taylor had net income of $1,050,000 and dividends of $450,000 What is the amount of Taylor's retained earnings at the end of 20A?

1 A $6,050,000.

2 B $6,950,000.

3 C $7,100,000.

4 D $7,550,000.

For what reason might a group of people establishing a business prefer to set

it up as a corporation rather than a partnership?

1 A to have limited liability.

2 B to avoid double taxation.

3 C because of ease of formation.

4 D because a corporation is considered to be a separate business entity and a

When would a company report a net loss?

1 A When retained earnings decreased due to paying dividends to shareholders.

2 B When its assets decreased during an accounting period.

3 C When its liabilities increased during an accounting period.

4 D When its expenses exceeded its revenues for an accounting period.