174 test bank for financial accounting tools for business decision making 7th edition

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174 Test Bank for Financial Accounting Tools for Business Decision Making 7th Edition

True - False Questions

Assets are resources owned by a business and provide future

services or benefits to the business

The management discussion and analysis (MD & A) section of an

annual report covers various financial aspects of a

company

1 True

2 False

The balance sheet reports assets and claims to those assets at a

specific point in time

Accounting communicates financial information about a

business to both internal and external users

1 True

Examples of notes are descriptions of the significant accounting

policies and methods used in preparing the statements, explanations of contingencies, and various statistics

1 True

2 False

The primary purpose of the statement of cash flows is to provide

information about the cash receipts and cash payments of

a company for a specific period of time

Two primary external users of accounting information are

investors and creditors

Financing activities for corporations include borrowing money

and selling shares of their own stock

All publicly traded U.S companies must provide their

stockholders with an annual report each year

1 True

2 False

One way of stating the accounting equation is: Assets +

Liabilities = Stockholders’ Equity

1 True

2 False

If the assets owned by a business total $150,000 and liabilities

total $105,000, stockholders’ equity totals $45,000

1 True

2 False

The basic accounting equation states that Assets = Liabilities

1 True

2 False

An auditor is an accounting professional who conducts an

independent examination of the accounting data presented

Operating activities involve putting the resources of the

business into action to generate a profit

1 True

2 False

Proprietorships in the United States generate more revenue than

the other two forms of business enterprise

1 True

2 False

Net income for the period is determined by subtracting total

expenses and dividends from revenues

External users of accounting information are managers who

plan, organize, and run a business

1 True

2 False

If the assets owned by a business total $100,000 and liabilities

total $65,000, stockholders’ equity totals $25,000

A business organized as a separate legal entity owned by

The accounting equation can be expressed as Assets -

Stockholders’ Equity = Liabilities

Investing activities involve collecting the necessary funds to

support the business

Multiple Choice Questions - Page 1

Which of the following groups uses accounting information

primarily to insure the entity is operating within prescribed rules?

1 a.Taxing authorities

2 b.Regulatory agencies

3 c.Labor Unions

4 d.Management

Which of the following groups uses accounting information to

determine whether the company’s net income will result in

a stock price increase?

1 a.Investors in common stock

2 b.Marketing managers

3 c.Creditors

4 d.Chief Financial Officer

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 of lending money.

3 c.Labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits.

4 d.Managers who use accounting information to plan, organize, and run a business.

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 type of corporate information is not available to

investors?

1 a.Dividend history

2 b.Forecast of cash needs for the upcoming year

3 c.Cash provided by investing activities

4 d.Beginning cash balance

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 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

4 d.Customers

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.

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 business.

4 d.Electronic collection, organization, and communication of vast amounts of information.

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.

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 statements is not true regarding the

Sarbanes-Oxley Act (SOX)?

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

2 b.The Act has resulted in increased penalties for financial fraud by top management.

3 c.The Act calls for decreased independence of outside auditors reviewing corporate financial statements.

4 d.The Act is meant to decrease the likelihood of unethical corporate behavior.

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

The liability created by a business when it purchases coffee

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

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

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.

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 would not be considered an internal user

of accounting data for the Xanadu Company?

1 a.President of the company

2 b.Production manager

3 c.Merchandise inventory clerk

4 d.President of the employees' labor union

A business organized as a separate legal entity is a

1 a.corporation.

2 b.proprietor.

3 c.government unit.

4 d.partnership.

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.

2 b.investors.

3 c.managers.

4 d.creditors.

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 a primary user of accounting

information with a direct financial interest in the business?

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 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 small neighborhood barber shop that is operated by its owner

would likely be organized as a

1 a.joint venture.

2 b.partnership.

3 c.corporation.

4 d.proprietorship.

Which of the following statements concerning users of

accounting information 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 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.

Which of the following would not be considered an internal user

of accounting 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

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 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.

Most business enterprises in the United States are

1 a.proprietorships and partnerships.

2 b.partnerships.

3 c.corporations.

4 d.government units.

Which of the following is a user of accounting information with

an indirect financial interest in a business?

1 a.A financial adviser

2 b.Management

3 c.Investor

4 d.Creditor

Which of the following groups uses accounting information to

determine whether the company can pay its obligations?

1 a.Investors in common stock

2 b.Marketing managers

3 c.Creditors

4 d.Chief Financial Officer

134 Free Test Bank for Financial Accounting Tools for

Business Decision Making 7th Edition by Kimmel Multiple Choice Questions - Page 2

Debts and obligations of a business are referred to as

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.

Borrowing money is an example of a(n)

1 a.delivering activity.

2 b.financing activity.

3 c.investing activity.

4 d.operating activity.

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 $245,000 from customers; What was Jackson’s net cash provided by operating

Dividends paid

1 a.increase assets.

2 b.increase expenses.

3 c.decrease revenues.

4 d.decrease retained earnings.

Which of the following is an asset?

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 activities involve putting the resources of the business

into action to generate a profit?

1 a.Delivering

2 b.Financing

3 c.Investing

4 d.Operating

Buying assets needed to operate a business is an example of

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.

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

Issuing shares of stock in exchange for cash is an example of

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.

Gibson Company recorded the following cash transactions for

the year: Paid $180,000 for salaries; Paid $80,000 to

purchase office equipment; Paid $20,000 for utilities; Paid

$8,000 in dividends; Collected $310,000 from customers What was Gibson’s net cash provided by operating

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

Which of the following activities involves collecting the

necessary funds to support the business?

1 a.Operating

4 d.income statement and balance sheet.

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.

Which of the following is not a principal type of business

Which of the following is not a liability?

1 a.Unearned Service Revenue