Accounting- Identify the choice that best completes the statement or answers the question

| January 30, 2017

Question
Exam 1
Multiple Choice
Identify the choice that best completes the statement or answers the question Print off the answer key as you go through.784px;”>.
the problems. PLEASE NOTE THE PAGES REFERENCED IN THE ANSWER KEY IF YOU DO NOT UNDERSTAND
THE SOLUTION. Additional hints have been added to the problems in some cases.
____

1. Which financial statement would you refer to in order to determine whether a company owed funds to
creditors?
a. Balance Sheet
b. Statement of Retained Earnings

____

c. Income Statement
d. Statement of Public Accounting

2.

____

3.

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Which one of the following items is correct concerning the time element of financial statements?
a. The Balance Sheet covers a period of
c. An Income Statement lists amount at a
time.
specific point in time.
b. The Statement of Retained Earnings
d. Both the Income Statement and the
explains changes during a particular
Balance Sheet cover a period of time.
period of time.
Baker Corporations’ end-of-year Balance Sheet consisted of the following amounts:

Cash
$ 15,000 Accounts Receivable
$ 50,000
Property, plant & equipment
70,000 Long-term debt
40,000
Capital stock
100,000 Accounts payable
20,000
Retained earnings
? Inventory
35,000
Refer to Baker Corp. What amount should Baker report on its Balance Sheet for Total Assets?
a. $110,000
c. $170,000
b. $155,000
d. $190,000
____

4.

(

Cougar Soda Company starts the year with $85,000 in assets and $40,000 in liabilities. Net income
for the year is $45,000 and $5,000 dividends are paid. How much is owners’ equity at the end of the
year?

Th

a. 90,000
b. 85,000

c. 45, 000
d. 50,000

____

5. Which of the following statements best describes the term “revenues”?
a. Revenues represent an outflow of assets resulting from the sale of goods or services.
b. Revenues represent assets received from the sale of products or services.
c. Revenues represent assets used or consumed in the sale of products or services.
d. Revenues represent the dollar amount if bonds sold to the public.

____

6. Which one of the following is not an external user of financial information?
a. Company management
b. Internal Revenue Service

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____

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c. Creditors
d. Stockholders
7. How is the balance sheet linked to the other financial statements?
a. The amount of retained earnings reported on the Balance Sheet is equal to net income.
b. Retained earnings is added to total assets and reported on the Balance Sheet.
c. Net income increases retained earnings on the Statement of Retained Earnings, which
ultimately increases retained earnings on the Balance Sheet.
d. There is no link between the Balance Sheet and other statements, as each contains
different accounts and provides different information.
8. Which organization is primarily responsible for establishing GAAP today?
a. Financial Accounting Standards Board (FASB)
b. Securities and Exchange Commission (SEC)
c. Internal Revenue Service (IRS)
d. Federal Government
9.
If an investor can use accounting information for two different companies to evaluate the types and amounts of
expenses, the information is said to have the quality of
a. Comparability
b. Consistency

____ 10.

c. Neutrality
d. Understandability

Curbo Brothers, Inc. a retailer of men’s clothing, earned a net profit of $77,000 for 2010. The balance sheet
for Curbo Brothers includes the following items:
Cash
Inventory
Land
Taxes Payable
Retained Earnings

$
$
$
$
$

29,000
79,000
90,000
29,000
97,000

Accounts Receivable
Prepaid Insurance
Accounts Payable
Capital Stock
Long-term Notes Payable

$
$
$
$
$

39,000
3,000
21,000
50,000
43,000

Calculate the current ratio for Curbo Brothers.

Th

a. 2.58 to 1
c. 3.00 to 1
b. 2.75 to 1
d. 2.00 to 1
____ 11. What is the primary objective of financial reporting?
a. To help investors make credit decisions.
b. To help management assess cash flows.
c. To protect users from fraudulent financial information.
d. To provide useful information for decision making

____ 12. Which one of the following statements is true concerning assets?
a. They are recorded at market value and then adjusted for inflation.
b. They are recorded at market value for financial reporting purposes as historical cost may
be arbitrary.
c. Accounting principles require that companies report their assets at their cost.
d. Assets are measured using the time-period approach.
____ 13. The Littlefield Company has total current assets of $120,000 and total current liabilities of $50,000. What is
the amount of working capital for Littlefield Company?
a. $ 27,000
b. $ 67,000
c. $ 70,000
d. $ 91,000
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____ 14. CSX Transportation purchases many pieces of office furniture with an individual cost below $200 each. CSX
chooses to account for these expenditures as expenses when acquired rather than reporting them as property,
plant, and equipment on its balance sheet. The company’s accountant and independent CPA agree that no
accounting principle has been violated. What accounting justification allows CSX to expense the furniture?
a. Conservatism
b. Matching
c. Materiality
d. Verifiability
Bailey Company
Bailey Company has provided the following information from its accounting records for the current year:
$ 50,000 Accounts Receivable
$ 60,000 Land
$ 45,000 Notes Payable (due 2020)
???

$ 40,000
$ 75,000
$150,000

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Cash
Inventory
Accounts Payable
Retained Earnings

Th

____ 15. Refer to Bailey Company. Calculate Current Assets.
a. $ 90,000
b. $ 150,000
c. $ 195,000
d. $ 225,000
____ 16. Refer to Bailey Company. Calculate Current Liabilities
a. $ 45,000
b. $ 120,000
c. $ 195,000
d. $ 225,000
____ 17. CFO Consultants had the following balance sheet amounts at the beginning of the year:
Total assets
$400,000
Total owner’s equity
150,000
During the year, total assets increased by $100,000 and total liabilities increased by $40,000. The company
also paid $30,000 in dividends. No other transactions occurred except revenues and expenses. How much is
net income for the year?
a. $30,000
b. $60,000
c. $70,000
d. $90,000
____ 18. For which of the following is the current ratio is most useful?
a. In evaluating a company’s liquidity.
b. In evaluating a company’s solvency.
c. In evaluating a company’s profitability.
d. In evaluating a company’s probability.

____ 19. How is income from operations determined?
a. By subtracting the cost of goods sold from sales.
b. By subtracting the total operating expenses from sales
c. By subtracting the total operating expenses from gross profit.
d. By subtracting selling expenses from operating revenues.
____ 20. A bank loaned $62 million to Allison Corporation to finance the construction of a new distribution
warehouse. In which section of Allison’s Statement of Cash Flows would you be able to determine whether
the company repaid any portion of the debt during the year?
a. Operating Activities
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____ 22.

____ 23.

____ 24.

____ 25.

All of the following accounts have normal debit balances except
a. Accounts Receivable
b. Dividends
c. Office Supplies Expense
d. Common Stock
____ 27. One significant difference between a classified and a non-classified balance sheet is the distinction between
which of the following items?
a. Assets and Liabilities
b. Current and Noncurrent items
c. Liabilities and Owners’ Equity
d. Resources invested by the owners and amounts borrowed from creditors
____ 28. Assume that you want to determine the profit margin for a company. Which one of the following financial
statements is the best source of this information?
a. Statement of Retained Earnings
b. Statement of Cash Flows
c. Statement of Stockholders’ Equity
d. Income Statement

Th

____ 26.

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____ 21.

b. Investing Activities
c. Financing Activities
d. Profit Activities
During May, Lewis, Inc. purchased office supplies for cash. The supplies will be used in June. What effect
does this transaction have on the accounting equation in May?
a. Assets increase and owners’ equity decreases.
b. Assets increase and liabilities increase.
c. Assets decrease and liabilities decrease.
d. There is no effect on the accounting equation as one asset account increases while another
asset account decreases.
Which of the following statements best describes one effect of recognizing expenses incurred by a business
entity?
a. Assets will increase.
b. Liabilities will decrease.
c. Owners’ equity will increase.
d. Owners’ equity will decrease.
A list of all accounts and their balances which is used to prove the equality of debits and credits as of a
specific date is a(an)
a. Account
b. General Journal
c. General Ledger
d. Trial Balance
The correct term for an entry made to the left side of an account is
a. Double-entry system
b. Debit
c. Credit
d. Journalizing
e. Posting
Which of the following accounts is increased by a credit entry?
a. Sales Revenue
b. Salary Expense
c. Accounts Receivable
d. Dividends

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____ 29. The three forms of business entities are:
a. Government, cooperatives, and philanthropic organizations
b. Financing, investing, and operating
c. Sole proprietorships, partnerships, and corporations
d. Wholesaler, manufacturer, and retailer

Identify one or more choices that best complete the statement or answer the question.
____ 30. Which of the following statements are correct?
I. If equipment is purchased for cash, then we credit the cash account and debit the equipment account.

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II. If buildings are purchased in exchange for a three-year note payable, then we debit the buildings account
and debit the accounts payable account.
III. If advertising bill for the month is paid, then we credit the cash account and credit the advertising expense.
IV. If dividends are paid to stockholders, then we credit the cash account and debit the dividend account.
a.

I and IV

b. Only I

c. II and III

d. All of the above

31. A company received and immediately paid a $3,000 utility bill. Payment of the utility bill would be
posted to the ledger accounts as:
A. Debit to accounts Payable and a credit to Utility Expense
B. Debit to Utility Expense and a credit to Cash
C. Credit to Utility Expense and a debit to Cash
D. Credit to Accounts Payable and a debit to Utility Expense

Th

32. Expense and revenue accounts statements?
A. Balance Sheet and Cash Flow
B. Income Statement
C. Stockholders’ Equity Statement and Cash Flow
D. Income Statement and Balance Sheet
E. Both A and D

33. Which of the following usually is NOT considered to be an owners’ equity account?
A. Cash
B. Retained Earnings
C. Common Stock
D. Net Income
E. All of the above are owner’s equity accounts

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