Deck 1: Accounting As a Form of Communication

Question 1

Profits from operating activities distributed to business owners are called bonuses.

Answer 1

False

Question 2

The income statement is sometimes called the statement of profit and loss.

Answer 2

True

Question 3

Someone to whom a company has a debt is known as a creditor.

Answer 3

True

Question 4

Assets can be tangible or intangible in nature.

Question 5

An entity's liabilities come from three primary sources: creditors, investors, and profits retained in the business.

Question 6

Assets may be used to satisfy business obligations and to carry on business operations.

Question 7

The income statement is a statement that summarizes revenues and expenses for a period.

Question 8

The FASB is an external user that has the authority of the law to obtain certain accounting information.

Question 9

A partnership is a business owned by two or more individuals.

Question 10

The balance sheet is linked to the retained earnings statement by the ending retained earnings balance.

Question 11

Management accounting is the branch of accounting concerned with communication with internal management.

Question 12

An asset is a future economic benefit to a business.

Question 13

The amount of earnings distributed to stockholders can be found in the income statement.

Question 14

External users of accounting information include present and potential stockholders, bankers and other creditors, and management.

Question 15

Capital stock indicates the owners' ownership to a corporation.

Question 16

An expense is an inflow of assets resulting from the sale of goods and services.

Question 17

Business entities and non-business entities are both organized to earn a profit.

Question 18

An auto repair company is not an example of a manufacturer.

Question 19

Bondholders are external users of company's accounting information.

Question 20

A department store is an example of a manufacturer.

Question 21

All of the following are examples of manufacturers except:

A) Whirlpool
B) Boeing
C) Amazon.com
D) Ford

Question 22

When an entity's revenues exceed its expenses for a period of time, the entity will report net income.

Question 23

Owners' equity is the residual interest that remains after deducting liabilities from assets.

Question 24

The time period assumption assumes a company prepares financial statements every month.

Question 25

The International Accounting Standards Board (IASB) was created in order to develop worldwide accounting standards that must be used for all financial statements prepared regardless of country.

Question 26

The IASB is a branch of the FASB.

Question 27

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

Question 28

A company in the process of liquidation meets the requirements under the going concern assumption.

Question 29

The primary objective of external auditors is to provide assurance to stockholders and other users that the statements are fairly presented.

Question 30

Because market values are subjective, many assets are carried on the balance sheet at their acquisition cost.

Question 31

Stockholders' equity is owners' equity in a corporation.

Question 32

If a company prepares a statement of stockholders' equity, net income is deducted to retained earnings on this statement.

Question 33

According to the accounting profession, the purpose of financial reporting is to provide information about a company that investors, lenders, and other creditors can use when deciding whether to provide resources to the entity.

Question 34

The going concern assumption infers that a company will continue to operate until a known date.

Question 35

GAAP stands for Generally Accepted Accounting Procedures.

Question 36

The term used to refer to an asset's original cost is "fair market value."

Question 37

Cross Country Busline is an example of a

A) producer
B) supplier
C) retailer
D) service provider

Question 38

A balance sheet provides information during a period of time, while the other basic financial statements provide information on activities that occur over a point in time.

Question 39

The independent auditor's report conveys whether or not the business followed GAAP.

Question 40

Information must be timely to be relevant.

Question 41

Which of the following best describes the term "equity"?

A) The amount of total profits earned by a business since it began operations.
B) The amount of interest or claim that the owners have in the business.
C) The economic resources of a business entity.
D) The cumulative profits earned by a business less any dividends distributed.

Question 42

Which of the following would be classified as external users of financial statements?

A) Stockholders and management of the company
B) The controller of the company and a company's stockholders
C) The company's marketing managers
D) The creditors and stockholders of the company

Question 43

Which one of the following groups is considered an internal user of financial statements?

A) A bank reviewing a loan application from a corporation.
B) The labor union representing employees of a company that is involved in labor negotiations
C) The financial analysts for a brokerage firm who are preparing recommendations for the firm's brokers on companies in a certain industry,
D) Factory managers that supervise production line workers.

Question 44

Which one of the following events involves a liability for a business?

A) Loans to be repaid to banks
B) Inventories purchased for cash
C) Amounts invested by the owners
D) Stock sold to the general public

Question 45

Which of the following invests funds into a business and is considered an owner?

A) Bankers
B) Creditors
C) Stockholders
D) Lenders

Question 46

What is the name of the branch of accounting concerned with providing managers and administrators with information to facilitate the planning and control of business operations?

A) Financial Accounting
B) Auditing
C) Management Accounting
D) Bookkeeping

Question 47

Which of the following is an organization that lends funds to a business entity and expects repayment of the funds?

A) A creditor
B) A stockholder
C) An owner
D) A partner

Question 48

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 the dollar amount of bonds sold to the public.
C) Revenues represent assets used or consumed in the sale of products or services.
D) Revenues represent assets received from the sale of products or services.

Question 49

Which one of the following is not an external user of financial statements?

A) Suppliers
B) Creditors
C) The company's controller
D) None of these choices.

Question 50

Which of the following statements would be true if you own stock in a company?

A) You are an owner of the retained earnings and capital stock of the company.
B) You have a claim to the assets of the business
C) You have the right to receive interest on an annual basis.
D) You have the right to a portion of the company's revenues each accounting period.

Question 51

You are a potential stockholder and are concerned that a particular company you are ready to invest in might have too much debt.Which financial statement would provide you information needed in order to evaluate your concern?

A) Income statement
B) Balance sheet
C) Statement of retained earnings
D) Statement of public accounting

Question 52

The outflow of assets resulting from the sale of products and services is called a(n)

A) asset
B) liability
C) revenue
D) expense

Question 53

Which one of the following is least likely to be a user of financial information of a grocery store?

A) The manager of the grocery store.
B) The supplier of milk to the grocery store.
C) A stockbroker looking for a possible investment.
D) A customer at the grocery store.

Question 54

The costs of doing business through the sale of goods and services are called

A) Net income
B) Expenses
C) Revenues
D) Dividends

Question 55

Which one of the following is not one of the three activities included in the definition of accounting?

A) Communicating
B) Identifying
C) Measuring
D) Operating

Question 56

Which of the following best describes the term "expenses"?

A) The amount of total profits earned by a business since it began operations.
B) The amount of interest or claim that the owners have in the business.
C) The future economic resources of a business entity.
D) The outflow of assets resulting from the sale of goods and services.

Question 57

Which of the following would be internal users of accounting information?

A) Customers and vendors
B) Employees and managers
C) Government and banks
D) Employees and customers

Question 58

Which one of the following is not an external user of financial information?

A) IRS
B) Company management
C) Creditors
D) Stockholders

Question 59

Which one of the following business decisions will most likely require financial information?

A) The National Bank is reviewing the loan application from Petra's Restaurant.
B) Petra's Restaurant is attempting to sell its stock to the public.
C) The labor union representing Winn's Fitness Spa employees is negotiating a pay raise as part of a new labor agreement.
D) All of these choices.

Question 60

Tavella Company is ready to sell its bonds.Which one of the following financial questions is most relevant to the issue of the bonds and that investors will most likely want answered before they purchase the bonds?

A) How many product lines did Clip Joint Company have last year?
B) What will be Clip Joint Company's cost to start operations in another city?
C) How much debt does Clip Joint Company already have?
D) Will Clip Joint Company pay dividends?

Question 61

Leary Corporation's end-of-year balance sheet consisted of the following amounts: ? $$\begin{array} { l r l r } \text { Cash } & \$ 25,000 & \text { Accounts receivable } & \$ 46,000 \\\text { Property, plant \& equipment } & 69,000 & \text { Long-term debt } & 41,000 \\\text { Capital stock } & 107,000 & \text { Accounts payable } & 22,000 \\\text { Retained earnings } & ? & \text { Inventory } & 33,000\end{array}$$ ?
What is Leary's total liabilities balance at the end of the current year?

A) $3,000
B) $110,000
C) $63,000
D) $173,000

Question 62

Harbor City Corporation's end-of-year balance sheet consisted of the following amounts: ? $$\begin{array} { l c c r } \text { Cash } & \$ 15,000 & \text { Accounts receivable } & \$ 50,000 \\\text { Froperty, plant, and equipment } & 70,000 & \text { Long-term debt } & 40,000 \\\text { Capital stock } & 100,000 & \text { Accounts payable } & 20,000 \\\text { Retained earnings } & ? & \text { Inventory } & 35,000\end{array}$$ ?
What amount should Harbor City report on its balance sheet for total assets?

A) $110,000
B) $155,000
C) $170,000
D) $190,000

Question 63

Which one of the following items appears on a balance sheet?

A) Accounts payable
B) Sales revenue
C) Utilities expense
D) Cost of goods sold

Question 64

Which one of the following is a correct expression of the accounting equation?

A) Assets + Liabilities = Owners' Equity
B) Assets = Liabilities - Owners' Equity
C) Assets + Owners' Equity = Liabilities
D) Assets = Liabilities + Owners' Equity

Question 65

Which of the following terms best describes a distribution of the net income of a business to its owners?

A) Revenue
B) Monetary unit
C) Earnings
D) Dividends

Question 66

Which one of the following financial statements reports an entity's financial position at a specific date?

A) Balance sheet
B) Statement of retained earnings
C) Income statement
D) Both the income statement and the balance sheet

Question 67

Which financial statement would you analyze to determine if a company distributed any of its profits to its shareholders?

A) Balance Sheet
B) Statement of Retained Earnings
C) Income Statement
D) Statement of Public Accounting

Question 68

Harbor City Corporation's end-of-year balance sheet consisted of the following amounts: ? $$\begin{array} { l r l r } \text { Cash } & \$ 15,000 & \text { Accounts receivable } & \$ 50,000 \\\text { Property, plant, and equipment } & 70,000 & \text { Long-term debt } & 40,000 \\\text { Capital stock } & 100,000 & \text { Accounts payable } & 20,000 \\\text { Retained earnings } & ? & \text { Inventory } & 35,000\end{array}$$ ?
What is Harbor City's retained earnings balance at the end of the current year?

A) $10,000
B) $110,000
C) $160,000
D) $170,000

Question 69

Sun City Corporation's end-of-year balance sheet consisted of the following amounts: $$\begin{array} { l r l r } \text { Cash } & \$ 25,000 & \text { Accounts receivable } & \$ 70,000 \\\text { Property, plant, and equipment } & 70,000 & \text { Long-term debt } & 40,000 \\\text { Capital stock } & 100,000 & \text { Accounts payable } & 20,000 \\\text { Retained earnings } & ? & \text { Inventory } & 35,000\end{array}$$ What amount should Sun City report on its balance sheet for total assets?

A) $100,000
B) $95,000
C) $165,000
D) $200,000

Question 70

Murphy Corporation's end-of-year balance sheet consisted of the following amounts: ? $$\begin{array} { l r l r } \text { Cash } & \$ 35,000 & \text { Accounts receivable } & \$ 46,000 \\\text { Property, plant \& equip ment } & 69,000 & \text { Long-term debt } & 41,000 \\\text { Capital stock } & 107,000 & \text { Accounts payable } & 22,000 \\\text { Retained earnings } & ? & \text { Inventory } & 33,000\end{array}$$ ?
?
What is Murphy's owners' equity balance at the end of the current year?

A) $3,000
B) $120,000
C) $63,000
D) $173,000

Question 71

Which one of the following items is correct concerning the time element of financial statements?

A) The balance sheet covers a period of time.
B) The statement of retained earnings explains changes during a particular period.
C) An income statement lists amounts at a specific point in time.
D) Both the income statement and the balance sheet cover a period of time.

Question 72

Which one of the following is an economic obligation for a business entity?

A) Salaries paid to employees for services rendered
B) Materials used in manufacturing products
C) Amount owed to creditors
D) Payment of rent for the next year

Question 73

Leary Corporation's end-of-year balance sheet consisted of the following amounts: ? $$\begin{array} { l r l r } \text { Cash } & \$ 25,000 & \text { Accounts receivable } & \$ 46,000 \\\text { Property, plant, and equipment } & 69,000 & \text { Long-term debt } & 41,000 \\\text { Capital stock } & 107,000 & \text { Accounts payable } & 22,000 \\\text { Retained earnings } & ? & \text { Inventory } & 33,000\end{array}$$ ?
What is Leary's retained earnings balance at the end of the current year?

A) $10,000
B) $3,000
C) $66,000
D) $110,000

Question 74

Which statement summarizes the income earned and the dividends paid?

A) Statement of cash flows
B) Statement of retained earnings
C) Balance sheet
D) Income statement

Question 75

Which of the following is the correct date format for the financial statement heading?

A) Balance sheet for the year ended June 30, 2016
B) Income statement at December 31, 2016
C) Balance sheet at December 31, 2016
D) Statement of retained earnings at December 31, 2016

Question 76

Which financial statement would you refer to in order to determine whether a company owed funds to creditors?

A) Statement of public accounting
B) Statement of Retained Earnings
C) Income Statement
D) Balance sheet

Question 77

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.

Question 78

Which one of the following correctly represents one of the basic financial statement models?

A) Assets - Liabilities = Net Income
B) Assets + Liabilities = Owners' Equity
C) Revenues + Expenses = Net Income
D) Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

Question 79

Which of the following best describes the term "retained earnings"?

A) The amount of total profits earned by a business since it began operations.
B) The amount of interest or claim that the owners have on the assets of the business.
C) The future economic resources of a business entity.
D) The cumulative profits earned by the business less any dividends distributed.

Question 80

Which of the following statements is true?

A) Profits distributed to the creditors are called dividends.
B) The balance sheet shows the assets, liabilities, and profits of a company.
C) Dividends are an expense, and are reported on the income statement as a deduction from net income.
D) The income statement reports the revenues and expenses of a company.