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99 Test Bank for Cornerstones of Financial and Managerial Accounting 2nd Edition by Rich Multiple Choice Questions Which one of the following groups is considered an internal user of financial statements? A supplier considering selling to the company on credit The labor union representing employees of a company that is involved in labor negotiations The financial analysts for a brokerage firm who are preparing recommendations for the firm's brokers on companies in a certain industry, Managers of the company that supervise production workers Which of the following are Noncurrent assets? Machinery and equipment Accounts receivable Inventories Unearned revenues 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? Balance Sheet Income Statement Statement of Retained Earnings Statement of Public Accounting Which of the following best describes the term "current assets"? The amount of total profits earned by a business since it began operations plus all other resources The amount of claim that the owners have in the business in the current year Assets expected to be converted into cash within one year or one operating cycle, whichever is longer The cumulative profits earned by a business less any dividends distributed in the current period What is the name for a person who lends funds to a business entity and expects repayment with interest? Creditor Owner Proprietor Stockholder Which one of the following correctly represents one of the basic financial statement models? Assets Liabilities = Net Income Assets + Liabilities = Total Assets Revenues + Expenses = Net Income Beginning Retained Earnings + Net Income Dividends = Ending Retained Earnings Which one of the following is not one of the three business activities? Financing Operating Investing Measuring What is the name of the branch of accounting concerned with providing outside decision makers with information to assess the amounts, timing and uncertainties of the company's future cash flows? Financial Accounting Auditing Managerial Accounting Bookkeeping Which one of the following financial statements reports an entity's financial position at a specific date? Balance Sheet Statement of Retained Earnings Income Statement Both the Income Statement and the Balance Sheet On January 1, 2012, a company reported assets of $1,000,000 and liabilities of $600,000 During 2012, assets decreased by $100,000 and Stockholders' Equity decreased $200,000 What is the amount of liabilities at December 31, 2012? $200,000 $500,000 $600,000 $700,000 Which of the following best describes the term "retained earnings" of a company? The amount of total profits earned by a company since it began operations The amount of claim that the owners have on the assets of the company The future economic resources of a company The accumulated net income of a company that has not been distributed to owners in the form of dividends Which of the following best describes the term "expenses"? The cost of assets used in the investing activities of a business The amount of interest or claim that the owners have in the business The future economic resources of a business entity The cost of assets used in the operations of a business Which one of the following items appears on a balance sheet? Service revenue Unearned revenue Dividends Cash flow from operations Bennett Motors is facing the following business decisions Which decision will least likely require financial information? A local bank is reviewing the company’s loan application The company is attempting to sell its stock to the public The labor union representing the company's employees is negotiating a pay raise as part of a new labor agreement The company's management is deciding whether to detail its vehicles today or tomorrow Which of the following is not a form of a business entity? Sole proprietorship Partnership Cooperative Corporation What is unearned revenue? Stockholders’ equity Liability Asset Revenue Which one of the following is not an external user of financial statements? Internal Revenue Service Creditors Stockholders The Company's President "Revenues" are best described as: decreases in assets resulting from the sale of goods or services increases in assets resulting from the sale of products or services assets used or consumed in the sale of products or services an increase in the financing activities Which of the following invests funds into a business and is considered an owner? Stockholders Creditors Bankers Lenders Which financial statement would you refer to in order to determine how much resources (assets) the company owned? Balance Sheet Statement of Retained Earnings Income Statement Statement of Cash Flows Which one of the following financial statements show the end of the year cash balance for a business entity? Income Statement and Statement of Retained Earnings Balance Sheet and Statement of Cash Flows Statement of Retained Earnings and Statement of Cash Flows Balance Sheet and Statement of Retained Earnings Which one of the following items is a classification on the Classified Balance Sheet? Operating accounts Stockholders' Equity Revenues and Expenses Net Income and Dividends How is the Balance Sheet linked to the other financial statements? The amount of retained earnings is reported on the Balance Sheet as a liability Retained earnings is added to total assets and reported on the Balance Sheet Retained earnings is reported on the Balance Sheet There is no link between the Balance Sheet and other statements, as each contains different accounts and provides different information Which financial statement would you analyze to assess a firm’s operating performance for the past year? Balance Sheet Statement of Retained Earnings Income Statement Statement of Public Accounting In which form of organization are the owners' legal responsibility for the debt of the business limited to the amount they invested in the business? Cooperative Corporation Partnership Proprietorship Which one of the following is a correct fundamental accounting equation? Assets + Liabilities = Stockholders' Equity Assets + Retained Earnings = Stockholders' Equity Assets + Stockholders' Equity = Liabilities Assets = Liabilities + Stockholders' Equity Businesses engage in which of the following three main activity categories? Financing, Investing, Operating Cash, Credit, Noncash Financing, Credit, Operating Financing, Management, Operating Another term for Short Term Investments is: Inventories Accounts Receivable Contributed Capital Marketable Securities 99 Free Test Bank for Cornerstones of Financial and Managerial Accounting 2nd Edition by Rich Multiple Choice Questions - Page Which of the following is the correct date format for the financial statement heading? Balance Sheet for the Year Ended June 30, 2013 Income Statement at December 31, 2013 Income Statement for the Year Ended December 31, 2013 Statement of Retained Earnings at December 31, 2013 Bargain Spot Fabrics This company’s end-of-year balance sheet consisted of the following amounts: Refer to Bargain Spot Fabrics What amount should the company report on its Balance Sheet for Total Assets? Cash $ 75,000Accounts Receivable $250,000; Property, plant & equipment 350,000Long-term debt 200,000; Capital stock 500,000Accounts payable 100,000; Retained earnings ?Inventory 175,000 $550,000 $775,000 $850,000 $950,000 Which one of the following items is reported as a current stockholders' equity on a classified balance sheet? Net Income Accounts Payable Land Common Stock Calculate total sales for a company that reported a net loss of $1,500,000 and total expenses of $2,900,000 $4,400,000 $1,400,000 $2,400,000 $1,600,000 A non-classified balance sheet typically does not have a distinction between which of the following items? Assets and Liabilities Current and Noncurrent items Liabilities and Stockholders' Equity Resources invested by the owners and amounts borrowed from creditors Which one of the following is not a major category for long-term assets? Intangibles Property, Plant, and Equipment Inventory Patents Which of the following accounts are normally reported as current liabilities on a classified balance sheet? Accounts Payable and Prepaid Insurance Interest Payable and Interest Receivable Income Taxes Payable and Salaries Payable Capital Stock and Accounts Payable Suppose a company reports the following information at December 31, 2013: What is the company's Gross Profit? Sales $15,000,000; Cash $ 3,000,000; Unearned Revenue $ 400,000; Dividends $ 1,000,000; Cost of Sales $ 8,500,000 $ 6,100,000 $ 5,500,000 $ 6,500,000 $12,000,000 Benchmark Surveyors The following balances are provided: Refer to Benchmark Surveyors Calculate Current Liabilities Cash $234,000Accounts Payable $ 97,000; Inventories 121,000Notes Payable (due 2018) 211,000; Land 453,000Accounts ;Receivable 46,000 $ 97,000 $211,000 $354,000 $143,000 B&B Painting reported the following information for the year ended December 31, 2013 How much was paid out in dividends in 2013? Revenues $2,500,000; Expenses 2,000,000; Retained Earnings at December 31, 2012 100,000; Retained Earnings at December 31, 2013 450,000 $500,000 $150,000 $350,000 $250,000 Which of the following would not be considered to be an intangible asset? Franchises Copyrights Investments Trademarks Beard Marine The company reported the following information for the year ended December 31, 2013: Refer to Beard Marine What was the economic effect of the dividend payment? Net income $100,000; Dividends 6,000; Retained earnings at December 31, 2013 $120,000 The dividend reduced net income for 2013 The dividend should be added to net income if the company's accounting equation is in balance The dividend reduced total retained earnings The dividends must be paid whenever the company reports net income Which of the following terms best describes a distribution of the net income of a corporation to its owners? Retained Earnings Dividends Liquidation of assets Monetary Unit Which statement summarizes the results of the company's operations? Statement of Cash Flows Statement of Retained Earnings Balance Sheet Income Statement If a company has assets of $5,000,000, liabilities of $3,000,000, and retained earnings of $1,200,000, how much is total stockholders' equity? $ 800,000 $2,000,000 $3,800,000 $1,800,000 The resources used to earn revenues during a period are called: Net Income Expenses Revenues Dividends A company had the following balance sheet amounts at the beginning of the year: During the year, total assets increased by $350,000, total liabilities increased by $100,000, and dividends were paid in the amount of Total assets $650,000; Total stockholder's equity 250,000; $300,000 No other transactions occurred except revenues and expenses How much is net income for the year? $750,000 $650,000 $500,000 $550,000 Barr Attorneys reported the following information for the year ended December 31, 2013 What was the retained earnings balance at December 31, 2012? Revenue $14,000,000; Expenses 11,500,000; Dividends 1,000,000; Retained Earnings at December 31, 2013 1,750,000 $ 250,000 $2,500,000 $1,500,000 $ 350,000 What is the primary objective of financial reporting? To help investors make credit decisions To help management assess cash flows To protect users from fraudulent financial information To provide useful information for decision making Beaver Tree Service Refer to Beaver Tree Service The company's expenses are: Beginning Retained Earnings $550,000; Ending Retained Earnings 700,000; Dividends Paid 100,000; Revenue 525,000 $100,000 $150,000 $450,000 $275,000 Net Income appears on which financial statement(s)? Balance Sheet only Income Statement only Both the Balance Sheet and the Income Statement The Income Statement, Statement of Cash Flows using the indirect method and the Statement of Retained Earnings External users of financial information Need detailed records of the business to make informed decisions Are primarily responsible for the preparation of financial statements Rely on the financial statements to help make informed decisions Rely on management to tell them whether the company is a good investment 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? $9,950,000 $1,050,000 $2,150,000 $8,900,000 Bay Camera The company reported the following items on its financial statements for the year ended December 31, 2013: Refer to Bay Camera What amount will be reported as Retained Earnings on the Balance Sheet at December 31, 2013, assuming this is the first year of operations? Sales $780,000Cost of Sales $700,000; Selling, general & administrative expense 20,000Other Expense 15,000; Dividends 5,000Income Tax Expense 12,500 $22,500 $27,500 $42,500 Not enough information is provided Beaver Tree Service Refer to Beaver Tree Service What is the company’s net income? Beginning Retained Earnings $550,000; Ending Retained Earnings 700,000; Dividends Paid 100,000; Revenue 525,000 $150,000 $250,000 $300,000 $350,000 If assets are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year), how are they reported on a classified balance sheet? Property, Plant, and Equipment Current Assets Intangible Assets Current Liabilities On January 1, 2013, a company's balance in retained earnings was $275,000 During 2013, the company earned net income of $23,500 and paid $11,200 in dividends Calculate the retained earnings balance at December 31, 2013 1 $263,800 $298,500 $262,700 $287,300 On January 1, 2013, a company's balance in retained earnings was $10,000,000 At December 31, 2013, the balance in retained earnings was $9,400,000 If the company earned net income of $440,000 during the year, how much were dividends? $1,040,000 $1,000,000 $ 600,000 $ 440,000 Which set of items below are current assets? Accounts Receivable, Net Income, Inventory, and Dividends Cash, Accounts Receivable, Capital Stock, and Sales Net Income, Cash, Office Supplies, and Inventory Cash, Accounts Receivable, Inventory, and Office Supplies Barnes Restaurant reports the following amounts: Calculate Current Assets Cash $125,000Inventory $215,000; Land 275,000Unearned Revenue 117,000; Equipment 350,000Common Stock 300,000 $457,000 $615,000 $125,000 $340,000 For the most recent year, a company's current ratio was significantly lower than its industry average What is the best possible explanation for this situation? The company’s competitors were profitable The company’s liquidity has improved The company has less equity than the rest of the industry The company’s liquidity is worse than the rest of the industry Bay Camera The company reported the following items on its financial statements for the year ended December 31, 2013: Refer to Bay Camera What is the company’s Net Income for the current year? Sales $780,000Cost of Sales $700,000; Selling, general & administrative expense 20,000Other Expense 15,000; Dividends 5,000Income Tax Expense 12,500 $22,500 $32,500 $42,500 $80,000 Benchmark Surveyors The following balances are provided: Refer to Benchmark Surveyors Calculate Current Assets: Cash $234,000Accounts Payable $ 97,000; Inventories 121,000Notes Payable (due 2018) 211,000; Land 453,000Accounts Receivable 46,000 $498,000 $401,000 $854,000 $709,000 "Economic resources" are known as Assets Liabilities and stockholders' equity Owners' equity and stockholders' equity Retained earnings and revenues Beard Marine The company reported the following information for the year ended December 31, 2013: Refer to Beard Marine What was the balance of Retained Earnings at January 1, 2013? Net income $100,000; Dividends 6,000; Retained earnings at December 31, 2013 $120,000 $ 21,000 $ 26,000 $106,000 $214,000 Bargain Spot Fabrics This company’s end-of-year balance sheet consisted of the following amounts: Refer to Bargain Spot Fabrics What is the retained earnings balance at the end of the current year? Cash $ 75,000Accounts Receivable $250,000; Property, plant & equipment 350,000Long-term debt 200,000; Capital stock 500,000Accounts payable 100,000; Retained earnings ?Inventory 175,000 $50,000 $550,000 $800,000 $850,000 99 Free Test Bank for Cornerstones of Financial and Managerial Accounting 2nd Edition by Rich Multiple Choice Questions - Page Bellweather Times The company reports the following balances: Refer to Bellweather Times What is the company's income from operations? Other Revenue $180,000General and Administrative Expense $320,000; Dividends paid $220,000Operating Revenues $700,000; Selling Expenses $280,000Income Tax Expense $60,000 $280,000 $220,000 $100,000 $40,000 Which one of the following equations represents the Statement of Retained Earnings activity? Beginning retained earnings + net income + dividends = ending retained earnings Beginning retained earnings + cash inflows cash outflows = ending retained earnings Beginning retained earnings + dividends net income = ending retained earnings Beginning retained earnings + net income dividends = ending retained earnings Which financial statement reports information helpful in assessing working capital? Balance Sheet Capital Statement Statement of Retained Earnings Statement of Cash Flows As used in accounting, the "Notes to the Financial Statements" should be: Shown at the bottom of the Income Statement Excluded, as they are not an integral part of the financial statements Included as an integral part of the financial statements Considered an optional part of the financial statements If a company has current assets of $2,100,000 and current liabilities of $500,000, calculate its working capital $2,100,000 $2,600,000 $1,600,000 $ 500,000 A company increased its dollar amount of working capital over the past several years Which one of the following measures should be used to further evaluate the company’s short-run liquidity? The Asset Ratio An analysis of the company's long-term debt An analysis of the return on stockholders' equity The Current Ratio The Earnings Per Share measure appears on which of the following financial statements? Statement of Cash Flows Retained Earnings Statement Income Statement Balance Sheet Bass Tours The following balances were taken from the company’s records: Refer to Bass Tours Calculate the total current assets Inventory $380,000Accounts Receivable $190,000; Land 290,000Accounts Payable 180,000; Cash 129,000Unearned Revenue 110,000; Prepaid Rent 33,000Common Stock 312,000; Retained Earnings 220,000Longterm Notes Payable 200,000 $ 842,000 $1,022,000 $ 732,000 $ 842,000 Which of the following best describes a company's operating activities? Operating activities are cash flows directly related to earning income Operating activities are necessary to provide the money to start a business Operating activities are needed to provide the valuable assets required to run a business Operating activities represent the right to receive a benefit in the future Been There Used Furniture Been There Used Furniture began operation on January 1, 2013, with an initial investment of $100,000 from each of its five stockholders During the year, the company had net income of $200,000 and paid dividends of $50,000 Refer to Been There Used Furniture Calculate the retained earnings balance at December 31, 2013 $150,000 $200,000 $500,000 $650,000 For which of the following is the working capital and current ratio is most useful? In evaluating a company's liquidity In evaluating a company's solvency In evaluating a company's profitability In evaluating a company's revenues Which of the following items would not be reported on a multiplestep income statement after income from operations? Income taxes Interest income Selling expenses Interest expense Management's Discussion and Analysis: Is a report of the independent accountants Can be a substituted for the notes to the financial statements Provides a discussion and explanation of various items reported in the financial statements Provides assurances that the auditors are responsible for the financial statements On a multiple-step income statement, operating income results from subtracting total operating expenses from which of the following amounts? Gross margin Cost of goods sold Income before taxes Net sales Been There Used Furniture Been There Used Furniture began operation on January 1, 2013, with an initial investment of $100,000 from each of its five stockholders During the year, the company had net income of $200,000 and paid dividends of $50,000 Refer to Been There Used Furniture If the company’s revenues were $500,000 for the year ended December 31, 2013, how much were total expenses? $300,000 $250,000 $350,000 $800,000 Bellweather Times The company reports the following balances: Refer to Bellweather Times By what amount will net income on a single-step income statement differ from net income on a multiplestep income statement if the company prepares both formats? Other Revenue $180,000General and Administrative Expense $320,000; Dividends paid $220,000Operating Revenues $700,000; Selling Expenses $280,000Income Tax Expense $60,000 $0 $2,000 $6,000 $8,000 Which of the following would appear on an income statement? Unearned Revenue Cost of Sales Retained Earnings Dividends The list below contains several items that appear on a multiplestep income statement Select the choice that lists the items in the order they would appear on a multiple-step income statement Other income and expense; Income before income taxes; Net Income; Operating expenses; Gross margin; Net sales; Income from operations 6, 5, 4, 7, 1, 2, 7, 6, 1, 4, 2, 3, 6, 5, 4, 1, 7, 2, 6, 7, 4, 1, 2, 3, Working capital is calculated by which of the following? Current assets divided by current liabilities Total assets minus total liabilities Current assets minus current liabilities Current assets plus current liabilities If the current ratio is to and total assets equal $200,000, how much is working capital? $0 $100,000 $200,000 $300,000 Liquidity measures the ability of the firm to pay financial obligations as they become due can be measured in terms of working capital can be assessed by the current ratio All of the above Which one of the following is not one of the activities on the Statement of Cash Flows? Operating activities Investing activities Business activities Financing activities Bass Tours The following balances were taken from the company’s records: Refer to Bass Tours If the average current ratio for similar companies is 2.0 to 1, what does this tell you about this company’s liquidity? Inventory $380,000Accounts Receivable $190,000; Land 290,000Accounts Payable 180,000; Cash 129,000Unearned Revenue 110,000; Prepaid Rent 33,000Common Stock 312,000; Retained Earnings 220,000Longterm Notes Payable 200,000 The company is more liquid than its competitors The company has more long-term assets than its competitors The company is bankrupt The company is more profitable than its competitors Which one of the following items is least likely to be found in a corporate annual report? Notes to the Financial Statements Internal Budget Reports Report of the Independent Accountants Management's Discussion and Analysis In which section of the annual report would you find: "The financial statements, in our opinion, present fairly the financial position, operating results, and cash flows, in conformity with generally accepted accounting principles"? Management report Notes to the Financial Statements Management's Discussion and Analysis Report of the Independent Accountants Which of the following represents one of the purposes of the Auditor's Report? To provide a place for management to justify question able items in the statements To provide comparative ratios for the company's financial data To provide the CPA's opinion of the fairness of the financial statements To satisfy the need for full disclosure of all the facts relevant to a company's results and financial position Bellweather Times The company reports the following balances: Refer to Bellweather Times What is the company’s Net Income? Other Revenue $180,000General and Administrative Expense $320,000; Dividends paid $220,000Operating Revenues $700,000; Selling Expenses $280,000Income Tax Expense $60,000 $280,000 $220,000 $100,000 $40,000 A company has current assets of $100,000, total assets of $250,000, current liabilities of $20,000, and long-term liabilities of $50,000 How much of its existing cash can the company use to acquire equipment without allowing its current ratio to decline below 2.0 to 1? $ 40,000 $150,000 $180,000 $ 60,000 Barrett Oil Company reported the following balances as of December 31, 2013: Accounts Receivable $125,000Unearned Revenue $ 5,000; Cash 150,000Notes Payable (due in months) 115,000; What is the company’s current ratio? Land 200,000Accounts Payable 70,000; Building 400,000Equipment 165,000; Inventories 105,000Notes Payable (due 07/01/2020) 600,000 .48 to 2.00 to 2.55 to 2.86 to The Income Statement shows: How much profit the company has earned since it began operations Net Income equal to the amount of cash on the Balance Sheet A summary of the results of operations for a period of time The liquidity of the company on an annual basis Which of the following items will be found in a corporate annual report? Industry standards Notes to the financial statements Selected financial data from non-competitor companies Management’s statement that the auditors are responsible for the financial statements Bass Tours The following balances were taken from the company’s records: Refer to Bass Tours Calculate the current ratio Inventory $380,000Accounts Receivable $190,000; Land 290,000Accounts Payable 180,000; Cash 129,000Unearned Revenue 110,000; Prepaid Rent 33,000Common Stock 312,000; Retained Earnings 220,000Long-term Notes Payable 200,000 3.00 to 2.75 to 2.52 to 2.10 to Been There Used Furniture Been There Used Furniture began operation on January 1, 2013, with an initial investment of $100,000 from each of its five stockholders During the year, the company had net income of $200,000 and paid dividends of $50,000 Refer to Been There Used Furniture The dividends for the year Increase the amount of capital stock reported by the company Are part of the company's operating expense Are reported on the Statement of Retained Earnings Are reported on the Income Statement A question frequently asked by investors is, "How much debt does this company have?" Which financial statement answers this question? Single step income statement Cash flow statement Multiple-step income statement Classified balance sheet A company reported the following income statement amounts: Which of the following best describes the company’s performance? 2013 2012 Sales revenues $950,000 $800,000; Operating expenses $700,000 $550,000; Income taxes $100,000 100,000 The company’s operating profit as a percentage of operating revenues decreased The company has become more profitable The increase in operating revenues increased the company's net income The operating expenses as a percentage of operating revenues remained the same ... Securities 99 Free Test Bank for Cornerstones of Financial and Managerial Accounting 2nd Edition by Rich Multiple Choice Questions - Page Which of the following is the correct date format for the financial. .. earnings ?Inventory 175,000 $50,000 $550,000 $800,000 $850,000 99 Free Test Bank for Cornerstones of Financial and Managerial Accounting 2nd Edition by Rich Multiple Choice Questions - Page Bellweather... with information to assess the amounts, timing and uncertainties of the company's future cash flows? Financial Accounting Auditing Managerial Accounting Bookkeeping Which one of the following financial