181 test bank for accounting tools for business decision making 5th

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181 Test Bank for Accounting Tools for Business Decision Making 5th

True - False Questions

The economic resources that are owned by a business are

called stockholders’ equity

Operating activities involve putting the resources of the

business into action to generate a profit

One way of stating the accounting equation is: Assets +

Liabilities = Stockholders’ Equity

2 False

Net income is another term for revenue

1 True

2 False

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

an annual report covers various financial aspects of a company

1 True

2 False

Assets are resources owned by a business and provide future

services or benefits to the business

1 True

2 False

An auditor is an accounting professional who conducts an

independent examination of the accounting data

Proprietorships in the United States generate more revenue

than the other two forms of business enterprise

2 False

External users of accounting information are managers who

plan, organize, and run a business

The balance sheet reports assets and claims to those assets at

a specific point in time

1 True

2 False

All publicly traded U.S companies must provide their

stockholders with an annual report each year

Investing activities involve collecting the necessary funds to

support the business

1 True

2 False

Explanatory notes and supporting schedules are an optional

part of an annual report

1 True

2 False

The basic accounting equation states that Assets = Liabilities

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

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

1 True

2 False

Examples of notes are descriptions of the significant

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

2 False

The accounting equation can be expressed as Assets -

Stockholders’ Equity = Liabilities

1 True

2 False

Accounting communicates financial information about a

business to both internal and external users

Net income for the period is determined by subtracting total

expenses and dividends from revenues

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

1 True

2 False

Two primary external users of accounting information are

investors and creditors

1 True

2 False

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

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

1 True

2 False

A business is usually involved in two types of activity—

financing and investing

The accounting equation can be expressed as Assets -

Liabilities = Stockholders’ Equity

Financing activities for corporations include borrowing money

and selling shares of their own stock

1 True

2 False

Multiple Choice Questions - Page 1

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 groups uses accounting information

primarily to insure the entity is operating within

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.

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

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 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.

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 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 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 is a primary user of accounting

information with a direct financial interest in the

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 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

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

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.

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.

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.

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 one of the three forms of business

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 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

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

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

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 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.

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 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

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 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 the company can pay its obligations?

1 a.Investors in common stock

2 b.Marketing managers

3 c.Creditors

4 d.Chief Financial Officer

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.

Most business enterprises in the United States are

1 a.proprietorships and partnerships.

2 b.partnerships.

3 c.corporations.

4 d.government units.

133 Free Test Bank for Accounting Tools for Business

Decision Making 5th Edition by Kimmel Multiple Choice Questions - Page 2

Which activities involve putting the resources of the business

into action to generate a profit?

4 d.future economic benefit.

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.

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

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.

Resources owned by a business are referred to as

1 a.stockholders’ equity.

2 b.liabilities.

3 c.assets.

4 d.revenues.

Expenses are incurred

1 a.only on rare occasions.

2 b.to produce assets.

3 c.to produce liabilities.

4 d.to generate revenues.

Buying assets needed to operate a business is an example of

a(n)

1 a.delivering activity.

2 b.financing activity.

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 not a liability?

1 a.Unearned Service Revenue

1 a.a net loss results

2 b.a net income results

3 c.assets equal liabilities

4 d.assets are increased

The liability created by a business when it purchases coffee

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

3 c.a liability.

4 d.an asset.

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?

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

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.

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.

Which of the following activities involves collecting the

necessary funds to support the business?

Which of the following is an asset?

1 a.Mortgage payable

2 b.Investments

3 c.Common stock

4 d.Retained earnings

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

133 Free Test Bank for Accounting Tools for Business

Decision Making 5th Edition by Kimmel Multiple

Choice Questions - Page 3

Jimmy’s Repair Shop started the year with total assets of

$200,000 and total liabilities of $160,000 During the year the business recorded $420,000 in revenues, $220,000 in expenses, and dividends of $40,000 The net income

reported by Jimmy’s Repair Shop for the year was

1 a.$160,000.

2 b.$200,000.

3 c.$120,000.

4 d.$380,000.

The retained earnings statement would not show

1 a.the retained earnings beginning balance.

2 b.revenues and expenses.

3 c.dividends.

4 d.the ending retained earning balance.

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.

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.

Pinson Company began the year with retained earnings of

$570,000 During the year, the company recorded revenues of $600,000, expenses of $380,000, and paid dividends of $140,000 What was Pinson’s retained earnings at the end of the year?

1 a.$930,000

2 b.$650,000

3 c.$1,030,000

4 d.$500,000