Test bank for financial accounting 8th edition

Test Bank for Financial Accounting 8th Editionhe balance sheet is also known as the: 1.. D current and long- term.In relation to the cash flow statement, purchases and sales of long-ter

Test Bank for Financial Accounting 8th Edition

he balance sheet is also known as the:

1 A) statement of profit and loss

2 B) operating statement

3 C) assets statement

The balance sheet reports information about:

1 A) revenues, expenses, and equity

2 B) liabilities, equity, and expenses

3 C) assets, revenues, and liabilities

4 D) assets, liabilities, and owners’ equity

The income statement is prepared to determine:

1 A) the change in cash due to results of operations

2 B) the change in retained earnings due to the results of operations

3 C) the change in assets and liabilities due to the results of operations

4 D) all of the above

The amount of net income shown on the income statement also appears on the:

1 A) balance sheet and operations statement

2 B) statement of assets

3 C) statement of financial position

4 D) statement of retained earnings

The balance sheet contains the:

1 A) amount of net income or net loss

2 B) beginning balance in retained earnings

3 C) ending balance in retained earnings

4 D) amount of cash dividends paid to stockholders.

Which of the following is a component of stockholders’ equity?

1 A) Retained earnings

2 B) Notes payable

3 C) Cash

4 D) Fixed assets

Which financial statement must be prepared before the others?

1 A) Statement of Cash Flows

2 B) Income Statement

3 C) Balance Sheet

4 D) Statement of Retained Earnings

Assets are generally classified as:

1 A) producing assets and consumable assets

2 B) current assets and producing assets

3 C) current assets and long-term assets

4 D) long-term assets and consumable assets

Current assets are assets expected to be converted to cash, sold, or

consumed within the next:

2 B) 12 months or within the business’s normal operating cycle if less than a year.

3 C) 6 months

4 D) 24 months

Notes receivable due in 60 days would be classified as a:

1 A) current liability on the Balance Sheet

2 B) current asset on the Balance Sheet

3 C) long-term asset on the Balance Sheet

4 D) long-term liability on the Balance Sheet

Equipment would appear on the:

1 A) Balance Sheet with the long-term assets

2 B) Income Statement with the revenues

3 C) Income Statement with the operating expenses

4 D) Balance Sheet with the current assets

Accumulated depreciation is normally associated with which asset on the Balance Sheet?

Accounts receivable would appear on the:

1 A) Balance Sheet with the current liabilities

2 B) Balance Sheet with the current assets

3 C) Income Statement with the revenues

4 D) Statement of Retained Earnings with the net income

Notes payable (due in 60 days) would appear as a:

1 A) current liability on the Balance Sheet

2 B) current asset on the Balance Sheet

3 C) long-term asset on the Balance Sheet

4 D) long-term liability on the Balance Sheet

Income taxes owed to the federal government would be classified as a(n):

1 A) expense on the Income Statement

2 B) financing activity on the Statement of Cash Flows

3 C) current asset on the Balance Sheet

4 D) current liability on the Balance Sheet

Liabilities are divided into two categories—

4 D) current and long- term.

In relation to the cash flow statement, purchases and sales of long-term assets are examples of:

2 B) a net loss during the period

3 C) a net income during the period

4 D) both A and C

The Statement of Cash Flows is divided into which three categories?

1 A) Operating, investing, and financing activities

2 B) Planning, executing, and evaluating activities

3 C) Increasing, decreasing, and non-cash activities

4 D) Developing, producing, and marketing activities

What is the proper order for the categories of the statement of cash flows?

1 A) Financing activities, investing activities, and operating activities

2 B) Operating activities, investing activities, and financing activities

3 C) Operating activities, financing activities, and investing activities

4 D) Investing activities, financing activities, and operating activities

Where would cash received from the sale of stock appear on the statement of cash flows?

1 A) In the operating activity section

2 B) In the non-cash financing activity section

3 C) In the investing activity section

4 D) In the financing activity section

The main source of cash from its main business comes from:

1 A) current assets on the balance sheet

2 B) operating activities on the statement of cash flows

3 C) financing activities on the statement of cash flows

4 D) investing activities on the statement of cash flows

How would the issuance of stock for cash be classified on the Statement of Cash Flows?

1 A) As an investing activity

2 B) As a financing activity

How would cash collected from customers appear on the Statement of Cash Flows?

1 A) As an operating activity

2 B) As a financing activity

3 C) As an investing activity

4 D) Under the indirect method

Retained earnings appears on which of the following financial

1 A) operating activities section of the cash flow statement

2 B) current and projected inventory levels

3 C) sales revenue trends and projected sales

4 D) net income for the current period and projected net income for the next period

An investor who wished to answer the question, "Can the company pay its current liabilities?" should investigate:

1 A) the financing activities section of the cash flow statement

2 B) the current assets and current liabilities on the balance sheet

3 C) the sales revenue trend

4 D) none of the above

Generally, three factors influence business and accounting decisions—

1 A) operating, investing, and financing activities

2 B) assets, liabilities, and equity

3 C) economic, legal, and ethical

4 D) revenues, expenses, and dividends

Which of the following questions should be asked in making an ethical

analysis?

1 A) Which option results in treating others as I would want to be treated?

2 B) Which options are the most honest, open, and truthful?

3 C) Which options create the greatest good for the greatest number of

stakeholders?

4 D) All of the above questions should be considered

2 B) What are the alternatives?

3 C) What alternative maximizes profit?

4 D) Who are the stakeholders?

Bookkeeping is a type of accounting used primarily by proprietorships

Generally accepted accounting principles, or GAAP, are the rules and

procedures established by the Financial Accounting Standards Board, or the FASB

1 True

2 False

One overall objective of accounting is to provide financial information that is useful to potential capital providers who are making investment and lending decisions

1 True

2 False

To be relevant, accounting information must be capable of making a

difference to the decision maker

1 True

Since we live in a global economy, all countries have adopted the same

accounting standards for business transactions

The accounting equation must always be in balance

Dividends never affect net income

Ramos, Inc has monthly revenues of $30,000 and monthly expenses of

$18,000, and the company paid $4,000 in dividends Therefore, net income for the month is $8,000

Yummy Inc has beginning retained earnings of $10,000, net income of

$50,000, and dividends paid of $5,000 Therefore, the ending retained

If expenses have exceeded sales revenue during the life of the company, the accumulation of these losses will result in an accumulated deficit in retained earnings

The statement of cash flows contains three “parts”—operating activities, investing activities, and stock activities

The ethical factor recognizes that while certain actions might be both

economically profitable and legal, they may still not be right

Accounting:

1 A) measures business activities

2 B) processes data into reports and communicates the data to decision

makers

3 C) is often called the language of business

4 D) is all of the above

The two types of accounting are:

1 A) profit and nonprofit

2 B) financial and managerial

3 C) internal and external

4 D) bookkeeping and decision-oriented

Management accounting:

1 A) includes information such as budgets and forecasts

2 B) is used to make strategic decisions for the entity

3 C) must be relevant to decision makers within the entity

4 D) is all of the above

What type of accounting provides information for decision makers outside the entity?

1 A) Bookkeeping

2 B) Managerial accounting

Financial statements are:

1 A) standard documents issued by outside consultants who are hired to

analyze key operations of the business in financial terms

2 B) the business documents that companies use to report the results of their financial activities to various user groups

3 C) reports created by management that states it is responsible for the acts of the corporation

4 D) the mechanical part of accounting

For which form of business ownership are the owners of a business legally distinct from the business?

1 A) Corporation

2 B) Partnership

Characteristics of a sole proprietor include:

1 A) multiple owners

2 B) limited personal liability for all business debts

3 C) a distinct entity, separate from its owner for accounting purposes

4 D) formation under state law

A partnership:

1 A) is a taxpaying entity

2 B) is not a distinct entity, separate from its owners for accounting purposes

3 C) has mutual agency

4 D) has limited liability for the partners

Owners of an LLC are called:

2 B) the double taxation of distributed profits

3 C) limited liability of the stockholders

4 D) limited liability company.

An entity that is organized according to state law and in which ownership units are called stock is a:

1 A) proprietorship

2 B) corporation

3 C) partnership

4 D) limited liability company

For accounting purposes, the business entity should be considered separate from its owners if the business is organized as a:

2 B) the Securities and Exchange Commission.

3 C) generally accepted accounting principles

4 D) the American Institute of Certified Public Accountants

The acronym GAAP stands for:

1 A) generally acceptable authorized pronouncements

2 B) government authorized accountant principles

3 C) generally accepted accounting principles

4 D) government audited accounting pronouncements

Accountants follow guidelines for professional measurement and disclosure of financial information called:

To be useful, accounting information must have the fundamental qualitative characteristics of:

1 A) comparability and relevance

2 B) relevance and faithful representation

3 C) materiality and understandability

4 D) faithful representation and timeliness

All of the following are characteristics of useful accounting information

1 A) comparable

2 B) material

3 C) timely

4 D) understandable

2 B) comparability and verifiability.

3 C) materiality and cost

4 D) relevance and faithful representation

The accounting assumption that states that the business, rather than its owners, is the reporting unit is the:

1 A) entity assumption

2 B) going concern assumption

3 C) stable-monetary-unit assumption

4 D) historical cost assumption

The stable-monetary-unit assumption of accounting:

1 A) ensures that accounting records and statements are based on the most reliable data available

2 B) holds that the entity will remain in operation for the foreseeable future

3 C) maintains that each organization or section of an organization stands apartfrom other organizations and individuals

4 D) enables accountants to ignore the effect of inflation in the accounting records

The continuity (going-concern) assumption of accounting:

1 A) enables accountants to ignore the effect of inflation in the accounting records

2 B) holds that the entity will remain in operation long enough to use its

existing assets

3 C) maintains that each organization, or section of an organization, stands apart from other organizations and individuals

4 D) ensures that accounting records and statements are based on the most reliable data available.

The principle stating that assets acquired by the business should be recorded

at their actual cost on the date of purchase is the:

1 A) cost principle

2 B) objectivity principle

3 C) reliability principle

4 D) stable dollar principle

The relevant measure of the value of the assets of a company that is going out of business is the:

an asset(s) of the business?

1 A) The Flagstaff residence only

2 B) The Chandler factory only

3 C) Both the Flagstaff and Chandler properties

An Oklahoma City business paid $15,000 cash for equipment used in the business At the time of purchase, the equipment had a list price of $20,000 When the balance sheet was prepared, the value of the equipment was

$22,000 What is the relevant measure of the value of the equipment?

1 A) Historical cost, $15,000

2 B) Fair market cost, $20,000

3 C) Current market cost, $22,000

4 D) $15,000 on the day of purchase, $22,000 on balance sheet date

An office building is appraised for $250,000 and offered for sale at $260,000 The buyer pays $245,000 for the building The building should be recorded on the books of the buyer at:

1 A) is working towards a convergence of standards with the IASB

2 B) will not accept IASB rules

3 C) does not want US companies to adopt IFRS standards

4 D) feels that the global use of IFRS will significantly increase costs of doing global business

The accounting equation can be stated as:

1 A) Assets + Stockholders’ Equity = Liabilities

2 B) Assets –Liabilities = Stockholders’ Equity

3 C) Assets = Liabilities - Stockholders’ Equity

4 D) Assets – Stockholders’ Equity + Liabilities = Zero

The economic resources of a business that are expected to produce a benefit

in the future are:

4 D) economic obligations to owners to be paid at some future date by the corporation.

Examples of liabilities include:

1 A) accounts payable and accounts receivable

2 B) accounts payable and land

3 C) investments and owners’ equity

4 D) accounts payable and long-term debt

The owners’ interest in the assets of a corporation is known as:

1 A) common stock

2 B) stockholders’ equity

3 C) long-term assets

4 D) operating expenses

The two main components of stockholders’ equity are:

1 A) retained earnings and paid-in capital

2 B) assets and liabilities

3 C) paid-in capital and assets

4 D) net income and retained earnings

The owners’ equity of any business is its:

1 A) revenues minus expenses

2 B) assets minus liabilities

3 C) assets plus liabilities.

4 D) paid-in capital plus assets

The amount that stockholders have invested in a corporation is called:

1 A) retained earnings

2 B) investment

3 C) revenue

4 D) paid-in capital

The major types of transactions that affect retained earnings are:

1 A) paid-in capital and common stock

2 B) assets and liabilities

3 C) revenues, expenses, and dividends

4 D) revenues and liabilities

Payables are classified as:

1 A) increases in earnings

2 B) decreases in earnings

3 C) liabilities

4 D) assets