Deck 1: Business Decisions and Financial Accounting

Question 1

Cash paid for wages is an example of an operating activity on the statement of cash flows.

Answer 1

True
Explanation:Cash flows from running the business,including cash paid for wages,are operating activities on the statement of cash flows.

Question 2

Generally Accepted Accounting Principles (GAAP)require profitable companies to distribute some of their earnings to their stockholders.

Answer 2

False
Explanation:There is no GAAP requirement that companies pay dividends.Dividends are an optional distribution of earnings to stockholders,approved by the company's board of directors.

Question 3

Accounts Payable,Notes Payable,and Salaries and Wages Payable are examples of liabilities.

Answer 3

True
Explanation:An account with the word "payable" in its title is a liability.

Question 4

The Securities and Exchange Commission (SEC)is the government agency that has primary responsibility for setting accounting standards in the U.S.

Question 5

In order to be considered useful,information must have two fundamental characteristics: reliability and understandability.

Question 6

Borrowing money from a bank is a financing activity on the statement of cash flows.

Question 7

Common Stock is reported as an asset on the balance sheet.

Question 8

Investors are mainly interested in the profitability of a company.

Question 9

A company owes $200,000 on a bank loan.It will be reported by the company as Accounts Payable.

Question 10

Revenue is reported on the income statement only if cash was received at the point of sale.

Question 11

You paid $10,000 to buy 1% of the stock in a corporation that is now bankrupt.The company owes $10 million dollars to its creditors.As a result of the bankruptcy,you are responsible for paying $100,000 (or $10 million × 1%)of the amount owed to the creditors.

Question 12

The Sarbanes-Oxley Act (SOX)requires top management of companies to sign a report certifying that the financial statements are free of error.

Question 13

The daily activities involved in running a business,such as buying supplies and paying salaries and wages,are classified as operating activities on the statement of cash flows.

Question 14

Dividends are subtracted from revenues on the income statement.

Question 15

A stock that does not pay a dividend is an undesirable investment.

Question 16

Stockholders are owners of a corporation.

Question 17

All corporations acquire financing by issuing stock for sale on public stock exchanges.

Question 18

Stockholders' equity is the difference between a company's assets and its liabilities.

Question 19

If a company reports net income on the income statement,then the statement of cash flows will report the same amount as cash flows from operating activities for the period.

Question 20

Amounts reported on financial statements are sometimes rounded to the nearest million.

Question 21

Which of the following statements about organizational forms of a business is not correct?

A)In a sole proprietorship form of business or in a partnership form,the owner(s)are personally responsible for the debts of the business.
B)The partnership agreement states how profits are to be shared between partners and what happens when a new partner is to be admitted or an existing partner is retiring.
C)A corporation is a separate entity from both a legal and accounting perspective.
D)The owners of a corporation are legally responsible for the corporation's debts and taxes.

Question 22

Which of the following statements about financial accounting is correct?

A)Financial accounting reports are used primarily by employees to make business decisions related to production.
B)Financial accounting reports are used primarily by management to understand whether a product line should be discontinued.
C)Financial accounting reports are primarily prepared to provide information for external decision makers.
D)Financial accounting reports primarily contain detailed internal records of the company.

Question 23

The owner(s)of a business are not taxed on the profits of the business if the business is a:

A)sole proprietorship.
B)partnership.
C)corporation.
D)public partnership.

Question 24

Accounting systems:

A)are summarized in publicly published reports.
B)analyze,record,and summarize the activities affecting its financial condition and performance.
C)monitor business activities only in financial terms.
D)capture only the information that is needed by the owners of the company.

Question 25

The main goal of an accounting system is to:

A)capture information about a business so that it can be reported to decision makers.
B)earn a profit for the company's stockholders.
C)prove that assets equal liabilities plus stockholders' equity.
D)provide initial financing for a new startup.

Question 26

A legal document called a stock certificate is used to indicate ownership in a:

A)corporation.
B)sole proprietorship.
C)partnership.
D)both sole proprietorship and partnership.

Question 27

The owner is not responsible for the entity's taxes and debts if the entity is organized as a(n):

A)corporation
B)sole proprietorship.
C)unlimited liability corporation.
D)limited liability corporation.

Question 28

Which of the following expressions of the accounting equation is correct?

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

Question 29

Directors of a corporation:

A)want to ensure they will be paid for the goods and services they deliver.
B)oversee managers to ensure their decisions are in the best interests of its stockholders.
C)assess the financial strength of a business and attempt to estimate its value.
D)are responsible for the functioning of stock markets and ensuring that taxes are correctly computed.

Question 30

People or organizations to whom a business owes money are considered:

A)owners of a business.
B)creditors of a business.
C)stockholders of a business.
D)customers of a business.

Question 31

With respect to the audience targeted for financial accounting reports,which of the parties below is not an external user?

A)Customers of the company issuing the reports
B)Creditors of the company issuing the reports
C)Managers of the company issuing the reports
D)Stockholders of the company issuing the reports

Question 32

Financing that individuals or institutions have provided to a corporation is:

A)always classified as a liability.
B)classified as a liability when provided by creditors and as stockholders' equity when provided by owners.
C)always classified as equity.
D)classified as a stockholders' equity when provided by creditors and a liability when provided by owners.

Question 33

Managerial accounting reports prepared for internal use are used by the company's:

A)suppliers.
B)bank.
C)employees.
D)stockholders.

Question 34

Which of the following is a characteristic of a partnership?

A)The profits,taxes,and legal liability are the responsibility of two or more owners.
B)It is a legal entity separate from its owners.
C)Its income is taxed twice-once on the partnership's income tax return and again on the partners' individual income tax returns.
D)It is the only organizational form appropriate for service businesses.

Question 35

Which of the following is typically considered a disadvantage of sole proprietorships?

A)Income taxes are paid by both the business and its owner.
B)The business is considered a separate legal entity from its owner.
C)Establishing the business usually requires legal assistance.
D)Owner is personally liable for all debts of the business.

Question 36

Public corporations are businesses:

A)owned by two or more people,each of whom is personally liable for the debts of the business.
B)whose stock is bought and sold on a stock exchange.
C)whose stock is bought and sold privately.
D)where stock is not used as evidence of ownership.

Question 37

Internal users of financial data include:

A)investors.
B)creditors.
C)management.
D)regulatory authorities.

Question 38

Which of the following statements below is correct about a corporation and a partnership?

A)A partnership is comprised of two or more owners,whereas a corporation must have only one owner.
B)A corporation is legally responsible for its own taxes and debts.
C)Owners of both entities are legally responsible for the taxes and debts of the business.
D)Both entities issue shares of stock to owners.

Question 39

A sole proprietorship is:

A)a separate legal and accounting entity from its owner(s).
B)owned and operated by one individual.
C)considered a public company.
D)can easily raise large amounts of capital for growth.

Question 40

An investor who is looking at a company's financial statements cannot determine whether the:

A)company's earnings are rising or falling.
B)company pays a dividend.
C)company has positive cash flow.
D)company's owners are financially sound.

Question 41

Mauricio invested $30,000 in Pizza Aroma in exchange for its stock.Pizza Aroma now has:

A)a liability.
B)retained earnings.
C)common stock.
D)net income.

Question 42

Which of the following would not represent a financing activity?

A)Paying dividends to stockholders.
B)An investment of capital by the owners.
C)Borrowing money from a bank to purchase new equipment.
D)Buying supplies.

Question 43

A cost of doing business is referred to as a(n)________ and is considered necessary to earn ________.

A)revenue;assets
B)expense;revenue
C)liability;expenses
D)dividend;revenue

Question 44

Expenses are:

A)equal to a company's liabilities.
B)always less than revenues.
C)the costs of doing business that are necessary to earn revenue.
D)always less than the amount of cash a company has available.

Question 45

Profit is equal to:

A)revenues minus expenses.
B)assets minus liabilities.
C)the amount of cash that a company has.
D)the amount of cash that owners have contributed to the business.

Question 46

An economic resource that is owned by a company and will provide future benefits is referred to as:

A)revenue.
B)an asset.
C)retained earnings.
D)net income.

Question 47

Amounts earned by selling goods or services to customers are called:

A)revenues.
B)expenses.
C)dividends.
D)common stocks.

Question 48

Operating activities include:

A)interest paid on a bank loan.
B)the buying or selling of land,buildings,equipment,and other long-term investments.
C)the repayment of loan proceeds to the bank.
D)obtaining a bank loan to cover the payment of wages,rent and other operating costs.

Question 49

Operating activities,investing activities,and financing activities are presented on the:

A)balance sheet.
B)statement of cash flows.
C)statement of retained earnings.
D)income statement.

Question 50

The financial reports of a business include only the results of that business's activities.This is:

A)required only for large corporations.
B)the cost principle.
C)the accounting equation.
D)true only for financial statements prepared under IFRS.
E)the separate entity assumption.

Question 51

Alpha sold $2,000 of services to Beta on credit.Beta promised to pay for it next month.Beta will report a $2,000:

A)Payable.
B)Accounts Receivable.
C)decrease in Cash,since it plans to pay next month.
D)net income.

Question 52

Alpha sold $2,000 of services to Beta on credit.Beta promised to pay for it next month.Alpha will report a $2,000:

A)Accounts Receivable.
B)Account Payable.
C)increase in Cash,since Beta is sure to pay next month.
D)net loss.

Question 53

Cash flows from (used in)investing activities include amounts:

A)received from a company's stockholders for the sale of stock.
B)received from the sale of the company's office building.
C)paid for dividends to the company's stockholders.
D)paid for salaries of employees.

Question 54

The separate entity assumption assumes:

A)the financial reports of a business include only the results of that business's activities.
B)assets equal liabilities plus stockholder's equity.
C)revenues and expenses are reported in separate sections of a company's income statement.
D)assets are reported in a separate financial statement from liabilities.

Question 55

Net income is the amount:

A)the company earned after subtracting expenses and dividends from revenue.
B)by which assets exceed expenses.
C)by which assets exceed liabilities.
D)by which revenues exceed expenses.

Question 56

Expenses are reported on the:

A)income statement in the time period in which they are paid.
B)income statement in the time period in which they are incurred.
C)balance sheet in the time period in which they are paid.
D)balance sheet in the time period in which they are incurred.

Question 57

Financial statements are most commonly prepared:

A)daily.
B)monthly,quarterly,and annually.
C)as needed.
D)weekly.

Question 58

TreeTop Nursery sold $7,500 of goods to customers of which $4,500 has been collected.TreeTop should report revenues of:

A)$7,500.
B)$4,500.
C)$3,000.
D)$0.

Question 59

The separate entity assumption means:

A)a company's financial statements reflect only the business activities of that company.
B)each separate owner's finances must be revealed in the financial statements.
C)each separate entity that has a claim on a company's assets must be shown in the financial statements.
D)if the business is a sole proprietorship,the owners' personal activities are included in the company's financial statements.

Question 60

If revenues are less than expenses,the company's Retained Earnings:

A)decrease.
B)increase.
C)must be replenished by stockholders.
D)are paid to stockholders.

Question 61

A net loss for a period arises when:

A)assets are greater than liabilities.
B)revenues are less than expenses.
C)liabilities are greater than stockholder's equity.
D)revenues are greater than expenses.

Question 62

If total liabilities decreased by $50,000 and stockholders' equity increased by $10,000 during a period of time,then total assets must change by what amount and direction during that same time period?

A)$40,000 increase
B)$40,000 decrease
C)$60,000 increase
D)$60,000 decrease

Question 63

Which of the following statements about a fiscal year is correct?

A)Companies can choose to end their fiscal year on any date they feel is most relevant.
B)Companies must end their fiscal year on March 31,June 30,September 30,or December 31.
C)Companies can select any date except a holiday to end their fiscal year.
D)Companies must end their fiscal year on December 31.

Question 64

Assets:

A)represent the amounts earned by a company.
B)must equal the liabilities of a company.
C)must equal the stockholders' equity of the company.
D)represent the resources presently controlled by a company.

Question 65

Net income that has been paid out to the company's stockholders for their own personal use is referred to as:

A)dividends.
B)equities.
C)revenues.
D)retained earnings.

Question 66

During Year 5,a company's assets increase by $112,000 and its liabilities increase by $76,000.If no dividends were paid and there were no changes in the amount of common stock issued during the year,net income for Year 5 was:

A)$112,000.
B)$36,000.
C)$188,000.
D)$76,000.

Question 67

A company's balance sheet contained the following information: $\begin{array}{lrrr}\text { Common Stock } & \$ 24,000 & \text { Total Assets } & \$ 352,000 \\\text { Accounts Payable } & 128,000 & \text { Retained Earnings } & 56,000\end{array}$ Notes Payable is the only other item on the balance sheet.Notes Payable must equal:

A)$400,000.
B)$16,000.
C)$144,000.
D)$688,000.

Question 68

The WeBuild Construction Company sold $16.5 million of buildings in its first year of operations.The company received payments of $11.25 million for these buildings.The company's income statement would report:

A)Accounts Receivable of $5.25 million.
B)Expenses of $5.25 million.
C)Sales Revenue of $11.25 million.
D)Sales Revenue of $16.5 million.

Question 69

The Publish or Perish Printing Company paid a dividend to stockholders.This will be reported on the:

A)audit report.
B)income statement.
C)balance sheet.
D)statement of retained earnings.

Question 70

Crystal Lodging recorded $330,000 in revenues,$247,500 in expenses,and $45,000 of dividends for the year.The company began the year with total assets of $285,000 and stockholder's equity of $130,500. What net income (loss)was reported by Crystal Lodging for the year?

A)$37,500
B)$94,500
C)$82,500
D)$49,500

Question 71

If Blair Industries had $24 million in revenue and net income of $6 million,then its:

A)expenses must have been $30 million.
B)expenses must have been $18 million.
C)assets must have been $24 million.
D)assets must have been $6 million.

Question 72

Which of the following are the three basic elements of the balance sheet?

A)Assets,liabilities,and retained earnings.
B)Assets,liabilities,and common stock.
C)Assets,liabilities,and revenues.
D)Assets,liabilities,and stockholders' equity.

Question 73

During its first year of operations,Puffin,Inc.reported Sales Revenue of $772,000 but collected only $606,000 from customers.At the end of the year,Accounts Receivable equals:

A)$1,378,000.
B)$772,000.
C)$606,000.
D)$166,000.

Question 74

At the end of last year,the company's assets totaled $430,000 and its liabilities totaled $370,000.During the current year,the company's total assets increased by $29,000 and its total liabilities increased by $12,000.At the end of the current year,stockholders' equity was:

A)$77,000.
B)$60,000.
C)$17,000.
D)$89,000.

Question 75

Crystal Lodging recorded $330,000 in revenues,$247,500 in expenses,and $45,000 of dividends for the year.The company began the year with total assets of $285,000 and stockholder's equity of $130,500. Suppose that liabilities increased by $90,000 and stockholders' equity increased by $37,500.What would be the change in Crystal Lodging's assets?

A)$168,000 increase
B)$127,500 increase
C)$154,500 increase
D)$52,500 increase

Question 76

If Boward Co.has Common Stock of $40,000,total assets of $85,000,and total liabilities of $35,000,its Retained Earnings equals:

A)$10,000.
B)$45,000.
C)$50,000.
D)$55,000.

Question 77

A company began the year with assets of $200,000,liabilities of $40,000,and stockholders' equity of $160,000.During the year assets increased $110,000 and stockholders' equity increased $40,000.What was the change in liabilities for the year?

A)Increase of $150,000
B)Increase of $70,000
C)Decrease of $150,000
D)Decrease of $70,000

Question 78

The obligations and debts of a business are referred to as:

A)equities.
B)assets.
C)dividends.
D)liabilities.

Question 79

Which of the following is not correct?

A)Assets = Liabilities + Stockholders' Equity
B)Liabilities = Assets − Stockholders' Equity
C)Stockholders' Equity + Liabilities - Assets = 0
D)Assets = Liabilities − Stockholders' Equity

Question 80

Coast Company has 5,000 items of building supplies on hand that cost $150,000;a bill from the vendor for $50,000 of these supplies has not yet been paid.The company expects to earn $400,000 for its services when it uses the building supplies.The company's balance sheet would include an asset,Supplies,in the amount of:

A)$5,000.
B)$100,000.
C)$150,000.
D)$400,000.