Deck 1: Business Decisions and Financial Accounting

Question 1

Creditors are mainly interested in the profitability of a company.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

Daily activities involved in running a business such as buying supplies and paying wages are operating activities.

Question 5

Accounts payable,notes payable and wages payable are examples of liabilities.

Question 6

If a company reports net income on the income statement,then the statement of cash flows must show an increase in cash flows from operating activities for the period.

Question 7

Building a new warehouse is an operating activity.

Question 8

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

Question 9

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

Question 10

In the United States,generally accepted accounting principles (GAAP)are established by the PCAOB (Public Company Accounting Oversight Board).

Question 11

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

Question 12

Generally Accepted Accounting Standards require profitable companies to distribute some of their profits to their stockholders.

Question 13

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

Question 14

Stockholders are creditors of a company.

Question 15

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

Question 16

You paid $10,000 to buy 1% of the stock in a corporation that has now gone bankrupt.The company owes $10 million dollars to creditors.As a result of the bankruptcy,you will lose $100,000.

Question 17

The stockholders' equity of a company is the difference between assets and liabilities.

Question 18

The payment of dividends is a financing activity.

Question 19

Contributed Capital is an asset on the balance sheet.

Question 20

Dividends are subtracted from revenues on the income statement.

Question 21

Public corporations:

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

Question 22

In which of the following organizational forms are the owners not taxed on the business profits?

A)Sole proprietorships.
B)Partnerships.
C)Corporations.
D)Public partnerships.

Question 23

Public accountants:

A)provide services to a variety of businesses.
B)may work for the SEC.
C)are government employees.
D)are generally involved in internal auditing,budgeting,and cost accounting.

Question 24

Accounting information systems:

A)are summarized by reports that are published to the public.
B)capture and report the results of a business's operating,investing,and financing activities.
C)monitor business activities only in financial terms.
D)capture only the information that is needed by the owners of the company.

Question 25

Financing that individuals or institutions have provided to a company is

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

Question 26

Net Income is

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

Question 27

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 on account.

Question 28

Which one of the following is not likely to be a consequence of fraudulent financial reporting?

A)The company's stock price drops once the fraud is discovered.
B)Innocent accountants who work for the company's CPA firm lose their jobs.
C)Creditors recover 100% of amounts owed to them.
D)Employees lose their retirement savings.

Question 29

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 30

Which one of the following statements regarding the balance sheet for Anonymous Inc.is true?

A)The $207,100 shown on the balance sheet has been distributed to stockholders as dividends.
B)Retained Earnings is misclassified.It should be reported as an Asset.
C)Anonymous,Inc. ,is owed $310,500 from customers who have purchased goods or services from the company,but have not yet paid for them.
D)The retained earnings reported represents the retained earnings at the beginning of the year.

Question 31

Financial statements are most commonly prepared:

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

Question 32

Expenses are shown

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

Question 33

Which of the following is true?

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 34

The three main types of business activities measured by financial statements are:

A)selling goods,selling services,and obtaining financing.
B)operating activities,investing activities,and financing activities.
C)hiring,producing,and advertising.
D)generating revenues,paying expenses,and paying dividends.

Question 35

Operating activities:

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

Question 36

Creditors are:

A)people or organizations who owe money to a business.
B)people or organizations to whom a business owes money.
C)stockholders of a business.
D)customers of a business.

Question 37

What is the missing amount for Notes Payable?

A)$207,100
B)$437,800
C)$1,439,200
D)$3,347,700

Question 38

Cash flow from investing activities includes

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

Question 39

As of September 30,2013,which source provided more financing for Anonymous,Inc.?

A)owners
B)creditors
C)both provided equal financing
D)neither provided any financing

Question 40

What is the missing amount for Total Liabilities?

A)$3,347,700
B)$1,439,200
C)$1,470,700
D)$1,877,000

Question 41

Which of the following would not affect a company's net income?

A)A change in the company's income taxes.
B)Changing the selling price of a company's product.
C)Paying a dividend to stockholders.
D)Advertising a new product.

Question 42

The Whackem-Smackem Software Company sold $11 million of computer games in its first year of operations.The company received payments of $7.5 million for these computer games.The company's income statement would report:

A)sales revenue of $7.5 million.
B)accounts receivable of $3.5 million.
C)expenses of $3.5 million.
D)sales revenue of $11 million.

Question 43

Find the missing data.

A)Total revenues are $3,810,200,other selling and administrative expenses are $1,051,500,and net income is $364,600.
B)Total revenues are $2,495,300,other selling and administrative expenses are $1,051,500,and net income is ($950,300).
C)Total revenues are $364,600,other selling and administrative expenses are $3,081,000,and net income is $7,255,800.
D)Total revenues are $3,810,200,other selling and administrative expenses are $364,600,and net income is $7,255,800.

Question 44

In the above statement of cash flows,what amount is represented by letter J?

A)($42,000)
B)$42,000
C)($22,000)
D)$22,000

Question 45

Which of the following is not true?

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

Question 46

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 47

Which of the following statements is true?

A)The "net change in cash" reported on the statement of cash flows is also reported on the statement of retained earnings.
B)Both the income statement and the statement of cash flows show the result of a company's operating activities.
C)The statement of cash flows is for a period of time while the income statement is at a point in time.
D)The statement of cash flows is at a point of time while the income statement is for a period of time.

Question 48

In the above statement of cash flows,what amount is represented by letter C?

A)$14,000
B)$10,000
C)(14,000)
D)0

Question 49

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 owned by a company.

Question 50

At the end of last year,the company's assets totaled $860,000 and its liabilities totaled $740,000.During the current year,the company's total assets increased by $58,000 and its total liabilities increased by $24,000.At the end of the current year,stockholders' equity was

A)$154,000.
B)$120,000.
C)$34,000.
D)$178,000.

Question 51

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

A)assets,liabilities,and retained earnings.
B)assets,liabilities,and contributed capital.
C)assets,liabilities,and revenues.
D)assets,liabilities,and stockholders' equity.

Question 52

Which of the following is not a professional certification for accountants?

A)CFO
B)CPA
C)CMA
D)CIA

Question 53

Dividends are reported on the:

A)Income statement.
B)Balance sheet.
C)Statement of retained earnings.
D)Income statement and balance sheet.

Question 54

The Don't Bite Me Pest Control Company has 10,000 gallons of insecticide supplies on hand that cost $300,000;a bill from the vendor for $100,000 of these supplies has not yet been paid.The company expects to earn $800,000 for its services when it uses the insecticide supplies.The company would report a supplies asset in the amount of

A)$10,000.
B)$200,000.
C)$300,000.
D)$800,000.

Question 55

A company's balance sheet contained the following information: Assume Notes Payable is the only other item on the balance sheet.Notes Payable must equal

A)$200,000.
B)$8,000.
C)$72,000.
D)$344,000.

Question 56

If XYZ Company had $12 million in revenue and net income of $3 million,then its:

A)expenses must have been $15 million.
B)expenses must have been $9 million.
C)assets must have been $12 million.
D)assets must have been $3 million.

Question 57

During its first year of operations,Widgets Incorporated reported sales revenue of $386,000 but collected only $303,000 from customers.The amount to be reported as accounts receivable at the end of the year is

A)$689,000.
B)$386,000.
C)$303,000.
D)$83,000.

Question 58

Which of the following would be reported on the income statement for 2013?

A)Supplies that were purchased and used in 2012 but paid for in 2013.
B)Dividends that were paid in 2013.
C)Supplies that were purchased in 2012,but used in 2013.
D)Accounts receivable as of December 31,2013.

Question 59

Which of the following is a true statement?

A)The SEC approves the rules used by the auditors in determining whether a public company's financial statements are in conformity with GAAP.
B)The PCAOB and the SEC were both created by the FASB.
C)The SEC was created by the PCAOB.
D)The PCAOB approves the rules used by auditors in determining whether a public company's financial statements are in conformity with GAAP.

Question 60

Which inference may be considered incorrect concerning the Statement of Retained Earnings?

A)Retained earnings of $350,500 will appear on the balance sheet as of December 31,2013.
B)The net income in the above statement came from the income statement for the year ending December 31,2013.
C)Dividends are shown in parentheses because they are distributions made by a company to its stockholders as a return on their investment.
D)Retained earnings represents the amount of cash at the end of 2013.

Question 61

Every financial statement should have "who,what,and when" in its heading.These are:

A)the name of the person preparing the statement,the type of financial statement,and when the financial statement was reported to the SEC.
B)the name of the person preparing the statement,the name of the company,and the date the statement was prepared.
C)the name of the company,the type of financial statement,and the time period or date from which the data were taken.
D)the name of the company,the purpose of the statement,and when the financial statement was reported to the IRS.

Question 62

Which of the following is true regarding a company's fiscal year?

A)All companies have a December 31 year end.
B)It usually corresponds to a company's slow period.
C)It always corresponds to the calendar year.
D)The Financial Accounting Standards Board assigns a year end to each company.

Question 63

Investors are often interested in the amount of net income distributed as dividends.In which section of the financial statements would investors look to find this amount?

A)Statement of retained earnings.
B)Balance sheet.
C)Notes to the financial statements.
D)Income statement.

Question 64

Which of the following would be acceptable as an alternative term used for the income statement?

A)Statement of Operations.
B)Statement of Financial Position.
C)Statement of Retained Earnings.
D)Statement of Revenues and Expenses.

Question 65

Which of the following business organizations has only one owner?

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

Question 66

In the U.S. ,generally accepted accounting principles are established:

A)directly by the 1933 Securities Act.
B)by the Public Company Accounting Oversight Board (PCAOB).
C)by the Financial Accounting Standards Board (FASB).
D)by the American Institute of Certified Public Accountants (AICPA).

Question 67

Which of the following is true about the format of financial statements?

A)A double underline is drawn below the subtotal for total liabilities on the balance sheet.
B)Dollar signs are omitted if the heading states that amounts are reported in U.S.dollars.
C)Dividends are reported in parentheses on the statement of retained earnings.
D)The heading of each financial statement indicates who,when,and what in that particular order.

Question 68

The purpose of a statement of retained earnings is to:

A)estimate the current value of a company's assets.
B)report how the profits of a company have been distributed to stockholders or retained in the business.
C)show where the cash is flowing into and out of a company.
D)explain the specific revenues and expenses arising during the period.

Question 69

What would a financial statement user learn from reading the auditors' report?

A)Whether the financial statements present a fair picture of the company's financial results and are prepared in accordance with GAAP.
B)Whether or not it is a good time to purchase the stock.
C)How much the company plans to distribute as dividends.
D)Whether or not the company has plans for future expansion.

Question 70

Internal users of financial data include:

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

Question 71

Which of the following is not a difference between notes payable and accounts payable?

A)Notes payable are not interest free while accounts payable may be interest free.
B)Notes payable are often outstanding for longer periods of time than accounts payable.
C)Notes payable are documented using formal written debt contracts while accounts payable are generally informal.
D)Notes payable are reported as stockholders' equity on the balance sheet while accounts payable are reported as liabilities on the balance sheet.

Question 72

An investor might look at a company's financial statements to determine all of the following,except:

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

Question 73

Which of the following is not an expense?

A)Wages of employees.
B)Interest incurred on a loan the company had taken out.
C)Dividends.
D)Corporate income tax.

Question 74

In the statement of cash flows,what amount is represented by letter L?

A)$159,000
B)$85,000
C)($85,000)
D)($159,000)

Question 75

During 2013,a company's assets increase by $56,000 and its liabilities increase by $38,000.If no dividend is paid and no further capital is contributed,net income for 2013 was:

A)$56,000.
B)$18,000.
C)$94,000.
D)$38,000.

Question 76

A creditor might look at a company's financial statements to determine if the:

A)company is likely to have the resources to repay its debts.
B)company's stock is likely to fall,signaling a good time to sell.
C)company's stock is likely to rise,signaling a good time to buy.
D)company pays a dividend.

Question 77

A company's quarterly income statements show that in the last three quarters both sales revenue and net income have been falling.Which of the following conclusions drawn by users are valid,given this information?

A)Creditors are likely to conclude that the risk of lending to the company is falling and might be willing to accept a lower interest rate on loans.
B)Investors are likely to conclude that the stock price is likely to rise,making the company more attractive as a potential investment.
C)Customers are likely to conclude that the company is struggling,therefore it is permissible to take longer to pay amounts they owe to the company.
D)Owners may conclude that the company will be less likely to distribute dividends.

Question 78

In the U.S. ,public companies have to be audited by independent auditors using rules approved by the:

A)1933 Securities Act.
B)Public Company Accounting Oversight Board (PCAOB).
C)Financial Accounting Standards Board (FASB).
D)American Institute of Certified Public Accountants (AICPA).

Question 79

The WC Company borrowed $26,500 from a bank during 2013.

A)This would be listed as ($26,500)under investing activities on the statement of cash flows.
B)This would be listed as ($26,500)under operating activities on the statement of cash flows.
C)This would be listed as $26,500 under investing activities on the statement of cash flows.
D)This would be listed as $26,500 under financing activities on the statement of cash flows.

Question 80

Which of the following actions would be considered unethical?

A)A company does not distribute any of its profits to stockholders.
B)A company rounds the revenues and expenses that it reports on the income statement.
C)An unintentional mistake made by a new accountant.
D)The cousin of one of the business owners is hired to perform the annual audit.