Accounting Final Prt 1 Flashcards
(174 cards)
1
Q
Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s business activities
A
True
2
Q
Accounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s business activities
A
True
3
Q
Bookkeeping is the recording of transactions and events and is only part of accounting.
A
True
4
Q
An accounting information system communicates data to help businesses make better decisions
A
True
5
Q
Managerial accounting is the area of accounting that provides internal reports to assist the decision making needs of internal users.
A
True
6
Q
Internal operating activities include research and development, distribution, and human resources.
A
True
7
Q
The primary objective of financial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization’s activities.
A
True
8
Q
External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.
A
True
9
Q
External users include lenders, shareholders, customers, and regulators.
A
True
10
Q
Regulators often have legal authority over certain activities of organizations.
A
True
11
Q
Internal users include lenders, shareholders, brokers and managers.
A
False
Managers, officers, internal auditors, sales staff, budget officers, and controllers
12
Q
Opportunities in accounting include auditing, consulting, market research, and tax planning.
A
True
13
Q
Identifying the proper ethical path is easy.
A
False.
You have to use your own personal ethics to recognize the problem, analyze options and choose the best option. This can be very hard.
14
Q
Good ethics are good business.
A
True
15
Q
A partnership is a business owned by two or more people.
A
True
16
Q
Owners of a corporation are called shareholders or stockholders.
A
True
17
Q
In the partnership form of business, the owners are called shareholders.
A
False
They are called Partners
18
Q
The statement of financial position shows a company’s net income or loss due to earnings activities over a period of time.
A
False
also referred to as a balance sheet, reports on a company’s assets, liabilities, and ownership equity at a given point in time.
19
Q
The International Accounting Standards Board (IASB) is an independent group which issues International Financial Reporting Standards (IFRS).
A
True
20
Q
The business entity principle means that a business will continue operating for an indefinite period of time
A
False
is where the business is seen as an entity separate from its owner(s) that keeps and presents financial records and prepares the final accounts and financial statements. The accounting is kept for each entity as a whole (groups of companies must present consolidated accounts and consolidated financial statements).
21
Q
Generally accepted accounting principles are the basic assumptions, concepts, and guidelines for preparing financial statements.
A
True
22
Q
The business entity assumption means that a business is accounted for separately from other business entities, including its owner or owners.
A
True
23
Q
As a general rule, revenues should not be recognized in the accounting records until it is received in cash.
A
Fasle
24
Q
Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice.
A
False
Specific principles are the basic principles or detailed rules used in reporting business transactions and events.
25
General accounting principles arise from long-used accounting practices.
True
26
A sole proprietorship is a business owned by one or more persons.
False
It is owned by a single owner.
27
Unlimited liability is an advantage of a sole proprietorship
False
28
Understanding generally accepted accounting principles is not necessary to use and interpret financial statements.
False
29
The International Accounting Standards board (IASB) has the authority to impose its standards on companies around the world.
False
The IASB does not have that authority.
30
Objectivity means that financial information is supported by independent unbiased evidence.
True
31
The idea that a business will continue to operate instead of being closed or sold underlies the going-concern assumption.
True
32
According to the cost principle, it is preferable for managers to report an estimate of an asset's value.
False
33
The monetary unit assumption means that all international transactions must be expressed in dollars.
False
34
The International Accounting Standards Board (IASB) is the government group that establishes reporting requirements for companies that issue shares to the public.
False
35
Limited liability is the main advantage of partnerships.
False
36
In the U.S., the Securities and Exchange Commission (SEC) is a government agency that has legal authority to establish GAAP.
True
37
The three common forms of business ownership include sole proprietorship, partnership, and non-profit
False
38
The three major types of business activities are operating, financing, and investing.
True
39
Planning is defining an organization's ideas, goals, and actions.
True
40
Strategic management is the process of determining the right mix of operating activities for the type of organization, its plans, and its markets.
True
41
Planning activities are the means an organization uses to pay for resources like land, buildings, and equipment to carry out its plans.
False
42
Investing activities are the acquiring and disposing of resources that an organization uses to acquire and sell its products or services.
True
43
Owner financing refers to resources contributed by creditors or lenders.
False
44
Revenues are increases in equity from a company's earning activities.
True
45
A net loss occurs when revenues exceed expenses.
False
46
Net income occurs when revenues exceed expenses.
True
47
Liabilities are the owner's claim on assets.
False
48
Assets are the resources of a company and are expected to yield future benefits.
True
49
Dividends are expenses.
False
50
The accounting equation can be restated as: Assets - Equity = Liabilities.
True
51
The accounting equation implies that: Assets + Liabilities = Equity
False
Assets = Liabilities + Equity
52
Owner's investments from receiving shares in their companies are increases in equity from a company's earnings activities.
False
53
Every business transaction leaves the accounting equation in balance.
True
54
An external transaction is an exchange of value within an organization.
False
55
From an accounting perspective, an event is a happening that affects the accounting equation, but cannot be measured.
False
56
Equity is increased when cash is received from customers in payment of previously recorded accounts receivable.
False
57
Receiving shares from investing in a business always creates an asset (cash), a liability (note payable), and equity (investment.)
False
58
Return on assets is often stated in ratio form as the amount of average total assets divided by income.
False
59
Return on assets is also known as return on investment.
True
60
Return on assets is useful to decision makers for evaluating management, analyzing and forecasting profits, and in planning activities.
True
61
Arrow's net income of $117 million and average assets of $1,400 million results in a return on assets of 8.36%.
True
62
Return on assets reflects the effectiveness of a company's ability to generate profit through productive use of its assets.
True
63
Risk is the uncertainty about the return we expect to earn.
True
64
Generally the lower the risk, the lower the return that can be expected.
True
65
Compared to shares, bonds generally provide higher return and lower risk to investors.
False
66
The four basic financial statements include the income statement (statement of comprehensive income), statement of changes in equity, statement of financial position, and statement of cash flows.
True
67
An income statement reports on investing and financing activities.
False
68
A statement of financial position covers a period of time such as a month or year.
False
69
The income statement displays revenues earned and expenses incurred over a specified period of time due to earnings activities.
True
70
The statement of cash flows shows the net effect of revenues and expenses for a reporting period.
False
71
The income statement shows the financial position of a business on a specific date.
False
72
The first section of the income statement reports cash flows from operating activities.
False
73
The statement of financial position is based on the accounting equation.
True
74
Investing activities involve the buying and selling of assets such as land and equipment that are held for long-term use in the business.
True
75
Operating activities include long-term borrowing and repaying cash from lenders, and cash investments
False
76
The purchase of supplies appears on the statement of cash flows as an investing activity because it involves the purchase of assets.
False
77
The income statement reports on operating activities at a point in time.
False
78
The statement of cash flows identifies cash flows separated into operating, investing, and financing activities over a period of time.
True
79
Ending equity reported on the statement of changes in equity is calculated by adding beginning equity and net losses and subtracting net incomes and dividends
False
80
Accounting is an information and measurement system that does all of the following except:
A. Identifies business activities.
B. Records business activities.
C. Communicates business activities.
D. Does not use technology to improve accuracy in reporting.
E. Helps people make better decisions
D. Does not use technology to improve accuracy in reporting.
81
Technology:
A. Has replaced accounting.
B. Has not changed the work that accountants do.
C. Has closely linked accounting with consulting, planning, and other financial services.
D. In accounting has replaced the need for decision makers.
E. In accounting is only available to large corporations.
C. Has closely linked accounting with consulting, planning, and other financial services.
82
The primary objective of financial accounting is:
A. To serve the decision-making needs of internal users.
B. To provide financial statements to help external users analyze an organization's activities.(Correct)
C. To monitor and control company activities.
D. To provide information on both the costs and benefits of looking after products and services.
E. To know what, when, and how much to produce
B. To provide financial statements to help external users analyze an organization's activities.
83
```
The area of accounting aimed at serving the decision making needs of internal users is:
A. Financial accounting.
B. Managerial accounting.
C. External auditing.
D. IASB reporting.
E. Bookkeeping.
```
B. Managerial accounting.
84
```
External users of accounting information include all of the following except:
A. Shareholders.
B. Customers.
C. Purchasing managers.
D. Government regulators.
E. Creditors.
```
C. Purchasing managers. (Correct)
85
All of the following regarding a Certified Public Accountant are True except:
A. Must meet education and experience requirements.
B. Must pass an examination.
C. Must exhibit ethical character.
D. May also be a Certified Management Accountant.
E. Cannot hold any certificate other than a CPA.
E. Cannot hold any certificate other than a CPA.
86
Ethical behavior requires:
A. That auditors' pay not depend on the success of the client's business.
B. Auditors to invest in businesses they audit.
C. Analysts to report information favorable to their companies.
D. Managers to use accounting information to benefit themselves.
E. That auditors' pay depend on the success of the client's business.
A. That auditors' pay not depend on the success of the client's business. (Correct)
87
Social responsibility:
A. Is a concern for the impact of our actions on society.
B. Is a code that helps in dealing with confidential information.
C. Is required by the SEC.
D. Requires that all businesses conduct social audits.
E. Is limited to large companies.
A. Is a concern for the impact of our actions on society. (Correct)
88
All of the following are True regarding ethics except:
A. Ethics are beliefs that separate right from wrong.
B. Ethics rules are often set for CPAs.
C. Ethics do not affect the operations or outcome of a company.
D. Are critical in accounting.
E. Ethics can be hard to apply.
C. Ethics do not affect the operations or outcome of a company..
89
```
The accounting concept that requires financial statement information to be supported by independent, unbiased evidence other than someone's belief or opinion is:
A. Business entity assumption.
B. Monetary unit assumption.
C. Going-concern assumption.
D. Time-period assumption.
E. Objectivity.
```
E. Objectivity. (Correct)
90
89. A corporation
: A. Is a business legally separate from its owners.
B. Is controlled by the IASB.
C. Has shareholders who have unlimited liability for the acts of the corporation.
D. Is the same as a limited liability partnership.
E. Is not subject to double taxation.
A. Is a business legally separate from its owners.
91
```
90. The group that attempts to create more harmony among the accounting practices of different countries is the:
A. AICPA.
B. IASB.
C. CAP.
D. SEC.
E. FASB.
```
B. IASB
92
```
91. The private group that currently has the authority to establish generally accepted accounting principles in the United States is the:
A. APB.
B. FASB.
C. AAA.
D. AICPA.
E. SEC.
```
B. FASB.
93
```
92. The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:
A. Time-period assumption.
B. Business entity assumption.
C. Going-concern assumption.
D. Revenue recognition principle.
E. Cost principle.
```
B. Business entity assumption.
94
```
93. The rule that requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue, is the:
A. Going-concern assumption.
B. Business entity assumption.
C. Objectivity principle.
D. Cost Principle.
E. Monetary unit assumption.
```
A. Going-concern assumption.
95
```
94. If a parcel of land that was originally acquired for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000, the land should be recorded in the purchaser's books at:
A. $95,000.
B. $137,000.
C. $138,500.
D. $140,000.
E. $150,000.
```
B. $137,000
96
```
To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the:
A. Objectivity principle.
B. Monetary unit assumption.
C. Business entity assumption.
D. Going-concern assumption.
E. Revenue recognition principle.
```
C. Business entity assumption.
97
```
The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:
A. Accounting equation.
B. Cost principle.
C. Going-concern assumption.
D. Realization principle.
E. Business entity assumption.
```
B. Cost principle.
98
```
The rule that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash, and (3) measures the amount of revenue as the cash plus the cash equivalent value of any noncash assets received from customers in exchange for goods or services, is called the:
A. Going-concern assumption.
B. Cost principle.
C. Revenue recognition principle.
D. Objectivity principle.
E. Business entity assumption.
```
C. Revenue recognition principle.
99
```
The question of when revenue should be recognized on the income statement (according to GAAP) is addressed by the:
A. Revenue recognition principle.
B. Going-concern assumption.
C. Objectivity principle.
D. Business entity assumption.
E. Cost principle.
```
A. Revenue recognition principle.
100
The International Accounting Standards Board (IASB)
A. Hopes to create harmony among accounting practices of different countries.
B. Is the government group that establishes reporting requirements for companies that issue shares to the public.
C. Has the authority to impose its standards on companies.
D. Is the only source of generally accepted accounting principles (GAAP).
E. Only applies to companies that are members of the European Union.
A. Hopes to create harmony among accounting practices of different countries.
101
```
The Maxim Company acquired a building for $500,000. Maxim had the building appraised, and found that the building was easily worth $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Maxim to record the building on its records at $500,000?
A. Monetary unit assumption.
B. Going-concern assumption.
C. Cost principle.
D. Business entity assumption.
E. Revenue recognition principle.
```
C. Cost principle.
102
```
On December 15 of the current year, Myers Legal Services signed a $50,000 contract with a client to provide legal services to the client in the following year. Which accounting principle would require Myers Legal Services to record the legal fees revenue in the following year and not the year the cash was received?
A. Monetary unit assumption.
B. Going-concern assumption.
C. Cost principle.
D. Business entity assumption.
E. Revenue recognition principle.
```
E. Revenue recognition principle.
103
```
Marian Mosely is the owner of Mosely Accounting Services. Which accounting principle requires Marian to keep her personal financial information separate from the financial information of Mosely Accounting Services?
A. Monetary unit assumption.
B. Going-concern assumption.
C. Cost principle.
D. Business entity assumption.
E. Matching principle.
```
D. Business entity assumption.
104
```
A partnership:
A. are usually managed by the partners themselves.
B. Is subject to double taxation.
C. Has owners called shareholders.
D. Is the same as a corporation.
E. May only have two partners.
```
A. are usually managed by the partners themselves.
105
104. A partnership:
A. Is also called a sole proprietorship.
B. Can have two or more people as partners.
C. Has to have a written agreement in order to be legal.
D. Is a legal organization separate from its owners.
E. Has owners called shareholders.
B. Can have two or more people as partners.
106
```
Which of the following accounting principles would require that all goods and services purchased be recorded at cost?
A. Going-concern assumption.
B. Matching principle.
C. Cost principle.
D. Business entity assumption.
E. Consideration assumption.
```
C. Cost principle.
107
```
Which of the following accounting principles prescribes that a company record its expenses incurred to generate the revenue reported?
A. Going-concern assumption.
B. Matching principle.
C. Cost principle.
D. Business entity assumption.
E. Consideration assumption.
```
B. Matching principle
108
Revenue is properly recognized:
A. When the customer's order is received.
B. Only if the transaction creates an account receivable.
C. At the end of the accounting period.
D. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.
E. When cash from a sale is received.
D. Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price
109
```
If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000, the land account transaction amount to handle the sale of the land in the seller's books is:
A. $85,000 increase.
B. $85,000 decrease.
C. $137,000 increase.
D. $137,000 decrease.
E. $140,000 decrease.
```
B. $85,000 decrease.
110
If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. What is the effect of the sale on the accounting equation for the seller?
A. Assets increase $52,000; equity increases $52,000.
B. Assets increase $85,000; equity increases $85,000.
C. Assets increase $137,000; equity increases $137,000.
D. Assets increase $140,000; equity increases $140,000.
E. Assets decrease $85,000; equity decreases $85,000.
A. Assets increase $52,000; equity increases $52,000.
*Price sold - Original cost = Assets increase/decrease; Equity increase/decrease
$137,000 - $85,000 = $52,000
111
110. If a parcel of land that was originally purchased for $85,000 is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as easily being worth $140,000, and is sold for $137,000. At the time of the sale, assume that the seller still owed $30,000 to TrustOne Bank on the land that was purchased for $85,000. Immediately after the sale, the seller paid off the loan to TrustOne Bank. What is the effect of the sale and the payoff of the loan on the accounting equation?
A. Assets increase $52,000; equity increases $22,000; liabilities decrease $30,000
B. Assets increase $52,000; equity increases $30,000; liabilities decrease $30,000
C. Assets increase $22,000; equity increases $52,000; liabilities decrease $30,000
D. Assets decrease $30,000; equity decreases $30,000; liabilities decrease $30,000
E. Assets decrease $55,000; equity decreases $55,000; liabilities decrease $30,000
$137,000 - $85,000 - 30,000 = 22,000
C. Assets increase $22,000; equity increases $52,000; liabilities decrease $30,000
$137,000 - $85,000 - 30,000 = 22,000
22,000 is your asset because of the 30,000 owed.
Equity will increase by 52,000 because that is your profit from the sale and your liability decreases because you no longer owe the 30,000.
112
```
An example of a financing activity is:
A. Buying office supplies.
B. Obtaining a long-term loan.
C. Buying office equipment.
D. Selling inventory.
E. Buying land.
```
B. Obtaining a long-term loan.
113
```
An example of an operating activity is:
A. Paying wages.
B. Purchasing office equipment.
C. Borrowing money from a bank.
D. Selling shares.
E. Paying off a loan.
```
A. Paying wages
114
Operating activities:
A. Are the means organizations use to pay for resources like land, buildings and equipment.
B. Involve using resources to research, develop, purchase, produce, distribute and market products and services.
C. Involve acquiring and disposing of resources that a business uses to acquire and sell its products or services.
D. Are also called asset management.
E. Are also called strategic management.
B. Involve using resources to research, develop, purchase, produce, distribute and market products and services.
115
```
An example of an investing activity is:
A. Paying wages of employees.
B. Dividends paid to shareholders.
C. Purchase of land.
D. Selling inventory.
E. Issuance of shares.
```
C. Purchase of land.
116
Net Income:
A. Decreases equity.
B. Represents the amount of assets owners put into a business.
C. Equals assets minus liabilities.
D. Is the excess of revenues over expenses.
E. Represents owners' claims against assets.
D. Is the excess of revenues over expenses.
117
```
If equity is $300,000 and liabilities are $192,000, then assets equal:
A. $108,000.
B. $192,000.
C. $300,000.
D. $492,000.
E. $792,000.
Assets = $192,000 + $300,000 = $492,000
```
D. $492,000.
```
Assets = Liabilities + Equity
Assets = $192,000 + $300,000 = $492,000
```
118
```
Resources that are expected to yield future benefits are:
A. Assets.
B. Revenues.
C. Liabilities.
D. Equity.
E. Expenses.
```
A. Assets.
119
```
Increases in equity from a company's earnings activities are:
A. Assets.
B. Revenues.
C. Liabilities.
D. Equity.
E. Expenses.
```
B. Revenues.
120
```
The difference between a company's assets and its liabilities, or net assets is:
A. Net income.
B. Expense.
C. Equity.
D. Revenue.
E. Net loss.
```
C. Equity.
121
```
Creditors' claims on the assets of a company are called:
A. Net losses.
B. Expenses.
C. Revenues.
D. Equity.
E. Liabilities.
```
E. Liabilities.
122
```
121. Decreases in equity that represent costs of assets or services used to earn revenues are called:
A. Liabilities.
B. Equity.
C. Dividends.
D. Expenses.
E. Share capital.
```
D. Expenses.
123
```
The description of the relation between a company's assets, liabilities, and equity, which is expressed as Assets = Liabilities + Equity, is known as the:
A. Income statement equation.
B. Accounting equation.
C. Business equation.
D. Return on equity ratio.
E. Net income.
```
B. Accounting equation
124
Revenues are:
A. The same as net income.
B. The excess of expenses over assets.
C. Resources owned or controlled by a company.
D. The increase in equity from a company's earning activities.
E. The costs of assets or services used.
D. The increase in equity from a company's earning activities
125
```
If assets are $99,000 and liabilities are $32,000, then equity equals:
A. $32,000.
B. $67,000.
C. $99,000.
D. $131,000.
E. $198,000.
Equity = $99,000 - $32,000 = $67,000
```
B. $67,000.
| Equity = $99,000 - $32,000 = $67,000
126
```
Another name for equity is:
A. Net income.
B. Expenses.
C. Net assets.
D. Revenue.
E. Net loss.
```
C. Net assets.
127
```
The excess of expenses over revenues for a period is:
A. Net assets.
B. Equity.
C. Net loss.
D. Net income.
E. A liability.
```
C. Net loss.
128
```
Distribution of assets to shareholders is called a(n)::
A. Liability.
B. Dividend.
C. Expense.
D. Contribution.
E. Investment.
```
B. Dividend.
129
```
Distributions of assets by a company to its shareholders are called:
A. Dividends.
B. Expenses.
C. Assets.
D. Retained earnings.
E. Net Income.
```
A. Dividends.
130
The assets of a company total $700,000; the liabilities, $200,000. What are the claims of the shareholders?
A. $900,000.
B. $700,000.
C. $500,000.
D. $200,000.
E. It is impossible to determine unless the amount of issuance of shares is known.
C. $500,000.
$700,000 - $200,000 = $500,000
131
```
On June 30 of the current year, the assets and liabilities of Phoenix, Inc. are as follows: Cash $20,500; Accounts Receivable, $7,250; Supplies, $650; Equipment, $12,000; Accounts Payable, $9,300. What is the amount of equity as at July 1 of the current year?
A. $8,300
B. $13,050
C. $20,500
D. $31,100
E. $40,400
```
D. $31,100
$20,500 + $7,250 + $650 + $12,000 - $9,300 = $31,100
132
```
Assets created by selling goods and services on credit are:
A. Accounts payable.
B. Accounts receivable.
C. Liabilities.
D. Expenses.
E. Equity.
```
B. Accounts receivable
133
```
An exchange of value between two entities is called:
A. The accounting equation.
B. Recordkeeping or bookkeeping.
C. An external transaction.
D. An asset.
E. Net Income.
```
C. An external transaction
134
Photometer Company paid off $30,000 of its accounts payable in cash. What would be the effects of this transaction on the accounting equation?
A. Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase.
B. Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.
C. Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect.
D. Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase.
E. Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease.
B. Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect.
135
How would the accounting equation of Boston Company be affected by the billing of a client for $10,000 of consulting work completed?
A. +$10,000 accounts receivable, -$10,000 accounts payable.
B. +$10,000 accounts receivable, +$10,000 accounts payable.
C. +$10,000 accounts receivable, +$10,000 cash.
D. +$10,000 accounts receivable, +$10,000 revenue.
E. +$10,000 accounts receivable, -$10,000 revenue.
D. +$10,000 accounts receivable, +$10,000 revenue.
136
Zion Company has assets of $600,000, liabilities of $250,000, and equity of $350,000. It buys office equipment on credit for $75,000. What would be the effects of this transaction on the accounting equation?
A. Assets increase by $75,000 and expenses increase by $75,000.
B. Assets increase by $75,000 and expenses decrease by $75,000.
C. Liabilities increase by $75,000 and expenses decrease by $75,000.
D. Assets decrease by $75,000 and expenses decrease by $75,000.
E. Assets increase by $75,000 and liabilities increase by $75,000.
E. Assets increase by $75,000 and liabilities increase by $75,000.
137
Viscount Company collected $42,000 cash on its accounts receivable. The effects of this transaction as reflected in the accounting equation are:
A. Total assets decrease and equity increases.
B. Both total assets and total liabilities decrease.
C. Total assets, total liabilities, and equity are unchanged.
D. Both total assets and equity are unchanged and liabilities increase.
E. Total assets increase and equity decreases.
C. Total assets, total liabilities, and equity are unchanged.
138
If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:
A. Decreased $105,000.
B. Decreased $45,000.
C. Increased $30,000.
D. Increased $45,000.
E. Increased $105,000.
Change in Assets = Change in Liabilities + Change in Equity
Change in Assets = $75,000 + (-$30,000) = +$45,000
D. Increased $45,000.
139
If the assets of a business increased $89,000 during a period of time and its liabilities increased $67,000 during the same period, equity in the business must have:
A. Increased $22,000.
B. Decreased $22,000.
C. Increased $89,000.
D. Decreased $156,000.
E. Increased $156,000.
Change in Assets = Change in Liabilities + Change in Equity
Change in Equity = + $89,000 - $67,000 = +$22,000
A. Increased $22,000.
140
```
If the liabilities of a company increased $74,000 during a period of time and equity in the company decreased $19,000 during the same period, what was the effect on the assets?
A. Assets would have increased $55,000.
B. Assets would have decreased $55,000.
C. Assets would have increased $19,000.
D. Assets would have decreased $19,000.
E. None of these.
```
A. Assets would have increased $55,000.
```
Assets = Liabilities + Equity
Assets = $74,000 + (-$19,000) = $55,000
```
141
If a company paid $38,000 of its accounts payable in cash, what was the effect on the assets, liabilities, and equity?
A. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would decrease $38,000.
B. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would increase $38,000.
C. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would not change.
D. There would be no effect on the accounts because the accounts are affected by the same amount.
E. None of these.
C. Assets would decrease $38,000, liabilities would decrease $38,000, and equity would not change.
142
```
If assets are $365,000 and equity is $120,000, then liabilities are:
A. $120,000.
B. $245,000.
C. $365,000.
D. $485,000.
E. $610,000.
```
B. $245,000
Liabilities = $365,000 - $120,000 = $245,000
143
```
Reston had income of $150 million and average invested assets of $1,800 million. Its return on assets is:
A. 8.3%.
B. 83.3%.
C. 12%.
D. 120%.
E. 16.7%.
```
A. 8.3%.
$150 million/$1,800 million = 8.3%
144
```
Nick's had income of $350 million and average invested assets of $2,000 million. Its ROA is:
A. 1.8%.
B. 35%.
C. 17.5%.
D. 5.7%.
E. 3.5%.
```
C. 17.5%
$350 million/$2,000 million = 17.5%
145
```
FastLane has net income of $18,955, and assets at the beginning of the year of $200,000. Assets at the end of the year total $246,000. Compute its return on assets.
A. 7.7%.
B. 8.5%.
C. 9.5%.
D. 11.8%.
E. 13.0%.
```
B. 8.5%
$18,955/[($200,000 +$246,000)/2] = $18,955/$223,000 = 8.5%
146
```
Harris Co. has a net income of $43,000, assets at the beginning of the year are $250,000 and assets at the end of the year are $300,000. Compute its return on assets.
A. 8.4%
B. 17.2%
C. 14.3%
D. 15.6%
E. 1.5%
```
D. 15.6%
$43,000/(($250,000 + $300,000)/2) = 15.6%
147
```
Government bonds are usually:
A. High-risk and high-return investments.
B. Low-risk and low-return investments.
C. High-risk and low-return investments.
D. Low-risk and high-return investments.
E. High risk and no-return investments.
```
B. Low-risk and low-return investments.
148
Risk is:
A. Net income divided by average total assets.
B. The reward for investment.
C. The uncertainty about the expected return to be earned.
D. Unrelated to expected return.
E. Derived from the idea of getting something back from an investment.
C. The uncertainty about the expected return to be earned.
149
The statement of cash flows reports all of the following except:
A. Cash flows from operating activities.
B. Cash flows from investing activities.
C. Cash flows from financing activities.
D. The net increase or decrease in assets for the period reported.
E. The net increase or decrease in cash for the period reported.
D. The net increase or decrease in assets for the period reported.
150
The basic financial statements include all of the following except:
A. Statement of Financial Position (Balance Sheet).
B. Income Statement (Statement of Comprehensive Income).
C. Statement of changes in equity.
D. Statement of Cash Flows.
E. Trial Balance.
E. Trial Balance.
151
The statement of changes in equity:
A. Reports how equity changes at a point in time.
B. Reports how equity changes over a period of time.
C. Reports on cash flows for operating, financing, and investing activities over a period of time.
D. Reports on cash flows for operating, financing, and investing activities at a point in time.
E. Reports on amounts for assets, liabilities, and equity at a point in time.
B. Reports how equity changes over a period of time.
152
The financial statement that reports whether the business earned a profit and also lists the revenues and expenses is called:
A. A Statement of financial position (Balance Sheet).
B. A Statement of changes in equity.
C. A Statement of cash flows.
D. An Income statement (Statement of Comprehensive Income).
E. A Statement of financial changes.
D. An Income statement (Statement of Comprehensive Income).
153
A statement of financial position lists:
A. The types and amounts of the revenues and expenses of a business.
B. Only the information about what happened to equity during a time period.
C. The types and amounts of assets, liabilities, and equity of a business as at a specific date.
D. The inflows and outflows of cash during the period.
E. The assets and liabilities of a company but not the equity.
C. The types and amounts of assets, liabilities, and equity of a business as at a specific date.
154
A financial statement providing information that helps users understand a company's financial status, and which lists the types and amounts of assets, liabilities, and equity as at a specific date, is called a(n):
A. Balance sheet or statement of financial position.
B. Income statement or statement of comprehensive income.
C. Statement of cash flows.
D. Statement of changes in equity.
E. Financial Status Statement.
A. Balance sheet or statement of financial position.
155
```
The financial statement that identifies where a company's cash came from and where it went during the period is the:
A. Statement of financial position.
B. Statement of cash flows.
C. Balance sheet.
D. Income statement.
E. Statement of changes in equity.
```
B. Statement of cash flows.
156
```
The financial statement that shows the beginning equity; the changes in equity that resulted from issuance of shares, net income (or net loss); dividends; and the ending equity, is the:
A. Statement of financial position.
B. Statement of cash flows.
C. Balance sheet.
D. Income statement.
E. Statement of changes in equity.
```
E. Statement of changes in equity.
157
Issuance of shares for cash is listed on which of the following financial statements?
A. Balance sheet.
B. Income statement.
C. Statement of changes in equity only.
D. Statement of cash flows only.
E. Statement of changes in equity and statement of cash flows.
E. Statement of changes in equity and statement of cash flows.
158
```
Accounts payable appear on which of the following statements?
A. Balance sheet.
B. Income statement.
C. Statement of changes in equity.
D. Statement of cash flows.
E. Transaction statement.
```
A. Balance sheet
159
The income statement reports all of the following except:
A. Revenues earned by a business.
B. Expenses incurred by a business.
C. Assets owned by a business.
D. Net income or loss earned by a business.
E. The time period over which the earnings occurred.
C. Assets owned by a business
160
```
Use the following information as at December 31 to determine equity.
Liabilities........$141,000
Cash.............. 57,000
Equipment...... 206,000
Building.......... 175,000
A. $57,000.
B. $141,000.
C. $297,000.
D. $438,000.
E. $579,000.
```
C. $297,000.
Assets = $57,000 (cash) + $206,000 (Equipment) + $175,000 (Building) = $438,000
Equity = $438,000 (Assets) - $141,000 (Liabilities) = $297,000
161
Determine the net income of a company for which the following information is available for the month of May.
Employee salaries expense.....$180,000
Interest expenses................... 10,000
Rent expense......................... 20,000
Consulting revenue.................. 400,000
```
A. $190,000.
B. $210,000.
C. $230,000.
D. $400,000.
E. $610,000.
```
A. $190,000.
Expenses: $180,000 + $10,000 + $20,000 = $210,000
Net income = $400,000 - $210,000 = $190,000
162
```
A company acquires equipment for $75,000 cash. This represents a(n)
A. Operating activity.
B. Investing activity.
C. Financing activity.
D. Revenue activity.
E. Expense activity.
```
B. Investing activity.
163
```
A company borrows $125,000 from the Eastside Bank and receives the loan proceeds in cash. This represents a(n):
A. Revenue activity.
B. Operating activity.
C. Expense activity.
D. Investing activity.
E. Financing activity
```
E. Financing activity
164
```
Flash had cash inflows from operations $62,500; cash outflows from investing activities of $47,000; and cash inflows from financing of $25,000. The net change in cash was:
A. $40,500 increase.
B. $40,500 decrease.
C. $134,500 decrease.
D. $134,000 increase.
E. $9,500 increase.
```
A. $40,500 increase
$62,500 - $47,000 + $25,000 = $40,500 increase
165
```
Flash has beginning equity of $0, issuance of shares of $263,000, net income of $51,000, and dividends of $40,000. Its ending equity is:
A. $223,000.
B. $240,000.
C. $268,000.
D. $274,000.
E. $208,000.
```
D. $274,000.
$263,000 + $51,000 - $40,000 = $274,000
166
Rent expense that is paid with cash appears on which of the following statements?
A. Statement of financial position.
B. Income statement.
C. Statement of changes in equity.
D. Income statement and statement of cash flows.
E. Statement of cash flows only.
D. Income statement and statement of cash flows.
167
```
A company's statement of financial position shows: cash $22,000, accounts receivable $16,000, office equipment $50,000, and accounts payable $17,000. What is the amount of equity?
A. $17,000.
B. $29,000.
C. $71,000.
D. $88,000.
E. $105,000.
```
C. $71,000.
```
Assets = $22,000 + $16,000 + $50,000 = $88,000
Liabilities = $17,000
Equity = $88,000 - $17,000 = $71,000
```
168
```
A company reported total equity of $145,000 at the beginning of the year. The company reported $210,000 in revenues and $165,000 in expenses for the year. Liabilities at the end of the year totaled $92,000. What are the total assets of the company at the end of the year?
A. $45,000.
B. $92,000.
C. $98,000.
D. $210,000.
E. $282,000.
```
E. $282,000.
Net income = $210,000 - $165,000 = $45,000
Equity at the end of the year = $145,000 + $45,000 = $190,000
Assets at the end of the year = $190,000 + $92,000 = $282,000
169
```
Flash reported net income of $17,500 for the past year. At the beginning of the year the company had $200,000 in assets and $50,000 in liabilities. By the end of the year, assets had increased to $300,000 and liabilities were $75,000. Calculate its return on assets:
A. 8.8%
B. 7.0%
C. 5.8%
D. 35.0%
E. 23.3%
```
B. 7.0%
$17,500/[(200,000 + $300,000)/2] = $17,500/$250,000 = 7%
170
```
Quick Computer Service had revenues of $80,000 and expenses of $50,000 for the year. Its assets at the beginning of the year were $400,000. At the end of the year assets were worth $450,000. Calculate its return on assets.
A. 7.1%
B. 7.5%
C. 6.7%
D. 20.0%
E. 18.8%
```
A. 7.1%
$30,000/[($400,000 + $450,000)/2] = $30,000/$425,000 = 7.1%
171
```
Della's Donuts had cash inflows from operating activities of $27,000; cash outflows from investing activities of $22,000, and cash outflows from financing activities of $12,000. Calculate the net increase or decrease in cash.
A. $61,000 increase.
B. $37,000 increase.
C. $7,000 decrease.
D. $7,000 increase.
E. $34,000 decrease.
```
C. $7,000 decrease.
$27,000 - $22,000 - $12,000 = $7,000 decrease.
172
```
For the 1st year of its business, a company issued shares for $50,000, paid dividends of $20,000, earned revenues of $83,000 and incurred expenses of $64,000. Calculate its net income.
A. $30,000.
B. $83,000.
C. $64,000.
D. $19,000.
E. $49,000.
```
D. $19,000.
$83,000 - $64,000 = $19,000.
173
```
Cool Tours had beginning equity of $72,000; revenues of $90,000, expenses of $65,000, and dividends of $9,000. Calculate the ending equity.
A. $88,000.
B. $25,000.
C. $97,000.
D. $38,000.
E. $47,000.
```
A. $88,000.
$72,000 + $25,000 - $9,000 = $88,000.
174
```
A company's statement of financial position shows: cash $24,000, accounts receivable $30,000, equipment $50,000, and equity $72,000. What is the amount of liabilities?
A. $104,000.
B. $76,000.
C. $32,000.
D. $68,000.
E. $176,000.
Assets = $24,000 + $30,000 + $50,000 = $104,000
Equity = $72,000
Liabilities = $104,000-$72,000=$32,000
```
C. $32,000.
```
Assets = $24,000 + $30,000 + $50,000 = $104,000
Equity = $72,000
Liabilities = $104,000-$72,000=$32,000
```
