110 test bank for fundamentals of financial accounting 3rd

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110 Test Bank for Fundamentals of Financial Accounting 3rd

True - False Questions

All corporations acquire financing by issuing shares of ownership (called stock certificates) for sale on public stock exchanges

The accounting decisions that were made when preparing a company's

financial statements are explained in the auditor's report

1 True

2 False

Building a new warehouse is an operating activity

If a company reports net income on the income statement, then the statement

of cash flows must show an increase in cash flows from operating activities for the period

1 True

Multiple Choice Questions - Page 1

Expenses are shown

1 A on the income statement in the time period in which they are paid

2 B on the income statement in the time period in which they are incurred

3 C on the balance sheet in the time period in which they are paid

4 D on the balance sheet in the time period in which they are incurred

The Whackem-Smackem Software Company sold $11 million of computer games in its first year of operations The company received payments of $7.5 million for these computer games The company's income statement would report:

1 A sales revenue of $7.5 million

2 B accounts receivable of $3.5 million

3 C expenses of $3.5 million

4 D sales revenue of $11 million

A company's balance sheet contained the following information: contributed capital: $12,000; accounts payable:$64,000; Total assets:$176,000; Retained Earnings: $28,000 Assume Notes Payable is the only other item on the

balance sheet Notes Payable must equal

1 A $200,000

2 B $8,000

3 C $72,000

4 D $344,000.

Public corporations:

1 A are businesses owned by two or more people, each of whom is personally liable for the debts of the business

2 B are businesses whose stock is bought and sold on a stock exchange

3 C are businesses whose stock is bought and sold privately

4 D are businesses where stock is not used as evidence of ownership

Which of the following would represent an operating activity?

1 A Purchasing equipment with money borrowed from creditors

2 B An investment of financial capital by the owners

3 C Buying the company's office supplies

4 D Repaying a loan the company had taken out

Financial statements are most commonly prepared:

1 A semi-monthly

2 B monthly, quarterly and annually

3 C whenever management feels like it

4 D weekly

Which of the following is true?

1 A Companies can choose to end their fiscal year on any date they feel is most

relevant

2 B Companies must end their fiscal year on March 31, June 30, September 30, or December 31.

3 C Companies can select any date except a holiday to end their fiscal year

4 D Companies must end their fiscal year on December 31

Financing that individuals or institutions have provided to a company is

1 A always classified as liabilities

2 B classified as liabilities when provided by creditors and stockholders' equity when provided by owners

3 C always classified as equity

4 D classified as stockholders' equity when provided by creditors and liabilities when provided by owners

The Don't Bite Me Pest Control Company has 10,000 gallons of insecticide supplies on hand that cost $300,000; a bill from the vendor for $100,000 of these supplies has not yet been paid The company expects to earn $800,000 for its services when it uses the insecticide supplies The company would report a supplies asset in the amount of

1 A $10,000

2 B $200,000

3 C $300,000

4 D $800,000

During its first year of operations, Widgets Incorporated reported sales

revenue of $386,000 but collected only $303,000 from customers The amount

to be reported as accounts receivable at the end of the year is

1 A selling goods, selling services, and obtaining financing

2 B operating activities, investing activities, and financing activities

3 C hiring, producing, and advertising

4 D generating revenues, paying expenses, and paying dividends

Net Income is

1 A the amount the company earned after expenses and dividends are subtracted from revenue

2 B the amount by which assets exceed expenses

3 C the amount by which assets exceed liabilities

4 D the amount by which revenues exceed expenses

Which of the following would affect stockholders' equity?

1 A A company borrows $100 million and buys $100 million in equipment

2 B A company pays $100 million to stockholders as a dividend.

3 C A company sells $100 million in assets for $100 million cash

4 D A company receives payment for $100 million in accounts receivable

Creditors are:

1 A people or organizations who owe money to a business

2 B people or organizations to whom a business owes money

3 C stockholders of a business

4 D customers of a business

The separate entity assumption means:

1 A a company's financial statements reflect only the business activities of that

company

2 B each separate owner's finances must be revealed in the financial statements

3 C each separate entity that has a claim on a company's assets must be shown in the financial statements

4 D if the business is a sole proprietorship, the owners' personal activities are included

in the company's financial statements

Dividends are reported on the:

1 A Income statement

2 B Balance sheet

3 C Statement of retained earnings

4 D Income statement and balance sheet

Which of the following is not true?

1 A Assets = Liabilities + Stockholders' Equity

2 B Liabilities = Assets - Stockholders' Equity

3 C Stockholders' Equity + Liabilities - Assets = 0

4 D Liabilities - Stockholders' Equity = Assets

Operating activities:

1 A involve day to day events related to production and sales

2 B relate to the acquisition or sale of long-term assets

3 C only involve financial exchanges

4 D involve the payment of dividends to owners

Which of the following would represent an investing activity?

1 A Purchasing equipment

2 B An investment of financial capital by the owners

3 C Borrowing money from a bank

4 D Repaying a loan the company had taken out

If XYZ Company had $12 million in revenue and net income of $3 million then its:

1 A expenses must have been $15 million

2 B expenses must have been $9 million

3 C assets must have been $12 million

4 D assets must have been $3 million.

At the end of last year, the company's assets totaled $860,000 and its

liabilities totaled $740,000 During the current year, the company's total assets increased by $58,000 and its total liabilities increased by $24,000 At the end

of the current year, stockholders' equity was

1 A $154,000

2 B $120,000

3 C $34,000

4 D $178,000

Which of the following are the three basic elements of the balance sheet?

1 A assets, liabilities, and retained earnings

2 B assets, liabilities, and contributed capital

3 C assets, liabilities, and revenues

4 D assets, liabilities, and stockholders' equity

Assets:

1 A represent the amounts earned by a company

2 B must equal the liabilities of a company

3 C must equal the stockholders' equity of the company

4 D represent the resources owned by a company

The Publish or Perish Printing Company paid a dividend to stockholders This will be reported on the:

1 A audit report

2 B income statement

3 C balance sheet

4 D statement of retained earnings

Which of the following would not represent a financing activity?

1 A Paying dividends to stockholders

2 B An investment of financial capital by the owners

3 C Borrowing money from a bank to finance the purchase of new equipment

4 D Collecting cash from customers

Accounting information systems:

1 A are summarized by reports that are published to the public

2 B capture and report the results of a business's operating, investing, and financing activities

3 C monitor business activities only in financial terms

4 D capture only the information that is needed by the owners of the company

Investing activities:

1 A involve day to day events like selling goods and services, which occur when running

a business

2 B involve the buying or selling of land, buildings, equipment, and other long-term investments.

3 C involve the receipt of interest from short-term investments such as certificates of deposits (CD's)

4 D involve the payment of wages, rent and other costs of running a business

Cash flow from investing activities includes

1 A money received from a company's stockholders for the sale of stock

2 B money received from the sale of the company's office building

3 C money paid for dividends to the company's stockholders

4 D money paid for salaries of employees

90 Free Test Bank for Fundamentals of Financial

Accounting 3rd Edition by Phillips Multiple Choice

2 B Notes to the financial statements provide additional information about what is included in the financial statements.

3 C Notes to the financial statements provide additional information about financial matters that are not included in the financial statements

4 D Notes to the financial statements provide financial information about the owners of the business

Which of the following is not an expense?

1 A Wages of employees

2 B Interest incurred on a loan the company had taken out

3 C Dividends

4 D Corporate income tax

What would a financial statement user learn from reading the auditors'

report?

1 A Whether the financial statements present a fair picture of the company's financial results and are prepared in accordance with GAAP

2 B Whether or not it is a good time to purchase the stock

3 C What the company plans to distribute as dividends

4 D Whether or not the company has plans for future expansion

During 2010, a company's assets rise $56,000 and its liabilities rise $38,000 If

no dividend is paid and no further capital is contributed, net income for 2010 was:

1 A $56,000

2 B $18,000.

3 C $94,000

4 D $38,000

An investor might look at a company's financial statements to determine:

1 A if competitors' earnings are rising or falling

2 B if the company's stock is likely to fall, signaling a good time to sell

3 C if the company's creditors are having a good year

4 D if the company's owners are financially sound

Which of the following is true about the format of financial statements?

1 A A double underline is drawn below the subtotal for total liabilities on the balance sheet

2 B Dollar signs are omitted if the heading states that amounts are reported in U.S dollars

3 C Dividends are reported in parenthesis on the statement of retained earnings

4 D The heading of each financial statement indicates who, when, and what in that particular order

Generally accepted accounting principles (GAAP) were (are) established by:

1 A an Italian monk in 1494

2 B the U.S Congress in 1933

3 C the PCAOB in 2004

4 D the FASB

A creditor might look at a company's financial statements to determine if the:

1 A company is likely to have the resources to repay its debts

2 B company's stock is likely to fall, signaling a good time to sell

3 C company's stock is likely to rise, signaling a good time to buy

4 D company's stock is likely to vary up and down

A company's quarterly income statements show that in the last three quarters both sales revenue and net income have been falling Which of the following conclusions drawn by users are valid, given this information?

1 A Creditors are likely to conclude that the risk of lending to the company is falling and might be willing to accept a lower interest rate on loans

2 B Investors are likely to conclude that the stock price is likely to rise, making the company more attractive as a potential investment

3 C Investors are likely to conclude that the company is more attractive as a potential investment

4 D Owners may conclude that the company will be less likely to distribute dividends

In the U.S., generally accepted accounting principles are established:

1 A directly by the 1933 Securities Act

2 B by the Public Company Accounting Oversight Board(PCAOB)

3 C by the Financial Accounting Standards Board(FASB)

4 D by the American Institute of Certified Public Accountants (AICPA)

The WC Company borrowed $26,500 from a bank during 2010

1 A This would be listed as ($26,500) under investing activities on the statement of cash flows

2 B This would be listed as ($26,500) under operating activities on the statement of cashflows

3 C This would be listed as $26,500 under investing activities on the statement of cash flows

4 D This would be listed as $26,500 under financing activities on the statement of cash flows

Investors are often interested in the amount of net income distributed as dividends In which section of the financial statements would investors look

to find this amount?

1 A Statement of retained earnings

If a company uses $50,000 of its cash to buy an asset then:

1 A assets and liabilities will be unchanged

2 B assets will rise $50,000 as will liabilities

3 C assets will rise $50,000 as will stockholders' equity

4 D assets will fall $50,000 and liabilities will rise $50,000

In the U.S., public companies have to be audited by independent auditors using rules approved by the:

1 A 1933 Securities Act

2 B Public Company Accounting Oversight Board (PCAOB)

3 C Financial Accounting Standards Board (FASB)

4 D American Institute of Certified Public Accountants (AICPA)

The purpose of a statement of retained earnings is to:

1 A estimate the current value of a company's assets

2 B report how the profits of a company have been distributed to stockholders or retained in the business

3 C show where the money is flowing into and out of a company

4 D explain the specific revenues and expenses arising during the period

To determine whether generally accepted accounting principles (GAAP) were followed in the preparation of financial statements, an examination of:

1 A tax documents would be performed by the IRS

2 B the annual report would be performed by the SEC

3 C the financial statements and related documents would be performed by an

independent auditor

4 D the financial statements and related documents would be performed by the FASB

Which of the following would not affect a company's net income?

1 A A change in the company's income taxes

2 B Changing the selling price of a company's product

3 C Paying a dividend to stockholders

4 D Advertising a new product

Every financial statement should have "who, what, and when" in its heading These are:

1 A the name of the person preparing the statement, the type of financial statement, andwhen the financial statement was reported to the SEC

2 B the name of the person preparing the statement, the name of the company, and the date the statement was prepared

3 C the name of the company, the type of financial statement, and the time period or date from which the data were taken

4 D the name of the company, the purpose of the statement, and when the financial statement was reported to the IRS

Investors and creditors look at the balance sheet to see whether the company

1 A is profitable

2 B owns enough assets to pay what it owes to creditors

3 C has had a positive cash flow from operations