160 test bank for cornerstones of financial accounting 1st

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160 Test Bank for Cornerstones of Financial Accounting 1st

40 True - False Questions

Creditors use accounting information to evaluate whether to loan money to a company

1 True

2 False

Independent auditors render an opinion that the financial statements do or do not fairly present a company’s financial position, operating results, and cash flows

The owners of a sole proprietorship, partnership, and corporations have limited liability

1 True

2 False

Current assets include all of the following: cash, inventory, equipment,

supplies, and accounts receivable

Because the four financial statements are interrelated (i.e., there is a natural progression from one financial statement to another), the balance sheet should be prepared first

1 True

2 False

The current ratio is useful in determining a company’s ability to pay

obligations when they become due

The statement of cash flows, like the income statement, reports only

operating activities and other activities of a company

The first step in preparing the classified balance sheet is to list the assets in order of liquidity

1 True

2 False

In the shareholders’ equity section of a classified balance sheet, a distinction

is made between amounts invested by owners and amounts financed by creditors

1 True

2 False

The amount of earnings distributed to shareholders can be found in the

income statement as an expense

1 True

2 False

The four steps in preparing the income statement are: 1) prepare a heading; 2) list the revenues of the company; 3) list the expenses of the company; and 4) list the dividends of the company

1 True

2 False

Contributed capital is the residual interest that remains after deducting

liabilities from shareholders’ equity

1 True

2 False

The purpose of financial reporting is to provide economic information to investors, creditors, and other financial statement users

An independent auditor’s report is a guarantee that the financial statements are free from fraud or material error

The company’s annual report includes a section called Management’s

Discussion and Analysis

In the independent auditors’ report included with the annual report,

management discusses the financial statements and provides the

shareholders with explanations for certain amounts reported in the

statements

1 True

2 False

Internal users of accounting information include present creditors and

The primary objective of internal auditors who are employees of the company

is to provide assurance to the company’s shareholders that the financial statements are fairly presented

Shareholders’ equity is composed of two main sources: liabilities and contributed capital

1 True

2 False

Multiple Choice Questions - Page 1

What is another term for “short-term investments”?

In which form of organization are the owners’ legal responsibilities for the debts of the business limited to the amount they invested in it?

1 a.income statement and statement of retained earnings

2 b.balance sheet and statement of cash flows

3 c.statement of retained earnings and statement of cash flows

4 d.balance sheet and statement of retained earnings

Which of the following is an internal user of financial information?

1 a.company manager

2 b.government

3 c.creditor

4 d.investor

This company’s end-of-year balance sheet consisted of the following

amounts: Cash $75,000 Accounts receivable $250,000; Property, plant, and equipment350,000Long-term debt200,000; Common shares500,000Accounts payable 100,000; Retained earnings? Inventory175,000 What is the retained earnings balance at the end of the current year?

1 a.$50,000

2 b.$550,000

3 c.$800,000

4 d.$850,000

Which of the following is considered an internal user of financial statements?

1 a.a supplier considering selling to the company on credit

2 b.a labour union representing employees of a company in labour negotiations

3 c.a financial analyst preparing recommendations on companies in a certain industry

4 d.a manager of a company who is supervising production workers

Which account is a liability?

1 a.cash

2 b.retained earnings

3 c.accounts receivable

4 d.accounts payable

What is the term for a person who lends funds to a business entity and expects repayment with interest?

1 a.the amount of total profits earned by a company since it began operations

2 b.the amount of claim that the owners have on the assets of the company

3 c.the future economic resources of a company

4 d.the accumulated net income that has not been distributed to owners as dividends

Which of the following best describes the term “expenses”?

1 a.the cost of assets used in the investing activities of a business

2 b.the amount of interest or claim that the owners have in the business

3 c.the future economic resources of a business entity

4 d.the cost of assets used in the operations of a business

Which of the following correctly represents one of the basic financial statement models?

1 a.assets - liabilities = net income

2 b.assets + liabilities = total assets

3 c.revenues + expenses = net income

4 d.beginning retained earnings + net income - dividends = ending retained earnings

Which type of business activity is purchasing new equipment?

1 a.statement of cash flows

2 b.statement of retained earnings

Which of the following three main activities are businesses engaged in?

1 a.financing, investing, operating

2 b.cash, credit, noncash

3 c.financing, crediting, operating

4 d.financing, managing, operating

This company’s end-of-year balance sheet consisted of the following

amounts: Cash $75,000 Accounts receivable $250,000; Property, plant, and equipment 350,000 Long-term debt 200,000; Common shares500,000Accounts payable 100,000; Retained earnings? Inventory175,000 What amount should the company report on its balance sheet for total assets?

1 a.$550,000

2 b.$775,000

3 c.$850,000

4 d.$950,000

Which of the following describes the term “current assets”?

1 a.the amount of total assets earned by a business since it began operations plus all other resources

2 b.the amount of claim that the owners have in the business in the current year

3 c.assets expected to be converted into cash within one year or one operating cycle, whichever is longer

4 d.the cumulative profits earned by a business less any dividends distributed in the current period

Which financial statement would you analyze to assess a firm’s operating performance over the past year?

1 a.balance sheet

2 b.statement of retained earnings

3 c.income statement

4 d.statement of public accounting

What is the term for the branch of accounting concerned with providing outside decision makers with information to assess the amounts, timing, and uncertainties of the company’s future cash flows?

1 a.financial accounting

2 b.auditing

3 c.managerial accounting

4 d.bookkeeping

Which of the following is a correct fundamental accounting equation?

1 a.assets + liabilities = shareholders’ equity

2 b.assets + retained earnings = shareholders’ equity

3 c.assets + shareholders’ equity = liabilities

4 d.assets = liabilities + shareholders’ equity

The company reported the following items on its financial statements for the year ended December 31: Sales$780,000Cost of sales$700,000; Selling,

general and administrative expense20,000Other expense15,000;

Dividends5,000Income tax expense12,500 What is the company’s net income for the current year?

1 a.$22,500

2 b.$32,500

3 c.$42,500

4 d.$80,000

Which of the following assets are noncurrent?

1 a.machinery and equipment

Which of the following is the correct date format for the financial statement heading?

1 a.Balance Sheet – For the Year Ended June 30

2 b.Income Statement – At December 31

3 c.Income Statement – For the Year Ended December 31

4 d.Statement of Retained Earnings – At December 31

Which of the following terms best describes a distribution of the net income

of a corporation to its owners?

4 d.cash flow from operations

Which of the following is a classification on the classified balance sheet?

1 a.operating accounts

2 b.shareholders’ equity

3 c.revenues and expenses

4 d.net income and dividends

Which of the following describes “revenues”?

1 a.decreases in assets resulting from the sale of goods or services

2 b.increases in equity resulting from the sale of products or services

3 c.assets used or consumed in the sale of products or services

4 d.increases in the financing activities

You are a potential creditor and are concerned that a particular company you are ready to lend money to may have too much debt Which financial

statement will provide you with the information you need to evaluate your concern?

1 a.balance sheet

2 b.income statement

3 c.statement of retained earnings

4 d.statement of public accounting

Which financial statement would you refer to in order to determine the

resources (assets) a company owns?

On January 1, a company reported assets of $1,000,000 and liabilities of

$600,000 During the year, assets decreased by $100,000 and shareholders’ equity decreased $200,000 What is the amount of liabilities at December 31?

1 a.$200,000

2 b.$500,000

3 c.$600,000

4 d.$700,000

Which one of the following is an internal user of financial statements?

1 a.Canada Revenue Agency

2 b.Retained earnings is added to total assets and reported on the balance sheet.

3 c.Retained earnings is reported on the balance sheet.

4 d.There is no such link, as each statement contains different accounts and provides different information.

100 Free Test Bank for Cornerstones of Financial

Accounting 1st Canadian Edition by Rich Multiple Choice Questions - Page 2

The company reported the following information for the year ended December

31, Year 1: Net income$100,000; Dividends6,000 Retained earnings at

December 31, Year 1120,000 What was the balance of retained earnings at January 1, Year 1?

The company reported the following items on its financial statements for the year ended December 31: Sales$780,000Cost of sales$700,000; Selling,

general and administrative expense20,000Other expense15,000;

Dividends5,000Income tax expense12,500 What amount will be reported as retained earnings on the balance sheet at December 31, assuming this is the first year of operations?

1 a.$22,500

2 b.$27,500

3 c.$42,500

4 d.$80,000

Which of the following can be said of external users of financial information?

1 a.They need detailed records of the business to make informed decisions.

2 b.They are primarily responsible for the preparation of financial statements.

3 c.They rely on the financial statements to make informed decisions.

4 d.They rely on management to tell them whether the company is a good investment.

The company reported the following information for the year ended December

31, Year 2:Revenue $14,000,000; Expenses11,500,000; Dividends1,000,000; Retained earnings at December 31, Year 21,750,000 What was the retained earnings balance at December 31, Year 1?

1 a.$ 250,000

2 b.$3500,000

3 c.$1,500,000

4 d.$2,500,000

What is the primary objective of financial reporting?

1 a.to help investors make credit decisions

2 b.to help management assess cash flows

3 c.to protect users from fraudulent financial information

4 d.to provide useful information for decision making

A company reports the following information at December 31, Year 1:

Sales$15,000,000; Cash3,000,000; Unearned revenue 400,000;

Dividends1,000,000; Cost of sales8,500,000 What is the company’s gross profit?

1 a.$97,000

2 b.$143,000

3 c.$211,000

4 d.$354,000

Which of the following accounts are normally reported as current liabilities on

a classified balance sheet?

1 a.accounts payable and prepaid insurance

2 b.interest payable and interest receivable

3 c.income taxes payable and salaries payable

4 d.common shares and accounts payable

Which of the following are considered tangible assets?

1 a.franchises

2 b.copyrights

3 c.investments

4 d.trademarks

The following balances were taken from the company’s records:

Inventory$380,000Accounts receivable$190,000; Land290,000Accounts

payable180,000; Cash129,000Unearned revenue110,000; Prepaid

rent33,000Common shares312,000; Retained earnings220,000Long-term notes payable200,000 How much is the total current assets?

1 a.$732,000

2 b.$842,000

3 c.$974,000

4 d.$1,022,000

The company reported the following information for the year ended December

31, Year 2:Revenues$2,500,000; Expenses2,000,000; Retained earnings at December 31, Year 1100,000; Retained earnings at December 31, Year

2450,000 How much was paid out in dividends in Year 2?

On January 1, Year 1, a company’s balance in retained earnings was $275,000 During Year 1, the company earned net income of $23,500 and paid $11,200 in dividends Calculate the retained earnings balance at December 31, Year 1

1 a.The company’s competitors were profitable.

2 b.The company’s liquidity improved.

3 c.The company had less equity than the rest of the industry.

4 d.The company’s liquidity was worse than the industry.

Which of these items is reported as a current shareholders’ equity on a

classified balance sheet?

1 a.net income

2 b.accounts payable

3 c.land

4 d.common shares

Which financial statement(s) does net income appear on?

1 a.a balance sheet only

2 b.an income statement only

3 c.a balance sheet, income statement, and statement of cash flows using the indirect method

4 d.an income statement, statement of cash flows using the indirect method, and statement of retained earnings

A company has $10,500,000 of revenues, declares and pays $550,000 in dividends, and has net income of $1,600,000 How much were expenses for the year?

1 a.$1,050,000

2 b.$2,150,000

3 c.$8,900,000

4 d.$9,950,000

Barnes Restaurant reports the following amounts:

Cash$125,000Inventory$215,000; Land275,000Unearned revenue117,000; Equipment350,000Common shares300,000 How much are current assets?

1 a.$125,000

2 b.$340,000

3 c.$457,000

4 d.$615,000

Assets are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle

is shorter than one year) How are they reported on a classified balance

sheet?

1 a.as property, plant, and equipment

2 b.as current assets

3 c.as intangible assets

4 d.as current liabilities

The following balances were taken from the company’s records:

Inventory$380,000Accounts receivable$190,000; Land290,000Accounts

payable180,000; Cash129,000Unearned revenue110,000; Prepaid

rent33,000Common shares312,000; Retained earnings220,000Long-term notes payable200,000 How much is the current ratio?

4 d.$3,800,000

A company had total assets of $650,000 and total shareholders’ equity of

$250,000 at the beginning of the year During the year, total assets increased

by $350,000, total liabilities increased by $100,000, and dividends were paid in the amount of $300,000 No other transactions occurred except revenues and expenses How much is net income for the year?

1 a.$500,000

2 b.$550,000

3 c.$650,000

4 d.$750,000

Which of the following are current assets?

1 a.accounts receivable, net income, inventory, and dividends

2 b.cash, accounts receivable, common shares, and sales

3 c.net income, cash, office supplies, and inventory

4 d.cash, accounts receivable, inventory, and office supplies

Beginning retained earnings$550,000; Ending retained earnings700,000;

Dividends paid100,000; Revenue 525,000 What are the company’s expenses?

1 a.$100,000

2 b.$150,000

3 c.$275,000

4 d.$450,000