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180 Test Bank for Accounting Tools for Business

Decision Makers 4th

Multiple Choice Questions - Page 1

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.

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 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 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

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 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

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 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

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.

A small neighborhood barber shop that is operated by its owner would likely

3 c.Merchandise inventory clerk

4 d.President of the employees' labor union

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

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 statements is not true regarding the Sarbanes-Oxley Act (SOX) of 2002?

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 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?

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

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 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 internal user of accounting data for a company?

1 a.The president of a company

2 b.The controller of a company

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

accounting data for the Julian Company?

1 a.Internal Revenue Service Agent

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 a user of accounting information with an indirect financial interest in a business?

1 a.A financial adviser

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.

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

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

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.

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.

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.

Most business enterprises in the United States are

1 a.proprietorships and partnerships.

2 b.partnerships.

3 c.corporations.

4 d.government units.

External users want answers to all of the following questions except

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 groups uses accounting information primarily to insure the entity is operating within prescribed rules?

Dividends paid

1 a.increase assets.

2 b.increase expenses.

3 c.decrease revenues.

4 d.decrease retained earnings.

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

The common characteristic possessed by all assets is

1 a.long life.

2 b.great monetary value.

3 c.tangible nature.

4 d.future economic benefit.

Which activities involve acquiring the resources to run the business?

4 d.income statement and balance sheet.

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

1 a.Operating

2 b.Investing

3 c.Financing

4 d.Delivering

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 $300,000 from customers; What was Gibson’s net cash provided by operating activities?

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 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 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.

Resources owned by a business are referred to as

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.

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 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.

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.

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 an asset?

1 a.Mortgage Payable

2 b.Investments

3 c.Common stock

4 d.Retained earnings

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

Buying and selling products are examples of

1 a.operating activities.

2 b.investing activities.

3 c.financing activities.

4 d.delivering activities.

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?

3 c.statement of cash flows.

4 d.retained earnings statement.

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

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

1 a.delivering activity.

2 b.financing activity.

3 c.investing activity.

4 d.operating activity.

Which of the following is not a liability?

1 a.Unearned Service Revenue

Stockholders’ equity can be described as claims of

1 a.creditors on total assets.

2 b.owners on total assets.

3 c.customers on total assets.

4 d.debtors on total assets.

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 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

An income statement shows

1 a.revenues, liabilities, and stockholders’ equity.

2 b.expenses, dividends, and stockholders’ equity.

3 c.revenues, expenses, and net income.

4 d.assets, liabilities, and stockholders’ equity.

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

1 a.$60,000.

2 b.$55,000.

3 c.$65,000.

4 d.$35,000.

Net income will result during a time period when:

1 a.assets exceed liabilities.

2 b.assets exceed revenues.

3 c.expenses exceed revenues.

4 d.revenues exceed expenses.

If the retained earnings account decreases from the beginning of the year to the end of the year, then

1 a.net income is less than dividends.

2 b.there was a net income and no dividends.

3 c.additional investments are less than net losses.

4 d.net income is greater than dividends.

Which of the following financial statements is concerned with the company at

a point in time?

1 a.Balance sheet.

2 b.Income statement.

3 c.Retained Earnings statement.

4 d.Statement of cash flows.

If total liabilities increased 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 decrease

2 b.$60,000 increase

3 c.$75,000 increase

4 d.$90,000 increase

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

Which of the following is not a satisfactory statement of the accounting

equation?

1 a.Assets = Stockholders’ Equity – Liabilities.

2 b.Assets = Liabilities + Stockholders’ Equity.

3 c.Assets - Liabilities = Stockholders’ Equity.

4 d.Assets - Stockholders’ Equity = Liabilities.

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

If total liabilities increased by $42,000 during a period of time and

stockholders’ equity decreased by $18,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n)

1 a.$40,000

2 b.$100,000

3 c.$70,000

4 d.$130,000

Payments to stockholders are called

1 a.are future economic benefits.

2 b.are debts and obligations.

3 c.possess service potential.

4 d.are things of value owned by a business.