01 Practice Quiz

  1. Which is not one of the three forms of business organization?
    (a) Sole proprietorship
    (b) Creditorship
    (c) Partnership
    (d) Corporation
    (b) Creditorship
  2. Which is an advantage of corporations relative to partnerships and sole proprietorships?
    (a) Lower taxes
    (b) Harder to transfer ownership
    (c) Reduced legal liability for investors
    (d) Most common form of organization
    (c) Reduced legal liability for investors
  3. Which statement about users of accounting information is incorrect?
    (a) Management is considered an internal user.
    (b) Taxing authorities are considered external users.
    (c) Present creditors are considered external users.
    (d) Regulatory authorities are considered internal users.
    (d) Regulatory authorities are considered internal users.
  4. Which of the following did not result from the Sarbanes-Oxley Act?
    (a) Top management must now certify the accuracy of financial information.
    (b) Penalties for fraudulent activity increased.
    (c) Independence of auditors increased.
    (d) Tax rates on corporations increased.
    (d) Tax rates on corporations increased.
  5. Which is not one of the three primary business activities?
    (a) Financing
    (b) Operating
    (c) Advertising
    (d) Investing
    (c) Advertising
  6. Which of the following is an example of a financing activity?
    (a) Issuing shares of common stock
    (b) Selling goods on account
    (c) Buying delivery equipment
    (d) Buying inventory
    (a) Issuing shares of common stock
  7. Net income will result during a time period when:
    (a) assets exceed liabilities.
    (b) assets exceed revenues.
    (c) expenses exceed revenues.
    (d) revenues exceed expenses.
    (d) revenues exceed expenses.
  8. The financial statements for Joseph Corporation contained the following information:
    Image Upload 1
    What was Joseph Corporation's net income?
    (a) $60,000
    (b) $15,000
    (c) $65,000
    (d) $45,000
    (d) $45,000
  9. What section of a statement of cash flows indicates the cash spent on new equipment during the past accounting period?
    (a) The investing section
    (b) The operating section
    (c) The financing section
    (d) The cash flow statement does not give this information
    (a) The investing section
  10. Which statement presents information as of a specific point in time?
    (a) Income statement
    (b) Balance sheet
    (c) Statement of cash flows
    (d) Retained earnings statement
    (b) Balance sheet
  11. Which financial statement reports assets, liabilities, and stockholders' equity?
    (a) Income statement
    (b) Retained earnings statement
    (c) Balance sheet
    (d) Statement of cash flows
    (c) Balance sheet
  12. Stockholders' equity represents:
    (a) claims of creditors.
    (b) claims of employees.
    (c) the difference between revenues and expenses.
    (d) claims of owners.
    (d) claims of owners.
  13. As of December 31, 2012, Stoneland Corporation has assets of $3,500 and stockholders' equity of $1,500. What are the liabilities for Stoneland Corporation as of December 31, 2012?
    (a) $1,500
    (b) $1,000
    (c) $2,500
    (d) $2,000
    (d) $2,000
  14. The element of a corporation's annual report that describes the corporation's accounting methods is the:
    (a) notes to the financial statements.
    (b) management discussion and analysis.
    (c) auditor's report.
    (d) income statement.
    (a) notes to the financial statements.
  15. The element of the annual report that presents an opinion regarding the fairness of the presentation of the financial position and results of operations is/are the:
    (a) income statement.
    (b) auditor's opinion.
    (c) balance sheet.
    (d) comparative statements.
    (b) auditor's opinion.
  16. True or False: A business organized as a separate legal entity owned by stockholders is a partnership.
    False
  17. True or False: Corporate stockholders generally pay higher taxes but have no personal liability.
    True
  18. True or False: Owners of business firms are the only people who need accounting information.
    False
  19. True or False: The information needs and questions of external users vary considerably.
    True
  20. True or False: Accounting communicates financial information about a business to both internal and external users.
    True
  21. True or False: Two primary external users of accounting information are investors and creditors.
    True
  22. True or False: Financing activities for corporations include borrowing money and selling shares of their own stock.
    True
  23. True or False: Investing activities involve collecting the necessary funds to support the business.
    False
  24. True or False: The purchase of equipment is an example of a financing activity.
    False
  25. True or False: Assets are resources owned by a business and provide future services or benefits to the business.
    True
  26. True or False: A business is usually involved in two types of activity - financing and investing.
    False
  27. True or False: The heading for the income statement might include the line "As of December 31, 20xx".
    False
  28. True or False: Net income is another term for revenue.
    False
  29. True or False: Cash is another term for Stockholders' Equity.
    False
  30. True or False: The balance sheet reports assets and claims to those assets at a specific point in time.
    True
  31. True or False: The basic accounting equation states that Assets = Liabilities.
    False
  32. True or False: One way of stating the account equation is:
    Assets + Liabilities = Stockholders' Equity
    False
  33. True or False: If the assets owned by a business total $100,000 and liabilities total $70,000, stockholders' equity totals $30,000.
    True
  34. True or False: If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders' equity totals $25,000.
    False
  35. True or False: Creditors' rights to assets supersede owners' rights to the assets.
    True
  36. True or False: Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics.
    True
  37. True or False: All publicly traded U.S. companies must provide their shareholders with an annual report each year.
    True
  38. True or False: An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company.
    True
  39. True or False: The management discussion and analysis (MD&A) section of an annual report covers various financial aspects of a company.
    True
  40. The proprietorship form of business organization:
    (a) must have at least two owners in most states.
    (b) generally receives favorable tax treatment relative to a corporation.
    (c) combines the records of the business with the personal records of the owner.
    (d) is classified as a separate legal entity.
    (b) generally receives favorable tax treatment relative to a corporation.
  41. A business organized as a corporation:
    (a) is not a separate legal entity in most states.
    (b) requires that stockholders be personally liable for the debts of the business.
    (c) is owned by its stockholders.
    (d) has tax advantages over a proprietorship or partnership.
    (c) is owned by its stockholders.
  42. 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?
    (a) Only Jack is personally liable for the debt, since he has been the managing partner during that time.
    (b) Only Jill is personally liable for the debt of the business, since Jack has been working and she has not.
    (c) Both Jack and Jill are personally liable for the business debt.
    (d) Neither Jack nor Jill is personally liable for the business debt, since the partnership is a separate legal entity.
    (c) Both Jack and Jill are personally liable for the business debt.
  43. 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?
    (a) The ability to raise capital for expansion
    (b) The desire to limit the owner's personal liability
    (c) The prestige of operating as a corporation
    (d) The ease in transferring shares of the corporation's stock
    (c) The prestige of operating as a corporation
  44. Which of the following are internal reports that accounting provides to internal users?
    (a) Forecasts of cash needs for next year
    (b) Financial comparisons of operating activity alternative
    (c) Both a and b are internal reports
    (d) Neither a nor b is an internal report
    (c) Both a and b are internal reports
  45. Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX) of 2002?
    (a) The Act calls for increased oversight responsibilities for boards of directors.
    (b) The Act has resulted in increased penalties for financial fraud by top management.
    (c) The Act calls for decreased independence of outside auditors reviewing corporate financial statements.
    (d) The Act is meant to decrease the likelihood of unethical corporate behavior.
    (c) The Act calls for decreased independence of outside auditors reviewing corporate financial statements.
  46. Which of the following is not a step for solving an ethical dilemma?
    (a) Identifying the alternatives and weighing the impact of each alternative on various stakeholders.
    (b) Certifying the ethical accuracy of the financial information.
    (c) Identifying and analyzing the principal elements in the situation.
    (d) Recognizing the ethical situation and issues involved.
    (b) Certifying the ethical accuracy of the financial information.
  47. The right to receive money in the future is called a(n):
    (a) account payable.
    (b) account receivable.
    (c) liability.
    (d) revenue.
    (b) account receivable.
  48. The liability created by a business when it purchases coffee beans and coffee cups on credit from suppliers is termed a(n):
    (a) account payable.
    (b) account receivable.
    (c) revenue.
    (d) expense
    (a) account payable.
  49. Which of the following groups uses accounting information to determine whether the company's net income will result in a stock price increase?
    (a) Investors in common stock
    (b) Marketing managers
    (c) Creditors
    (d) Chief Financial Officer
    (a) Investors in common stock
  50. Which of the following is not a principal type of business activity?
    (a) Operating
    (b) Investing
    (c) Financing
    (d) Delivering
    (d) Delivering
  51. Borrowing money is an example of a(n):
    (a) delivering activity.
    (b) financing activity.
    (c) investing activity.
    (d) operating activity.
    (b) financing activity.
  52. Issuing shares of stock in exchange for cash is an example of a(n):
    (a) delivering activity.
    (b) investing activity.
    (c) financing activity.
    (d) operating activity.
    (c) financing activity.
  53. Debt securities sold to investors that must be repaid at a particular date some years in the future are called:
    (a) accounts payable.
    (b) notes receivable.
    (c) taxes payable.
    (d) bonds payable.
    (d) bonds payable.
  54. Which of the following is not a liability?
    (a) Unearned Revenue
    (b) Accounts Payable
    (c) Accounts Receivable
    (d) Interest Payable
    (c) Accounts Receivable
  55. Which of the following is an asset?
    (a) Mortgage payable
    (b) Investments
    (c) Common stock
    (d) Retained earnings
    (b) Investments
  56. When expenses exceed revenues, which of the following is true?
    (a) A net loss results
    (b) A net income results
    (c) Assets equal liabilities
    (d) Assets are increased
    (a) A net loss results
  57. Which of the following financial statements is divided into major categories of operating, investing, and financing activities?
    (a) The income statement
    (b) The balance sheet.
    (c) The retained earnings statement
    (d) The statement of cash flows.
    (d) The statement of cash flows.
  58. Ending retained earnings for a period is equal to:
    (a) Beginning retained earnings + Net income + Dividends
    (b) Beginning retained earnings – Net income – Dividends
    (c) Beginning retained earnings + Net income – Dividends
    (d) Beginning retained earnings – Net income + Dividends
    (c) Beginning retained earnings + Net income – Dividends
  59. Which of the following statements is true?
    (a) Amounts received from issuing stock are revenues.
    (b) Amounts paid out as dividends are not expenses.
    (c) Amounts paid out as dividends are reported on the income statement.
    (d) Amounts received from issued stock are reported on the income statement.
    (b) Amounts paid out as dividends are not expenses.
  60. Dividends are reported on the:
    (a) income statement.
    (b) retained earnings statement.
    (c) balance sheet.
    (d) income statement and balance sheet.
    (b) retained earnings statement.
  61. Kilmer Corporation began the year with retained earnings of $140,000. During the year, the company issued $250,000 of common stock, recorded expenses of $475,000, and paid dividends of $65,000. If Kilmer's ending retained earnings was $175,000, what was the company's revenue for the year?
    (a) $510,000
    (b) $575,000
    (c) $760,000
    (d) $825,000
    (b) $575,000
  62. Lankston Company began the year by issuing $50,000 of common stock for cash. The company recorded revenues of $305,000, expenses of $260,000, and paid dividends of $2,000. What was Lankston's net income for the year?
    (a) $43,000
    (b) $93,000
    (c) $45,000
    (d) $95,000
    (c) $45,000
  63. Pinson Company began the year with retained earnings of $300,000. During the year, the company recorded revenues of $650,000, expenses of $520,000, and paid dividends of $65,000. What was Pinson’s retained earnings at the end of the year?
    (a) $495,000
    (b) $365,000
    (c) $885,000
    (d) $430,000
    (b) $365,000
  64. A balance sheet shows:
    (a) revenues, liabilities, and stockholders' equity.
    (b) expenses, dividends, and stockholders' equity.
    (c) revenues, expenses, and dividends.
    (d) assets, liabilities, and stockholders' equity.
    (d) assets, liabilities, and stockholders' equity.
  65. Jimmy's Repair Shop started the year with total assets of $100,000 and total liabilities of $40,000. During the year the business recorded $212,000 in revenues, $170,000 in expenses, and dividends of $13,000. Stockholders' equity at the end of the year was:
    (a) $76,000.
    (b) $89,000.
    (c) $63,000.
    (d) $102,000.
    (b) $89,000.
  66. If total liabilities increased by $7,000 during a period of time and stockholders' equity decreased by $3,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n):
    (a) $7,000 increase.
    (b) $10,000 increase.
    (c) $4,000 decrease.
    (d) $4,000 increase.
    (d) $4,000 increase.
  67. Marvin Services Corporation had the following accounts and balances:
    Image Upload 2
    If the balance of the Building account was $34,000, what would be the total of liabilities and stockholders' equity?
    (a) $58,000
    (b) $59,000
    (c) $52,000
    (d) $66,000
    (b) $59,000
  68. Notes to the financial statements:
    (a) are optional.
    (b) help clarify information presented in the financial statements.
    (c) are generally brief and few in number.
    (d) need not be read in detail if an unqualified opinion accompanies the financial statements.
    (b) help clarify information presented in the financial statements.
  69. Notes to the financial statements include all of the following except:
    (a) descriptions of significant accounting policies used.
    (b) explanations of uncertainties.
    (c) quantifiable accounting information.
    (d) statistics needed to understand the statements.
    (c) quantifiable accounting information.
  70. 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?
    (a) Notes to the financial statements
    (b) Management discussion and analysis section
    (c) Balance sheet
    (d) Auditor's report
    (d) Auditor's report
  71. The information needed to determine whether a company is using accounting methods similar to those of its competitors would be found in the:
    (a) auditor's report.
    (b) balance sheet.
    (c) management discussion and analysis section.
    (d) notes to the financial statements.
    (d) notes to the financial statements.
  72. Management's views on the company's short-term debt paying ability, expansion financing, and results of operations are found in the:
    (a) auditor's report.
    (b) management discussion and analysis section.
    (c) notes to the financial statements.
    (d) president's state of the company report.
    (b) management discussion and analysis section.
Author
traywick
ID
158614
Card Set
01 Practice Quiz
Description
Kimmel: Financial Accounting, 6th Edition; Chapter 01
Updated