Survey of Accounting, 3rd Edition Kimmel Test Bank by TBtutors

Type:

Test Bank

Resource:

Survey of Accounting

Edition:

3rd Edition

Author(s):

Paul D. Kimmel Jerry J. Weygandt Jill E. Mitchell

Survey of Accounting, 3e (Kimmel) Chapter 1 Introduction to Financial Statements 1) A business organized as a separate legal entity owned by stockholders is a partnership. Answer: FALSE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 2) Corporate stockholders generally pay higher taxes but have no personal liability. Answer: TRUE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 3) The liability of corporate stockholders is limited to the amount of their investment. Answer: TRUE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 4) The majority of U.S. business is transacted by proprietorships. Answer: FALSE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

5) Proprietorships in the United States generate more revenue than the other two forms of business enterprise. Answer: FALSE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 6) Owners of business firms are the only people who need accounting information. Answer: FALSE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 7) Management of a business enterprise is the major external user of information. Answer: FALSE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 8) External users of accounting information are managers who plan, organize, and run a business. Answer: FALSE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 9) The information needs and questions of external users vary considerably. Answer: TRUE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 2

10) Accounting communicates financial information about a business to both internal and external users. Answer: TRUE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 11) Two primary external users of accounting information are investors and creditors. Answer: TRUE Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 12) Financing activities for corporations include borrowing money and selling shares of their own stock. Answer: TRUE Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 13) Investing activities involve collecting the necessary funds to support the business. Answer: FALSE Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 14) The purchase of equipment is an example of a financing activity. Answer: FALSE Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 3

15) Assets are resources owned by a business that provide future services or benefits to the business. Answer: TRUE Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 16) Payments to owners are operating activities. Answer: FALSE Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 17) The economic resources that are owned by a business are called stockholders' equity. Answer: FALSE Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 18) Operating activities involve putting the resources of the business into action to generate a profit. Answer: TRUE Diff: 1 LO: 2 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 19) A business is usually involved in two types of activity–financing and investing. Answer: FALSE Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 4

20) Net income for the period is determined by subtracting total expenses and dividends from revenues. Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 21) A different set of financial statements usually is prepared for each user. Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 22) The heading for the income statement might include the line "As of December 31, 20xx." Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 23) Net income is another term for revenue. Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 24) Cash is another term for stockholders' equity. Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

25) 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. Answer: TRUE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 26) The balance sheet reports assets and claims to those assets at a specific point in time. Answer: TRUE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 27) The basic accounting equation states that Assets = Liabilities. Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 28) One way of stating the accounting equation is: Assets + Liabilities = Stockholders' Equity. Answer: FALSE Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 29) The accounting equation can be expressed as Assets - Stockholders' Equity = Liabilities. Answer: TRUE Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

30) The accounting equation can be expressed as Assets - Liabilities = Stockholders' Equity. Answer: TRUE Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 31) If the assets owned by a business total $150,000 and liabilities total $105,000, stockholders' equity totals $45,000. Answer: TRUE Diff: 1 LO: 3 Bloom: C AACSB / IMA: Analytic / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 1 32) If the assets owned by a business total $100,000 and liabilities total $65,000, stockholders' equity totals $25,000. Answer: FALSE Diff: 1 LO: 3 Bloom: C AACSB / IMA: Analytic / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 1 33) Claims of creditors and owners on the assets of a business are called liabilities. Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 34) Creditors' rights to assets supersede owners' rights to the assets. Answer: TRUE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 7

35) All publicly traded U.S. companies must provide their stockholders with an annual report each year. Answer: TRUE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 36) Information in the notes to the financial statements has to be quantifiable (numeric). Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 37) An auditor is an accounting professional who conducts an independent examination of the accounting data presented by a company. Answer: TRUE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Professional Demeanor Minutes: 1 38) The management discussion and analysis (MD&A) section of an annual report covers various financial aspects of a company. Answer: TRUE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Communication Minutes: 1 39) Explanatory notes and supporting schedules are an optional part of an annual report. Answer: FALSE Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Communication Minutes: 1 8

40) Examples of notes are descriptions of the significant accounting policies and methods used in preparing the statements, explanations of contingencies, and various statistics. Answer: TRUE Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Communication Minutes: 1 41) ESG reporting includes reports prepared by a company to highlight its performance regarding environmental, social, and governance issues. Answer: TRUE Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Communication Minutes: 1 42) 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. Answer: B Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 43) 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. Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 9

44) The partnership form of business organization A) is a separate legal entity. B) is a common form of organization for service-type businesses. C) enjoys an unlimited life. D) has limited liability. Answer: B Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 45) Which of the following is not one of the three forms of business organization? A) corporations B) partnerships C) proprietorships D) investors Answer: D Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 46) Most business enterprises in the United States are A) proprietorships and partnerships. B) partnerships. C) corporations. D) government units. Answer: A Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

47) A business organized as a separate legal entity is a A) corporation. B) proprietor. C) government unit. D) partnership. Answer: A Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 48) Which of the following is not an advantage of the corporate form of business organization? A) no personal liability B) easy to transfer ownership C) favorable tax treatment D) easy to raise funds Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 49) An advantage of the corporate form of business is that A) it has a limited life. B) its owner's personal resources are at stake. C) its ownership is easily transferable via the sale of shares of stock. D) it is simple to establish. Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

50) Which of the following is an advantage of corporations relative to partnerships and sole proprietorships? A) reduced legal liability for investors B) harder to transfer ownership C) lower taxes D) most common form of organization Answer: A Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 51) A corporation has which of the following set of characteristics? A) shared control, tax advantages, increased skills, and resources B) simple to set up and maintains control with founder C) easier to transfer ownership and raise funds, no personal liability D) harder to raise funds and gives the owner control Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 52) A small neighborhood barber shop that is operated by its owner would likely be organized as a A) joint venture. B) partnership. C) corporation. D) proprietorship. Answer: D Diff: 1 LO: 1 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

53) 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) ability to raise capital for expansion B) 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 Answer: C Diff: 1 LO: 1 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 54) All of the following are advantages for choosing a proprietorship for a business except A) a proprietorship is a simple form of business to set up. B) a proprietorship gives the owner control of the business. C) a proprietorship receives more favorable tax treatment. D) transfer of ownership is easily achieved through stock sales. Answer: D Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 55) 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. Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

56) Which one of the following questions is most likely asked by an internal human resources director for the company? A) Which product line is most profitable? B) What price for our product will maximize the company's income? C) What average pay raise is affordable for employees this year? D) Should any product lines be eliminated? Answer: C Diff: 1 LO: 1 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 57) Which of the following are internal reports that accounting provides to internal users? A) forecasts of cash needs for next year, but not financial comparisons of operating activity alternatives B) financial comparisons of operating activity alternatives, but not forecasts of cash needs for next year C) Both forecasts of cash needs and financial comparisons are internal reports. D) Neither forecasts of cash needs nor financial comparisons are internal reports. Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 58) Which of the following is the best definition of an internal user of accounting information? A) investors who use accounting information to decide whether to buy or sell stock B) creditors like banks that use accounting information to evaluate the risk of lending money C) labor unions who use accounting information to examine the ability of the company to pay increased wages and benefits D) managers who use accounting information to plan, organize, and run a business. Answer: D Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

59) The Internal Revenue Service is an external user of accounting information and a A) taxing authority. B) labor union. C) customer. D) regulatory agency. Answer: A Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 60) Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX)? 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. Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: Ethics / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 61) 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 Answer: B Diff: 1 LO: 1 Bloom: K AACSB / IMA: Ethics / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Professional Demeanor Minutes: 1

62) Which of the following is the most appropriate definition of accounting? A) the information system that identifies, records, and communicates the economic events of an organization to interested users B) a means of collecting information C) the interconnected network of subsystems necessary to operate a business D) electronic collection, organization, and communication of vast amounts of information Answer: A Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 63) Which of the following would not be considered an internal user of accounting data for the Xanadu Company? A) president of the company B) production manager C) merchandise inventory clerk D) president of the employees' labor union Answer: D Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 64) Which of the following groups uses accounting information primarily to ensure the entity is operating within prescribed rules? A) taxing authorities B) regulatory agencies C) labor unions D) management Answer: B Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Professional Demeanor Minutes: 1

65) The group of users of accounting information charged with achieving the goals of the business is its A) auditors. B) investors. C) managers. D) creditors. Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Industry/Sector Perspective; FC: Decision Modeling; PC: Project Management Minutes: 1 66) Which of the following external groups uses accounting information to determine whether the company can pay its obligations? A) investors in common stock B) marketing managers C) creditors D) chief financial officer Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 67) 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 Answer: A Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

68) Which of the following groups uses accounting information to determine whether an advertising proposal will be cost-effective? A) investors in common stock B) marketing managers C) creditors D) chief financial officer Answer: B Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Project Management Minutes: 1 69) Which of the following would not be considered an external user of accounting data for the Julian Company? A) Internal Revenue Service agent B) management C) creditors D) customers Answer: B Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 70) Which of the following would not be considered an internal user of accounting data for a company? A) the president of a company B) the controller of a company C) creditor of a company D) salesperson of a company Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

71) Which of the following is a primary user of accounting information with a direct financial interest in the business? A) taxing authority B) creditor C) regulatory agency D) labor union Answer: B Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 72) Which of the following is a user of accounting information with an indirect financial interest in a business? A) a financial adviser B) management C) investor D) creditor Answer: A Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 73) Which type of corporate information is readily available to investors? A) financial comparison of operating alternatives B) marketing strategies for a product that will be introduced in eighteen months C) forecasts of cash needs for the upcoming year D) amount of net income retained in the business Answer: D Diff: 1 LO: 1 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

74) Which of the following statements concerning users of accounting information is incorrect? A) Management is considered an internal user. B) Present creditors are considered external users. C) Regulatory authorities are considered internal users. D) Taxing authorities are considered external users. Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 75) External users want answers to all of the following questions except which of the following? A) Is the company earning satisfactory income? B) Will the company be able to pay its debts as they come due? C) Will the company be able to afford employee pay raises this year? D) How does the company compare in profitability with competitors? Answer: C Diff: 1 LO: 1 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 76) Which type of corporate information is not available to investors? A) dividend history B) forecast of cash needs for the upcoming year C) cash provided by investing activities D) beginning cash balance Answer: B Diff: 1 LO: 1 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

77) 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. Answer: A Diff: 1 LO: 2 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 78) The right to receive money in the future is called a(n) A) account payable. B) account receivable. C) liability. D) revenue. Answer: B Diff: 1 LO: 2 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 79) Which of the following is not a principal type of business activity? A) operating B) investing C) financing D) delivering Answer: D Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

80) Borrowing money is an example of a(n) A) delivering activity. B) financing activity. C) investing activity. D) operating activity. Answer: B Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 81) 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. Answer: C Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 82) 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. Answer: D Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

83) Which of the following activities involves obtaining the necessary funds to support the business? A) operating B) investing C) financing D) delivering Answer: C Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 84) Buying assets needed to operate a business is an example of a(n) A) delivering activity. B) financing activity. C) investing activity. D) operating activity. Answer: C Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 85) Which activities involve acquiring the assets to run the business? A) delivering B) financing C) investing D) operating Answer: C Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

86) Which activities involve putting the resources of the business into action to generate a profit? A) delivering B) financing C) investing D) operating Answer: D Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 87) The statement of cash flows would disclose the payment of a dividend A) nowhere on the statement. B) in the operating activities section. C) in the investing activities section. D) in the financing activities section. Answer: D Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 88) Buying and selling products are examples of A) operating activities. B) investing activities. C) financing activities. D) delivering activities. Answer: A Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

89) The common characteristic possessed by all assets is A) long life. B) great monetary value. C) tangible nature. D) future economic benefit. Answer: D Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 90) Expenses are incurred A) only on rare occasions. B) to produce assets. C) to produce liabilities. D) to generate revenues. Answer: D Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 91) The cost of assets consumed or services used is also known as A) a revenue. B) an expense. C) a liability. D) an asset. Answer: B Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

92) Resources owned by a business are referred to as A) stockholders' equity. B) liabilities. C) assets. D) revenues. Answer: C Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 93) The best definition of assets is the A) cash owned by the company. B) collections of resources belonging to the company and the claims on these resources. C) owners' investment in the business. D) resources belonging to a company that have future benefit to the company. Answer: D Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 94) Debts and obligations of a business are referred to as A) assets. B) equities. C) liabilities. D) expenses. Answer: C Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

95) 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 $275,000 from customers What was Jackson's net cash provided by operating activities? A) $125,000 B) $65,000 C) $140,000 D) $119,000 Answer: A Explanation: $275,000 - $135,000 - $15,000 = $125,000 (Cash coll. - sal. paid - util. paid) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3 96) 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 $350,000 from customers What was Gibson's net cash provided by operating activities? A) $150,000 B) $70,000 C) $170,000 D) $142,000 Answer: A Explanation: $350,000 - $180,000 - $20,000 = $150,000 (Cash coll. - sal. paid - util. paid) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

97) 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 Answer: A Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 98) Which of the following is an asset? A) mortgage payable B) investments C) common stock D) retained earnings Answer: B Diff: 1 LO: 2 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 99) Which of the following is not a liability? A) unearned service revenue B) accounts payable C) accounts receivable D) interest payable Answer: C Diff: 1 LO: 2 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

100) 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 Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 101) The retained earnings statement shows all of the following except A) the amounts of changes in retained earnings during the period. B) the causes of changes in retained earnings during the period. C) the time period following the one shown for the income statement. D) beginning retained earnings on the first line of the statement. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 102) Ending retained earnings for a period is equal to beginning A) Retained earnings + Net income + Dividends B) Retained earnings - Net income - Dividends C) Retained earnings + Net income - Dividends D) Retained earnings - Net income + Dividends Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: None Minutes: 1

103) 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. Answer: B Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 104) Dividends are reported on the A) income statement. B) retained earnings statement. C) balance sheet. D) income statement and balance sheet. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 105) Dividends paid A) increase assets. B) increase expenses. C) decrease revenues. D) decrease retained earnings. Answer: D Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

106) The financial statement that summarizes the changes in retained earnings for a specific period of time is the A) balance sheet. B) income statement. C) statement of cash flows. D) retained earnings statement. Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 107) To show how successfully your business performed during a period of time, you would report its revenues and expenses in the A) balance sheet. B) income statement. C) statement of cash flows. D) retained earnings statement. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 108) Net income results when A) Assets > Liabilities. B) Revenues = Expenses. C) Revenues > Expenses. D) Revenues < Expenses. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

109) 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. Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 110) Retained earnings at the end of the period is equal to A) retained earnings at the beginning of the period plus net income minus liabilities. B) retained earnings at the beginning of the period plus net income minus dividends. C) net income. D) assets plus liabilities. Answer: B Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 111) Which of the following financial statements is concerned with the company at a point in time? A) balance sheet B) income statement C) retained earnings statement D) statement of cash flows Answer: A Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

112) The company's policy toward dividends and growth could best be determined by examining the A) balance sheet. B) income statement. C) retained earnings statement. D) statement of cash flows. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Industry/Sector Perspective; FC: Reporting; PC: None Minutes: 1 113) An income statement A) summarizes the changes in retained earnings for a specific period of time. B) reports the changes in assets, liabilities, and stockholders' equity over a period of time. C) reports the assets, liabilities, and stockholders' equity at a specific date. D) presents the revenues and expenses for a specific period of time. Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 114) If the retained earnings account increases from the beginning of the year to the end of the year, then A) net income is less than dividends. B) a net loss is less than dividends. C) additional investments are less than net losses. D) net income is greater than dividends. Answer: D Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

115) The retained earnings statement would not show A) the retained earnings beginning balance. B) revenues and expenses. C) dividends. D) the ending retained earning balance. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 116) If the retained earnings account decreases from the beginning of the year to the end of the year, then A) net income is less than dividends. B) there was a net income and no dividends. C) additional investments are less than net losses. D) net income is greater than dividends. Answer: A Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: None Minutes: 1 117) Which financial statement is prepared first? A) balance sheet B) income statement C) retained earnings statement D) statement of cash flows Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

118) An income statement shows A) revenues, liabilities, and stockholders' equity. B) expenses, dividends, and stockholders' equity. C) revenues, expenses, and net income. D) assets, liabilities, and stockholders' equity. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 119) In a study session, a classmate makes this statement "Dividends are listed as expenses on the income statement." What is your best response to this statement? A) I've been struggling with that concept and I feel that dividends should be shown on the balance sheet as assets. B) You are right. Revenues and expenses are shown on the income statement. Dividends are a cost of generating revenues and that makes them an expense. Why else would a corporation pay dividends? C) Dividends represent a portion of corporate profits that are paid to the shareholders. They belong on the retained earnings statement. D) Dividends are deducted from retained earnings on the balance sheet. Answer: C Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

120) Henson Company began the year with retained earnings of $380,000. During the year, the company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000. What was Henson's retained earnings at the end of the year? A) $540,000 B) $460,000 C) $840,000 D) $500,000 Answer: B Explanation: $380,000 + ($500,000 - $380,000) - $40,000 = $460,000 (Beg. R/E + (rev.- exp.) - div.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3 121) Pinson Company began the year with retained earnings of $670,000. 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? A) $1,030,000 B) $750,000 C) $1,130,000 D) $600,000 Answer: B Explanation: $670,000 + ($600,000 - $380,000) - $140,000 = $750,000 (Beg. R/E + (rev.- exp.) - div.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

122) Finney Company began the year by issuing $80,000 of common stock for cash. The company recorded revenues of $740,000, expenses of $640,000, and paid dividends of $40,000. What was Finney's net income for the year? A) $60,000 B) $140,000 C) $100,000 D) $180,000 Answer: C Explanation: $740,000 - $640,000 = $100,000 (Rev. - exp.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3 123) Lankston Company began the year by issuing $120,000 of common stock for cash. The company recorded revenues of $1,100,000, expenses of $960,000, and paid dividends of $60,000. What was Lankston's net income for the year? A) $80,000 B) $200,000 C) $140,000 D) $260,000 Answer: C Explanation: $1,100,000 - $960,000 = $140,000 (Rev. - exp.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

124) Gilkey Corporation began the year with retained earnings of $310,000. During the year, the company issued $420,000 of common stock, recorded expenses of $1,200,000, and paid dividends of $80,000. If Gilkey's ending retained earnings was $330,000, what was the company's revenue for the year? A) $1,220,000 B) $1,300,000 C) $1,640,000 D) $1,720,000 Answer: B Explanation: $330,000 + $80,000 + $1,200,000 - $310,000 = $1,300,000 (End. R/E + div. paid + exp. - beg. R/E) Diff: 2 LO: 3 Bloom: AN AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3 125) Kilmer Corporation began the year with retained earnings of $930,000. During the year, the company issued $1,260,000 of common stock, recorded expenses of $3,600,000, and paid dividends of $240,000. If Kilmer's ending retained earnings was $990,000, what was the company's revenue for the year? A) $3,660,000 B) $3,900,000 C) $4,920,000 D) $50,160,000 Answer: B Explanation: $990,000 + $240,000 + $3,600,000 - $930,000 = $3,900,000 (End. R/E + div. paid + exp. - beg. R/E) Diff: 2 LO: 3 Bloom: AN AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

126) 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. Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 127) The accounting equation may be expressed as A) Assets = Stockholders' Equity - Liabilities. B) Assets = Liabilities + Stockholders' Equity. C) Assets + Liabilities = Stockholders' Equity. D) Assets + Stockholders' Equity = Liabilities. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 128) Which of the following is not a satisfactory statement of the accounting equation? A) Assets = Stockholders' Equity - Liabilities B) Assets = Liabilities + Stockholders' Equity C) Assets - Liabilities = Stockholders' Equity D) Assets - Stockholders' Equity = Liabilities Answer: A Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

129) Jimmy's Repair Shop started the year with total assets of $300,000 and total liabilities of $240,000. During the year, the business recorded $630,000 in revenues, $330,000 in expenses, and dividends of $60,000. Stockholders' equity at the end of the year was A) $360,000. B) $300,000. C) $240,000. D) $270,000. Answer: B Explanation: ($300,000 - $240,000) + ($630,000 - $330,000) - $60,000 = $300,000 [Beg. tot. assets - beg. tot. liab.) + (rev.- exp.) - div.] Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3 130) Jimmy's Repair Shop started the year with total assets of $300,000 and total liabilities of $240,000. During the year, the business recorded $630,000 in revenues, $330,000 in expenses, and dividends of $60,000. The net income reported by Jimmy's Repair Shop for the year was A) $240,000. B) $300,000. C) $180,000. D) $570,000. Answer: B Explanation: $630,000 - $330,000 = $300,000 (Rev. - exp) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

131) Ashley's Accessory Shop started the year with total assets of $210,000 and total liabilities of $120,000. During the year, the business recorded $330,000 in revenues, $165,000 in expenses, and dividends of $60,000. Stockholders' equity at the end of the year was A) $180,000. B) $165,000. C) $195,000. D) $105,000. Answer: C Explanation: ($210,000 - $120,000) + ($330,000 - $165,000) - $60,000 = $195,000 [Beg. tot. assets - beg. tot. liab.) + (rev. - exp.) - div.] Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3 132) Ashley's Accessory Shop started the year with total assets of $210,000 and total liabilities of $120,000. During the year, the business recorded $330,000 in revenues, $165,000 in expenses, and dividends of $60,000. The net income reported by Ashley's Accessory Shop for the year was A) $120,000. B) $150,000. C) $195,000. D) $165,000. Answer: D Explanation: $330,000 - $165,000 = $165,000 (Rev. - exp.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

133) If total liabilities increased by $90,000 and stockholders' equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period? A) $120,000 decrease B) $120,000 increase C) $150,000 increase D) $180,000 increase Answer: B Explanation: $90,000 + $30,000 = $120,000 (Tot. liab. inc. + st. eq. inc.) Diff: 2 LO: 3 Bloom: AN AACSB / IMA: Analytic / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: Problem Solving Minutes: 3 134) If total liabilities decreased by $90,000 and stockholders' equity increased by $30,000 during a period of time, then total assets must change by what amount and direction during that same period? A) $120,000 increase B) $60,000 decrease C) $60,000 increase D) $90,000 decrease Answer: B Explanation: ($90,000) + $30,000 = ($60,000) (Tot. liab. dec. + st. eq. inc.) Diff: 2 LO: 3 Bloom: AN AACSB / IMA: Analytic / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: Problem Solving Minutes: 3

135) If total liabilities decreased by $75,000 and stockholders' equity increased by $15,000 during a period of time, then total assets must change by what amount and direction during that same period? A) $60,000 decrease B) $60,000 increase C) $75,000 increase D) $90,000 increase Answer: A Explanation: ($75,000) + $15,000 = ($60,000) (Tot. liab. dec. + st. eq. inc.) Diff: 2 LO: 3 Bloom: AN AACSB / IMA: Analytic / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: Problem Solving Minutes: 3 136) If total liabilities decreased by $105,000 and stockholders' equity decreased by $35,000 during a period of time, then total assets must change by what amount and direction during that same period? A) $140,000 increase B) $70,000 decrease C) $140,000 decrease D) $70,000 increase Answer: C Explanation: ($105,000) + ($35,000) = ($140,000) (Tot. liab. dec. + st. eq. dec.) Diff: 2 LO: 3 Bloom: AN AACSB / IMA: Analytic / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: Problem Solving Minutes: 3

137) If total liabilities increased by $69,000 during a period of time and stockholders' equity decreased by $27,000 during the same period, then the amount and direction (increase or decrease) of the period's change in total assets is a(n) A) $69,000 increase. B) $96,000 increase. C) $42,000 decrease. D) $42,000 increase. Answer: D Explanation: $69,000 - $27,000 = $42,000 increase (Tot. liab. inc. - st. eq. dec.) Diff: 2 LO: 3 Bloom: AN AACSB / IMA: Analytic / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: Problem Solving Minutes: 3 138) The balance sheet A) summarizes the changes in retained earnings for a specific period of time. B) reports the changes in assets, liabilities, and stockholders' equity over a period of time. C) reports the assets, liabilities, and stockholders' equity at a specific date. D) presents the revenues and expenses for a specific period of time. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 139) The retained earnings statement A) summarizes the changes in retained earnings for a specific period of time. B) reports the changes in assets, liabilities, and stockholders' equity over a period of time. C) reports the assets, liabilities, and stockholders' equity at a specific date. D) presents the revenues and expenses for a specific period of time. Answer: A Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

140) Liabilities A) are future economic benefits. B) are debts and obligations. C) possess service potential. D) are things of value owned by a business. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 141) Liabilities of a company are owed to A) debtors. B) owners. C) creditors. D) stockholders. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 142) Stockholders' equity can be described as claims of A) creditors on total assets. B) owners on total assets. C) customers on total assets. D) debtors on total assets. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

143) Distributions to stockholders are called A) expenses. B) liabilities. C) dividends. D) distributions. Answer: C Diff: 1 LO: 2 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 144) Common stock is reported on the A) statement of cash flows. B) retained earnings statement. C) income statement. D) balance sheet. Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 145) Stockholders' equity is comprised of A) common stock and dividends. B) common stock and retained earnings. C) dividends and retained earnings. D) net income and retained earnings. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

146) Stockholders' equity A) is usually equal to cash on hand. B) is equal to liabilities and retained earnings. C) includes retained earnings and common stock. D) is shown on the income statement. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 147) Retained earnings is A) the stockholders' claim on total assets. B) equal to cash. C) equal to revenues. D) the amount of net income kept in the corporation for future use. Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 148) Which financial statement would best indicate whether the company relies on debt or stockholders' equity to finance its assets? A) statement of cash flows B) retained earnings statement C) income statement D) balance sheet Answer: D Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Measurement Analysis and Interpretation; PC: None Minutes: 1

149) The primary purpose of the statement of cash flows is to report A) a company's investing transactions. B) a company's financing transactions. C) information about cash receipts and cash payments of a company. D) the net increase or decrease in cash. Answer: C Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 150) Claims of owners are called A) dividends. B) stockholders' equity. C) liabilities. D) income payable. Answer: B Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 151) Which of the following is not a common way that managers use the balance sheet? A) to analyze the balances of assets, liabilities, and stockholders' equity throughout the accounting period B) to determine if the cash balance is sufficient for future needs C) to analyze the balance between debt and common stock financing D) to analyze the balance of accounts receivable on the last day of the accounting period Answer: A Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Business Economics AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

152) Why are financial statement users interested in the statement of cash flows? A) It is the easiest financial statement to evaluate. B) It provides information about an important company resource. C) It is the first statement that is presented to users. D) It helps users decide whether assets such as office equipment should be replaced. Answer: B Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 153) Why should the income statement be prepared first? A) The statement of cash flows should be prepared first because it determines the sources of cash. That information is then used in preparing the income statement. B) Net income from the income statement flows into the retained earnings statement. The ending retained earnings balance then flows into the balance sheet. C) The income statement does not have to be prepared first. Financial statements can be prepared in any order. D) None of these answer choices are correct. Answer: B Diff: 1 LO: 3 Bloom: C AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

154) Elston Company compiled the following financial information as of December 31, 2027: Service revenue Common stock Equipment Operating expenses Cash Dividends Supplies Accounts payable Accounts receivable Retained earnings, 1/1/27

$840,000 180,000 240,000 750,000 210,000 60,000 30,000 120,000 300,000 450,000

Elston's assets on December 31, 2027 are A) $1,620,000. B) $1,230,000. C) $750,000. D) $780,000. Answer: D Explanation: $240,000 + $210,000 + $30,000 + $300,000 = $780,000 (Equip. + cash + sup. + A/R) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

155) Elston Company compiled the following financial information as of December 31, 2027: Service revenue Common stock Equipment Operating expenses Cash Dividends Supplies Accounts payable Accounts receivable Retained earnings, 1/1/27

$840,000 180,000 240,000 750,000 210,000 60,000 30,000 120,000 300,000 450,000

Elston's retained earnings on December 31, 2027 are A) $450,000. B) $540,000. C) $480,000. D) $ 30,000. Answer: C Explanation: $450,000 + ($840,000 - $750,000) - $60,000 = $480,000 (Beg. R/E + (ser. rev. - oper. exp.) - div.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

156) Elston Company compiled the following financial information as of December 31, 2027: Service revenue Common stock Equipment Operating expenses Cash Dividends Supplies Accounts payable Accounts receivable Retained earnings, 1/1/27

$840,000 180,000 240,000 750,000 210,000 60,000 30,000 120,000 300,000 450,000

Elston's stockholders' equity on December 31, 2027 is A) $630,000. B) $660,000. C) $480,000. D) $720,000. Answer: B Explanation: $180,000 + [$450,000 + ($840,000 - $750,000) - $60,000] = $660,000 (Com. st. + beg. R/E + (ser. rev. - oper. exp.) - div.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

157) Benedict Company compiled the following financial information as of December 31, 2027: Service revenue Common stock Equipment Operating expenses Cash Dividends Supplies Accounts payable Accounts receivable Retained earnings, 1/1/27

$1,120,000 240,000 320,000 1,000,000 280,000 80,000 40,000 160,000 400,000 600,000

Benedict's assets on December 31, 2027 are A) $2,160,000. B) $1,640,000. C) $1,000,000. D) $1,040,000. Answer: D Explanation: $320,000 + $280,000 + $40,000 + $400,000 = $1,040,000 (Equip. + cash + sup. + A/R) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

158) Benedict Company compiled the following financial information as of December 31, 2027: Service revenue Common stock Equipment Operating expenses Cash Dividends Supplies Accounts payable Accounts receivable Retained earnings, 1/1/27

$1,120,000 240,000 320,000 1,000,000 280,000 80,000 40,000 160,000 400,000 600,000

Benedict's retained earnings on December 31, 2027 are A) $600,000. B) $720,000. C) $640,000. D) $ 40,000. Answer: C Explanation: $600,000 + ($1,120,000 - $1,000,000) - $80,000 = $640,000 (Beg. R/E + (ser. rev. - oper. exp.) - div.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3

159) Benedict Company compiled the following financial information as of December 31, 2027: Service revenue Common stock Equipment Operating expenses Cash Dividends Supplies Accounts payable Accounts receivable Retained earnings, 1/1/27

$1,120,000 240,000 320,000 1,000,000 280,000 80,000 40,000 160,000 400,000 600,000

Benedict's stockholders' equity on December 31, 2027 is A) $840,000. B) $880,000. C) $640,000. D) $960,000. Answer: B Explanation: $240,000 + [$600,000 + ($1,120,000 - $1,000,000) - $80,000] = $880,000 (Com. st. + beg. R/E + (ser.rev. - oper. exp.) - div.) Diff: 2 LO: 3 Bloom: AP AACSB / IMA: Analytic / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: Problem Solving Minutes: 3 160) The heading on the statement of cash flows identifies all of the following except A) the preparer of the statement. B) the company. C) the time period covered by the statement. D) the type of statement. Answer: A Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1

161) All of the following are interrelationships that are important to understand when preparing financial statements except A) the net income from the income statement is used in the retained earnings statement. B) the ending retained earnings from the retained earnings statement is used in the stockholder's equity section of the balance sheet. 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. 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. Answer: D Diff: 1 LO: 3 Bloom: K AACSB / IMA: None / Reporting AICPA: BB: Legal/Regulatory Perspective; FC: Reporting; PC: None Minutes: 1 162) Marvin Services Corporation had the following accounts and balances: Accounts payable Accounts receivable Buildings Cash

$30,000 5,000 ? 15,000