Test bank for financial accounting tools for business decision making 6th edition

Balance Sheet The primary purpose of the statement of cash flows is to report 1.. To analyze the balance of accounts receivable on the last day of the accounting period Why are financia

Test Bank for Financial Accounting Tools for Business Decision Making 6th Edition

A business organized as a separate legal entity owned by stockholders is a partnership

External users of accounting information are managers who plan, organize, and run a business

Investing activities involve collecting the necessary funds to support the business

Cash is another term for Stockholders’ Equity

The accounting equation can be expressed as Assets - Stockholders’ Equity = Liabilities

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

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

Creditors’ rights to assets supersede owners’ rights to the assets

Explanatory notes and supporting schedules are an optional part of an annual report

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

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

Payments to stockholders are called

1. a expenses

2 b liabilities

3 c dividends

4 d distributions

Common stock is reported on the

1. a statement of cash flows

2 b retained earnings statement

3 c income statement

4 d balance sheet

Stockholders’ equity is comprised of

1. a common stock and dividends

2 b common stock and retained earnings

3 c dividends and retained earnings

4 d net income and retained earnings

Stockholders’ equity

1. a is usually equal to cash on hand

2 b is equal to liabilities and retained earnings

3 c includes retained earnings and common stock

4 d is shown on the income statement

Retained earnings is

1. a the stockholders’ claim on total assets

2 b equal to cash

3 c equal to revenues

4 d the amount of net income kept in the corporation for future use

Which financial statement would best indicate whether the company relies on debt or stockholders’ equity to finance its assets?

1. a Statement of Cash Flows

2 b Retained Earnings Statement

3 c Income Statement

4 d Balance Sheet

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

1. a a company`s investing transactions

2 b a company`s financing transactions

3 c information about cash receipts and cash payments of a company

4 d the net increase or decrease in cash

Claims of owners are called

1. a dividends

2 b stockholders’ equity

3 c liabilities

4 d income payable

Which of the following is not a common way that managers use the balance sheet?

1. a To analyze the balances of assets, liabilities, and stockholders’ equity throughout the accounting period

2 b To determine if the cash balance is sufficient for future needs

3 c To analyze the balance between debt and common stock financing

4 d To analyze the balance of accounts receivable on the last day of the

accounting period

Why are financial statement users interested in the statement of cash

flows?

1. a It is the easiest financial statement to evaluate

2 b It provides information about an important company resource

3 c It is the first statement that is presented to users

4 d It helps users decide whether assets such as office equipment should be replaced

Why should the income statement be prepared first?

1. a The statement of cash flows should be prepared first because it determinesthe sources of cash That information is then used in preparing the income statement

2 b Net income from the income statement flows into the retained earnings statement The ending retained earnings balance then flows into the balance sheet

3 c The income statement does not have to be prepared first Financial

statements can be prepared in any order

4 d None of these statements is correct

Elston Company compiled the following financial information as of December

31, 2012: Revenues $420,000 Common stock 90,000 Equipment 120,000 Expenses 375,000 Cash 105,000 Dividends 30,000 Supplies 15,000 Accounts payable 60,000 Accounts receivable 45,000 Retained earnings, 1/1/12 225,000 Elston’s assets on December 31, 2012 are:

1. a $705,000

2 b $510,000

3 c $240,000

4 d $285,000

Elston Company compiled the following financial information as of December

31, 2012: Revenues $420,000 Common stock 90,000 Equipment 120,000 Expenses 375,000 Cash 105,000 Dividends 30,000 Supplies 15,000 Accounts payable 60,000 Accounts receivable 45,000 Retained earnings, 1/1/12 225,000 Elston’s retained earnings on December 31, 2012 are:

1. a $225,000

2 b $270,000

3 c $240,000

4 d $ 15,000

Elston Company compiled the following financial information as of December

31, 2012: Revenues $420,000 Common stock 90,000 Equipment 120,000 Expenses 375,000 Cash 105,000 Dividends 30,000 Supplies 15,000 Accounts payable 60,000 Accounts receivable 45,000 Retained earnings, 1/1/12 225,000 Elston’s stockholders’ equity on December 31, 2012 is:

1. a $315,000

2 b $330,000

3 c $240,000

4 d $360,000

Benedict Company compiled the following financial information as of December 31, 2012: Revenues $280,000 Common stock 60,000 Equipment 80,000 Expenses 250,000 Cash 70,000 Dividends 20,000 Supplies 10,000 Accounts payable 40,000 Accounts receivable 30,000 Retained earnings, 1/1/12 150,000 Benedict’s assets on December 31, 2012 are:

1. a $210,000

2 b $220,000

3 c $160,000

4 d $240,000

The heading on the statement of cash flows identifies all of the following except:

1. a the preparer of the statement

2 b the company

3 c the time period covered by the statement

4 d the type of statement

All of the following are interrelationships that are important to understand when preparing financial statements except:

1. a The net income from the income statement is used in the retained earningsstatement

2 b The ending retained earnings from the Retained earnings statement is used in the stockholder`s equity section of the balance sheet

3 c The cash on the balance sheet should be equal to the cash at the end of the period on the statement of cash flows

4 d All of the payments on the balance sheet should be equal to the cash payments for operating activities on the statement of cash flows

Marvin Services Corporation had the following accounts and balances:

Accounts payable $12,000 Equipment $14,000 Accounts receivable 2,000 Land 14,000 Buildings ? Unearned service revenue 4,000 Cash 6,000 Total

stockholders' equity ? If the balance of the Buildings account was $28,000 and $2,000 of Accounts Payable were paid in cash, what would be the balance

of the total stockholders' equity?

1. a $54,000

2 b $48,000

3 c $68,000

4 d $52,000

Marvin Services Corporation had the following accounts and balances:

Accounts payable $12,000 Equipment $14,000 Accounts receivable 2,000 Land 14,000 Buildings ? Unearned service revenue 4,000 Cash 6,000 Total

stockholders' equity ? If the balance of the Buildings account was $16,000 and $4,000 of Accounts Payable were paid in cash, what would be the total liabilities and stockholders' equity?

1. a $36,000

2 b $52,000

3 c $32,000

4 d $48,000

Marvin Services Corporation had the following accounts and balances:

Accounts payable $12,000 Equipment $14,000 Accounts receivable 2,000 Land 14,000 Buildings ? Unearned service revenue 4,000 Cash 6,000 Total

stockholders' equity ? If total stockholder's equity was $38,000, what would

be the balance of the Buildings Account?

1. a $14,000

2 b $54,000

3 c $58,000

4 d $18,000

Marvin Services Corporation had the following accounts and balances:

Accounts payable $12,000 Equipment $14,000 Accounts receivable 2,000 Land 14,000 Buildings ? Unearned service revenue 4,000 Cash 6,000 Total

stockholders' equity ? If the balance of the Buildings account was $30,000 and the equipment was sold for $14,000, what would be the total of

Marvin Services Corporation had the following accounts and balances:

Accounts payable $12,000 Equipment $14,000 Accounts receivable 2,000 Land 14,000 Buildings ? Unearned service revenue 4,000 Cash 6,000 Total

stockholders' equity ? If the balance of the Buildings account was $34,000, what would be the total of liabilities and stockholders' equity?

1. a $68,000

2 b $70,000

3 c $54,000

4 d $50,000

Notes to the financial statements include all of the following except:

1. a Descriptions of significant accounting policies used

2 b Explanations of uncertainties

3 c Quantifiable accounting information

4 d Statistics needed to understand the statements

The management discussion and analysis (MD&A) section of the annual report covers all of the following aspects except:

1. a The ability of the company to pay near-term obligations

2 b The certification criteria of the company`s auditors

3 c The company`s ability to fund operations and expansion

4 d The results of the company operations

An annual report includes all of the following except

1. a management discussion and analysis section

2 b notes to the financial statements

3 c an auditor’s report.

4 d salary information for all the executives

Which of the following clarifies information presented in the financial

statements, as well as expanding upon it where additional detail is

needed?

1. a Auditor’s report

2 b Management discussion and analysis section

3 c Notes to the financial statements

4 d President’s state of the company report

The information needed to determine whether a company is using accounting methods similar to those of its competitors would be found in the

1. a auditor’s report

2 b balance sheet

3 c management discussion and analysis section

4 d notes to the financial statements

In the annual report, where would a financial statement reader find out if the company’s financial statements give a fair depiction of its financial position and operating results?

1. a Notes to the financial statements

2 b Management discussion and analysis section

3 c Balance sheet

4 d Auditor’s report

Management’s views on the company’s short-term debt paying ability,

expansion financing, and results of operations are found in the

1. a auditor’s report

2 b management discussion and analysis section

3 c notes to the financial statements

4 d president’s state of the company report

Which of the following statements is true?

1. a Publicly traded U.S companies must provide an annual report to their shareholders when operating conditions change significantly

2 b An unqualified independent auditor’s report must be included in the annualreport

3 c Notes to the financial statements do not need to be included in the annual report because that information is only for internal users

4 d All of the statements are false

Notes to the financial statements

1. a are optional

2 b help clarify information presented in the financial statements

3 c are generally brief and few in number

4 d need not be read in detail if an unqualified opinion accompanies the

financial statements

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

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

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

Which of the following is not one of the three forms of business

Most business enterprises in the United States are

1. a proprietorships and partnerships

2 b Easy to transfer ownership

3 c Favorable tax treatment

4 d Easy to raise funds

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 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

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

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

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

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

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 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 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 alternative

3 c Both a and b are internal reports

4 d Neither a or b is an internal report

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

External users of accounting information, like the Internal Revenue Service, are most commonly known as: