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107 Test Bank for Fundamentals of Financial

Accounting 4th Edition

by Phillips

Mutiple Choice Questions- Page 1

Expenses are shown

1 A on the income statement in the time period in which they are paid

2 B on the income statement in the time period in which they are incurred

3 C on the balance sheet in the time period in which they are paid

4 D on the balance sheet in the time period in which they are incurred

The Publish or Perish Printing Company paid a dividend to

stockholders This will be reported on the:

1 A audit report

2 B income statement

3 C balance sheet

4 D statement of retained earnings

Which of the following is not true?

1 A Assets = Liabilities + Stockholders' Equity

2 B Liabilities = Assets - Stockholders' Equity

3 C Stockholders' Equity + Liabilities - Assets = 0

4 D Liabilities - Stockholders' Equity = Assets

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

1 A $10,000

2 B $200,000

3 C $300,000.

4 D $800,000

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

1 A assets, liabilities, and retained earnings

2 B assets, liabilities, and contributed capital

3 C assets, liabilities, and revenues

4 D assets, liabilities, and stockholders' equity

Which of the following is a true statement?

1 A The SEC approves the rules used by the auditors in determining whether a public company's financial statements are in conformity with GAAP

2 B The PCAOB and the SEC were both created by the FASB

3 C The SEC was created by the PCAOB

4 D The PCAOB approves the rules used by auditors in determining whether a public company's financial statements are in conformity with GAAP

Operating activities:

1 A include interest paid on a bank loan

2 B include the buying or selling of land, buildings, equipment, and other term investments

long-3 C include the repayment of loan proceeds to the bank

4 D include a bank loan to cover the payment of wages, rent and other

1 A always classified as liabilities.

2 B classified as liabilities when provided by creditors and stockholders' equity when provided by owners

3 C always classified as equity

4 D classified as stockholders' equity when provided by creditors and liabilities when provided by owners

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

1 A sales revenue of $7.5 million

2 B accounts receivable of $3.5 million

3 C expenses of $3.5 million

4 D sales revenue of $11 million

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

1 A provide services to a variety of businesses

2 B may work for the SEC

3 C are government employees.

4 D are generally involved in internal auditing, budgeting, and cost accounting

Which of the following is true?

1 A Companies can choose to end their fiscal year on any date they feel is most relevant

2 B Companies must end their fiscal year on March 31, June 30, September

30, or December 31

3 C Companies can select any date except a holiday to end their fiscal year

4 D Companies must end their fiscal year on December 31

A company's balance sheet contained the following

information:Contributed Capital: $12,000; Accounts Payable:

$64,000; Total Assets: $176,000; Retained Earnings: $28,000 Assume Notes Payable is the only other item on the balance sheet Notes Payable must equal

1 A $200,000

2 B $8,000

3 C $72,000

4 D $344,000

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

1 A A change in the company's income taxes

2 B Changing the selling price of a company's product

3 C Paying a dividend to stockholders

4 D Advertising a new product

Dividends are reported on the:

1 A Income statement

2 B Balance sheet

3 C Statement of retained earnings

4 D Income statement and balance sheet

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

1 A The $207,100 shown on the balance sheet has been distributed to

stockholders as dividends

2 B Retained Earnings is misclassified It should be reported as an Asset

3 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

4 D The retained earnings reported represents the retained earnings at the beginning of the year

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

1 A The company's stock price drops once the fraud is discovered

2 B Innocent accountants who work for the company's CPA firm lose their jobs

3 C Creditors recover 100% of amounts owed to them

4 D Employees lose their retirement savings

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

1 A $154,000

2 B $120,000

3 C $34,000

4 D $178,000

Which of the following would not represent a financing activity?

1 A Paying dividends to stockholders

2 B An investment of capital by the owners

3 C Borrowing money from a bank to purchase new equipment

4 D Buying supplies on account

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

1 A Supplies that were purchased and used in 2012 but paid for in 2013

2 B Dividends that were paid in 2013

3 C Supplies that were purchased in 2012, but used in 2013.

4 D Accounts receivable as of December 31, 2013

Net Income is

1 A the amount the company earned after expenses and dividends are

subtracted from revenue

2 B the amount by which assets exceed expenses

3 C the amount by which assets exceed liabilities

4 D the amount by which revenues exceed expenses

The separate entity assumption means:

1 A a company's financial statements reflect only the business activities of that company

2 B each separate owner's finances must be revealed in the financial

3 C both provided equal financing

4 D neither provided any financing

Assets:

1 A represent the amounts earned by a company

2 B must equal the liabilities of a company

3 C must equal the stockholders' equity of the company

4 D represent the resources owned by a company

Creditors are:

1 A people or organizations who owe money to a business

2 B people or organizations to whom a business owes money.

3 C stockholders of a business

4 D customers of a business

Cash flow from investing activities includes

1 A amounts received from a company's stockholders for the sale of stock

2 B amounts received from the sale of the company's office building

3 C amounts paid for dividends to the company's stockholders

4 D amounts paid for salaries of employees

Accounting information systems:

1 A are summarized by reports that are published to the public

2 B capture and report the results of a business's operating, investing, and financing activities

3 C monitor business activities only in financial terms

4 D capture only the information that is needed by the owners of the company

Public corporations:

1 A are businesses owned by two or more people, each of whom is personally liable for the debts of the business

2 B are businesses whose stock is bought and sold on a stock exchange

3 C are businesses whose stock is bought and sold privately

4 D are businesses where stock is not used as evidence of ownership

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

1 A selling goods, selling services, and obtaining financing

2 B operating activities, investing activities, and financing activities

3 C hiring, producing, and advertising

4 D generating revenues, paying expenses, and paying dividends

Financial statements are most commonly prepared:

1 A daily

2 B monthly, quarterly and annually

3 C as needed

4 D weekly.

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

1 A expenses must have been $15 million

2 B expenses must have been $9 million

3 C assets must have been $12 million

4 D assets must have been $3 million

107 Free Test Bank for Fundamentals of Financial

Accounting 4th Edition by Phillips Mutiple Choice

Questions- Page 2

Investors and creditors look at the balance sheet to see whether the company:

1 A is profitable

2 B owns enough assets to pay what it owes to creditors

3 C has had a positive cash flow from operations

4 D is paying sufficient dividends to stockholders

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?

1 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

2 B Investors are likely to conclude that the stock price is likely to rise, making the company more attractive as a potential investment

3 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

4 D Owners may conclude that the company will be less likely to distribute dividends

What would a financial statement user learn from reading the

auditors' report?

1 A Whether the financial statements present a fair picture of the company's financial results and are prepared in accordance with GAAP.

2 B Whether or not it is a good time to purchase the stock

3 C How much the company plans to distribute as dividends

4 D Whether or not the company has plans for future expansion

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

1 A This would be listed as ($26,500) under investing activities on the

statement of cash flows

2 B This would be listed as ($26,500) under operating activities on the

statement of cash flows

3 C This would be listed as $26,500 under investing activities on the statement

2 B Public Company Accounting Oversight Board (PCAOB)

3 C Financial Accounting Standards Board (FASB)

4 D American Institute of Certified Public Accountants (AICPA)

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

1 A the name of the person preparing the statement, the type of financial statement, and when the financial statement was reported to the SEC

2 B the name of the person preparing the statement, the name of the company,and the date the statement was prepared

3 C the name of the company, the type of financial statement, and the time period or date from which the data were taken

4 D the name of the company, the purpose of the statement, and when the financial statement was reported to the IRS

The purpose of a statement of retained earnings is to:

1 A estimate the current value of a company's assets

2 B report how the profits of a company have been distributed to stockholders

or retained in the business

3 C show where the cash is flowing into and out of a company

4 D explain the specific revenues and expenses arising during the period

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

1 A All companies have a December 31 year end

2 B It usually corresponds to a company's slow period

3 C It always corresponds to the calendar year

4 D The Financial Accounting Standards Board assigns a year end to each company

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?

1 A Statement of retained earnings

2 B Balance sheet

3 C Notes to the financial statements

4 D Income statement

Which of the following actions would be considered unethical?

1 A A company does not distribute any of its profits to stockholders

2 B A company rounds the revenues and expenses that it reports on the

income statement

3 C An unintentional mistake made by a new accountant

4 D The cousin of one of the business owners is hired to perform the annual audit

Which inference may be considered incorrect concerning the

Statement of Retained Earnings?Hooper's Hops: state of retained earnings for the year ended december 31, 2013: retained earnings, january 1, 2013: $167,800; Net income for 2013: $219,100;

dividends for 2013:(36,400); retained earnings, december 31,2013:

$350,500

1 A Retained earnings of $350,500 will appear on the balance sheet as of December 31, 2013.

2 B The net income in the above statement came from the income statement for the year ending December 31, 2013

3 C Dividends are shown in parentheses because they are distributions made

by a company to its stockholders as a return on their investment

4 D Retained earnings represents the amount of cash at the end of 2013

A creditor might look at a company's financial statements to

determine if the:

1 A company is likely to have the resources to repay its debts

2 B company's stock is likely to fall, signaling a good time to sell

3 C company's stock is likely to rise, signaling a good time to buy

4 D company pays a dividend

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

1 A Statement of Operations

2 B Statement of Financial Position

3 C Statement of Retained Earnings

4 D Statement of Revenues and Expenses

Which of the following business organizations has only one owner?

1 A A corporation

2 B A sole proprietorship

3 C A public company

4 D A partnership

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:

1 A $56,000

2 B $18,000

3 C $94,000

4 D $38,000

Internal users of financial data include:

1 A directly by the 1933 Securities Act

2 B by the Public Company Accounting Oversight Board (PCAOB)

3 C by the Financial Accounting Standards Board (FASB)

4 D by the American Institute of Certified Public Accountants (AICPA)

Which of the following is true about the format of financial

4 D Corporate income tax

Which of the following statements is true?

1 A The "net change in cash" reported on the statement of cash flows is also reported on the statement of retained earnings

2 B Both the income statement and the statement of cash flows show the result

of a company's operating activities

3 C The statement of cash flows is for a period of time while the income

statement is at a point in time

4 D The statement of cash flows is at a point of time while the income

statement is for a period of time

An investor might look at a company's financial statements to

determine all of the following, except:

1 A if the company's earnings are rising or falling

2 B if the company pays a dividend

3 C if the company has positive cash flow

4 D if the company's owners are financially sound

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

1 A Notes payable are not interest free while accounts payable may be interest free

2 B Notes payable are often outstanding for longer periods of time than

107 Free Test Bank for Fundamentals of Financial

Accounting 4th Edition by Phillips Mutiple Choice

Questions- Page 3

Which of the following items appear on more than one financial statement?

1 A Ending cash and ending retained earnings

2 B Ending cash and beginning retained earnings

3 C Beginning cash and ending retained earnings

4 D Beginning cash and beginning retained earnings