Deck 1: Financial Accounting

Question 1

Which financial statement would you analyze to determine its operating performance for the past year?

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

Answer 1

C

Question 2

Which of the following concepts relates to separating the reporting of business and personal economic transactions?

A) Cost principle
B) Monetary unit assumption
C) Economic entity assumption
D) Objectivity assumption

Answer 2

C

Question 3

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

A) Balance Sheet for the Year Ended June 30, 2012
B) Statement of Retained Earnings as of December 31, 2012
C) Income Statement for the Year Ending December 31, 2012
D) Statement of Retained Earnings at December 31, 2012

Answer 3

C

Question 4

IPOD CORPORATION
IPOD Corporations' end-of-year Balance Sheet consisted of the following amounts.
$\begin{array}{llll}\text { Cash } & \$ 180,000 & \text { Accounts receivable } & \$ 700,000 \\\text { Property, plant \& equipment } & 950,000 & \text { Long-term debt } & 600,000 \\\text { Capital stock } & 1,000,000 & \text { Accounts payable } & 350,000 \\\text { Retained earnings } & ? & \text { Inventory } & 540,000\end{array}$

- Refer to the information provided above for IPOD Corporation.What amount should IPOD report on its balance sheet for total assets?

A) $1,420,000
B) $1,830,000
C) $2,370,000
D) $2,190,000

Question 5

Which statement demonstrates the financial success or failure of the company over that specific period of time?

A) Statement of changes in stockholders' equity
B) Statement of retained earnings
C) Balance sheet
D) Income statement

Question 6

"Matching principle" is best described as:

A) the principle that a revenue should be recorded when a resource has been earned.
B) an increase in resources resulting from the sale of goods or the provision of services.
C) the principle that expenses should be recorded in the period resources are used to generate revenues.
D) an increase in the financing activities.

Question 7

Monaco Lawn Service Company creates revenue each time:

A) it is scheduled for service.
B) amount is paid in full.
C) a lawn is mowed.
D) money is received in advance.

Question 8

The resources used to generate revenues during a period are called:

A) net income.
B) expenses.
C) revenues.
D) dividends.

Question 9

What does the phrase, "Revenue is recognized when earned" mean?

A) Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on the income statement when sold to the customer.
B) Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer.
C) Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the income statement when the cash payment is received from the customer.
D) Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer.

Question 10

Doughtry's Pet Shop reported a net loss of $1,500,000 and total expenses of $2,900,000. How much were the total sales?

A) $4,400,000
B) $1,400,000
C) $2,900,000
D) $1,500,000

Question 11

"Revenues" are best described as:

A) decreases in resources resulting from the purchase of goods for the provision of services.
B) increases in resources resulting from the sale of goods or the provision of services.
C) assets used or consumed in the sale of products or services.
D) an increase in the financing activities section of the statement of cash flows.

Question 12

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

A) The cost of assets used in the investing activities of a business.
B) The amount of interest or claim that the owners have in the business.
C) The future economic resources of a business entity.
D) A decrease in resources resulting from the sale of goods or provision of services.

Question 13

Which of the following is an assumption made in the preparation of the financial statements?

A) Financial statements are prepared for a specific entity that is distinct from the entity's owners.
B) The current market value is assumed to be less relevant than the original cost paid.
C) The preparation of financial statements for a specific time period assumes that the balance sheet covers a designated period of time.
D) Financial statements are prepared assuming that inflation has a distinct effect on the monetary unit.

Question 14

IPOD CORPORATION
IPOD Corporations' end-of-year Balance Sheet consisted of the following amounts.
$\begin{array}{llll}\text { Cash } & \$ 180,000 & \text { Accounts receivable } & \$ 700,000 \\\text { Property, plant \& equipment } & 950,000 & \text { Long-term debt } & 600,000 \\\text { Capital stock } & 1,000,000 & \text { Accounts payable } & 350,000 \\\text { Retained earnings } & ? & \text { Inventory } & 540,000\end{array}$

- Refer to the information provided above for IPOD Corporation. What is IPOD's retained earnings balance at the end of the current year?

A) $ 420,000
B) $1,420,000
C) $1,950,000
D) $2,370,000

Question 15

The time period assumption is necessary because:

A) inflation exists and causes confusing swings in financial statement amounts over time.
B) external users of financial statements want accurately-reported net income for a specific period of time.
C) financial statements users expect full disclosure of all events throughout the entire time period translated in dollars.
D) it is required by the federal government.

Question 16

Expenses can be matched against revenues:

A) if the earnings process is not complete.
B) when cash is collected from the sale of products.
C) in the same period as the revenue that it helped to generate.
D) when payment is made for costs related to revenue.

Question 17

Monaco Lawn Service Company used $250 of fuel to mow customer lawns in June. The fuel was purchased on account and due in July. Fuel Expense should be recorded in:

A) July.
B) June.
C) August.
D) April.

Question 18

Which of the following underlying assumptions for the conceptual framework is the reason the dollar is used in the preparation of financial statements?

A) Economic entity
B) Continuity
C) Time period
D) Monetary unit

Question 19

The going concern assumption is concerned with:

A) the company's ability to continue operations long enough to carry out its existing obligations.
B) any information that is capable of influencing the decisions of anyone using the financial statements.
C) measuring ongoing business activities at their exchange price at the time of the initial external transaction.
D) offsetting management's natural optimism by providing a prudent approach to uncertainty in financial statement items.

Question 20

The income statement shows:

A) how much profit the company has earned since it began operations.
B) net income equal to the amount of cash on the balance sheet.
C) a summary of the results of operations for a period of time.
D) the liquidity of the company on an annual basis

Question 21

Which financial statement would you refer to in order to determine how many resources (assets) the company owns?

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

Question 22

"Economic resources" are known as:

A) assets.
B) liabilities.
C) owners' equity.
D) retained earnings.

Question 23

On January 1, 2012, Blackstone Company reported assets of $1,000,000 and liabilities of $600,000. During 2012 assets decreased by $200,000 and Equity decreased $250,000. What is the amount of Equity on December 31, 2012.

A) $650,000
B) $150,000
C) $400,000
D) $800,000

Question 24

Who among the following generally lends funds to a business entity and expects repayment of the funds?

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

Question 25

Ponzi Corporation
Ponzi Corporation reported the following information for the year ended December 31, 2012.
$\begin{array}{ll}\text { Net income } & \$ 100,000 \\\text { Dividends } & 6,000 \\\text { Retained earnings at December } 31,2012 & \$ 120,000\end{array}$

- Refer to the information provided above for Ponzi Corporation. What was the economic effect of the payment of Ponzi's dividends?

A) The dividend reduced net income for 2012.
B) The dividend should be added to net income if the company's accounting equation is in balance.
C) The dividend reduced total retained earnings.
D) The dividends must be paid whenever Ponzi Corporation reports net income.

Question 26

Ranger Company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000. How much is total equity?

A) $8,000,000
B) $2,000,000
C) $3,800,000
D) $1,800,000

Question 27

Ponzi Corporation
Ponzi Corporation reported the following information for the year ended December 31, 2012.
$\begin{array}{ll}\text { Net income } & \$ 100,000 \\\text { Dividends } & 6,000 \\\text { Retained earnings at December } 31,2012 & \$ 120,000\end{array}$

-Refer to the information provided above for Ponzi Corporation. What was the balance of retained earnings at January 1, 2012?

A) $ 21,000
B) $ 26,000
C) $106,000
D) $214,000

Question 28

Which of the following is a correct fundamental accounting equation?

A) Assets + Liabilities = Equity
B) Assets + Retained Earnings = Equity
C) Assets + Equity = Liabilities
D) Assets = Liabilities + Equity

Question 29

Which of the following is not an asset?

A) Investments
B) Cash
C) Inventory
D) Equity

Question 30

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) Statement of cash flows

Question 31

Who among the following invest funds into a business and are considered owners?

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

Question 32

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

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

Question 33

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

A) Retained earnings
B) Sales revenue
C) Utilities expense
D) Dividends

Question 34

How is the balance sheet linked to the other financial statements?

A) The amount of retained earnings is reported on the balance sheet as a liability.
B) Retained earnings is added to total assets and reported on the balance sheet.
C) Retained earnings from the statement of retained earnings is reported 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 35

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

A) Retained earnings
B) Dividends
C) Liquidation of assets
D) Revenue

Question 36

The assets and liabilities of the company are $175,000 and $40,000, respectively. Equity should equal:

A) $215,000.
B) $135,000.
C) $175,000.
D) $40,000.

Question 37

Liabilities are reported on the:

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

Question 38

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

A) An obligation to pay for goods purchased on credit from a supplier
B) Inventories purchased for cash
C) Amounts invested by the owners
D) Stock sold to the general public

Question 39

Peck Company
The Peck Company reported the following items on its financial statements for the year ending December 31, 2012.
$\begin{array}{llll}\text { Sales } & \$ 1,560,000 & \text { Cost of sales } & \$ 1,400,000 \\\text { Selling, general and } & & \text { Other expense } & 30,000 \\\text { administrative expense } & 40,000 & & \\\text { Dividends } & 10,000 & \text { Income tax expense } & 25,000\end{array}$

- Refer to Peck Company. How much will be reported as retained earnings on its balance sheet at December 31, 2012, if this is the first year of operations?

A) $45,000
B) $55,000
C) $85,000
D) Not enough information is provided.

Question 40

Peck Company
The Peck Company reported the following items on its financial statements for the year ending December 31, 2012.
$\begin{array}{llll}\text { Sales } & \$ 1,560,000 & \text { Cost of sales } & \$ 1,400,000 \\\text { Selling, general and } & & \text { Other expense } & 30,000 \\\text { administrative expense } & 40,000 & & \\\text { Dividends } & 10,000 & \text { Income tax expense } & 25,000\end{array}$

-Refer to the information provided above for Peck Company. The Income Statement of Peck will report net income for the current year in the amount of:

A) $ 55,000.
B) $ 65,000.
C) $ 85,000.
D) $120,000.

Question 41

Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid dividends of $50,000.

-
Refer to the information provided for Davis Construction, Inc. and calculate its retained earnings balance at December 31, 2012.

A) $175,000
B) $ 75,000
C) $150,000
D) $275,000

Question 42

The statement of cash flows has which of the following economic activity categories?

A) Financing, investing, and operating
B) Cash, credit, and noncash
C) Financing, credit, and operating
D) Financing, management, and operating

Question 43

Cash investments made by stockholders in exchange for capital stock in a business are reported on the statement of cash flows in the:

A) financing activities section.
B) investing activities section.
C) operating activities section.
D) supplemental section.

Question 44

Bailout Corporation
Bailout Corporation reported the following information for the year ended December 31, 2012.
$\begin{array}{ll}\text { Reverues } & \$ 2,500,000 \\\text { Expenses } & 2,000,000 \\\text { Retained earnings at December } 31,2011 & 100,000 \\\text { Retained earnings at December } 31,2012 & 450,000\end{array}$

-Refer to the selected information provided for Bailout Corporation. How much was paid out in dividends in 2012?

A) $500,000
B) $150,000
C) $350,000
D) $250,000

Question 45

If a company has $10,500,000 of revenues, declares and pays $550,000 in dividends, and has net income of $1,600,000, how much were expenses for the year?

A) $8,350,000
B) $1,050,000
C) $2,150,000
D) $8,900,000

Question 46

Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The retained earnings statement (RE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement. In what order are these three statements prepared?

A) I, RE, and B
B) B, I, and RE
C) RE, I, and B
D) RE, B, and I

Question 47

Tarp Corporation
$\begin{array}{ll}\text { Beginning retained earnings } & \$ 550,000 \\\text { Ending retained earnings } & 700,000 \\\text { Dividends paid } & 100,000 \\\text { Revenue } & 525,000\end{array}$

-Refer to the selected information provided for Tarp Corporation. The company's expenses are:

A) $100,000.
B) $150,000.
C) $450,000.
D) $275,000.

Question 48

Jetson Corporation
Jetson Corporation reported the following information for the year ended December 31, 2012.
$\begin{array}{ll}\text { Revenue } & \$ 14,000,000 \\\text { Expenses } & 11,500,000 \\\text { Dividends } & 1,000,000 \\\text { Retained earnings at December } 31,2012 & 1,750,000\end{array}$

-Refer to the selected information provided for Jetson Corporation. What was the retained earnings balance on December 31, 2011?

A) $ 250,000
B) $2,500,000
C) $1,500,000
D) $ 350,000

Question 49

On January 1, 2012, Money Company's balance in retained earnings was $10,000,000. At the end of the year, December 31, 2012, the balance in retained earnings was $9,400,000. During 2012, the company earned net income of $440,000. How much were dividends?

A) $1,040,000
B) $1,000,000
C) $ 600,000
D) $ 440,000

Question 50

Which one of the following is a correct basic structure of the cash flow statement?

A) Cash flows provided (used) by operating activities + / - cash flows provided (used) by business activities + / - cash flows provided (used) by financing activities = net increase (decrease) in cash
B) Cash flows provided (used) by operating activities + / - cash flows provided (used) by investing activities + / - cash flows provided (used) by business activities = net increase (decrease) in cash
C) Cash flows provided (used) by operating activities + / - cash flows provided (used) by financing activities + / - net change in working capital = net increase (decrease) in cash
D) Cash flows provided (used) by operating activities + / - cash flows provided (used) by investing activities + / - cash flows provided (used) by financing activities = net increase (decrease) in cash

Question 51

Which one of the following equations represents the statement of retained earnings activity?

A) Beginning retained earnings + net income + dividends = ending retained earnings
B) Beginning retained earnings + cash inflows - cash outflows = ending retained earnings
C) Beginning retained earnings + dividends - net income = ending retained earnings
D) Beginning retained earnings + net income - dividends = ending retained earnings

Question 52

Which one of the following is not one of the three business activities as shown in statement of cash flows?

A) Financing
B) Operating
C) Investing
D) Measuring

Question 53

Tarp Corporation
$\begin{array}{ll}\text { Beginning retained earnings } & \$ 550,000 \\\text { Ending retained earnings } & 700,000 \\\text { Dividends paid } & 100,000 \\\text { Revenue } & 525,000\end{array}$

- Refer to the selected information provided for Tarp Corporation. What is the net income for Tarp Corporation?

A) $150,000
B) $250,000
C) $525,000
D) $350,000

Question 54

Cash received from customers for mowing their lawns is reported on the statement of cash flows in the:

A) financing activities section.
B) investing activities section.
C) operating activities section.
D) supplemental section.

Question 55

Cash used to purchase a truck to transport lawn mowers and other tools to customer locations is reported on the statement of cash flows in the:

A) financing activities section.
B) investing activities section.
C) operating activities section.
D) supplemental section.

Question 56

Which one of the following is not one of the activities on the statement of cash flows?

A) Operating activities
B) Investing activities
C) Business activities
D) Financing activities

Question 57

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

A) The amount of total profits earned by a company since it began operations.
B) The amount of claim that the owners have on the assets of the company.
C) The future economic resources of a company.
D) The accumulated net income of a company that has not been distributed to owners in the form of dividends.

Question 58

If stockholders want to know how money flowed into and out of the company, what financial statement would they use?

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

Question 59

Which one of the following financial statements shows the end of the year cash balance for a business entity?

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

Question 60

Which of the following best describes a company's operating activities?

A) Operating activities are cash flows directly related to earning income.
B) Operating activities are necessary to provide the money to start a business.
C) Operating activities are needed to provide the valuable assets required to run a business.
D) Operating activities represent the right to receive a benefit in the future.

Question 61

Scott Brothers, Inc. follows the qualitative characteristic of consistency. This means that:

A) for expenses, Scott uses the same account titles as used by its competitors.
B) Scott has elected certain accounting principles that can never be changed.
C) Scott applies the same accounting methods each period.
D) Scott applies the same accounting principles as its competitors.

Question 62

One of the qualitative characteristics of accounting information include:

A) reliability.
B) cash flow information.
C) all accounting information.
D) assets reported on the balance sheet.

Question 63

Which of the following qualitative characteristic of useful accounting information implies that only items that meet or exceed certain thresholds will affect decisions?

A) Conservatism
B) Materiality
C) Relevance
D) Comparability

Question 64

Newton Corporation began operations on January 2, 2010, with a total investment of $150,000 by its stockholders. Net loss for its first year of business was $20,000. During 2011 and 2012, net income increased to $120,000 and $150,000, respectively. Newton paid $50,000 per year in dividends to its shareholders in 2011 and 2012.

Question 65

Mullins, Inc. manufactures furniture. Mullins has given you its most recent annual report in an effort to obtain a sizeable loan. The company is very profitable and appears to have a strong financial position. However, based on a news report you saw on television last night, you are aware that Mullins is a defendant in a class action lawsuit related to defective products. Serious injuries were allegedly caused by Mullins' infant high chairs overturning. The television news report is an example of financial information that is:

A) predictable.
B) conservative.
C) relevant.
D) comparable.

Question 66

An accountant is uncertain about the best estimate of an amount for a business transaction. If there are two possible amounts that could be recorded, the amount least likely to overstate assets and earnings is selected. Which of the following qualities is characterized by this action?

A) Comparability
B) Conservatism
C) Materiality
D) Neutrality

Question 67

Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid dividends of $50,000.

-
Refer to the information provided for Davis Construction, Inc. The dividends for the year:

A) increases the amount of capital stock reported by the company.
B) are part of Davis Construction's operating expense.
C) are reported on the statement of retained earnings.
D) are reported on the income statement.

Question 68

Information that is material means that an error in recording the dollar amount of a transaction would:

A) likely affect the judgment of someone relying on the financial statements.
B) not affect the decisions of financial statement users.
C) not impact a business decision of a creditor.
D) result in the overstatement of assets or income.

Question 69

The principle of conservatism is concerned with:

A) the avoidance of overstating assets or income in the preparation of financial statements.
B) the minimization of costs associated with providing financial information.
C) the company's ability to carry out its existing commitments.
D) the company's procedures for recording activities at their initial exchange price.

Question 70

Times Corporation
The accountant for the Times Corporation prepared the following list from the company's accounting records for the year ended December 31, 2012.
Prepare a Balance Sheet for the Times Corporation in a proper format.

Question 71

If an investor can use accounting information for two different companies to evaluate the types and amounts of expenses, the information is said to have the quality of:

A) comparability.
B) consistency.
C) neutrality.
D) materiality.

Question 72

Several amounts from GM Company at December 31, 2012, are listed below. Answer the questions.

Question 73

PTG Enterprises purchases many small pieces of office furniture, such as trash cans, that cost less than $100 each. PTG accounts for these items as expenses when acquired rather than reporting them as property, plant, and equipment on its balance sheet. The company's accountant states that no accounting principle has been violated. Justification for PTG's policy of expensing these furniture items is based on cost vs. benefit considerations as well as qualitative characteristic of accounting information of:

A) conservatism.
B) materiality.
C) reliability.
D) verifiability.

Question 74

Times Corporation
The accountant for the Times Corporation prepared the following list from the company's accounting records for the year ended December 31, 2012.
Determine the following amounts for Times Corporation:

Question 75

Cardinal Corporation reported the following information at December 31, 2012:

Question 76

The following information comes from the records of America Corporation:

Question 77

Davis Construction Inc.
Davis Construction began operation on January 1, 2012, with an initial investment of $100,000 from each of its three stockholders. During the year ending 2012 Davis Construction had net income of $125,000 and paid dividends of $50,000.

-
Refer to Davis Construction. If Davis Construction's revenues were $500,000 for the year ended December 31, 2012, how much were total expenses?

A) $450,000
B) $375,000
C) $325,000
D) $625,000

Question 78

The beginning balance of retained earnings was $2,400,000, and the ending balance was $1,500,000. The company paid dividends of $150,000.

Question 79

In order for accounting information to be useful in making informed decisions, it must be:

A) internal.
B) relevant.
C) reliable.
D) both relevant and reliable.

Question 80

Times Corporation
The accountant for the Times Corporation prepared the following list from the company's accounting records for the year ended December 31, 2012.
Determine the following amounts for Times Corporation.